Senator CAPPER (interposing). They have it in their minds very strongly that they are not doing as well under the trade-agreement program as they did 20 years ago without trade agreements.

Secretary WALLACE. I am sorry that there have not been more people in Kansas to enlighten them as to the true situation.

The CHAIRMAN. It is a fact that the price has increased on wheat, is it not? Wheat is higher now than it was 2 or 3 years ago or in 1932. Secretary WALLACE. Why, yes; of course the price is higher, but I would say the price is higher now chiefly because of the drought.

The CHAIRMAN. Then the record also shows that in 1933

Secretary WALLACE (interposing). I wish to point out that all of this discussion about wheat is totally irrelevant and has no bearing on the trade-agreement program. We should not attribute the high price at the present time to the trade agreements. I do not think the trade agreements have had anything important to do with that. That is largely the drought. But the discussion on wheat is mostly irrelevant with regard to trade agreements.

Senator CAPPER. We have been told that the trade agreements make prosperity for the farmer, including the wheat grower.

Secretary WALLACE. There has been some benefit because they were relieved of that 6-cent differential, but with the war situation coming on, I do not think even that has had any great effect at the moment.

Senator VANDENBERG. Mr. Secretary, let me ask you just one further question-a generalization. You cannot measure, can you, the impact of imports in its full effect on the domestic market by merely comparing the percentage of imports as related to the domestic production? In other words, would not the imports as small as 5 percent have a price impact that would be serious?

Secretary WALLACE. Typically it would have a price impact of 5 percent.

Senator VANDENBERG. Might it not have a far greater price impact than that?

Secretary WALLACE. It will average out at 5 percent. There have been a lot of studies made on that, and they all indicate typically the impact would be about the same as the percentage in the quantity.

Senator VANDENBERG. My observation in some industrial operations has been that an almost infinitesimal import can break the price. You do not think that is so?

Secretary WALLACE. I do not agree with that doctrine.

Senator JOHNSON. Mr. Chairman, I would like to ask another question relative to wheat. I agree wholeheartedly with what the Secretary has said, that the reciprocal trade agreements have had little or no effect upon the price of wheat through the years and I follow the market very closely.

Secretary WALLACE. If you put in just a little parenthesis there to the effect that the elimination of that 6-cent differential was of some significant value.

Senator JOHNSON. But even that had almost no effect, because the English miller had become accustomed to using other wheats than our wheat, but the thing that has affected

Secretary WALLACE (interposing). Don't forget that we exported in the last fiscal year 118,000,000 bushels of wheat, and a large part of it went to England.

Senator JOHNSON. That is the very thing I am getting to. The thing which has affected the wheat market and which has helped to bring up the price in addition to the drought, at the present time is the subsidy that has been paid, the 32-cent or the 30-cent subsidy that has been paid during the past year on the exports of wheat. That is the thing that has brought wheat up. It has not been the reciprocal trade agreements, just as you have stated. Yesterday in our discussion

Secretary WALLACE (interposing). But you should put this in. We will say that it might take a 36-cent subsidy to export wheat to the United Kingdom before the 6-cent differential were removed. After it were removed, it would take less to get the wheat into the United Kingdom in competition with Canada, would it not?

Senator JOHNSON. That is true.

Secretary WALLACE. It would cost the United States Treasury that much less possibly not the entire 6-cent amount but substantially less-to get it into the British market, wouldn't it?

Senator JOHNSON. Yes; that was helpful to this extent, but the big help, the thing that made it possible for us to export wheat, and we could not have exported wheat without that assistance, was the subsidy that was paid on wheat. Yesterday we were in some disagreement as to when that subsidy policy started. As I recall it

Secretary WALLACE (interposing). I think it was in 1934 we exported-I think it was in the fall of 1934 we started subsidizing Northwest wheat.

Senator JOHNSON. It was stated here, I believe by Senator Clark of Missouri, that the subsidy did not start until 1939, and I knew it had started before that.

Secretary WALLACE. Then we dropped it for several years and started it again. Senator Clark undoubtedly had reference to that. Senator JOHNSON. We started again with the crop produced in 1938, did we not?

Secretary WALLACE. Yes. In 1934, the subsidy was effective solely with regard to Northwest wheat. In 1938 it had effect for the first time with regard to all wheat.

Senator JOHNSON. But the subsidy plan, which I presume may be called in a sense a bilateral plan, was far more effective than the tradeagreement plan in disposing of our surplus supplies of wheat.

Secretary WALLACE. I think we should draw this distinction between the two, Senator. The trade-agreement plan is a fundamentally sound long-run program. You can use, from the standpoint of meeting immediate short-run effects, a great variety of devices, devices which typically lead to international economic warfare. They are devices which are in the nature of a double-edged sword. They are devices which should be used only sparingly and in an emergency. We have used the wheat subsidy with the specific objective of getting an international wheat agreement. We used the cotton export subsidy with that also in mind. Possibly it would be unwise to use export subsidies unless you can hook up with such subsidies, sooner or later, some method for arriving at an international agreement with regard to the particular commodity under consideration. In other words, I am in complete accord with the fundamental philosophy of Cordell Hull's trade-agreements program, but recognize at the same time that in specific situations it may be necessary to take some other action.

Senator JOHNSON. Are you in accord with the reciprocal trade agreements program because it is a general lowering of the tariff established by the Smoot-Hawley Tariff Act and it is the general lowering of all of the tariffs established by that act?

Secretary WALLACE. The only sound, long-time way that I can see to get a market for our export surplus of agricultural products is to bring about an increase in imports, and I think the trade-agreements program makes it possible to bring about an increase in imports in a way that is least damaging to our own domestic economy and most beneficial toward lowering foreign tariffs on our exports of agricultural products. It seems to me that it is by all odds the most effective and constructive way of accomplishing that objective.

Senator JOHNSON. I notice in your testimony this morning that you named imports as only one of the conditions. You also named the purchase of gold as another. You named three factors.

Secretary WALLACE. You will find that that was referring to the inconsistency of certain people attacking the trade-agreements program. I say, some of the persons who claim to be among those most interested in larger farm exports, oppose any means by which we might be paid for such exports. They are against imports, they are against new loans to foreigners, they are against the purchase of foreign gold. But if our country refuses to accept either imports or gold, and refuses to extend further credit, how will it be possible to export?

Senator JOHNSON. To what extent would you say that exports have been dependent upon reciprocal-trade agreements? Have they been boosted because of the reciprocal-trade agreements or because of the purchases of foreign gold? What is your comparison?

Secretary WALLACE. Well, we have estimated that the reciprocaltrade agreements increased the market for farm products by perhaps 5,000,000 acres. I believe undoubtedly the purchase of foreign gold has served more effectively than any other agency thus far in increasing dollar exchange in the hands of foreigners.

Senator GEORGE. Mr. Secretary, I am in close accord with your general statement just made that the reciprocal trade agreements did afford a promise both of a long-term program adjusted to the building up of our general foreign trade, and that it did afford an opportunity to approach more liberal trade policies or a more liberal trade program with the least apparent injury to our own domestic producers. I fully agree with that, and I am also in full accord with your statement with respect to the use of the devices of the subsidy so far as food products are concerned, but I think you know that I have differed from you when you were paying the subsidy for the exportation of an essential raw material of manufacture such as cotton, but I infer from what you say this morning that you regard the subsidy used in exporting cotton as a means to meet an acute situation?

Secretary WALLACE. Yes. That is what I have always said, Senator. Senator GEORGE. And not as a permanent program?

Secretary WALLACE. Typically, I look on export subsidies as economic warfare, Senator.

Senator GEORGE. I agree with you there, and especially when it is a raw material of manufacture, because we have to meet it coming back in the same way.

Secretary WALLACE. Of course, you will remember, Senator, that we had compensating devices to take care of the situation so that the competitive situation of our American textile mills was not changed.

Senator GEORGE. That gets us right back into illiberal trade policies that we are trying to avoid under the other. But as I understand, you would not favor a subsidy on raw materials for manufacture, as in the case of cotton, except to meet an acute situation?

Secretary WALLACE. I would make that apply not only to raw materials, but to all other products as well, and I think that some of our American manufacturers have used exactly that device to gouge our American consumers. They have oftentimes exported at a less price abroad than the price in the American market. I would not restrict the observation to raw materials, and I would expand the statement to take care of indirect subsidies as well as direct subsidies. Senator GEORGE. I have no issue with you at all on that point, but as I understand you, you did say that the subsidy, particularly as applied to cotton or wheat, also looked to an ultimate arrangement by which vou could avoid that?

Secretary WALLACE. Yes. We had well warranted hopes with regard to the wheat subsidy, that we were going to get an international wheat agreement, and we were on the point of getting it when the war broke out. Something of this sort must be done sooner or later with these great raw materials which move in world trade. We must have a world-wide understanding with respect to these great raw materials which move in world trade.

Senator GEORGE. Is there any possibility so far as the international agreement with respect to cotton?

Secretary WALLACE. We had the preliminary conversations with regard to cotton in September 1939.

Senator GEORGE. You had not progressed so far as you had with wheat?

Secretary WALLACE. No; I would say it would be several years before you could get along that far. You will find typically that there are a few nations that think they have an inside track for certain reasons, who won't get in line unless you have some device such as the export subsidy to bring them into line. There are nations which can use the device of depreciated currency such as Brazil has used. Brazil for several years depreciated the milreis very rapidly, which gave her a temporary but very great advantage in the world cotton trade. The subsidy which we employed to some extent offset that great advantage which Brazil had employed.

The CHAIRMAN. Are there any other questions?

Senator BROWN. Mr. Chairman, I think I can read you in the record, to save the printing of a lot of figures, these statistics in the matter of the displacement of the domestic market by acres to which I was referring (see p. 96.)

The amount of the principal agricultural imports that would be displaced are as follows:

Sugar, we would grow here in acres, 2,803,000 acres; flaxseed, 2,540,000 acres; wheat, only 15,000 acres; corn, 12,000 acres; oats, barley, rye, and buckwheat, 115,000 acres; hay, 13,000 acres; cotton, 510,000 acres; fruit, 33,000 acres; vegetables, 25,000 acres; and all others, chiefly tobacco, nuts, rice, soybeans, etc., 561,000 acres; and: the total in 1938-39 is estimated by your Department of 7,564,000

acres. That is the acreage equivalent of the principal agricultural imports.

On the other side of the picture, the acreage equivalent of the principal agricultural exports as estimated for 1938 to 1939 are tobacco, 670,000 acres; rice, 550,000 acres; pork and lard, 2,909,000 acres, or almost 3,000,000; hay, 269,000 acres; wheat, 8,462,000 acres; corn, 3,014,000 acres; cotton, 10,110,000 acres; fruit, 804,000 acres; or a total of 28,375,000 acres, or approximately four times as much acreage devoted to agricultural exports as to agricultural imports.

Secretary WALLACE. And there probably would have to be added to the export acreage the acreage required to produce the oats, hay, and pasture needed to feed the horses employed on the acres growing those crops.

Senator JOHNSON. Should there not be an added acreage for the cattle imported into this country, the wool?

Secretary WALLACE. Yes; there should be.

Senator BROWN. That is probably taken care of under the head of animal products?

Secretary WALLACE. Yes.

Senator JOHNSON. What is the acreage shown there under animal products?

Senator BROWN. In the matter of the equivalent of agricultural imports, 462,000 acres of grain and 475,000 acres of hay, which I read, but I did not read that that related to the importation of animal products. Likewise, on the other side, the animal products exported consumed, according to this estimate, 2,909,000 acres of grain and 134,000 of other products.

Secretary WALLACE. It would seem to me that it would not adequately cover wool. I would want to check into the wool.

Senator BROWN. It does not say anything about wool here. It is probably covered in the statement of the classification of the other products.

Secretary WALLACE. It apparently refers only to plowed land and not to pasture.

Senator JOHNSON. I do not see how those figures prove anything, because everybody knows that we are a surplus producer of agricultural products, and why we should ship in agricultural products to take up 10,000,000 acres when we are naturally an exporting nation of all agricultural products is a question that is hard to understand; but that is the question the farmers do not understand.

Senator BROWN. You cannot continue to be an exporter of agricultural products to the extent that we are now unless we take a few of the products which these other nations have to sell.

Secretary WALLACE. If you endeavored to cut off the imports of these products representing, say, 10,000,000 acres if you cut out those imports altogether, the result would be that the other producers of imported commodities, manufactured commodities, would say, just like they did when President Hoover called the Congress together for raising farm tariffs, in 1929, "We want ours, too." The farmer cannot push his advantage exclusively; the others will inevitably get on and ride, and when they get on and ride, they destroy the market for the product of 30,000,000 acres of export crops. That is the danger of the whole thing, that we will expose ourselves to another Hawley-Smooth affair. We raised the tariffs on agricultural products under the Hawley-Smooth law but we certainly did not.