Invitation to Fratricide?

The U.S. Government last week made a move considerably out of line with the international trade policies of Cordell Hull. The Commodity Credit Corp. announced that, under an amendment to the Surplus Property Act, it would pay export subsidies to help clear the U.S. of its huge surpluses of cotton and wheat. This will permit the exporter either to obtain the wheat and cotton from the corporation at world prices or to pay farmers the current domestic prices, then sell the commodities abroad at the much lower competitive world price and collect the difference from the Government. The difference will be big: U.S. cotton now costs between $15 and $25 a bale more than Brazilian cotton.

Some economists thought this deal was entirely inconsistent with established policy. They pointed out that the U.S. has long and vigorously condemned subsidies on goods sold by other nations to the U.S. The American objection is based on the sound economic theory that export subsidies are mutually destructive and are bound to bring a cutthroat international price war in the competition for markets.* Commenting on the new cotton plan, the National City Bank of New York said: ''Selling abroad at prices below the domestic market is 'dumping,' a policy Which other producing countries may resent. The cotton subsidy . . . notifies foreign producers that we are not interested in supporting the world price any longer, but in keeping the domestic price above it."

Actually the trouble rests with domestic policy. Surpluses of cotton and wheat are being built up because: 1) the U.S. farmer has priced himself out of the world market, and 2) the Government is committed to supporting this high price for at least two years after the war. Thus the U.S. is trying to put the farmer back into the world market by granting an export subsidy which in the long run goes to him. But the international result of CCC's present policy may be reprisals by other nations angling for markets for their surpluses either in the form of new or higher subsidies of their own, or by higher duties on U.S. manufactured exports. In turn, the U.S. may have to put higher tariffs on textiles made abroad with U.S. cotton.

*No price war will result from the wheat subsidy plan, since the four major wheat-producing nations (U.S., Canada, Australia, Argentina) have divvied up the world market on a quota basis for the next year and will not be competing. But some economists believe this is also bad, since it amounts to an international Government cartel.

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