Mr. LINDER. Mr. Battle, this is not a bilateral effort. It goes far beyond that. What happens is that if we had no restrictions, it might very well be that Guatemala would be able to ship into this country far more of something or other and thus be able to buy something else with dollars from Denmark, even though Denmark might not be able to balance its trade directly on a bilateral basis. You do have these triangular consequences of removal of restrictions.

I have tried to sum them up in terms of something between $1 billion and $2 billion.

If the Danes are able to sell the French far more butter, or the British far more butter and the British are able to sell us far more woolens, to use that by way of example, then the British have dollars with which to pay the Danes for their butter and the Danes in turn have the dollars that they would otherwise need as a matter of aid. So, you cannot think of this purely in terms of a relationship between Denmark and the United States. I use this, of course, only by way of illustration.

Mr. JAVITS. Mr. Harrison

Mr. HARRISON. Mr. Secretary, just to make a practical application of what you talked about-we adopted this policy which you referred to as point III.

Mr. LINDER. It is the third alternative.

Mr. HARRISON. When we adopt that and British cloth starts coming into this country, it is not going to be long until the textile industry can show that it has reached the peril point and that it imperils the domestic industry, is that right?

Mr. LINDER. That is possibly so and it may not be so.

Mr. HARRISON. Is it not true that we could never put the third alternative into application as long as you have the peril point in the legislation?

Mr. LINDER. I would not say never.

Never is an awfully long time. I think there are certain industries in this country which we are going to maintain and which are necessary for the national defense for no other reason.

Mr. HARRISON. Domestic wool, for example?

Mr. LINDER. I do not want to be specific, because I would not attempt to judge what is vital to United States national defense. I think you are facing the problem of choosing between whether or not you want to export cotton and whether you want to export wheat or whether you want to export any number of things which a large segment of this population lives on-tobacco, for example, to think of my friend Mr. Chatham. And take in some wool. You have this balance. One thing is certain: You either have to revert to Mr. Battle's position, "Let's not kid ourselves, we are going to give this money away," or we are going to lend it over long terms and allot rates of interest which come close to being grants, in much the same way as the Congress did last year when they helped the Indians in their famine situationthat you either must do that or cut your own exports down, or be willing to take the stuff other people can make which the American consumer can buy.

There is another point about this and that is that we do have a most efficient industrial machine in this country. Not only do you serve the American exporter who may be just as important as the American manufacturer-and I am not endeavoring to weigh that;

that is something you gentlemen will have to weigh-but you do have an American consumer. To the extent that Europeans or Far Easterners or whoever they might be, are able to put products into the United States at a lower price than we are able to produce, despite the efficiency of our manufacturers, then you are serving them as well. On one side of this equation it seems to me you have the consumer plus the exporter; on the other side of the equation you have certain manufacturers.

As you know, there have been some remarkable things happen as a result of the confidence that American manufacturers have developed in their own efficiency. When you have the Detroit Board of Commerce advocating a complete removal of tariffs, when you have Henry Ford making a speech of the kind he did the other day, and when you have a number of things of this kind coming up, you have something, I think, which one must ponder and consider whether or not it would mean anything to our economy to remove the 10-percent import tax on British automobiles and get instead of 50,000 British cars in here a year, get 100,000 British cars in, or 120,000.

The American automobile industry is not going to suffer as a result of that and a certain number of consumers are going to have a very small light car which is very economical in the use of gasoline and which they apparently like because they buy them now with the 10percent tariff.

I am not saying that is the whole story, but I am saying that you either have to do that or cut down on the amount of tobacco, wheat, and various other things that you are going to sell abroad.

Mr. HARRISON. But the point I am trying to get at is that the peril point provision in our legislation is a barrier to the adoption of your third alternative, is it not?

Mr. LINDER. I agree it is.

Mr. HARRISON. Mr. Stassen, who was up the other day, disputed that with me. I am happy to hear that the State Department agrees. Mr. LINDER. I guess Mr. Stassen and I have not had our ducks in a row. I think there is very little question that we have reached the limit of what we can do without further custom simplification and some substantial revision of our present tariff policy as reflected in the trade-agreements legislation, in terms of getting this trade-not-aid policy moving.

Mr. JAVITS. Mr. Smith

Mr. SMITH. I am sorry I did not get in from the beginning, Mr. Chairman. As I understand the witness, on this matter of dollar deficits and this committee has wrestled with the problem of dollar deficits for a long, long time-do I understand your position to be that it is a matter of trade adjustment in order to overcome that problem?

Is it as simple as that?

Mr. LINDER. I do not think any one thing represents the complete

answer.

I do not believe we have a simple situation and that we have suddenly discovered a panacea. I think you have a whole series of things, the most important single item of which is trade.

If the committee will permit me to repeat myself a little bit, I could mention 4 or 5 other things that could contribute to it.

The stimulation of private investment abroad could contribute substantially to the alleviation of this burden on the Government of the United States; the removal of certain provisions in our "Buy American" legislation would make an important contribution.

The trade, of course, as I say, would make possible the greatest contribution. A willingness on our part-which I am not recommending-to do something about our maritime situation and that is to say the extent to which we wish to subsidize and insure a merchant marine of the size that we have.

If we were prepared to say we could have a merchant marine which was much smaller, which represented a nucleus which would permit other nations of the world who might be more proficient in running ships than we are because they have lower wage scales, to carry a good deal of the goods that come to us and go from us into the world, that would make a substantial contribution.

You have a gap here from a balance-of-payment point of view of something around $2 billion. No figure at this time can be stated with complete accuracy. That gap has to be filled and it has to be filled in one of a variety of ways. You can cut your exports and increase your imports and do those other things which will assist in the filling of that gap, no one of which I think is going to solve the problem completely, but I would like to emphasize again that the most important single element in this whole thing is our trade policy.

Mr. SMITH. This policy is a two-way street; is it not?

Mr. LINDER. It should be and we have done our utmost to impress it on everybody else.

Mr. SMITH. But we have not made much progress, have we?
Mr. LINDER. I think we have made substantial progress.

Mr. SMITH. In what respects and with whom?

Mr. LINDER. In European economic cooperation a whole series of steps in increasing trade liberalization have been taken. The balance of trade between themselves have been consistently expended although they have not moved in a straight line upward-every now and then you get a dip down and you get that dip down only when the vital financial position of a particular country is being imperiled.

Recently, a few months ago, the United Kingdom found it necessary to build up its balances of foreign exchange-its working capital position in the world. The gold and dollar balances which the United Kingdom had were down to less than a third-maybe below 30 percent of what was considered a reasonable working capital position for the United Kingdom to have. And remember that the United Kingdom finances all the trade with the rest of the world of the entire sterling area. It not only includes the United Kingdom, but includes India, Pakistan, Australia, New Zealand, and so on and so on.

When they found themselves in a position where the demands on them for dollars, either for imports into Australia or for imports into the United Kingdom, or the demands upon them for other things which had to be paid for in dollars, whether they came originally from the United States or not, became so great that their reserves were being depleted, there was only one thing they could do to protect themselves and that was to restrict their purchases.

Mr. SMITH. I wish I had the confidence in the British that you do, but they have been making promises so long-I go back to the classic example of Bretton Woods. We never had any cooperation from

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them after they pledged in writing that they were going to do certain things.

Unless you break the sterling bloc down so that they are willing to do business with us on the same basis, it seems to me we are in a hopeless situation.

Mr. LINDER. I am afraid I do not quite share this. What they promise we can easily check on. We will know within a very few weeks whether or not an indication that I have transmitted to the committee off the record is borne out by the facts.

A great deal of the world's trade is financed in sterling. I think the sterling area on the whole has made a real contribution to the fluidity of trade throughout the world. My own intimate knowledge unfortunately does not extend back to the Bretton Woods Conference and to the things that were promised or committed there, but I do think to the extent that they have not been lived up to, as far as I know at least, there have been good, economic reasons with which this Government has not found itself in disagreement which justified deviation from whatever the agreement was.

Mr. SMITH. Thank you, Mr. Chairman.

Mr. JAVITS. Mr. Carnahan

Mr. CARNAHAN. Mr. Linder, would it be possible for us to make it possible for the British to meet their dollar deficit if we were in a position to accept the necessary imports from Britain?

Mr. LINDER. As I tried to explain a little while ago, this is not only a matter of direct trade between us and the sterling area, because it really is the sterling area rather than the United Kingdom itself, but it is a matter of triangular trade. If there were a liberalization of trade by this country and comparable liberalization throughout the world, the British might perfectly well not sell a great deal more to the United States directly, but they might, for example, be selling a great deal more to South America or to Japan-I am just picking countries out of the air. The result of such sales might very well provide them with the dollars necessary to balance their accounts with the United States.

One cannot say that a particular country has the type of exports which we particularly need and therefore on a straight bilateral basis that its trade could be balanced or its payments could be balanced with the United States.

Mr. CARNAHAN. If we were in a position to accept sufficient imports-regardless of where they come from; let them come from Argentina and Argentina earn the dollars-would it be possible for that unfavorable balance of trade from the sterling area to be met?

Mr. LINDER. I indicated some figures a little earlier which are as close an approximation as we can give and we think as against a trade balance deficit in the rest of the world (or surplus for us) of $2 billion, if restrictions were removed, something which would approach that figure-let us say it would be between a billion and a billion and a quarter and 2 billion, would be wiped out through freer trade.

That is, we would be able to maintain our exports and the accounts would be in balance. We could then look forward to a world in which we were giving no grant aid except such aid as we wanted to give and felt we needed to give in order to assist in our military program.

Mr. CARNAHAN. I am not recommending that as an immediate solution to our problem, but I was merely asking the question.

Do we accept anything except dollars or credit against dollar credit abroad for our exports?

Mr. LINDER. We do not, sir.

Mr. CARNAHAN. Do we accept gold?

Mr. LINDER. We accept gold; yes.

Mr. CARNAHAN. Do we accept it as gold dollars or so many ounces of gold?

Mr. LINDER. We accept it as so many ounces of gold which is $35

an ounce.

Mr. CARNAHAN. Are we getting gold?

Mr. LINDER. I do not think the United States is gaining in gold, net, at the present time.

Mr. CARNAHAN. We are getting enough to meet our gold needs from

that source?

Mr. LINDER. We have huge, huge stocks of gold. I think our figure is about $23 billion in gold at the present time.

Mr. BATTLE. It was all there when you counted it, was it not?

Mr. LINDER. I have not been there, Mr. Battle.

Mr. CARNAHAN. If we deplete our gold stock at Fort Knox, are we replacing that depletion from payments from abroad in meeting unfavorable balances of trade?

Mr. LINDER. I do not think we are depleting it.

Mr. CARNAHAN. Is any gold coming in?

Mr. LINDER. Yes.

Mr. CARNAHAN. How much, about, would be coming in?

Mr. LINDER. Net, there is no gold coming in at the present time. That is our gold payments balance.

Some of the gold in the United States is owned by European central banks and you do have transfers in the Federal Reserve Bank in New York.

If you visualize it as a series of chips, every now and then, the central bank of some European country will say, "Take some chips off of my pile and put them on your pile."

The next month they will say, "I have so many million dollars of deposit with you and I want to have gold instead of dollars on deposit with the Federal Reserve Bank of New York; I want the Federal Reserve Bank to be the custodian of that much gold for my account. That is known as the "earmarked account." That goes back and forth in much the same way as a clearinghouse arrangement in New York between various banks-the Guaranty Trust Co. says to the clearinghouse, "Credit my account and debit the Chase," and the Chase, about 15 minutes later says, "Charge the Guaranty and credit me."

Eventually you wash out the difference.

Today, we are actually expending, giving away, or lending, an amount necessary to make up the amount by which our exports of one kind or another exceed our imports.

Mr. CARNAHAN. We refer to that, of course, as a giveaway program. Mr. LINDER. Either that or as a lending program. From a financial point of view, the effect on gold and the effect on your current position is not altered by whether or not it is money loaned to be repaid over a 30- or 40-year period, or whether it is money given.