End of an Easygoing Era

Newsmen languidly covering President Eisenhower's vacation at Augusta, Ga. suddenly perked up last week when Treasury Secretary Robert B. Anderson and Defense Secretary Thomas S. Gates flew in from Washington for a 2 1/2-hour huddle with their boss. Pressing topic: the U.S.'s nagging deficit in international payments and the resulting drain on U.S. gold reserves, eroding international confidence in the soundness of the dollar.

Next day the President sent ripples of concern spreading around the world with a sweeping presidential directive designed to slow the U.S.'s gold outflow by curbing U.S. spending overseas. "A definite improvement in our balance-of-payments situation is mandatory," said Ike, "not only to insure our economic well-being and military security here at home, but also to insure that the U.S. can continue as a strong partner in the future economic growth and military strength of the free world."

Farewell to Chauffeurs. What stirred up the biggest headlines was the President's order to reduce the number of U.S. servicemen's dependents living overseas from the present 484,000 to 200,000. But more momentous was the broad, tough order to Government departments to cut down on purchases of foreign goods and buy U.S. goods instead. Under the President's directive, the International Cooperation Administration (the main foreign-aid agency) will slap a ceiling on all expenditures that "do not finance direct procurement of U.S. goods and services," and so will the $300 million Development Loan Fund. The armed forces will cut down on offshore procurement, and U.S. post exchanges and commissaries overseas will stock only U.S. goods. At the same time the U.S. will twist every foreign arm in sight to get reductions in tariffs on American goods and thus boost U.S. exports.

In U.S. military settlements overseas, the news about dependents touched off flurries of dismay--even though the reduction is to be carried out gently and gradually, not by separating families already overseas, but by sending fewer dependents abroad in the future. Many a serviceman grumbled that he would not re-enlist if he could not have his wife and children with him overseas, and Army Secretary Wilber Brucker, playing his favorite role of Big Brother to Army dissidents, made things worse by warning of plunging morale. At a U.S. military colony near Paris, an Army officer's wife looked up from a children's party and said wistfully: "I just sent my husband's chauffeur to get a case of Coke.

I don't suppose I'll be able to do that any more, will I?"

Soft-Spoken Crusade. For the U.S., as for thousands of U.S. servicemen's wives, the presidential directive marked the end of an easygoing era. Since 1950, with the rebuilt economies of Western Europe and Japan giving the U.S. brisk competition in international trade, the U.S. has found itself running increasingly into the red in its overall international accounts.

The U.S. still exports more merchandise than it imports, but the balance is not big enough to make up for the outflow of dollars in foreign-aid programs, U.S. capital investments, spending by U.S. tourists, and the maintenance of U.S. armed forces overseas. Result: the U.S. has to send gold abroad to balance its accounts. In the past three years, U.S. gold reserves have dwindled by $4.5 billion, a jolting 20%.

Treasury Secretary Anderson saw three years ago that if the gold outflow kept up it would endanger the stability of the dollar. He set out on a soft-spoken crusade to help right the U.S. balance of payments by persuading prosperous Western Europe and Japan to 1) lower trade barriers against U.S. goods and 2) take on a bigger share of the burdens of defending the free world and aiding the underdeveloped countries. This week, in pursuit of these goals, Anderson and Under Secretary of State Douglas Dillon are scheduled to meet with top West German officials in Bonn (see FOREIGN NEWS).

Hot Money. Despite Anderson's efforts, the U.S.'s balance-of-payments difficulties worsened during the second half of 1960. A droop in the U.S. economy, bringing lower interest rates, led to a heavy outflow of "hot money"--private capital that shifts from one country to another in pursuit of high interest. A few weeks ago, fading international confidence in the dollar reached a feverish climax when speculators in the London gold market bid up the price of gold to more than $40 an ounce--far above the official U.S. price of $35. Anderson felt that desperate remedies were called for, but the White House insisted on waiting until the election was over before acting.

As finally issued, the President's directive had a desperate tone about it, with its "buy American" restrictions running counter to the longstanding Administration goal of freer world trade. The pinchy, protectionist mood of the directive made it plain that the balance-of-payments deficit is one of the gravest problems facing the U.S. and its new President. It would be a body blow to the free world if the U.S. tried to solve the problem by slashing foreign aid or by retreating to protectionism after a decade of heartening progress toward freer trade. To avoid those paths, the U.S. will have to increase its exports, and that will entail meeting foreign-price competition by increasing productivity and translating part of the productivity gains into lower prices instead of higher wages.

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