Can the U.S. Compete?

In bustling Europe last week, German autoworkers punched out parts from steel that was made in West Virginia, Norwegian engineers hewed out roads with bulldozers from Illinois, and Italian drilling crews probed for oil with rigs imported from Kansas. All this went far to answer a question that nags at U.S. business: Can the high-wage U.S. economy compete effectively in world markets? It even suggested an answer to what would happen if President Kennedy wins his fight to negotiate sweepingly lower tariffs.

Those who think the U.S. can and will compete point out that U.S. exports last year climbed to a peak of $20.1 billion--while imports slid slightly to $14.5 billion. The export gains came despite steadily lowering U.S. tariffs, steadily increasing foreign productivity--and the much-bruited fact that wage rates run two to four times higher in the U.S. than Europe.

Material Advantage. Though U.S. wages are higher, raw materials, fuel and power are more expensive overseas. Smaller markets and shorter production runs abroad also make for higher fixed expenses. It costs the H. J. Heinz Co. just as much to produce a can of beans in Britain as in the U.S.: labor is cheaper but cans and raw beans are costlier in Britain. The European worker is less productive than his U.S. counterpart because he generally has less training and fewer machines to work with. Producing a ton of finished steel takes 21 2/3 man-hours in France and 17 in Germany, but only twelve man-hours in the U.S. To produce a Linotype machine requires 830 hours in the U.S., but 1,150 hours in Britain, 1,200 hours in Italy.

According to a National Industrial Conference Board survey of U.S. companies that manufacture both at home and abroad, overall costs of production average only 4% lower in the Common Market than in the U.S. Compared with the U.S., overall costs are lower in Germany and Britain, somewhat higher in France and Belgium (and much higher in Latin America and Australia). There are also many industry by industry differences:

> Because of design innovations and its head start in automation, the U.S. competes well abroad in farm machines, air conditioning, office equipment and electrical apparatus, and other highly tooled products.

> Because of its high wages, the U.S. is behind competitively in products that require a large amount of labor, notably consumer and precision goods, such as transistor radios, cameras, porcelain, cutlery, shoes, rugs, bicycles, small tools.

> In a large "borderline" range of consumer durables, including cars, radio sets and kitchen appliances, Europe and the U.S. are in neck-and-neck competition.

Bigger Value. But in export markets, price often means less than quality or special features, and here the U.S. enjoys many advantages. Volkswagen, for instance, has found that the U.S. makes the best "deep draw steel'' (used for shaped components such as car roofs and fenders), last year bought 10% of all its sheet steel from the U.S. And regardless of Germany's fame as a fine toolmaker, Volkswagen in 1961 bought $2.8 million worth of U.S.-made presses, gear cutters and other highly specialized machines.

Some of the U.S. competitive advantages are fading because Europe is catching up in automation, and its raw material costs are dropping. And though European wages are steadily rising, Europe's labor-cost advantage seems secure because the U.S. is so far ahead in real terms. The current trend in average hourly labor costs (wages plus most fringe benefits) in manufacturing industries: 1959 1961 (est.) Netherlands $ .57 $ .66 Italy .61 .66 France .71 .83 Britain .77 .85 Germany .78 .94 Sweden 1.08 1.29 U.S. 2.68 2.85

Washington economists believe that rising wages will stimulate Europe's demand for U.S. consumer goods, and that Europe's continuing boom will increase its need for those capital goods that the U.S. makes best, especially computers and automated or rapid-production machinery. On the other hand, exports of U.S. industrial raw materials are expected to dip this year because Europe has approached self-sufficiency in some metals and synthetic rubber.

All in all, Washington looks for U.S. exports this year to rise by $400 million, to $20.5 billion. But because many foreign nations retain trade barriers stiffer than those of the U.S., the Kennedy Administration foresees no major surge in U.S. exports--unless tariffs can be slashed throughout the free world. Agreeing with this viewpoint, the influential U.S. Chamber of Commerce last week resoundingly endorsed the President's drive for freer world trade.

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