It Cannot Be Solved by Trade Barriers

THE worldwide fall in commodity prices has presented the U.S. and the West with a problem of alarming proportions. What should, or must, be done for those underdeveloped nations whose economies depend largely on sales of raw materials? The U.S. commodity index shows a 10% drop in prices in the last year alone. This squeeze has aroused anti-Americanism round the world and handed the Communists a golden opportunity for trade deals and political demonstrations such as those against Vice President Nixon. The price drop has also partially nullified Western aid programs; the United Nations estimates that a 4% drop in key prices in underdeveloped lands cancels out all the funds poured in by the U.S. and its allies.

Commodity prices have been on the way down since 1956, when Western Europe's resurgent economy started to level off. This year the U.S. recession drove demand down still farther -and pushed many an exporting nation into a financial crisis. Many of those hardest hit were also the victims of their own financial inexperience and ambition. While the money was rolling in, they spent too much on too many of the wrong things, figuring that the boom would last forever.

Chile's copper exports will be off some $225 million this year, pushing the country into an overall $95 million trade deficit. Bolivia, which gets about 80% of its export money from tungsten, lead, tin and zinc, whose prices are off as much as 30%, is in the same economic fix. So are such metal-producing African exporters as Rhodesia and the Belgian Congo, whose exports of nonferrous metals were hit by a 9% price decline in the first quarter of 1958 alone.

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The world's big South American coffee producers are little better off. Though the physical volume of exports is still climbing, heavy overproduction, coupled with increased competition from African exporters (Ivory Coast, Uganda), has dragged prices down 30% to 40% in the last year. In oil, the trouble is not so much prices, but something equally damaging: a slump in demand, which will hold consumption to a 2.5% increase (v. the usual 6%) this year. In addition, the U.S., the world's biggest importer, has put on quotas that mean a 14% production cut and losses of $250,000 daily for Venezuela alone.

Almost every Asian nation has grandiose plans for new roads, dams, industries -and little to pay the bills save raw materials. Owing largely to the commodity decline, according to the United Nations Economic Commission for Asia and the Far East, its 16 Asian member nations had an aggregate net deficit of $2.1 billion for the first half of 1957 alone v. a deficit of $750 million for all of 1955. To make it worse, the area's share (excluding Japan) of world trade, which stood at 10.7% of the total in 1950, has now declined to 6.6%.

Pakistan has lost considerable ground because of a sharp fall in cotton (23% of its exports) prices and drop in the volume of its jute (44% of exports) trade. Indonesia is sorely pressed by a 20% drop in crude rubber prices since 1956; so is Thailand. Malayan tin exports are off 50% this year, and 25% of the tin mines are shut down. From a healthy budget surplus in 1956, Malaya has gradually slipped into a $39 million deficit this year.

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What was one of the soundest five-year plans in all Asia must now be curtailed. Originally, Malaya hoped to spend $361 million by 1960 for everything from better schools to an adequate port for Kuala Lumpur. Now all activity will be limited to projects already started.

While everyone realizes that the economic good health of such nations is vital to the West, the way to achieve it is difficult. One suggestion is for a series of international "commodity agreements" to stabilize prices and production. But so far, the U.S. has shied away because such pacts would be little more than worldwide price-fixing cartels that would prove no more workable than the U.S. farm price-support program. Another idea is for the U.S. and other buyer nations to stockpile raw materials from underdeveloped nations. But since the U.S. already has full stockpiles of most commodities, any addition to them would be a dole.

The one point thoughtful economists agree on -and the key to a solution -is that the worst possible course for the U.S. is to erect further tariff barriers against foreign commodity imports. While the victims of the commodity slide do not blame the U.S. for the falling prices, they do blame it for the quotas and tariffs -and the threat of more -which can only make their plight more painful. The best long-range solution to the economic problems of the world's underdeveloped lands is a free market for trade in which they are able to take full advantage of their abundant materials and low costs, thus earn themselves the money they need to develop and diversify their economies.

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