611.6531/104
The Ambassador in Italy (Long) to the Secretary of State
[Received October 11.]
Sir: I have the honor to refer to your telegram No. 82 of September 17, 1934, 6 p.m., and to your former Circular Information Series [Page 590] No. 6 of July 16, 1934,7 in regard to the possibility of initiating reciprocal trade agreements with Italy. I saw Mr. Suvich and reported the substance of my conversation with him in my No. 203, September 19, 1 p.m., in which he told me that he would be inclined to make the commitment to refrain from additional restrictive measures, but that they might have to take into consideration the fact that the Italian Government had various other trade negotiations in process and might be prevented from making such an agreement with the United States on that account, because such a commitment might hinder the program of the other negotiations.
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I now have the honor to advise, reluctantly but nevertheless definitely, that I have formed the distinct and definite impression that the Italian Government is digging itself into the trenches of an economic warfare in which they are confronted with a very large unfavorable trade balance. They are determined to cut down their imports to something approximating the value of their exports. They are moving in an atmosphere of super-nationalism.
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Their general export trade has fallen off to a very considerable extent. The figures which are in process of compilation, and which I hope to send by the pouch following this one, will show that their export trade with the United States has fallen off enormously. Had it not been for the exports of wine following the repeal of the Eighteenth Amendment, the value of their export trade would have been reduced to a shadow of its former volume.
Under these circumstances and faced with barriers of quotas and restrictions from countries in Europe to which Italy formerly exported large quantities and in the atmosphere of a war fear and almost in the midst of an armed camp, with the military preparations proceeding on all sides, their super-nationalism has developed to a definite policy which leads directly to the road of economic self-sufficiency.
There are several inconsistencies in the figures which I will submit next week and which indicate the volume of Italy’s foreign trade. The most glaring of these, however, is the increase in value of their imports over the corresponding figures of last year. This increase is significant in that the purchasing power of the lira is, in the world at large, at least 20% greater than it was a year ago. The purchasing value of the lira as regards the United States is nearly 40% greater than it was a year ago. Consequently, Italy could have imported from the United States the same quantity of goods imported a year [Page 591] ago at a cost decreased by nearly 40%. As regards the other countries of the world with which she trades, without considering those of the gold bloc, she could have bought at a material saving. So that the purchasing power of the lira in the world at large, excluding the countries of the gold bloc, is not less than 20% greater than it was a year ago. The increased purchasing power is probably more than 20%. Notwithstanding this fact, the value of goods imported by Italy has risen when measured by lire. This can only mean, in my mind, a very great increase in primary materials, such as cotton, iron, copper, tin, lead, coal, and oil. The custom’s figures are not available and will not be available in detail for some time. I have tried to get, through several of the Consulates, information to support the theory that they were importing primary materials for possible use in case of war, but I have been unable to get any statistical information or any evidence to give real substance to the theory. Nevertheless, the fact remains that there have been much greater imports this year than last year. That partly accounts for the disbursement of gold. If it was not for war purposes, which might be called a capital expense, then it may be that they have taken advantage of the high value of the lira in markets abroad to buy primary materials for use in their manufacturing industries, which would permit them at the high purchasing power of the lira to produce goods at a smaller cost and sell them in closer competition in the world market. This too would be a capital expenditure. But if it were true, the effects of an increased export trade ought to be now in evidence, or beginning to come in evidence, because sufficient time has elapsed between the purchases of the last six months to find the appearance of a considerable increase in the manufactured goods export figures. However, the increased imports, as measured by the lira of this year as compared to last year, can mean to my mind only two things. One is preparation for war—which I am prepared to discount—and the other is a capital investment in the form of cheap primary materials which will later find their way into the Treasury again as more favorable balances appear. I am inclined to accept the latter theory.
The government officials unanimously are agreed that Italy must cut its imports. The Minister of Corporations, the Minister of Foreign Affairs, the Minister of Finance, and every officer of the Government who is at all cognizant or at all concerned with foreign trade and with finance is definite and positive in his expression that Italy must cut its imports. I am convinced that it is a national policy that is being pursued in the most detailed ways. We have seen evidences of it in the quotas recently placed on coffee and lard, and we have had suggestions that there might be limitations placed upon the import of cotton. There are many other small and detailed items [Page 592] which are not now apparent and which are so inconsequential that they have not been made the subject of protest on the part of manufacturers in the United States and shippers from the United States, but I have no doubt that they are proceeding with a minute restriction of every item, including clothing, drugs, agricultural products, and all manufactured articles to eliminate each item, no matter how small, which is not absolutely necessary for the welfare of Italy as a whole.
Under these circumstances it is difficult to conceive how Italy will approach in a spirit of conciliation a negotiation which would contemplate that Italy increase her imports. She confesses the most important item of her national policy to be the decrease of her imports—if I properly judge it. Consequently I am afraid my suspicions are confirmed that she will reluctantly enter into negotiations with the United States, except for the purpose of increasing her markets in the United States. She has assumed the aggressive in an economic warfare. She is determined to increase her exports and determined to decrease her imports. She would no doubt resort to the expedient of obtaining credits in the United States for private Italian companies for long-time purchases, and I have to suggest that in that connection Italian applications, if any, to the Second Export Bank be very carefully scrutinized before any credits be granted, for the simple reason that in Italy business activity is controlled and dominated by the Government to the extent that no corporation will be allowed to buy in a foreign market and to import into Italy unless that purchase fits in with Italian national policy. Accordingly, such purchases actually assume the character of purchases for, or credits to, the account of the Italian National Government.
The representatives of the gold bloc States are in informal meeting at Geneva.8 While they say their action is not directed against other countries and that their principal object is the expansion of international trade, they propose to set up a committee composed of delegates of each of the gold countries to consider the difficulties in the way of expanding trade. These gold bloc countries are all contiguous European nations. The important ones have a common ground on the war debts question and in heavy balances of trade owing to the United States. They and their satellites in the eastern part of Europe constitute an area with a very large population and a big purchasing power. They may very easily so cooperate as to take a position opposed to that of the United States and hinder it and make it difficult to carry out trade negotiations with them individually. The policy of Schacht9 announced for Germany to the effect that her foreign trade would be bi-lateral and her imports limited in value to the exports sent to the country in question may be the general and elusory objective of the [Page 593] gold countries as regards the United States. If this should be the case, it would practically constitute a European bloc to increase trade amongst themselves and their respective colonial possessions and to cut down imports from the United States. Of course they all have the common ground of war debts added to their common ground of heavy adverse balances, and they all realize that these trade negotiations have been initiated by the United States and I think will wait and see how far the United States is willing to go.
I am afraid this is not a very encouraging despatch, and it is with great reluctance that I give expression to sentiments which are not encouraging to an American movement with which I am in perfect sympathy and which I consider of very great importance. I am conscious of the fact that this is a somewhat rambling discussion of Italian economic foreign policy with general application to the United States, but in a comparatively short time after you will have received this you will receive what I expect to be a rather comprehensive and detailed study of the possibilities of reciprocal trade agreements based on statistics and which I hope will be more encouraging than the tone of this.
Respectfully yours,
- Neither printed.↩
- See vol. i, pp. 594 ff.↩
- Hjalmar Schacht, German Minister for Economic Affairs.↩