Two-Way Ticket

In the midst of other crises, President Johnson took time last week to announce an encouraging development in a battle the U.S. clearly seems to be winning: its campaign to balance its foreign payments. Reports just received from 344 big U.S. companies, said the President, show that this year they intend to spend abroad $1.2 billion less than in 1964 as a result of the Government's plea for a cutback. That will further help what has already been a noticeable improvement. Government economists estimate that the overall payments deficit has dropped from $3.1 billion last year to an annual rate of about $2.6 billion in 1965's first quarter. They also expect the U.S. to break into the black in the current quarter, thus producing the first quarterly surplus in four years.* Said Johnson: "It appears we're off to a good start."

Tour de Force. The sudden shift toward a U.S. balance is causing woe for countries that rely on dollar loans and investments to lubricate their own capital markets. In Oslo, Norske Creditbank Director Johan Melander said last week that the dollar drought has begun to dry up Norway's shipbuilding industry. Because U.S. dollars have begun to go home, stock prices have fallen in Germany and Japan, and last week plunged to a two-year low in Australia. Australian Treasurer Harold Holt jetted to the U.S. to urge the Government to loosen up the dollar flow, met with Washington officials and New York bankers, notably Chase Manhattan President David Rockefeller. Holt warned that Australia may retaliate by halting loans to U.S. subsidiaries there and demanding larger Australian participation in U.S.-owned branches.

Amid these protestations, Treasury Secretary Henry Fowler and Commerce Secretary John Connor renewed their appeals to U.S. tourists to restrain their foreign spending, and President Johnson kicked off his "See the U.S.A." campaign by telling Lady Bird to take a two-day swing around Virginia. So far, the tourist downhold has been about as successful as Prohibition. U.S. passport offices are working overtime and Saturdays to keep up with a rush of applications that last week soared 29% above the same week a year ago. The Government expects that 3,000,000 Americans will travel overseas this year and that they will spend $1.8 billion more in foreign countries than foreigners will spend in the U.S.

Quick Return. Washington complains about this "tourist gap," but the free and frequent movement of peoples helps U.S. business in countless ways. The European Travel Commission calculates that 27% of all U.S. travelers are on business missions, which contribute greatly to the $7 billion U.S. export surplus. As for those who travel strictly for fun, much of the money they spend is quickly returned to the U.S. Mexico's Tourist Chief Miguel Aleman estimates that 80% of the dollars that Yanqui tourists spend there are rapidly turned back by Mexicans to buy U.S. goods. Countries as diverse as Greece, Britain, Spain and Japan use almost all their tourist dollars to finance imports from the U.S., buy much more from the U.S. than they sell to it.

Though foreign airlines and ship lines collected $650 million from their U.S.-originated business last year, they left a huge share of that money in the U.S. Pier rentals, landing charges and customs fees contributed more than $500 million to the plus side of the U.S. payments ledger. Air France spent $83 million on everything from spare parts to wages for its 1,000 U.S. employees; Britain's Cunard spent $25 million, and BOAC is building a $21 million terminal at New York's Kennedy Airport. Moreover, the biggest earners from travel to Europe--and those that stand to be hurt if it is curtailed--are the U.S.'s Pan Am and TWA, which so far this year have raised their transatlantic bookings 37% and 48% respectively. Most important, foreign airlines have invested $2 billion in U.S. jetliners, including $150 million worth that have been ordered so far in 1965 by lines from Japan to Germany to Saudi Arabia. Says Carl Nilsson, president of Scandinavian Airlines: "We are now pondering what to buy for our short- and medium-range flights, and the choice is Boeing 737s, Douglas DC-9s and French Caravelles." The clear hint is that if the U.S. cracks down too hard on travel, foreign lines can easily take their business to Charles de Gaulle.

* Last week a presidential commission headed by Economist Edward Bernstein recommended another way in which the U.S. could improve its payments balance: by changing its overly conservative bookkeeping. If the U.S. had counted private foreign deposits in its banks as a plus instead of as a minus, its reported deficit would have been about $1 billion lower last year. Other countries use this more liberal form of bookkeeping in figuring their balance-of-payments accounts.

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