APPENDIX 13

THE FOREIGN TRADE POSITION OF THE

UNITED STATES AND THE ELECTRICAL

MANUFACTURING INDUSTRY

INTRODUCTION

In July, 1953, the National Electrical Manufacturers Association (NEMA), the trade association representing the producers of over 90 per cent of the electrical goods manufactured in the United States, decided to have a study made on the industry's foreign trade problems.

The occasion for the study was the legislation which provided for the extension of the reciprocal trade treaties and created a Commission on Foreign Economic Policy. The decision to have a study made was based on NEMA's belief that, to the maximum extent possible, the economic problems of the electrical manufacturing industry relating to imports and exports should be divorced from emotion and prejudice and discussed on the basis of sound information.

Accordingly, the Board of Governors of NEMA commissioned the National Industrial Conference Board of New York to study the economic phases of the problem; and it commissioned Messrs. Donovan Leisure Newton & Irvine to study existing laws, regulations and administrative rulings in the field.

The Conference Board report was to include a study of the relationship of the U. S. electrical manufacturing industry to the national health, welfare, safety and security. Because it was felt that this required an engineering background in the electrical field, the Conference Board subcontracted this phase of the study to Stone & Webster Engineering Corporation.

All three organizations participating in the study were instructed to present factual conclusions only, and to make no attempt at analysis, evaluation or recommendation.

In view of this objective and factual approach, O. Glenn Saxon, Professor of Economics at Yale University, was asked to make an analysis and evaluation of the three documents and to prepare his own conclusions and recommendations as to foreign economic policy. Professor Saxon was asked to make the analysis as a recognized expert in the field, divorced from the economic impacts of day to day foreign trade problems.

The three studies by the Conference Board, Stone & Webster, and Donovan Leisure Newton & Irvine, and the analysis by Professor Saxon, contain summaries by the authors. Because the studies and the analysis are somewhat voluminous, Westinghouse Electric Corporation has collected these summaries and presents them in this booklet for the easy use and reference of those who do not wish to examine the basic background material.

THE UNITED STATES AND ITS FOREIGN TRADE POSITION
AND THE ELECTRICAL MANUFACTURING INDUSTRY

A Summary Prepared By The National Industrial Conference
Board Of Its Special Report Prepared For The National
Electrical Manufacturers Association

The highlights of the factual data, charts, and tables of this report-a large portion of which has never before been available for general public use-may be summarized as follows:

1. The dollar value of total sales of U. S. corporations manufacturing electrical products, as well as the dollar value of both exports and imports of such products, have risen sharply in the postwar years, 1946-53 (inclusive), but at widely varying rates.

a. Total sales during the postwar years have averaged 6.6 times their average for the prewar years (1935-39, inclusive).

b. Exports have averaged in the postwar years 4.9 times their prewar average. c. Imports have averaged in the postwar years 4.6 times their prewar average.

2. While total sales in 1952 were nine times their prewar average, imports in 1952 were twelve times their prewar average. In contrast, export sales in 1952 were only six times higher than their prewar level.

The foregoing data are expressed in tabular form below:

3. The rate of increase of imports of electrical equipment reflects the rehabilitation of foreign industry and its approach toward a surplus position.

The rate of increase in imports has accelerated significantly in more recent years, as compared with a slowing down in the growth of exports.

This divergence in trends became far more marked in 1953, as is shown by the following table:

Excluding Canada, exports for the first six months of 1953 were 7 per cent below those of the first six months of 1952.

4. Competition from foreign countries for third markets has also grown much keener, especially during the past two years, and is now threatening further inroads upon United States exports of electrical equipment, particularly in South America.

For example, a comparison of European and U. S. price quotations of heavy electrical equipment, publicly opened within the past 18 months in Latin American and Asian countries, shows that of 124 different quotations 80 per cent were less than the United States bid.

5. Foreign manufacturers of electrical products have very large labor cost advantages over United States competitors. These advantages are greater now than ever before.

a. In 1952 total monetary hourly wages and wage supplements (converted into United States dollars at official exchange rates) of the nine nations covered by the survey ranged between only 10 per cent of United States wages (and supplements) in Japan to 33.0 per cent in Belgium and Sweden. In 1938, the range was from 7.3 per cent in Japan to 46.6 in Germany.

Wage supplements have now become a significant factor in any wage comparisons among nations. For example, in France and Italy such supplements exceed one-third of the cash wages of their workers.

The wage ranges for 1938 and 1952 in the nine countries were as follows:

The wage differentials between the United States and these nine countries have widened substantially in the postwar years. Only Japan, of the nine countries, has increased its wage rates relative to the United States since 1938. Germany, as shown by the above table, has moved from her prewar position of the highest wage country among the nine nations to the fourth lowest in 1952.

b. By 1952 industrial production in seven of the nine countries had recovered to levels which were 33 per cent or more above their 1938 levels. Japan was only 1 per cent above her 1938 level.

West Germany's production in 1952 was 44 per cent higher than in 1936, while her production of electrical machinery and equipment was 188 per cent above 1936, but a substantial portion of these gains has been the result of transfers of industrial capacity from East to West Germany rather than overall increases in West German production.

c. The legal work week (before overtime payments become due) ranges between 44 and 48 hours in most European countries. Overtime payments are not generally more than 25 per cent above regular wages.

d. During the postwar period, labor costs as a percentage of production value have decreased considerably more in the various foreign countries than they have in the United States. Three of the four countries for which comparison with a prewar year is possible also show a much steeper decline for that period than does the U. S. The reason for the more rapid postwar decrease in labor costs abroad is a combination of increases in productivity, which was very low at the beginning of the postwar period, and in value of production both rising considerably faster than wage rates (including wage supplements). In the U. S., on the other hand, money wages and wage supplements approximately kept pace with increases in productivity and in value of output. These factors are mainly responsible for the increased disparity in labor costs between the United States and the various European countries.

e. Statistical limitations make it impossible accurately to compare the output per man hour between particular industries of various nations. However, it is both proper and possible to compare trends in productivity of particular industries of various countries, since substantiating data are available for certain nations over certain periods.

The following table shows changes in productivity of the electrical manufacturing industries in six nations over certain years for which comparable data are available.

Qualified representatives of a U. S. manufacturer of electrical equipment recently made a study of prevailing labor rates and general efficiency in the use of labor and materials in that industry in seven foreign countries. This study concluded that labor costs of various electrical products in the countries ranged between 20 and 78 per cent of U. S. labor costs of the same products. In Germany, where there is a combination of low wage rates, a high work week, and efficiency of both labor and equipment, labor costs excluding relatively moderate supplements in the industry are shown to be only about one-third of U. S. labor costs.

6. Foreign exporters almost universally enjoy the benefits of many and varied kinds of both domestic and export subsidies, as well as a rather wide variety of other types of aid from their government. United States industrial producers enjoy much less assistance of this sort.

7. Postwar conditions have led to the establishment (or intensification where they already existed) of numerous import restrictions and exchange controls abroad. Many of these restraints on international trade are far more effective barriers to its expansion than are protective tariffs. Most such restraints are not practiced by the U. S. government and, where practiced, are not generally applied to the electrical equipment industry.