destroyed our competitive status and it can be regained only through the use of export subsidies. We have done this for most products in the past and continue to for a few comomdities.

One important change needed in the United States to sustain U.S. agriculture's external competitive position is to reduce the rapid rate of inflation that has occurred for the past several years. The rapid spiral of wage and price increases to offset inflation has a two-pronged effect on farmers. One is psychological in that farmers want to enjoy, for a comparable effort and capital investment, incomes relatively equal to those obtainable in other sectors of the economy. A second major impact is on the cost of farm inputs. Purchased inputs increase in importance as agriculture becomes more modernized.

As indicated much of American agriculture's competitive advantage is due to the extensive use of capital in the form of labor-saving machinery and equipment on relatively large farms. Keeping the cost of these inputs from inflating is crucial to U.S. agriculture's world competitive position. This will require serious effort by labor and business to maintain wage adjustments in line with productivity increases and a serious effort by government to reduce price inflation. The question of appropriate policies is beyond the scope of this paper, but from the viewpoint of agriculture's international interest it must be viewed currently as the major internal U.S. policy issue.

The third problem in our relations with industrialized countries concerns the possibility that import restrictions on industrial products could boomarang into retaliation against our food and fiber exports. There is much political pressure for import restrictions on textiles, shoes, and many other manufactured products. And these restrictions are aimed directly at imports from some of our best markets for food and fiber products. With these products in adequate supply from our competitors it is highly likely that the trade retaliation would be directly against U.S. farm products.

If such action occurs, more groups than U.S. farmers will be hurt. Farmers are huge purchasers of steel, petroleum and chemical products; and the export business is an important aspects of many of our food and fiber marketing firms. A sharp decline in farm income due to loss of exports will certainly result in reduced farm input purchases and a sharp drop in income of and employment in export marketing firms.

Policy and the LDCs

Another important facet of our international agricultural relations are those with less developed countries. It is in this context that some of our import restriction policies should be re-examined. We profess a desire to promote economic development and have spent billions of dollars in aid, yet we tend to restrict imports of commodities these countries must export to earn the foreign exchange needed to buy capital equipment and technical assistance for development. The U.S. has a

reasonably good record in permitting free imports of products such as coffee, bananas and other supplementary items we do not produce. However, U.S. producers have been alloted an increasingly large share of the U.S. sugar market and we do not permit free imports of processed or semi-processed items that might provide logical routes to beginning industrialization in underdeveloped areas. A reassessment of our import policy vis-a-vis developing countries is clearly needed.

These countries are pursuing a number of issues in their trade relations with industrial countries. One is simple tariff relief against commodities for which they have a competitive advantage. A second is to provide tariff preferences that would lower import restrictions for developing countries while maintaining them against competing industrial countries. A third approach is essentially to provide international price support through commodity marketing agreements or international compensatory financing schemes. Clearly there are limitations on the workability of organized marketing relationships of any kind and certainly there are internal political limitations on the extent to which import concessions can be implemented in industrial countries. On the other hand, viewing our trade relations with less developed countries as a matter of commercial policy alone can conflict with our development objectives and offset the gains achieved with aid programs.

A second issue concerning U.S. aid programs is whether we can justify technical and financial assistance that expands agricultural output in less developed countries in light of U.S. interest in agricultural exports. There are two issues involved here. Our agricultural exports to low income countries have been primarily for payment in foreign currency and did not represent actual commercial sales. The population of the poor countries do not have money and thus do not buy a lot. This is as true in international markets as in domestic consumer markets. It is true that the green revolution has displaced some of our P.L. 480 shipments, particularly to India and Pakistan. On the other hand, the best basis for expanding U.S. exports is through income growth which will, in turn, shift dietary patterns to those requiring the kinds of products in which the U.S. has a competitive advantage. During the past this has happened. primarily in the industrial countries of Western Europe and Japan, but in recent years countries such as Spain, Portugal, Greece, and Israel have entered the markets as important buyers of U.S. farm products needed to upgrade diets.

Our conclusion, therefore, is that even from the viewpoint of U.S. agricultural exports there is not a clear argument for reducing U.S. efforts to increase agricultural development around the world. Obviously within the context of humanitarian values and political stability the arguments for a strong and sustained effort are clearly positive.

Policy Toward Communist Countries

Another element in need of review is our trade policy with communist countries. Our policies toward these countries have been heavily.

weighted by political considerations. As a result we have established shipping restrictions and embargoes that seriously inhibit trade. While we may not have reached the point whereby trade policy toward these countries can be considered in the same light as toward free world industrial or less developed countries, it would seem there is strong argument to move toward less restriction and more normalized commercial relationships with the communist countries of Europe in particular. This may not do much to expand agricultural export markets in the short run, but incomes are rising in countries of Eastern Europe, they are densely populated countries with limited land area and a movement toward increased livestock production and a potential need for imported feed stuffs may be expected. There is no clear reason why we should deny ourselves this potential if it develops.

V. SUMMARY AND CONCLUSIONS

U.S. agricultural trade policy interests are broad and important. Our position in world markets is a function of technical, economic and institutional developments. The policies relevant to our agricultural trade interests extend well beyond the question of direct price supports in agriculture and restrictions against the flow of agricultural commodities in international markets. Agriculture has a stake in such major institutional developments as the formation and expansion of the EEC; yet the U.S. position on questions of this kind cannot be dealt with solely in terms of agriculture's interest. Our relationships with less developed countries are based on broader and much more complex goals than agricultural trade interests and the same is true of our relations with communist countries.

Competitive pressures are strong from other exporters including, for a number of commodities, less developed countries. We can easily price ourselves out of markets. The greatest increase in U.S. agricultural exports occurred during the first half of the 1960s. This coincided with a period of relative wage and price stability in the non-farm economy, and a rapid increase in productivity in agriculture. While productivity in agriculture continues to improve, it recently has been offset by inflationary trends that have increased agricultural costs. The most crucial question in preserving the U.S. farmers' world competitive status revolve around issues that are largely external to agriculture. Wage and price decisions by labor and industry and government anti-inflation policyor the lack of it-will be more important to agriculture's trade position in the 1970s than any foreseeable change in the U.S. farm policy.

This has implications both for the salability of U.S. products abroad and for the salability of foreign products in the U.S. Strong pressures exist to tighten import restrictions on numerous U.S. products including a number directly competitive with U.S. farmers and agricultural trade interests. We can accept that none of these interests is seeking a return by the U.S. to a general policy of protectionism. This is implicit in the

arguments of most proponents of protectionism because, in general, they argue for their proposal as exceptions to a liberal trade policy. The danger is that these exceptions add up to a new policy even if not reasoned and deliberate.

U.S. AGRICULTURAL EXPORTS, BY COMMODITY GROUP, 1970*

Acreages relate to fiscal or crop year exports; include crop seeds and livestock feed that are exported.

U.S. Department of Agriculture

Neg. ERS 5763-70(9) Economic Research Service