Homemade Challenge in World Markets

FOR U.S. businessmen, the newest problem at home and abroad is foreign competition. Inland Steel's President John F. Smith Jr. told stockholders: "A Peoria house builder can buy a keg of Belgian nails for a dollar less than from a local mill''--even after shouldering shipping and insurance costs and paying the U.S. tariff.

What is true of nails is equally true of many other products. Illinois farmers within a few miles of steel mills can buy imported barbed wire $40 a ton under the U.S. price. Five years ago U.S. auto exports were five times imports; today imports are nearly four times exports. Other consumer industries, ranging from fishing tackle and electric clocks to cameras, transistor radios, and generators are also running into stiff competition because the U.S. manufacturer cannot match the foreign seller, for reasons ranging from price to quality and delivery terms.

The rise in imports, while worrisome to some industries, is no threat to most industry (imports are still only 4% of all U.S. manufacturers' sales). But it is a timely warning of the far greater challenge that the U.S. faces abroad. In the early postwar years the U.S. dominated world trade by virtue of its new plants and techniques, and lack of competition. But no longer. Now, thanks to the Marshall Plan and other U.S. aid programs, plus the spending of private business, plants just as efficient as those in the U.S. are turning out goods around the world. Britain's $490 million Abbey steelworks in South Wales is a fully integrated ore-to-plate plant on a par with the U.S.'s newest. As a result, the U.S. is not only losing out in its old markets, but is failing to get its share of the new markets that industrial development is creating in backward nations.

Five years ago Italy exported chiefly such items as tomato paste and motorcycles, was no competition at all for the U.S. Today, Italian generators, locomotives and textile machinery--often built in plants constructed with U.S. economic aid--are pressing U.S. products hard in markets all around the world. While exports of U.S. manufactured goods were dropping 10% last year, Italian trade with Venezuela rose 34%, with Egypt 81%, with Indonesia 142%. Any customers the Italians overlooked were fair game for the busy West Germans. Not long ago U.S. manufacturers worried about German bicycles and other consumer goods. Today the Germans are supplying major elements of a refinery in Argentina, providing the pipes for a Venezuelan irrigation project, and installing a pipeline in Chile.

All of this new competition has raised the question of how the U.S. can prevent itself from being priced out of world markets. Inland Steel's Smith is not alone in asking how much longer the U.S. can afford the contrast between the $3.03 average U.S. steel wage and, according to latest available figures, the 89-c- average for Luxembourg, the 78-c- average for Belgium, the 68-c- average for West Germany, or the 41-c- for Japan. One obvious but unlikely solution is for foreign countries to raise wages faster, share more of the benefits of rising productivity with their workers, as the U.S. does.

Besides wages, there are other explanations for the loss of the U.S. competitive edge. Some U.S. exporters fail to study the foreign market, use it only as a dumping ground for surplus that they cannot sell to the U.S. For example, Germany dominates the radio-set market in Ecuador because her makers produce a compact, high-quality, inexpensive multiple-short-wave set; it sells well in a country where much of the listening is to foreign stations. Comparably priced U.S.-made sets bring in only nearby stations, have only a limited market. U.S. businessmen find it hard to obtain Government help in export financing when private capital is not available. John Lawrence, executive vice president of Dallas' Dresser Industries (oil drilling equipment), complains that while Washington is studying an export application, Italian and French competitors can close a sale. Government aid for them is almost automatic.

How can the nation gain the competitive edge on foreign competition? Only a small number of U.S. businessmen really favor a return to Hawley-Smoot protectionism. (But many are bitterly resentful of continued foreign economic aid, which they regard as expenditure of hard-earned U.S. tax dollars to build up tough foreign competition for taxpaying U.S. businesses.) What businessmen can do, say U.S. Assistant Secretary of Commerce Henry Kearns and fellow officials, is cut the lead time on research and development, pull off the shelf better products originally planned for future exploitation, sharpen up their selling tactics. What U.S. labor must do, says many an economist (see State of Business), is face up to the fact that it can no longer afford raises not balanced by gains in productivity. The alternative will be an accelerating loss in markets--and eventually jobs.

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