After a detailed examination of available data on this question it becomes clear that there is no substance to the claim of a cause and effect relationship between import quotas and rising prices. In order to support this assertion the evidence on the subject will be set forth herein, and it can be verified or refuted by anyone who is sufficiently interested in the subject to make the effort.

I shall trace price trends on the products on which we have import quotas compared to the price trends in general and on non-quota products that are closely related to the products on which such quotas are in effect. An example will be the comparative price trends on beef, on the one hand, and the prices on pork and poultry, on the other. Beef has been subject to a quota since 1964, until 1972 when the quota was lifted. Pork and poultry have not been subject to an import quota. Also, petroleum and petroleum products have been subject to import quotas while coal, another, and competing fuel, has not. Steel is the beneficiary of an arrangement under which other countries restrict their exports to this country. Other metal products have no such import restrictions. Sugar is subject to an import quota while many other food products are not. The same is true of wheat and wheat flour, raw cotton and peanuts, on which imports are in effect. Textiles are subject to export restrictions by foreign countries somewhat similar to the steel restrictions.

We can make comparisons of price trends relating to these products and reach conclusions about the effect of import quotas on prices.

The qoutas of longest standing are those imposed on imports of agricultural porducts. They are usually an outgrowth of Section 22 of the Agricultural Adjustment Act.

It may be noted right here that the purpose of these quotas, such as those on wheat flour, raw cotton, dairy products and peanuts, was not, as is so glibly charged, to raise prices but to prevent the prices from falling to ruinously low levels, which they would unquestionably have done if the import restrictions had not held the line. Our price support of agriculutral products would have collapsed had these restrictions not been put into effect. Import restrictions on cheese were established when imported cheese, coming in at relatively low prices caused a heavy accumulation of domestic cheese in our warehouses because of its higher price.

The price trends on the various products that are or for a period of time have been subject to an import quota and a comparison with the trend of prices on other products are set forth under product headings below:

WHEAT AND WHEAT FLOUR

The importation of wheat and wheat flour is severely restricted in pursuance of a limitation imposed under Sec. 22 of the Agricultural Adjustment Act, in 1941. Imports are limited to a quantity that is less than 1% of our production.

Nevertheless the price of wheat (hard winter No. 2, Kansas City) has had rises and falls quite independently of the import restriction. In 1950 the price per bushel was $2.22. In 1965 the price was $2.25, or little changed from 1950. By 1960, however, the price had dropped to $2.00. If the purpose of the quota restriction was to raise the price it was singularly ineffective. By 1968 the price had shrunk to $1.46 per bushel. Then there was a turnabout, and in January 1972 the price was back up to $1.62, but still far short of the $2.25 of 1955.

These price trends may be compared with those of corn which is not subject to an import quota. The 1950 price (yellow, No. 2, Chicago) was $1.50 per bushel. By 1955 the price was down to $1.41.

The price decline continued as it did in the case of wheat. In 1960 it was down to $1.15 and in 1968 to $1.14. This was followed by a rise to $1.33 in 1970 and a decline to $1.06 in 1971. If we compare the wheat and corn prices since 1950 we find that from 1950 to January 1972 the price of wheat dropped 27% while that of corn dropped only 23%. Yet it was wheat rather than corn that was under an import quota.

From 1960 to May 1970 the price of wheat dropped from $2.00 per bushel to $1.53. This was a 23% decline. The price of corn rose from $1.15 per bushel to $1.30, an increase of 13%.

In 1972, of course, in response to the heavy purchase of wheat by Russia from the United States the price of wheat rose sharply. It rose from the low point of the year at $1.53 in June to $2.18 in October 1972. The price of corn (No. 3, yellow, Chicago) went from a low of $1.21 in February 1972 to only $1.31 in October 1972, after reaching $1.36 in September. Russia was buying wheat, not corn.

The rapid rise in the price of wheat cannot, however, be attributed to the existence of an import quota, but to the large Russian purchase.

(See Statistical Abstract of the United States, 1969, Table 504, p. 343; and Survey of Current Business, November 1972, pp. S-27-8.)

There is nothing in the price trends of wheat and corn that would sustain the oft-asserted view that import quotas lead to higher prices.

MEAT-BOVINE AND PORCINE

In 1964 a ceiling on imports of beef was set by law. If imports were to breach the ceiling an import quota would be triggered. In 1970 when a breach was imminent the ceiling was raised slightly. In 1971 after another breach of the ceiling a quantitative import quota was put into effect. In June 1972 the quota was set aside and it is still inoperative.

In 1964, the year the ceiling was established the price of beef, i.e., stocker and feeder steers, Kansas City, averaged $19.79 per cwt. The price rose to $25.41 in 1966, fell to $24.67 in 1967, rose to $25.90 in 1968, up to $29.30 in 1969, to $30.15 in 1970, $32.09 in 1971 and then turned sharply upward late in 1971, reaching $38.81 in July 1972 and $41.29 in September.

The 1964 price of hogs, average wholesale, all grades, Chicago, was $14.92 per cwt. In 1966 the price averaged much higher, at $22.61, followed by a drop to $18.95 in 1967. The price held at $18.65 in 1968. It rose to $23.65 in 1969, fell to $22.11 in 1970 and on down to $18.41 in 1971. As in the case of beef, the prices began rising toward the end of 1971, reaching $24.02 in January 1972 and $28.41 in September 1972. It will be noted that this was also the high point in the 1972 price of beef.

The increase in the price of beef from 1964 to September 1972 was 109%; that of pork, 90%. However, during the first two years of the ceiling on beef imports, i.e., through 1966, the price of beef rose 28% compared with a rise of 51% in the price of hogs. Beef rose from $19.79 per cwt in 1964 to $25.41 in 1966. The price of hogs rose nearly twice as much, moving from $14.92 in 1964 to $22.61 in 1966. Yet, again, beef was under an import ceiling, not pork. Moreover, the import quota on beef was lifted in June 1972, so that imports might rise and stop the price increase, but prices continued to rise, or from $37.72 in May to $41.29 in September. Hog prices went from $24.76 to $28.41 in the same period. In other words, other factors than the import quota on beef were in operation. The rise in beef was 9.4% and that of hogs 14.8% from May to September 1972. At that time both were without an import quota. Beef obviously did not respond to the removal of the quota by turning downward in price.

PETROLEUM

Petroleum and petroleum products became the subject of an import quota on a voluntary basis in 1958 and then on a mandatory basis in March 1959.

Once more there is nothing to suggest, much less prove, that the price of refined petroleum products increased more rapidly than the price of products that were not under an import quota.

Where 1967 equals 100 the wholesale petroleum price in 1969, which was the year the mandatory import quota went into effect, stood at 99.6. It rose to 101.1 in 1970, to 106.8 in 1971 and to 111.5 by October 1972. However, the All-Commodities index had risen to 120.0. That of Industrial Commodities had risen a little less sharply, or to 118.8. Thus, the price of refined petroleum products, wholesale, lagged distinctly behind the general wholesale price level.

If we compare the petroleum price increase with that of a competing fuel, namely, coal, which is not and has not been under an import quota, we encounter a great contrast. Again on the basis of 1967 the wholesale price of coal had risen to 192.4 by October 1972, compared with 111.5 for refined petroleum. Once moreit may be remarked that if it is the purpose of import quotas to raise prices, something evidently went awry in another instance of an import quota.

As for petroleum prices at the wells (Oklahoma) it was $3.18 per barrel in 1969, $3.23 in 1970, $3.41 in 1971 and $3.51 in October 1972. (See Survey of Current Business, April 1970, p. S-8 and S-35; November 1972, p. S-8 and S-35). The increase was only 10.4%, or a little less than the increase in the price of the refined product.

COTTON TEXTILES AND APPAREL

An arrangement was made with Japan whereby that country undertook to restrict its exports of cotton textiles to this country, beginning January 1, 1957.

In 1961 this arrangement was superseded by the so-called Long-Term Arrangement negotiated under GATT. This Arrangement covered some 30 countries and about 90% of our total cotton textile imports. In 1972 manmade fiber textile products and wool products were brought under similar quota restrictions.

Indeed, the price of wool products had fallen well below the level of 100, going as low as 91.5 in December 1971, compared with 115.4 for all commodities. This was an instance of imposing a quota limitation on imports in an effort to prevent the price from falling to disastrous levels. It had fallen 23.9 points below the general level of commodity prices and 7.9 points below its own level in 1971. When it is said that the purpose of import quotas is to raise prices this case can be cited as a specific instance of an effort to prevent further price declines when the current price is already abnormally low.

The wholesale price of cotton products did rise after 1967, but not as rapidly as the wholesale price of All Commodities. The latter had risen to 106.5 by 1969, that of cotton products, to 104.5. In 1970 the All-Commodities index was 110.4, that of cotton products, 105.6. By October 1972 the All-Commodities index was 120.0 while that of cotton products had indeed reached higher, to 124.0. The upward trend in this price began late in 1971, when it was still below the All-Commodities level.

A heavy component of the textile products classification is apparel, including the manmade fiber and woolen apparel. In October 1972 this price still lagged at 114.8, or behind the general level of 120.0 for all Commodities. (Survey of Current Business, Apr. 1971, and Nov. 1972).

Once more we find no evidence that supports the claim that import quotas feed the fires of inflation, or indeed, lead to higher prices out of line with the price level of other goods.

SUGAR

Sugar is another product that is subject to an import quota. The quota antedates World War II.

The retail price of sugar in 1955 was 10.4¢ per lb. Ten years later (1965) the price was 11.8¢, an increase of 10% in ten years-not a very exciting increment for a price-raising venture. In 1969 the price was 12.4¢; and in September 1972 it reached 13.9¢. The increase since 1955 was therefore 33.6%. (Ref. Same). Yet retail prices for all food in selected urban areas rose from an index of 81.6 in 1965 to 118.4 in 1971, or 45%. (Statistical Abstracts of the United States, 1972, Table 571, p. 352).

Obviously the price of sugar did not outrun the price of other food products. Quite the contrary.

DAIRY PRODUCTS

Import quotas were imposed on dairy products under Sec. 22 of the Agricultural Adjustment Act in 1953. Since 1967 the price index of dairy products had risen to 120.0 by October 1972. This is the same increase recorded by the All-Commodities index, which also rose to 120.0 by October 1972. However, the index of "farm products, processed foods and feeds" had risen 123.3, or 3.3 points more than the dairy products index.

Thus, while the price of dairy products rose as much as the All-Commodities index it rose less than some other farm products and processed foods. Once more we find that the import quota on dairy products did not lead to a price increase beyond the average since 1967, i.e., within the past five years. (Ref: Survey of Current Business, November 1972, p. S-8). Why then the quota? The answer is once more to prevent a sharp price decline or to avoid falling too far behind other prices that dairy farmers have to pay.

RAW COTTON

Raw cotton imports have been severely restricted (to less than 5% of domestic production) for many years under Sec. 22 of the Agricultural Adjustment Act. Yet, the price dropped sharply during the greater part of the years from 1951 to 1970. The average price during the 1950-55 period was 34¢ per lb. The 1959 price was still 33.2¢; in 1962 the price held at the same level exactly. In 1965 it was down to 29.6¢, followed by a sharp decline that reached 22.0¢ in August 1966. An upward trend brought the price back to 27.0¢ by December 1967. In 1968 the average price was down again, to 22.9¢. There was little recovery until 1971 when an upward trend set in carrying to 30.1¢ by December of that year. In May 1972 the price reached 35.0¢, but then fell again, sharply, reaching 24.9¢ in October 1972. The prices quoted are those for middling 1-inch, average in 12 markets of the United States (Ref: Survey of Current Business, pertinent monthly issues).

From these price trends it is obvious that the import quota did not succeed in keeping prices up. Only in 1971 did the price go above that prevailing as far back as 1959. Surely the quota as a price-raising mechanism did poorly enough. No doubt it prevented ruin of the cotton-growing industry by preventing a total price collapse and consequent ruin of the cotton farmers.

PEANUTS

Peanuts are under price support of the Department of Agriculture. An import quota was established in 1953 under Sec. 22. The price of peanuts has had little variation, following a slow upward trend that raised the 1953 price from 11.1 cents per lb. to 13.6 cents by December 1971 (est). This was an increase of 22%, or much less than the general wholesale price level or that on food products.

STEEL

An international arrangement was achieved in 1968 under the provisions of which the principal exporting countries of steel to this country was to be limited, beginning in January 1969.

According to the Survey of Current Business for July 1970 the wholesale iron and steel price index, where 1967 equals 100, stood at 106.1 in December 1968, or immediately before the "arrangement" limiting exports to this country took effect. The price had advanced to 115.1 in 1970, but that of nonferrous metals (copper, lead and zinc, aluminum, etc.) had risen to 125, where 1967 equals 100. Yet the nonferrous metals were not subject to import quotas or foreign export limitations. In 1971 the price of the latter classification dropped to 116.0 while that of iron and steel rose to 121.8. By October 1972, however, the iron and steel prices reached 128.9 while nonferrous metals had reached only 117.3. The price of steel had also outrun the durable goods index which had reached only 121.7.

If we compare iron and steel prices with those of lumber we find the latter far outstripping the iron and steel level. Lumber prices reached 166.1 in October 1972, representing a rise more than twice that of iron and steel since 1967. Leather prices had reached 153.3, hides and skins, 270.8. Nonmetallic mineral product prices almost kept pace with iron and steel, i.e., 127.3 compared with 128.2. Concrete products reached 127.2. Yet none of these products, lumber, leather, hides and skins, nonmetallic mineral products or concrete products were under import quotas or were parties to an arrangement such as iron or steel under which foreign countries limited their exports to this country.

The iron and steel industry had not shown a profit increase since the increase in prices through 1971. Indeed the profits were well below those of previous years and below those of the durable goods industries. In 1968 the durable goods industries had a profit of 5.1% of sales (after taxes), the steel industry 4.6%. In 1970, the durables profit was 4.0%, iron and steel, 2.5%. In 1971 the two percentages were repectively 4.2% and 2.5%. Profits on the basis of stockholders equity in 1970 and 1971 were less than half those of all durable goods, or 9.3% and 9.7% in 1970 and 1971 for the durable and 4.3% and 4.5% for iron and steel. (Statistical Abstract, 1972. Table 777, p. 483). The data were derived by the Federal Trade Commission and the Securities and Exchange Commission.

Similarly profits of the textile mill products industry have been less than half of those of the nondurable goods industries.

Thus it can be seen that import limitations under which these industries have operated did not lead to exorbitant profits, nor indeed to normal profits. To say that their price rises fed the fires of inflation are therefore unfounded.

CONCLUSION

This review completely dispels the cry so frequently heard that import quotas give rise to inflation. This is simply no ascertainable relation between import quotas and higher prices. All fair comparisons demonstrate the contrary.

EXPORTS AND DOMESTIC PRICES

(By O. R. Strackbein)

We are constantly told that import quotas result in higher prices to the consumers. That this claim is not borne out by the facts does not in the least temper the unsubstantiated statements.

On the other side of the ledger, there is clear evidence of the effect of heavy exports on domestic prices. We have only to look at our exports of wheat to Russia as a striking example.

Coal exports produced upward pressure on the price of coal. In 1960 exports of bituminous coal were 36 million tons. The wholesale price index stood at 95.6, where 1967 equals 100. In 1970 exports had lifted to a high point of 71 million tons, or almost double the 1960 exports. The price index had risen to 150.0 compared with the all-commodity index of 110.4. There is no import quota on coal, and we import very little. Although exports subsided to approximately 55 million tons in 1971 and 1972, the price continued to rise, reaching 205.5 in December 1972. (Statistical Abstract of the United States, 1972, Tables 1088 and 562; Survey of Current Business, January 1973, p. S-8.) The 205.5 level of the coal price index for December 1972 compares with 122.5 for the all-commodity index. Higher energy costs contribute to the rise in the general price level.

The price of wheat, No. 2, hard and dark, winter (Kansas City), in June 1972 was $1.53 per bu. After the huge sale to Russia the price escalated above $2 per bu. by September and reached $2.60 in December, 1972.

Such a rise was naturally reflected in the price of bread and other bakery products.

Corn exports also rose sharply in 1972. They went from 511 million bu. in 1971 to approximately 876 million bu. in 1972. The price, No. 3 yellow (Chicago) was $1.21 in December 1971. By the end of 1972 it had risen to $1.53.

Corn is the principal feed on which cattle is fattened for slaughter. The price increase of beef to the housewife is therefore attributable in part to the increase in corn prices. The rising prices of poultry and eggs also reflected to some extent the higher prices of corn and other grains. (See Survey of Current Business, Jan. 1973.)

Soybeans and soybean oil and meal, have come to the fore to the point where they now represent our principal single agricultural export.

In 1971 soybean exports reached $1.325 billion, compared with $1.090 billion wheat exports and $746 million in corn exports, which were the other two leading farm exports, both of them well surpassing exports of tobacco and cotton. The price of soybeans has soared in recent months. The price has indeed doubled in 1973 over 1972. Exports rose from 294 million bu. in 1969 to 433 million bu. in 1971. (Stat. Abs., 1969, Table 929, p. 612; Ibid; 1972, Table 1004, p. 605). We exported 93.5% of total world exports of soybeans in 1971. In that year we exported 37% of our production. We produced 73% of the world's production. (Ibid; 1972, Table 1004, p. 605.)

A rise in price of soybeans and soybean oil creates an upward pressure on the price of many other consumer products and animal feeds.

The price of footwear has risen sharply in recent years, although there is no import quota on footwear imports. The price had risen to an index of 135.0 in July 1969, where 1957-59 equals 100, compared with an index of 115.1 for all commodities at the same date. Since 1970 the wholesale price of footwear rose to 128.7, where 1967 equals 100. The all-commodity index had risen to 122.9 or over 5 points less.

Hides and skins are the principal raw products used in the manufacture of footwear. In 1963 and 1964 we exported only a small number of cattle hides, distinctly less than a million hides each year. In 1965 we exported over 13 million hides. By 1971 the number had reached nearly 16 million hides and in 1972 reached approximately 18 million. (Sur. of Current Bus., January 1973, p. S-30.) The price index on hides outpaced that on footwear, reaching 142 in December 1972, where 1967 equals 100, compared with 128.7 for footwear and 122.9 for the all-commodity index. Actually the price of hides and skins is very volatile, depending on the demand-supply equation. Style changes in the end product may also greatly affect the equation. In 1966, for example, the wholesale price index of hides and skins, where 1967 equals 100, was 149.5. In 1968 it was 106.1. In 1969 it went up to 124.1 and dropped to 104.4 in 1970. (Stat. Abs., 1972, Table 562, p. 345.) By the end of 1972, as we have just noted, the index was up to 142.

These examples of the price-raising effects of exports do not, of course, exhaust the list. They do support the expectation that rising foreign demands for domestic products produces a distinctly inflationary effect. The run-away prices, i.e., those that exceed the all-commodity index, can in many instances be traced to a lively export demand.

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