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i^ /^.' ^ 

GIFT or 

Henry ¥. Grady 












Copyright, 1920, 1922, by 

Printed in the United States of America 



I. The Nature, Purpose, and Growth of In- 
ternational Trade i 


II. Development of the Foreign Commerce of 

THE United States 13 


III. The War Trade of the United States . . 28 


rV. Exports of the United States — Articles 

and Destination — Trade Opportunities . 42 


V. Imports of the United States — Articles 

and Sources 58 






VI. Export Sales Organization — Manufactures 70 


VII. Export and Import Commission Houses . . 84 


VIII. The Exportation of Raw Materials and 

Foodstuffs 93 


IX. Export Documentation and Freight For- 
warding 108 


X. Import Machinery and Methods 120 


XI. The Importation of Raw Materials and 

Foodstuffs 128 



XII. The Transportation of Our Foreign Com- 
merce 142 


XIII. Ocean Freight 160 


XrV. Marine Insurance i74 


XV. The Extension of Credit 184 


XVI, Financing Export Shipments 200 


XVn. Foreign Exchange 213 




XVIII. The Balance of Trade 232 


XIX. Government Aid to Foreign Trade ... 245 




XX. The Value of Foreign Investments and of a 
Merchant Marine as Exemplified by the 
Commerce of the United Kingdom . . . 258 


XXI. Organization and Co-operation in Foreign 

Trade as Exemplified by Germany . . . 279 


XXII. The Foreign Trade of Other Nations . . 294 




Questions 311 

Appendix 327 

THE world's production OF WHEAT — THE WORLD'S 

Index 335 


The youth of the United States compared to the age 
of other great nations has given her the advantage over 
them that she could profit by their experience. But in 
another way it has worked to her disadvantage: she has 
from time to thne been drawn into fields of enterprise 
v,^holly new to her in competition with old nations accus- 
tomed to them from the first and participants in each 
stage of their development. But she has never entered 
one with less knowledge of principles and methods than 
that with which she now takes a hand in the complicated 
game of foreign trade. 

In diplomacy and in war, to mention two departments 
of international competition into which she has been 
drawn as a novice, the United States has shown a capacity 
for rapid learning which, with beginners' luck perhaps, has 
brought her out with credit. This new activity of inter- 
national trading she will master too; but since time is 
pressing, few greater services could now be rendered her 
people than that of diffusing an understanding of its prin- 
ciples and practice. It is therefore a pleasure to intro- 
duce a book so ably designed for the purpose as The 
Foreign Trade of the United States. Particularly is it 
so designed in being simple, elementary, and complete: 
smce international tradmg in this country is in its infancy, 
it should draw to itself a large number of beginners who 
must in great measure prepare themselves for the unusual 
opportunities it offers of rapid advancement. Indeed, 
only the rising generation can completely master the prob- 
lems and the technic of foreign trade— and this book is 
primarily planned for beginners. 

The basic reason why we must become foreign traders in 
a large way resides in the irresistible action of economic 
lav/. Far-sighted commercial men have long recognized 



both the opportunity and the inevitability of engaging in 
this field; and of course we have long done so to some 
extent, but in the main in a spasmodic way, regarding 
foreign markets rather as a dumping- ground for a surplus 
of products created by temporary conditions. 

But now, as older nations did long before us, we have 
reached a stage where our productive capacity is such that 
we shall nonnally have a constant surplus beyond our 
needs. This situation was predestined: we have vast re- 
sources — no nation possesses so immense a supply of the 
basic raw materials of industry. The question was simply 
one of a lapse of time sufficient to allow for the requisite 
growth of population and its natural concomitants before 
we should produce such a surplus for export. The output 
of our manufactories is now greater than that of any other 
country. To this degree of development we were brought 
suddenly because of the stimulation of the European de- 
mands upon us during the war, which quickened our de- 
velopment in plants, organization, and skill. At the same 
time the war acted to reduce the disadvantage we were 
under in the large item of the cost of labor by increasing 
the rates of wages in Europe to a greater proportional de- 
gree than it has increased them here. We should show a 
singularly uncharacteristic lack of enterprise if we did not 
recognize our opportunity and press our advantage; but 
to do so we must absorb the methods of foreign trade 
with a rapidity corresponding to that with which our situ- 
ation was changed instead of learning more gradually, as 
we should naturally have done had this development been 
subjected to no adventitious acceleration. 

For instance, we must overcome our somewhat contemp- 
tuous ignorance of foreigners, which results simply from 
our inexperience with them. The great nations of Europe 
have, by the mere fact of contiguity, learned to adjust 
their points of view to those of foreign peoples. Our com- 
parative geographical remoteness, partly, but even more. 


the nearly absolute economic independence conferred by 
a small population and great but undeveloped resources, 
freed us until recently from any pressure of necessity in 
this direction. Accordingly we are too prone to ignore 
national differences: the Uttle peculiarities of other peo- 
ples seem to us insignificant details, although in. their 
effect upon business relations they come to have a great 
importance. We must then learn to understand the ex- 
ceedingly intricate mechanism of foreign commerce — the 
methods of procuring and handhng foreign business, the 
details incident to export shipment such as the proper 
documentation, packing, insurance, credit arrangements, 
and the whole general question of financing. These mat- 
ters are admirably explained by the authors of this book: 
in a very complete exposition of export technic, for 
example, an order is traced from the time it is received 
through all its stages until delivery is made; and this 
same concrete method of explanation is followed in the 
explanations of the other phases of commerce. 

But any true perspective of foreign commerce such as 
even a purely practical mastery of the business of export- 
ing and importing demands will be based upon a compre- 
hension of the principles of foreign trade. They are elusive, 
and can only be mastered by close study. For instance, 
no one has mastered the subject without understanding 
foreign exchange; this indeed is the pivotal point in the 
economics of foreign trade. Nor can any one properly be 
said to understand it w^ho has not completely freed him- 
self from the old fallacy which even so g?eat a mind 
as Napoleon's accepted — that it is desirable the nation 
should sell but not that it should buy. As the authors of 
this volume explain in their early pages, which set forth 
the principles of the subject, foreign trade is an exchange 
of goods and services; its ideal condition is one of a bal- 
ance of imports and exports. A nation's aim should not 
be, as it was until the day of Adam Smith, to sell her 


products in vastly greater quantity than that in which 
she buys the products of others; but rather, through a 
multitude of transactions in exporting and importing, to 
strike an exchange something like equal in the total. The 
sale of goods abroad is, therefore, but one half of the opera- 
tion, and it cannot continue indefinitely unless the other 
half is fulfiUed. 

At present our exports enormously exceed our imports. 
This excess, accumulating in something like geometric pro- 
gression since 1914, has transformed us from a debtor into 
a creditor nation. The unprecedented fluctuations in ex- 
change which have brought the dollar to a premium in 
all of the countries of the world but those whose sales to 
us have exceeded their purchases, are due principally to 
the large excess of our exports over our imports. It is 
this condition as revealed in these extreme fluctuations 
that has made the problem of payment for our exports 
one that is bafHing our financiers, manufacturers, and ex- 
porters. Whatever temporary reHef may be given by the 
contrivances of credit, a proper adjustment can only be 
reached when our exports are paid for to a far greater ex- 
tent than now, by means of imports. 

The principles underlying such matters as these are ex- 
cellently handled in this book — a book that will give sound 
and valuable information wherever it is read or where- 
ever it is used for reference. To the inexperienced, the 
student, or the beginner, it should be invaluable: one can 
easily imagine it in use as a text- book in business schools, 
and in universities which give practical courses in political 
economy, or in foreign trade itself. But even the seasoned 
importer and exporter will prize it. 

W. L. Saunders, 

President American 
Manufacturers* Export Association. 

New York, April 28, 1930. 





Occasion for Commerce. — The principle of barter is 
one that has its foundation in human needs, human de- 
sires, and human ambitions. Even in the most primitive 
state of society, commerce in a restricted form exists. The 
Indian tribes of North America, long before they were 
brought into touch with the civilization of Europeans, 
exchanged wampum for pottery, ornaments, skins, and 
food. Savage tribes of remote regions, quite outside the 
sphere of the influence of civilization, invariably carry 
on some trade with neighboring tribes, not being willing 
to subsist on what they find at hand or on what they can 

The saying *' Distant fields are always green" is well 
illustrated in the realms of commerce. Strange products 
from far-off lands have always had a fascination that has 
been of immense importance in the development of com- 
merce. The wilKngness of savage tribes to exchange food, 
furs, and even services for multicolored baubles of glass, 
sparkling trinkets, fantastic articles of clothing, and other 
intrinsically worthless trifles has been the means of build- 
ing up vast private fortunes and of opening up new trade 

The trade in tobacco, which reaches mammoth proper- 


r re 

tions, lis an example of a great industry founded on an arti- 
ficial taste deliberately cultivated. All of the luxuries, 
such as diamonds, beautiful fabrics, hand-wrought works 
of art, pictures, and even books, each forming a large item 
in the world's commerce, are supplied in response to a de- 
mand for something more than the tiresome necessities 
of life, which basically is not so different from the longing 
of the savage soul for beads and trinkets. 

No single locality, however favored by the climatic and 
other conditions, is capable of supplying the multifarious 
wants of civilized man. In order to have these wants sup- 
plied, the surplus products of one district or country must 
be exchanged for the surplus products of many other 
regions, some located in the far corners of the earth. 
Commerce is thus the handmaiden of civilization, cater- 
ing to the wants of man and enabling him to exchange 
what he has in superabundance for those other commodi- 
ties not produced in his locality. 

The Control and Direction of Commerce. — One of the 
fundamental tenets of economics is that the law of supply 
and demand is the basis of commerce. Where the sup- 
ply of any product is abundant it will be sent to other 
places where the demand for this commodity is greatest. 
If no efforts were made to promote trade between nations, 
if astute business men and powerful financiers did not 
spend their lives and efforts in building up trade to redound 
to their advantage, if all over the world there were no con- 
certed effort to create a demand for certain commodities 
produced by certain nations, if transportation routes and 
transportation facilities did not influence and even de- 
termine trade, if tariff laws were not made and abolished 
in the interest of trade, if there were no government inter- 
ference whatever in commerce, if, in short, the most primi- 
tive conditions of barter prevailed, this law would still 
hold, but the nature and trend of commerce would be al- 
together different. 


But the wide-awake, progressive commercial nations of 
to-day are not content to produce only those commodities 
nature has most clearly indicated for each district, nor 
to curb their production until a demand develops spon- 
taneously. The energetic, aggressive captain of industry 
is ever looking for new fields to conquer, the production 
and exchange of those commodities demanded by a ready- 
made market being a simple task \\ath little appeal to the 
constructive genius. It is the business of the leaders of 
trade to create markets, arouse demand, construct trans- 
portation facilities, develop new industrial regions, to con- 
trol and direct industry and commerce. 

Nature's Handicaps Removed. — Does a nation lack the 
raw materials essential to the development and mainte- 
nance on a large scale of the industry of manufacturing? 
Immediately, it constructs or arranges for the transporta- 
tion facilities necessary to a world-wide trade and brings 
from far-off lands those raw materials it lacks, converts 
them into finished products, and sells the surplus back to 
the very countries from which it obtained the essential 
raw materials. 

This is well illustrated in the case of England, v/hich has 
for years imported great quantities of raw cotton from the 
United States, and exported manufactured cotton in the 
form of textiles to the United States; has imported wool 
from x\ustralia and Argentina, converted it into yarn, 
worsteds, and other fabrics, and sold these finished prod- 
ucts to those countries, among others, supplying the raw 
material. Germany, likewise, built up a tremendous for- 
eign trade by going beyond her own domains for many of 
the raw materials of commerce, expending time and 
thought and ingenuity in converting these into valuable 
manufactured products and selling them to the various 
nations of the earth. The restrictions placed upon in- 
dustry by conditions of climate, soil, and population have 
thus been effectually removed, and nations heavily handi- 


capped by nature have risen to positions of industrial and 
commercial eminence through sheer enterprise and am- 

The Effect of Improved Transportation Facilities. — 
The effect of adequate transportation facilities on indus- 
try and commerce is little short of the marvellous. When 
transportation is expensive and dangerous, extensive 
commerce can be carried on profitably only in those com- 
modities possessing a high value. When the caravan was 
the principal means of transportation, the only commodities 
commanding a wide market were rare and expensive articles 
such as the precious metals, ivory, costly woods, spices, 
and other luxuries of the rich and powerful. The ships 
of Solomon which came every three years from Tarshish 
bringing ''gold and silver, ivory and apes, and peacocks" 
are typical of early commerce. Under such conditions, 
commerce catered to the few, while the great mass of the 
people were obliged to depend upon those commodities 
produced in their own or in near-by locaHties. Such 
staple commodities as rice, wheat, corn, meat, fruit, 
cotton, wool, leather, and machinery, now the principal 
articles of international trade, were of Httle importance in 
world commerce until comparatively recent times, because 
the expense incident to transportation was too great to 
make a profitable world-wide trade in them possible. 

Water transportation has always been the cheapest, 
and from earliest times those nations having excellent har- 
bors and ports have led in world commerce. From the 
time that the Phoenician cities of Tyre and Sidon, in the 
sixth century B. C, sent out their ships to trade with 
every settlement on the islands and on the coasts of the 
eastern Mediterranean and of the Black Sea, everywhere 
founding trading-stations and carr)dng the products of 
one region to another, returning with rich and varied car- 
goes to be distributed far inland by means of caravans, 
every great nation has attempted in one way or another 


to develop an overseas commerce that would enable it to 
exchange its surplus products for those of other nations. 

Revolutionary Effects of Steam. — Until steam was made 
the motive power of both land and water transportation, 
world-wide commerce w^as for the most part confined to 
those regions near the sea. The steamboat has been a 
factor in commerce for less than a century and the rail- 
road for less than eighty years, yet these two have revolu- 
tionized it. Now, a far inland region can sell its products 
in the most remote parts of the world and secure for its 
own use every article made desirable by need or whim or 
fancy. With their corn the farmers of Illinois and Iowa 
can and do purchase the products of every race and clime. 
French silks and laces and gloves; cunningly wrought 
toys, porcelains, and fabrics; English cutlery, cotton and 
woollen fabrics; Japanese silks and bric-a-brac; Chinese 
tea, lacquered ware, and ivory carvings; Swiss clocks and 
toys; Latin- American coffee, spices, and bananas, and a 
myriad of other articles, are the commodities of every-day 
life in regions that were, not many decades ago, far remote 
from commerce. The most obscure farmhouse to-day 
boasts of luxuries which, less than a century ago, were 
beyond the dreams of avarice. 

The effect of the railroad in developing commerce and 
promoting industry is difficult to realize. With it come 
settlers, traders, speculators, adventurers, whose com- 
bined efforts result in the development of long-neglected 
latent resources, and where was a barren waste, a lonely 
grassy mesa, or an inaccessible hill country flourishes a 
land of farms, homes, banks, manufactures, and allied in- 
dustries, each taking an active part in the world's trade. 
Thus new fields 'for the extension of commerce are con- 
stantly developing, and the resources of the world that 
once seemed so limited are found to be incalculable. 

Recent Growth of World Commerce. — The last half- 
century, with its marvellous developments in industry and 


its world-wide improvements in transportation facilities 
on both land and water, has witnessed the greatest growth 
of the centuries in the international exchange of commodi- 
ties, culminating in 1913, when the combined value of all 
articles entering the trade between nations exceeded 
$40,000,000,000, which was just double that of 1900. 
The reasons for the stupendous expansion in recent years 
are many. Increase in the population of the world and in 
the wants of that population; a greater specialization in 
industry; better and cheaper methods of production and 
transportation; the development of new fields for the 
supply of raw materials, and a more generally diffused 
prosperity resulting in greater purchasing power, are all 
factors whose combined result made the first thirteen years 
of the twentieth century the period of greatest industrial 
and commercial activity since the dawn of civilization. 

The Bureau of Foreign and Domestic Commerce of the 
United States Department of Commerce has assembled the 
following valuable table of statistics, showing the world's 
development in population, production, vessel tonnage, 
and commerce since the year 1800. 

Countries Leading in International Trade. — Almost 
one-haK of the international exchange of commodities in 
1913 was credited to four nations, the United Kingdom, 
Germany, the United States, and France, in the order 
named. The United Kingdom claimed over one-seventh 
of the total, Germany over one-ninth, the United States 
one-tenth, and France about one- thirteenth. Years be- 
tween 1 9 13 and 191 8, when the nations engaged in the 
World War were devoting their energies to the destruction 
of industry and commerce, do not provide statistics upon 
which to base any study of the subject. 

A development of far-reaching importance in interna- 
tional trade is the marvellous growth of the industry of 
manufacturing in the United States, notably since the open- 
ing of the present century, whereby nearly one-half of our 


















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exports have come to consist of manufactured articles, 
that are entering into the keenest competition in the mar- 
kets of the world with those of the old-established manu- 
facturing nations. The United States produces more iron, 
coal, copper, petroleum, and cotton — the basic raw ma- 
terials used in modern manufacturing — than any other 
nation; its people possess a natural aptitude for the use of 
machinery, a genius for invention, great ingenuity in adapt- 
ing means to ends, and that indefatigable energy that 
sweeps away all obstacles that stand in the way of achieve- 
ment. A readiness to adopt large-scale methods of pro- 
duction, to replace old methods with new ones, and to 
consolidate great industries, are all factors making for the 
increased output of manufactures. The effect of such con- 
centration and consoKdation in increasing production is 
indisputable; the effect on the distribution of the prod- 
ucts of industry is another question, which need not be 
considered here. 

Foreign Trade and National Prosperity. — To say that a 
nation is leading the world in the volume and value of its 
foreign trade is not equivalent to saying that the people of 
that nation enjoy a larger proportion of the comforts and 
luxuries of life, or that they possess superior ability or 
greater advantages than those of other nations. It may 
mean that they live in an unproductive land and are 
obliged to depend upon a few commodities, which they ex- 
change with more favored nations for the necessities of 
life. Aden, a British coaHng-station in southern Arabia, 
has the largest per capita foreign trade recorded, because 
it is a sterile country and its people have to import all 
articles of food and clothing as well as building material, 
fuel, and drinking-water. In exchange for these commodi- 
ties they give their services in coaling vessels passing 
through the Suez Canal and the Red Sea. Their standard 
of living is not high, and they are not the most prosperous 
people of the globe. On the other hand, the United States 


ranks first among the nations in the value of its foreign 
commerce, and at the same time its people enjoy the high- 
est standard of li\ing, and no country is more prosperous. 
From its superabundance it is able to export great quan- 
tities of products and to obtain in exchange other commodi- 
ties that add greatly to the comfort and well-being of the 

The exchanges between the citizens of different nations 
are made possible when each country produces a surplus of 
one or more kinds of commodities, which it is able to ex- 
change for other commodities that it lacks. The lack may 
be due to cHmatic or other conditions which render the 
production of certain articles impossible, or to natural or 
social conditions which make their production too expen- 
sive for common use. It may be due to a preference on 
the part of the people for certain occupations. For in- 
stance, in the United States it is difficult to procure farm 
labor, our workers preferring city employment in factories 
or other^\ise. Hence, the production of agricultural prod- 
ucts is discouraged, while manufactures flourish. 

It is popularly supposed that export trade is more 
valuable than import trade, and that it is this branch of 
commerce that must be encouraged. It may easily be 
shown that the gain to a country is in its imports; unless it 
receives iox its exports commodities more desirable than 
those parted with, there is no advantage in the exchange, 
except that derived by the individuals who may make a 
profit on the transactions. The United States may ex- 
port cutlery to England and import similar articles from 
England, that could be produced here just as well and just 
as cheaply. In that case, the only gain is that derived by 
the traders engaged and by the transportation and marine 
insurance companies. In its broadest aspects, then, for- 
eign trade is only profitable when it adds to the comfort, 
the ease, the gratification of the people as a whole. In the 
words of Adam Smith: ''It carries out that surplus part of 


the produce of their land and labor for which there is no 
demand among them, and brings back in return for it some- 
thing else for which there is a demand. It gives a value to 
their superfluities, by exchanging them for something else 
which may satisfy a part of their wants and increase their 
enjoyments. By means of it the narrowness of the home 
market does not hinder the division of labor in any particu- 
lar branch of art or manufacture from being carried to the 
highest perfection. By opening a more extensive market 
for whatever part of the produce of their labor may exceed 
the home consumption, it encourages them to improve and 
to augment its annual produce to the utmost, and thereby 
to increase the real revenue and health of society. '^ 

A Wider Internationalism. — The movement toward a 
wider internationalism, growing out of the World War, 
is bound to result in an even freer exchange of products 
among the nations of the earth. The immediate effect of 
the war has been to arouse in the nations engaged a de- 
termination to be self-sustaining to a degree never at- 
tempted since modern commercial methods have prevailed. 
It is freely pointed out that the territorial division of labor 
made possible by foreign trade leads to extreme specializa- 
tion, whereby one country or group of countries may be- 
come wholly agricultural and another country or group 
of countries may depend entirely upon manufacturing, to 
a sacrifice of self-sufficiency that may lead to serious diffi- 
culties in times of war or stress. While such a sane and 
healthful balance in its industries as France has been able 
to maintain is desirable, extreme self-sufhciency entails 
such a sacrifice as modern nations will hardly care to make 
under normal conditions. The economic and industrial 
waste of a nation's trying to produce all that it consumes 
is evident. The plan that is bound to prevail is for each 
nation to devote the major part of its energies to the 
production of those commodities in which it excels and 
for which its climate and natural conditions eminently 






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fit it, and to distribute these products to wide areas, receiv- 
ing in exchange those commodities that it cannot produce 
to the best advantage. 

For Chapter I 

Clow, Frederick R. Introduction to the Study oj Commerce. 
New York, 191 1. 

Day, Clive. History of Commerce. New York, 1907. 

HoBSON, John A. International Trade. London, 1904. 

Lindsay, W. S. History oj Merchant Shipping and Ancient Com- 
merce. London, 1876. 

Powers, O. M. Commerce and Finance. Chicago, 1903. 

Webster, W. C. A General History of Commerce. New York, 

Whelpley, James D. The Trade of the World. New York, 1913. 

Yeats, John. The Growth and Vicissitudes of Commerce. Lon- 
don, 1887. 



Colonial Commerce. — In the colonial period agriculture 
was the chief occupation of the American colonies, with 
the exception of those comprising New England, where 
fishing, lumbering, ship-building, and commerce were 
early developed. 

In the South were great plantations of tobacco and rice, 
on which slave labor was largely used. As each year's 
crop was harvested, it was conveyed to the nearest port 
and shipped to England. In return for the tobacco and 
rice, and for the indigo, tar, pitch, resin, and lumber, which 
were minor products exported, manufactured articles, such 
as clothing, furniture, glass, crocker>^, hardware, and 
utensils were purchased in England. Even those articles 
that could have been manufactured easily and profitably 
at home were imported. In a country abounding in hard- 
woods, furniture was not manufactured, and timber for 
interior finish was not even prepared for use, but was sent 
to England to be dressed and then brought back. The 
strict trade and na\agation laws imposed by England, the 
scarcity of skilled labor, and* the lack of a mercantile class 
were the principal reasons why manufacturing lagged in 
the South. 

In the middle colonies, comprising New York, New Jer- 
sey, Pennsylvania, and Delaware, farming flourished, with 
lumbering, the milling of flour, and the trapping of fur- 
bearing animals as important industries. Philadelphia 
early became the centre of an active commerce with Eng- 
land and the West Indies. Grain, flour, lumber, masts for 
ships, and live stock were the principal exports. 



The hardy seafaring New Englander, prohibited by the 
harsh climate and unproductive soil from deriving his liv- 
ing from farming, turned to the sea for a means of liveli- 
hood, and the New England fisherman, the New England 
ship-builder, and the New England navigator and trader 
became no mean factor in the commerce of the period. The 
material for ships was to be had in the forests adjoining the 
rivers; native ingenuity and mechanical skill quickly took 
advantage of the situation, with the result that the Yankee 
seafaring traders in their stanch and daring sailing-craft 
early became known in every comer of the globe. They 
brought home codfish and whale-oil from the Grand Banks 
of Newfoundland, and took these, together with salt fish, 
oysters, and meat, shingles and barrel-staves, spars and 
masts, grain and flour, horses and oxen, to the West Indies, 
despite laws forbidding colonial trade with these islands. 
They received in exchange sugar, molasses, wool, and 
cotton. They sold to the West Indies more than they 
bought, and thus secured money and bills of exchange on 
London for the surplus, which were used in discharging the 
adverse balance of trade with England. English laws for- 
bade the importation from the colonies of the staple agri- 
cultural commodities and fish, which were the exports of 
the middle and northern colonies. These products, which 
included grain, flour, dairy products, dried meats, fresh and 
salt fish, were sold to the West Indies and to southern 
Europe. A lively export trade with Spain and Portugal 
early developed; it was usually carried in ships of larger 
tonnage than those engaged in the West Indian trade, 
though 300 tons was the capacity of the larger ships. As 
English laws forbade the colonists to import foreign goods 
unless they were bought in England, the return cargo must 
be secured there. A common practice was for a colonial 
sea-captain to sell his cargo in Spain or Portugal, and then 
put in at an English port, where he either sold his ship or 
took on a cargo of hardware, cloth, carpets, brooms, and 


household utensils, which were the manufactures most in 
demand in the colonies. 

But these bold Yankee traders did not confine their activi- 
ties to a few regions. Every European port of consequence, 
the West and East Indies, China, Madagascar, the Ha- 
waiian Islands, the east and west coast of South America, 
even the trading-posts of the western coast of North 
America, were well known to them. New York, IMary- 
land, and Pennsylvania were not slow to participate in 
this trade, which, while it entailed great risks, held out the 
chances of rich rewards. 




Million dollars 






Million dollars 











Million dollars 







The data for this and for all similar tables are taken from the Statistical Abstract 
of the United States, issued annually by the Bureau of Foreign and Domestic Com- 
merce of the Department of Commerce. 

Commerce from 1776 to 1876. — During the period of the 
Revolutionary War and the Confederation commerce 
lagged, but with the adoption of the Federal Constitution, 
when commerce was given the support of a strong govern- 
ment with ample powers to protect and promote it, it re- 
vived. From 1789 to 181 9 foreign trade waxed strong 
under the impetus of the Napoleonic wars, reaching the 


climax in 1807, when the exports totalled $108,000,000 and 
the imports $138,000,000. The principal exports were 
wheat, flour, and other foodstuffs. A feature was the re- 
export of foreign products, notably of those from the West 
Indies. During part of the period the value of foreign ex- 
ports exceeded that of our domestic exports. The imports 
were chiefly tropical products and manufactures. The 
embargo of 1807 put a quietus on foreign trade for fifteen 
months, but even with the lifting of this, trade did not 
thrive until after the close of the war of 181 2-14. For 
three years following the signing of the Treaty of Ghent 
foreign commerce was in its heyday, the exports jumping 
from $6,927,000 in 1814 to $93,281,000 in 1818, and the 
imports from $12,965,000 to $121,750,000. Reaction 
with financial depression set in in 1819. The people then 
turned their attention to the great undeveloped West, and 
a tremendous migration to the Mississippi Valley resulted, 
with the consequent development of that region. All of 
the abounding energy of the nation was thus turned in- 
ward, and foreign trade was given little attention for over 
a decade. 

The development of the West, however, combined with 
greatly improved transportation facilities, eventually stimu- 
lated the commerce of the nation, which was annually 
producing a surplus of raw materials and foodstuffs for 
which an outlet was needed. Between 1830 and 1850 the 
value of our foreign trade nearly doubled. The increase 
of the imports was even greater than that of the exports, 
because great quantities of manufactured and other ma- 
terials were needed in the expansion that was taking place. 

The decade between 1850 and i860 was a halcyon one 
for foreign trade, especially on the export side. The de- 
velopment of the Middle West was reflected in the un- 
precedented quantities of wheat, corn, and flour exported, 
while the extension of the cotton area nearly tripled the 
exports of raw cotton. Other important exports were leaf 


tobacco and forest and mineral products, while manu- 
factures shot up from $23,223,000 in 1850 to $48,453,000 in 

While foreign commerce naturally fell off during the 
Civil War, it is notable that the falling off was ahnost en- 
tirely confined to cotton and cotton manufactures. Even 
in the height of the conflict agricultural exports increased 
in response to the greater demand from abroad, caused 
by partial crop failures there. Just as in the World War, 
the women willingly took the places of men in the fields 
and elsewhere, so that there was no dearth of production 
except in the South. 

During the war agricultural products continued to con- 
stitute fully three-fourths of our ex-ports. Manufactures 
increased, too, and a larger surplus was left for export ow- 
ing to the cutting off of the trade between the North 
and South. Higher prices helped to swell the total, but 
the increase of exports was in quantity as well as in value. 

The high war tariff, together with the blockade of the 
South, materially decreased imports during the war, though 
the value of these in 1864 was only $37,000,000 less than 
in i860. The change in our foreign trade that followed the 
Civil War is thus summarized in Johnson and Heubner's 
History of Domestic and Foreign Commerce of the United 

The decade following the Civil War marks the transition to a new 
era. Protective tariffs were definitely adopted with the avowed 
purpose of keeping out foreign and developing domestic manu- 
factures. Large-scale manufacturing, begun during the war, de- 
veloped rapidly and the foundations of the great trusts of the 
twentieth century were laid. 

The Civil War affected the foreign trade not only through its 
influence upon the tariff policy, but also by encouraging the con- 
centration of capital. The expansion of business in the Northern 
States, which occurred during the war, caused the free competitive 
system to begin to break down. During the war, consohdation 
began and the process has continued to the present in almost every 


branch of business except agriculture. Its effects on commerce, 
domestic and foreign, have been manifold. Aside from the many 
effects which are the subject of controversy, it has been clear that 
the large producers have been able to compete successfully with 
producers of foreign wares; and that, with certain exceptions, the 
rapid progress which has been made in the exportation of manu- 
factures has been brought about largely through the efforts of the 
great industrial consolidations. 

Commerce from 1876 to 1900. — This period was marked 
by the steady advance of the value of manufactures ex- 
ported, and by the change from an unfavorable to a favor- 
able balance of trade, regularly maintained. Everywhere 
American manufacturers laid siege to and won foreign 
markets. In 1874 the manufactures exported constituted 
only 18.8 per cent of total exports; by 1900 they had ex- 
panded to 35.4 per cent of the total and their value had 
increased over fourfold, or from $107,000,000 to $485,000,- 

While agricultural exports more than doubled in value 
in this period, they became of less relative importance, 
though they still constituted 61 per cent of the total ex- 
ports in 1900. 

The same condition was reflected in the imports, where 
two changes are striking: first, the relative importance 
of manufactured imports declined, and, second, those crude 
materials for use in manufacturing won a position of un- 
precedented importance, climbing from 6.2 to 13.6 per cent 
of total imports and more than doubling in value. This 
class of imports, destined to play a more and more important 
part in our national life, includes crude rubber, wool, hides 
and skins, and textile fibres. 

The change in the balance of trade, whereby exports 
exceeded imports in value, is one marking a new era. In 
1874 the value of the nation's exports exceeded that of the 
imports by $18,876,000. In 1875 the balance swung back 
in favor of imports, but since that date the trade balance 


has been against the United States only three times, in 
1888, 1889, and 1893. 

The First Fourteen Years of the Twentieth Century. — 
The period from 1900 through 19 14 was one of astounding 
industrial and commercial activity. The foreign trade of 
the United States advanced from $2,244,000,000 in 1900 
to $4,258,000,000 in 1 9 14. The imports rose from $850,- 
000,000 to $1,894,000,000; the exports from $1,394,000,000 
to $2,364,000,000. While the increase was partly due to 
higher prices, the actual increase in quantity and volume 
was enormous. 

In analyzing the foreign trade of this period the one 
outstanding fact is the unprecedented increase in the ex- 
ports of manufactures. While m^anufactured wares had 
forged ahead so as to form a highly important part of our 
export trade before the close of the nineteenth century, 
their gain in the first fourteen years of the twentieth cen- 
tury far surpassed that of any previous period. 

In 1900 manufactures exported were valued at $485,- 
000,000; during the fiscal year ending June 30, 1914, their 
value was $1,099,000,000. Again, in 1900 manufactures 
constituted 35.4 per cent of our total exports; in 1914 they 
constituted 47.2 per cent of the total. 

This increase reflected the great industrial development 
of the United States, which doubled the total output of 
manufactured articles between 1900 and 1914, the value of 
aU manufactured wares produced in the latter year being 
estimated at $40,000,000,000. 

In this period the great corporations, such as the Standard 
Oil Company and the United States Steel Corporation, 
with fully developed export organizations, advanced their 
sales in practically every country on the globe. Other 
manufacturers followed their example and definitely 
adopted the poHcy of manufacturing for the export trade, 
looking upon foreign markets as primary markets instead 
of merely as dumping-grounds for surplus products. In- 


creased familiarity with the needs of foreign markets and 
the methods necessary to the successful building up of a 
permanent and valuable trade with other nations was an- 
other factor in the success of our manufactures abroad. 

Iron and steel manufactures led all the rest in the long 
list of manufactured commodities exported; refined pe- 
troleum came next, with agricultural implements, cars, 
carriages and automobiles, leather goods, wood manu- 
factures, and copper products all rolling up enormous 

Agricultural products continued to pour out of the 
country in immense volume, their value passing the bil- 
lion mark for the first time in 1907. Between that year 
and 1 9 14 the increase was comparatively slight. The 
lower relative importance of agricultural products in our 
export trade is seen by noting that they fell from 61.6 per 
cent of the total exports in 1900 to 47.8 per cent in 19 14. 
In the latter year manufactures constituted 47.2 of the 
total exports. 

The volume of the leading agricultural export, cotton, 
rose from 3,100,000,000 pounds valued at $241,000,000 in 
1900 to 4,760,000,000 pounds valued at $610,475,000 in 

The exportation of foodstuffs in this, as in former peri- 
ods, shows great fluctuations. The increase from $92,- 
000,000 in 1870 to $459,000,000 in 1880 reflected the 
wonderful development of our Western farms. Then this 
class of exports fell to $356,000,000 in 1890, and again 
broke all records in 1900, when foodstuffs valued at over 
half a billion dollars went out of the country. In 1910 we 
note a decrease, with recovery in 1914. Variations in 
crops and prices are largely responsible for these extreme 
fluctuations. When we have a bumper crop our surplus 
is naturally larger than when the season is a poor one, with 
partial or total crop failures in many parts of the coun- 
try. Likewise, when the prices paid for agricultural prod- 









1880-1918 21 


ucts are high the fanners are encouraged to make every 
effort to produce and market big crops, while when prices 
are low and transportation costs high the reverse is the 
case. Because the exportation of foodstuffs in 1914 was 
21 per cent less than in 1900, we are not justified in coming 
to the conclusion that we are approaching the point at 
which we can no longer provide a great surplus of food- 
stuffs for export. The astounding increase in the exporta- 
tion of foodstuffs since 1914 in response to the higher 
prices and greater demand caused by the World War 
shows that the United States may still be looked upon as 
the granary of the world. The difficulty of procuring 
farm labor, wasteful and expensive methods of marketing 
farm produce, combined with other factors, resulted in 
discouraging increased production of foodstuffs, but the 
general rise in prices in 191 5 and later put the farmers on 
their mettle and they poured forth unprecedented quanti- 
ties of these commodities. 

The imports of the period between 1900 and 19 14 show 
changes similar to those found in the exports. The great 
expansion in manufacturing naturally created a greater 
demand for raw materials. Those which it was found 
necessary to import in great quantities were hides and 
skins, wool, raw silk, the textile fibres (flax, hemp, jute, 
sisal), india-rubber and gutta-percha, and tin. The im- 
portation of such materials comprised 33.4 per cent of the 
total imports in 1914 as against 32 per cent in 1900, and 
12.7 per cent in 1870. Finished manufactures occupied 
the same relative position in 1914 as in 1900, constituting 
24 per cent of our imports in both years. 

Relatively the importation of foodstuffs decreased dur- 
ing the period, though their value increased from $231,- 
000,000 in 1900 to $476,000,000 in 1914. As late as 1890 
foodstuffs constituted a third of all imports; by 1914 they 
had fallen to one-fourth the total. The importation of 
foodstuffs per capita changed little; even as far back as 


1870 we imported $4 per capita; in 191 4 the per capita 
importation of foodstuffs was $4.75. The increase per 
capita was more than offset by the rise in prices. In the 
period between 1870 and 1900 the population doubled; 
that is, it increased 100 per cent. In the same period the 
importation of foodstuffs increased only 54 per cent. 

It is only since 1900 that the importation of foodstuffs 
has increased out of proportion to the growth in population. 







Showing the percentage manufactures fonned of all exports at different periods 

This is due not to a decrease in the production of foodstuffs 
for home consumption, but to an increase in the use of such 
tropical and semitropical products as tea, coffee, cocoa, 
sugar, fruits, and nuts. For instance, our consumption of 
raw sugar rose from 40 pounds per capita in 1880 to 50 
pounds in 1890, and to 59 pounds in 1900, and 89 pounds in 

Summary. — The foreign trade of the United States 
increased from $152,000 in 1810 to $4,258,000,000 in 1914, 
or about twenty-eight fold. In the same period the popu- 
lation increased from 7,200,000 to 98,200,000, or about 
four teenf old. Our foreign trade, then, has increased at 
twdce as great a ratio as our population, the per capita in- 
crease being from $21 in 1810 to $43 in 1914. Between 
19 14 and 191 8, under the stimulus of the World War, our 
trade attained enormous proportions, but since many con- 







o 600 


^ 500 






__ — __ -M — _ 



Showing the increase in value of our exports of manufactures, expressed in milKons 

of dollars 

ditions of that trade were abnormal the returns for that 
period do not afford reliable data for analysis. 

The change in the character of our foreign trade is quite 
as important as the increase in volume and value. Great 


changes have taken place, the most striking being the 
remarkable position manufactured wares have attained in 
the export trade, especially since 1900. The increasing 
importance of such raw materials as rubber, wool, hides 
and skins, and textile fibres in our imports further em- 
phasizes the position manufactures occupy in our trade 
relations with other countries. 

While we are still a great agricultural nation, manu- 
facturing has so forged ahead that since 1914 about one- 
half of our exports has been manufactured articles. This 
change is of the utmost importance, for it has created new 
problems in regard to the marketing of our surplus products 
in foreign countries; it has brought us into direct ccnnperi- 
tion with the other great manufacturmg nations; it has 
given us a new interest in the extension of our trade with 
the less-developed countries, such as Chile, Argentma, 
Brazil, Russia, Australia, South Africa, and Canada, all 
countries that import great quanriries of manufactures 
and export foodstuffs and raw materials; it has niade more 
highly organized and more aggressive methods in foreign 
trade essenrial to our success; it has made our position in 
foreign trade one of fundamental importance to every 
State and to every citizen. 

While it is true that the exportarion of manufactures has 
increased wonderfully in every great commercial nation, 
in no case has the progress been so great as that of the 
United States. This is shown by the following^ table, 
which gives the exports of manufactures for different 




in millions 

Per cent 

United States 

United Kingdom. . . . 

171. 9 






$ 837-3 




Austria-Hungary. . . 


countries in 1892 and in 191 2, in millions of dollars, with 
the per cent of increase for the period. 

The rate at which our exportation of manufactures in- 
creased is far ahead of that of any of the other large manu- 
facturing nations. In actual increase the United King- 
dom led all nations, with Germany second and the United 
States third. 

For Chapters II and V 

Baker, Ray Stannard. Our New Prosperity. New York, 1900. 

Bates, Charles A. American Supremacy. New York, 1901. 

BoGART, E. L, The Economic History of the United States. New 
York, 191 2. 2d ed. 

CoMAN, Katherine. The industrial History of the United States. 
New York, 1900. 

CoNANT, C. A. The United States in the Orient. Boston, 1900. 

CooLmcE, A. C. The United States as a World Power. New York, 

Depew, Chauncey M. One Hundred Years of American Commerce. 
New York, 1895. 

Evans, C. H. Domestic Exports from the United States to All Coun- 
tries, 1 789-1 883. Washington, 1884. 

Farrand, Max. The Development of the United States from Col- 
onies to a World Power. Boston, 1918. 

FuRNESS, Sir Christopher. The American Invasion. London, 

Gannett, H. The Building of a Nation. New York, 1895. 

HoMANS, I. S. An Historical and Statistical Account of the Foreign 
Commerce of the United States, 1820-56. New York, 1857, 

KiTCHELL, J. G. American Supremacy; Being a Compilation of 
Facts and Statistics Regarding Foreign Commerce. New York, 

Knoop, Douglas. American Business Enterprise. Manchester, 

Latane, John H. America as World Power. New York, 1907. 

Laughlin, J. L. Industrial America. New York, 1906. 

McKenzie, F. a. The American Invaders. London, 1901. 

Moore, J. R. H. An Industrial History of the American People. 
New York, 1913. 


Philadelphia Commercial Museum. The World's Commerce and 

American Industries. Philadelphia, 1903. 
Sparks, Edwin E. National Development, 1877-85. New York, 

Thurston, H. W. Economic and Industrial History. Chicago, 

Tompkins, D. A. American Commerce; Its Expansion. Char- 
lotte, N. C, 1900. 
U. S. Bureau of Foreign and Domestic Commerce. Commerce 

Reports. Daily Consular and Trade Reports. 
U. S. Bureau of Foreign and Domestic Commerce. Commerce. 

Monthly Summary of Foreign Commerce of the United States. 
U. S. Bureau of Foreign and Domestic Commerce. Ex- 
ports of Domestic Merchandise from the United States by Articles 

and Countries During the Years Ending June 30, 1 910-19. 

Same for years 191 2-16 and for years 1913-17. 
U. S. Bureau of Foreign and Domestic Commerce. Foreign 

Commerce and the TariJ", 1899-1915. 
U. S. Bureau of Foreign and Domestic Commerce. Position 

of the United States in World Trade. 191 7. 
U. S. Bureau of Foreign and Domestic Commerce. Statistical 

Abstract of the United States. Annual. 
U. S. Bureau of Foreign and Domestic Commerce. Trade of 

the United States with the World, 1914-15- (Miscellaneous 

series no. 38.) 
U. S. Imports of Merchandise Into the United States by 

Articles and Countries During Years Ending June 30, 

1913-17. 1918. 
Vanderllp, Frank A. The American Commercial Invasion of 

Europe. New York, 1902. 
Wright, Carroll D. The Industrial Evolution of the United 

States. New York, 1910. 


New Grand Totals in Both Exports and Imports. — The 

first effect of the World War was to cause a reduction in 
both exports and imports, due to dislocation of shipping 
routes, to the withdrawal of ship tonnage, to unsettled 
business conditions, and to the general turmoil occasioned 
by the outbreak of the war. But in a few months came the 
unending demand of the belligerent nations for war ma- 
terials and foodstuffs, and of the neutral nations for food- 
stuffs and other commodities which they had formerly 
secured from the belligerents. 

The demand rose higher and higher each month as the 
war progressed, causing our foreign trade to break all 
records in volume and value, especially on the export 
side. The imports, too, expanded greatly after 191 5, 
though their expansion was far less than that of the ex- 

The following table gives the value of exports and im- 
ports for the fiscal years of 1914-18, the value being ex- 
pressed in even millions, with six places omitted: 










Analysis of Exports. — The gain in value of the exports 
is seen to be enormous, the totals for 191 7 and for 1918 
being between two and a half and three times the total for 



1914, the last pre-war year. The decrease in exports in 
1 91 8 as compared wdth 191 7 was due to conditions arising 
from our own participation in the war. There were also 
great quantities of war materials exported by the govern- 
ment tliat do not appear in statistics. 

Several factors are to be considered in evaluating this 
war trade. First, the totals were greatly exaggerated ow- 
ing to the constantly rising prices. The increase in the 
prices of the leading articles of export in 1918 over those 
for 1 9 14 ranged from 40 per cent to 300 per cent. For in- 
stance, the price of wheat increased over 100 per cent, of 
steel products fully 70 per cent, of raw cotton over 50 per 
cent, of packed meats about 50 per cent. The effect of 
higher prices in our import totals will be considered in some 
detail later. 

Second, the trade was abnormal in character as well as 
in value. While the gain in volume of some articles was 
tremendous, other articles either gained little or actually 
fell off. For instance, raw cotton exported fell from 9,165,- 
000 bales in 1914 to 8,426,000 bales in 1915, to 5,955,000 
bales in 1916, and to 5,576,000 bales in 1917, though the 
price greatly increased. 

Agricultural implements exported in 19 14 were valued at 
$31,965,000. This fell to $10,304,000 in 1915; with partial 
recovery and increased prices the total in 191 7 reached 
only $26,553,000. Cash-registers decreased in number 
from 47,882 in 1914 to 10,271 in 1917. Art works fell 
from $1,415,000 in value in 1914 to $395,000 in 1917. 
Hops is another agricultural product that met small de- 
mand during the war, the export falling from 24,262,896 
pounds in 1914 to 4,824,876 pounds in 191 7. 

These occasional setbacks, however, dwindle into in- 
significance when the advances in most lines are con- 
sidered, especially in those articles that may be classed as 
war material. The part such commodities played in our 
export trade in manufactures is shown by the following 


table, which gives the totals in millions of dollars of exports 
in specified materials for the four war years, 191 5-18, and 
for the preceding four-year period. 




Zinc and its manufactures. . . 

Brass, mostly shells 


Metal- working machinery. . . , 



Automobiles, including trucks 

Total for period 

Value 4-year period 




Value 4-year period 

$ 21 





The table contains only a few of the articles exported 
largely if not entirely for war purposes. Great quantities 
of leather manufactures such as boots and shoes and har- 
ness and saddles, of cotton and woollen cloth and of army 
uniforms, implements and tools of every variety, and a 
score or more of other articles were added to the war store. 
In addition to all these are the foodstuffs, the demand for 
which was doubled and trebled by the war. 

The table helps to explain why manufactures exported 
in the four years of the war aggregated in round numbers 
$11,000,000,000, being largest in 191 7, when they aggre- 
gated $4,000,000,000, or nearly as much as the total ex- 
port of manufactures for the four-year period preceding the 
war. Foodstuffs exported in the war period amounted to 
approximately $5,000,000,000. 

The largest single group in the export trade was iron and 
steel products, fonning about one-fifth of the total exports. 
These include such war materials as barbed wire, firearms, 
steel rails, steel sheets and plates, steel billets, and similar 

Breadstuffs is the next great item, with such commodi- 


ties as meat and dairy products, condensed milk, canned 
and dried fruits and vegetables and fish, and re-exports of 
sugar, coffee, vegetable oils, and cocoa important items. 
Wheat exported in the four-year period, including flour 
reduced to terms of wheat, aggregated over 913,000,000 

The Exports by Continents and Countries. — The direc- 
tion of our export trade shows interesting and important 
changes. While European countries continued to take the 
bulk of our exports, the sales to other countries were greatly 
enhanced. They are of special interest because they con- 
sisted more largely of the stable commodities of peace. 
Sales to Europe in 191 7 nearly trebled those of 1914, ris- 
ing from $1,486,000,000 to $4,324,000,000, but falling con- 
siderably below this high mark in 1918. Exports to Europe 
for the four war years totalled some $13,000,000,000 as 
against $6,616,000,000 for the preceding four-year period. 

The exports to North American countries show the next 
largest increase, expanding from $528,644,000 in 1914 to 
$1,163,750,000 in the banner year of 191 7. Canada was 
the largest factor in this trade, as the United Kingdom was 
in the European trade. 

After recovery from the trade depression felt throughout 
South America in 191 5, our exports to that continent rose 
satisfactorily, so that in 191 7 we sold over twice as much to 
that continent as in 1914- 

Exports to Asia expanded from $113,425,000 in 1914 to 
$380,250,000 in 1917, with still larger figures in 1918, 
Japan taking over one-third of the total. Sales to African 
countries nearly doubled in the same period, while those 
to Oceania showed a normal increase. 

Considering the different nations separately, we find the 
United Kmgdom continued to be our best customer through- 
out the war period, purchasing from us merchandise valued 
at some $6,500,000,000 in the four years as against $2,300,- 
000,000 in the preceding four years. Commodities sold 


to France in the four years were valued at $2,900,000,000 
as against $576,000,000 for the four years preceding the 
war. Italy took over a billion dollars' worth of merchandise 
during the war as against $276,000,000 for the preceding 
four years. Of non-European countries, Canada was by 
far our best customer, her purchases from us for the four 
years aggregating $2,300,000,000, or not far from double 
those of the four years preceding the war. This placed 
Canada third in our list of customers, with the United King- 
dom first and France second. Our trade with Russia was 
enormously increased in 191 6 and 191 7, but practically 
ceased in 191 8. Japan proved an excellent market dur- 
ing the war period, taking a total of $523,000,000 worth 
of merchandise. The growth of commerce between the 
United States and Latin America expanded steadily dur- 
ing the war. This will be considered later. 

Analysis of Imports. — With the greater demand for 
manufactured products for export came the need of larger 
quantities of raw materials for use in our industries. 
These, with tropical food products, are responsible for the 
expansion of our imports. By articles the leading imports 
of the war period were sugar, rubber, wool, raw silk, hides 
and skins, coffee, copra, chemicals, tin, and fibres. 

While the increase in value of the imports was large, a 
comparison of quantities shows that the higher prices pre- 
vailing during the war are largely responsible for the greater 
totals. For example, 379,129,000 pounds of wool were 
imported in 1918 as against 247,648,000 pounds in 1914, 
the quantity increasing 60 per cent, while the average 
price per pound increased 150 per cent, or from 21 to 52 
cents. The imports of raw silk increased from 28,594,000 
pounds in 19 14 to 34,846,000 pounds in 19 18, and the price 
per pound from $3.40 to $5.30. Imports of copper ore 
jumped from 112,271,000 pounds in 1914 to 166,654,000 
pounds in 19 18, the average price rising from 12.1 cents in 
1914 to 19.8 cents in 1918. 


Some imports which rolled up large totals in value in the 
later years, really decreased in quantity, notably sugar 
and hides and skins. Of sugar, 5,061,000,000 pounds were 
imported in 1914 and only 4,898,000,000 pounds in 1918, 
though the value more than doubled. The value of the 
hides and skins imported in 1918 exceeded that of 19 14 by 
over $11,000,000, and yet the quantity fell from 561,080,- 
000 poimds to 432,516,000 pounds. 

A few imports show a falling off in price in the period, 
as in the case of rubber and coffee, but such exceptions are 
rare. The statistician of the National City Bank of New 
York computed the value of 25 of the leading imports for 
use m manufacturing in the year 191 7 at the prices pre- 
vailing for the same articles in 1916, 1915, and 1914? and 
showed that while the 25 articles in question had a total 
value in the imports of 1917 of $1,201,595,000, an equal 
quantity of the respective articles imported at the average 
price in 1916 would have cost but $951,371,000; in 1915, 
$891,981,000, and in 1914, $903,008,000. This indicates 
the necessity of making a liberal deduction in trade totals 
before making comparisons. 

The Continents and Countries from Which We Bought. — 
Striking changes in the sources of our imports occurred 
during the war. A relatively smaller proportion came 
from European countries and a much larger proportion 
from both North and South America. European imports 
fell from $895,602,000 in 1914 to $411,000,000 in 1918, 
while those from other countries rose from slightly less 
than $1,000,000,000 in 1914 to $2,535,000,000 in 1918. 
Expressed as percentages of the total, less than 14 per 
cent of all imports came from Europe in 191 8 as against 
over 47 per cent in 1914. During the four-year period the 
value of European imports totalled $2,253,000,000 as 
against $3,376,000,000 in the preceding four years. The 
shutting off of trade with Germany was a large factor in 
this change, while the concentration of the United King- 


dom, France, Italy, and other nations upon war industries 
accounted for the balance. 

Imports from North American countries totalled $2,749,- 
000,000 for the four-year war period as against $1,428,- 
000,000 for the preceding four years; those from South 
America more than doubled in the period as did those from 
Asia and Oceania, while the purchases from Africa increased 
even more, being fourfold as large in 191 8 as in 19 14. 

Considering not continents but separate countries, it is 
important to note changes in the relative positions of the 
nations in our import trade. The appended table shows 
this for 1 9 14 and 191 8, in millions of dollars. 


Imports from — 

Imports from — 





141. 4 







United Kingdom 






The gain in the import trade with Canada and w^ith 
Latin American countries is clearly brought out in the 
table. From Canada we bought wheat, largely for re- 
export, copper and copper manufactures, wood-pulp and 
pulp-wood, flaxseed, cattle, lumber, furs, hides and skins, 
and wood. 

Japan more than doubled her sales to the United States, 
stepping into the position formerly held by Germany in 
our import trade. Raw silk and silk manufactures, tea, 
soya-bean and peanut oil, beans and lentils, camphor, hats 
and hat materials, chinaware, rice, matting, and cotton 
manufactures were the leading articles, the single item of 
raw silk being responsible for about one-half the gain. 


The Latin American Trade. — From Cuba the increase 
was largely due to the higher price of sugar. Other im- 
ports were tobacco, molasses, copper ore, hides, iron ore, 
manganese oxide, and fruits. 

The trade with the other Latm American countries, 
which include all the South American republics. Central 
America, except British Honduras, Mexico, Cuba, Haiti, 
Domingo, and the French West Indies, more than doubled 
on the import side and nearly trebled on the export side. 
Our imports from these countries, which aggregated $469,- 
000,000 in 1 914, rose to $1,000,000,000 in round numbers 
in 191 7, a record maintained in 191 8. At the same time 
the exports from the United States to Latin America ex- 
panded from $282,000,000 to $581,900,000 in 1917 and to 
$725,800,000 in 1918. Expressed in percentages of our 
total trade, we obtained 36 per cent in 191 7 and 33 per cent 
in 1 918 of our imports from Latin America as against 24.7 
per cent in 1914, and we sold 12.24 per cent of our exports 
to those countries in 1918, or slightly more than the share 

in 1914. 

Our total trade with Latin America, considering unports 
and exports together, was about one and three-quarters 
billion dollars in 1918. The trade of these republics with 
the world was about $3,000,000,000 all told in 1918, which 
indicates that about 60 per cent of this total was with the 
United States. Until trade channels were changed by the 
war, many Larin American products went first to some 
European country and then were purchased by us, while 
the tendency was for those countries to buy the manufac- 
tured products they required from the United Kingdom, 
Germany, or France. During the war the indirect trade 
between the United States and Latin America was stopped, 
and more and more of our products found a market there. 
While the hold that Germany had upon Latin American 
trade has been greatly exaggerated, the shutting off of 
that trade has, nevertheless, had a decided effect in increas- 
ing our trade. 


The larger totals of our trade with our American neigh- 
bors are not so important as are the closer trade relations 
that have been established. Many products from the 
United States have been sold to Argentina, Chile, Brazil, 
and the other republics which had never found a market 
there before. This promises better trade in normal times. 
Clearer understanding of the needs and conditions pre- 
vailing in South America has been gained by these transac- 
tions, and this opens the way to closer trade relations and 
to enlarged sales. From Latin America we procure essen- 
tial raw materials; in Latin America we find a market for 
surplus manufactures in which there is keen competitive 
selling. Hence our interest in trade with that part of the 
world. Conversely, Latin America finds in the United 
States the best customer for those raw materials produced 
in superabundance, and is able to obtain from the United 
States the manufactured articles not produced there. 
Since the United States has become the great creditor na- 
tion of the world, with the means of making further foreign 
investments where safety and fair returns are assured, it 
is to us that the undeveloped countries of the world such 
as the republics in question are naturally looking for assis- 
tance in developing the rich natural resources they possess. 
It is for these reasons, among others, that a largely increased 
trade with Latin America is predicted. 

The Re-export Trade. — The United States has not made 
the same effort to develop a trade in the re-export of for- 
eign commodities as have the other leading commercial 
nations. Our pre-war exports of foreign merchandise 
amounted to about $35,000,000 annually. This increased 
to $62,884,000 in 191 7 and to $81,059,000 in 1918. In 
contrast to this is the re-export trade of the United King- 
dom, amounting normally to about $500,000,000 annually; 
of France, ranging from $350,000,000 to $400,000,000, and 
of Germany's re-exports, totalling from $100,000,000 to 
$190,000,000 before the war. 


Aside from the profit made by those directly concerned 
in the re-export trade, there is the further advantage re- 
sultant from the natural reciprocal movement in trade. 
The countries which find a ready market for their wares 
in the United States quite naturally look to us for those 
conamodities which they import. 

The advance in our re-export trade between 1914 and 
1919 was largely in Latin American products, many of 
which were diverted to the United States because of the 
lack of direct shipping facilities to British or Continental 
ports. The statistics for re-export trade do not include 
goods from Porto Rico, Hawaii, or Alaska, but do include 
products from the Philippines, which are not a customs 
district of the United States. Neither do they include the 
exports of merchandise made from imported raw materials, 
which rose from §75^000,000 in 1914 to $250,000,000 in 
1 91 6. Such goods consisted largely of the manufactures of 
leather, rubber, silk, and wool. 

The leading items in our re-export trade in 191 7 with 
their value in millions of dollars were as follows: 

India-rubber and gutta-percha 


Chemicals, drugs, and dyes 

Hides and skins, other than furs. . . 
Fibres, as flax, hemp, jute, and sisal . 

Fruits and nuts 

Meat and dairy products 


Other large items of foreign merchandise regularly re- 
exported in large quantities are rice, cocoa, raw and manu- 
factured cotton, fish and shell-fish, iron and steel and their 
manufactures, vegetable oils, raw silk, spices, sugar, 
tobacco, wood and its manufactures, wool, and art works. 

A recent article in Commercial America* thiis describes 
our re-export trade: 

* Commercial America, June, 191 5, p. 25. 


Practically tlie entire world is drawn upon for the many lines of 
foreign merchandise that are shipped from the United States. 
Horses are imported chiefly from Mexico and Canada, and ex- 
ported not only to those countries, but also to various countries 
in Europe. About 18,000,000 pounds of foreign rice is exported; 
it is obtained chiefly from the Netherlands, China, and Hongkong. 
The United States exports annually about 10,000,000 pounds of 
coft'ee, obtained in most part from South and Central American 
countries. Henequen, which is exported from the United States 
chiefly to Canada, Belgium, and other European countries, is 
brought mostly from Mexico. The india-rubber which is exported 
from this country comes chiefly from Brazil and the British West 
Indies, and is exported largely to Canada. The foreign tobacco 
which leaves the country, chiefly consigned to the Netherlands and 
Canada, is produced principally in Cuba, Turkey, and the Dutch 
East Indies. The one and a half million pounds of block tin which 
are exported to Canada represents less than iK per cent of the 
total imports of that article. 

Trade of 19 19. — Our trade in 191 9 was the largest, as 
measured by dollars, in our history. The exports for the 
fiscal year totalled $7,225,000,000, as against $5,920,- 
000,000 in 1918. The imports aggregated $3,096,000,000, 
as against $2,946,000,000 in 1918. The figures for the cal- 
endar year of 19 19 are still larger, bringing the exports up 
to $8,000,000,000, in round numbers, and the imports to 
$4,000,000,000. That excessively high prices are largely 
responsible for the enormous totals, overtopping those of 
1 91 8 or of any previous year, must be kept in mind, but 
the fact remains that the volume of both exports and im- 
ports was huge. In this trade Europe was by far the largest 

On the face of it, this is highly satisfactory, but there 
are vital factors to be considered and pivotal problems to 
be solved, if our trade pre-eminence is to be permanent. 

First, there is the question of prices. During 1919, as 
throughout the war period, exporters were able to obtain 
almost any price they chose to place upon their goods, 
provided they could supply the insistent demand for our 


commodities. The United States was the one country 
where the manufactures, the raw materials, the foodstuffs, 
so sadly needed by the war-torn countries of the world, 
could be obtained. Hence, these were purchased in ab- 
nonnal quantities at abnormal prices. With the restora- 
tion of the industrial life of Europe, world-wide competi- 
tion is being restored. American products are again com- 
ing into the position of having to sell on their merits at the 
same prices as asked elsewhere. If the competing coun- 
tries are able to keep down the cost of production and un- 
dersell us, they may be depended upon to do so. 

The pessimistic view is that this can be done because 
labor costs have increased so greatly in the United States. 
It is doubtful, however, if the European countries will 
have much the advantage of us in this respect. In January, 
1920, reports of wage scales in the leading industries of the 
United Kingdom revealed an increase of wages over those 
antedating the war of from 100 per cent to 300 per cent, 
with an upw^ard tendency in every branch of industry. 

With large-scale production and improved equipment 
and other capital investments already paid for out of the 
profits of the war period, the manufacturers of the United 
States should be in a position to compete in both quality 
and price with those of any other nation. 

A question that cannot be solved by the individual manu- 
facturer is that relating to the huge balance of trade in our 
favor. In the five-year period from i9i5toi9i9, inclusive, 
the trade balances in favor of the United States aggregated 
over $14,000,000,000. In the three fiscal years of 191 7, 
1 91 8, and 1919 the exports exceeded the imports by ap- 
proximately $9,000,000,000. These balances were liqui- 
dated before our entrance into the war by the return of 
American securides held abroad, by private loans made in 
America, and by the exportation to us, from the countries 
having adverse trade balances, of over $1,200,000,000 in 


In the last three years of the period the merchandise 
balance due the United States was met by means of loans 
made by the goverimient of the United States to the Allied 
nations, aggregating $10,000,000,000 in round numbers. 
In 1 919 alone our loans to foreign countries exceeded 
$1,750,000,000. After the making of such loans was dis- 
continued on the part of our government, private loans and 
credits were extended. 

In this way the countries of Europe were enabled to 
buy from us vastly greater quantities of goods than they 
sold to us. Hence, we piled up an enormous balance, 
designated as a favorable one. 

The Outlook for Future Trade. — That the continuation 
of such a condition is neither possible nor desirable, except 
for a very limited period, is evident. Europe is already 
deeply in our debt; the piling up of greater debtor balances 
can be only a handicap to her future prosperity. It is 
generally conceded that European purchases from us will 
diminish as soon as normal industrial conditions have been 
restored. The unfavorable condition of exchange, which 
makes goods purchased in the United States still more ex- 
pensive to European customers, is a factor that tends to 
bring about a balance in the trade relations between the 
nations involved. 

It is plain, then, that our exports cannot continue to be 
double our imports in value. The nations buying from us 
must pay in gold, in goods, in services, or in securities. 
The payment of enormous trade balances in gold is impossi- 
ble, as shown in the chapters on foreign exchange and on 
the balance of trade. There is not enough gold in Europe 
to pay such balances as prevailed in 19 18 and 19 19 for a 
period of years. This is the reason for the embargo on the 
exportation of gold that has been laid by many countries. 

If we are to sell to Europe and elsewhere as heavily as 
in the past, we must adopt one or more of the following 
measures : 


1. Take a larger volume of European exports, so that 
our imports from Europe will more nearly balance our ex- 
ports to Europe. 

2. Invest freely in foreign securities, either through 
government loans or privately. 

3. Make long-term credit arrangements with European 
and other customers, so as to tide over the reconstruction 

4. Roll up tourist expenditures in Europe, as well as 
other bills for services, such as bankers' commissions, 
shipping in foreign bottoms, etc. Such items before the war 
offset a goodly percentage of our exports. 

In general, then, neither the United States nor any other 
nation can hope to have an unduly large share of the gold 
in the world, an unwieldy excess of sales over purchases, an 
excessive amount of securities and other evidences of debt 
either from other governments or from individuals of other 
nations, and a preponderance in shipping and financial 

International trade means exchange between nations. 
If we wish to sell more than we buy abroad, we must de- 
cide what we are willing to take for our surplus exports. 
While foreign securities seem to be the best answer during 
the period of reconstruction following the war, there is a 
limit even to this method of offsetting our trade balance. 

It has been predicted in not a few quarters that before 
many years the United States will fall into the position so 
long occupied by the United Kingdom, in which its exports 
fall short of its imports, the excess of imports being offset 
by interest received on securities held abroad and by other 
credits arising from international transactions. This would 
make its credits in some items offset its debits in other items, 
a condition that must prevail in all but abnormal periods. 



Nature of Our Exports. — In its wealth of natural resources 
the United States is the most richly endowed country in 
the world. With great productivity and comparatively 
low density of population, it has a large surplus of food- 
stuffs and raw materials for export. Since it has become 
the leading manufacturing country in the world, the ex- 
ports of manufactures, as previously shown, have become 
of tremendous importance. While we find a wide variety 
of exports, especially among manufactures, a study of the 
statistics compiled by the Bureau of Foreign and Domestic 
Commerce reveals the fact that a comparatively few com- 
modities make up the greater part of our immense export 
trade. These articles are, in the order of importance as 
expressed in value, cotton, iron and steel manufactures, 
meat and meat products, wheat and corn (including flour), 
refined and crude petroleum, copper manufactures, wood 
manufactures, and leather manufactures. We find these 
eight classes of commodities repeated time and again as 
our leading exports to widely scattered countries, differing 
only in the proportion which they bear to the total. 

The following table gives the average value of our eight 
leading exports for the five-year period embraced between 
igio and 1914: 


Iron and steel manufactures. 

Meat and meat products 

Wheat, wheat-flour, and corn. 
Refined and crude petroleum . 

Copper manufactures 

Wood manufactures 

Leather manufactures 

Exports in millions 
of dollars 







Cotton. — The place occupied by cotton in both our 
domestic and foreign commerce is of paramount importance. 
Next to food, clothing is the greatest need of mankind, and 
it is cotton that, broadly speaking, clothes the world. In 
comparison with cotton, wool, silk, and all other textiles 
occupy a minor position. More than twice as much cotton 
is used as w^ool and all other textiles. The use of this 
commodity has increased fortyfold in the past century, 
while wool has increased only fivefold and flax tw^ofold. 
As the processes of manufacturing have been improved, 
cotton fabrics and knit goods have become cheaper and 
more attractive, and thus their use has been greatly en- 
larged. Cotton manufacturing has become one of the lead- 
ing industries of the United States; it has long been of the 
first importance in the United Kingdom, which annually 
looks to this country for miUions of pounds of cotton to 
supply her mills and factories. Germany and France and 
other manufacturing nations have likewise depended upon 
us for great quantities of raw cotton, the manufacture of 
which affords employment to thousands of workers. A 
complete failure of our cotton-crop for even one year 
would cause industrial paralysis and great distress both at 
home and abroad. The importance of cotton as a world 
commodity is indicated by the following table, which gives 
the production, in milHons of bales of 500 pounds each, of 
the leading countries for stated years. 


United States 



Brazil and all others 



1 .20 






1. 41 









1. 41 


For the five-year period just considered, the United States 
supphed three-fourths of the cotton production of the w^orld. 
It is interesting to note that while our exportation of cotton 


steadily increased from the Civil War up to the first year 
of the World War, or until 191 5, approximately two- 
thirds of the crop was regularly exported each year. The 
increased exportation nearly kept up, until 1915, with the 
increased production, leaving one- third of the crop for use 
at home. Our home consumption now exceeds 6,000,000 
bales annually, which equals the entire consumption of the 
continent of Europe, and is one-fourth greater than that 
of the United Kingdom, which for years led the world in 
the consumption of raw cotton. In 1867, 1,401,000 
bales were exported; twenty years later the number had 
increased to 4,301,000 bales; while in 1897 the total reached 
6,124,000 bales. 
The following table gives recent statistics: 





500-Ib. bales 


500-lb. bales 


Per cent 



Since 1914 we have retained a larger percentage of the 
crop for manufacturing in our own mills. Hence, our 
exports of manufactured cotton increased from $51,467,- 
000 in 1914 to $136,300,000 in 191 7, the increase being 
in quantity as well as in value, though the higher prices 
helped to make the difference. Our consumption of raw 
cotton in 1918 was 7,555,000 bales. 

In the years 1 910-14 the value of our raw cotton ex- 
ports averaged $550,000,000. It has been shown that our 
pre-war favorable balance of trade was due to the quantity 
of cotton sold each year to the merchants and manufacturers 


of foreign countries. Our cotton exports regularly 3delded 
sufficient returns to more than offset our purchases of sugar, 
coffee, tea, cocoa, spices, and tropical fruits. Stated in 
another way, our cotton exports may be said to have offset 
before the war the total charges against us for interest on 
American securities held abroad, for our tourists' expenses, 
our freight charges due foreigners, and the money sent 
abroad by immigrants living in this country. It is cotton 
that keeps our agricultural exports in the lead and that 
insures the United States continued supremacy as a source 
of raw materials. 

That a steady demand for raw cotton from the United 
States win continue for years is practically an assured fact. 
Not only the United Kingdom, Germany, France, and other 
European countries, but also Japan and even China must 
continue to look to America for the major supply of raw 
cotton for their mills. However, with the rapid expan- 
sion of our own cotton-manufacturing industry, we may 
expect to see a smaller percentage of our cotton-crop shipped 
abroad, and our importation of finished cotton decrease. 
In other words, we will discontinue in a measure the cus- 
tom of shipping our raw cotton to Europe and buying back 
the finished product made from that cotton. 

Iron and Steel Manufactures. — Iron and steel manu- 
factures have long held the foremost place in our manu- 
factured exports. This was won by superiority of the prod- 
uct, promptness in the execution of orders, adaptation to 
the demands of the market, and a thorough and consistent 
sales campaign, carried on, for the most part, by corpora- 
tions having an unlimited supply of capital. The articles 
classed as iron and steel manufactures include iron and steel 
rails, structural iron and steel for bridges and buildings, 
locomotives and other railroad equipment, steam and gas 
engines, boilers, gas, mill, mining, and oil-well equipment, 
steel wire for fencing and other purposes, steel cables and 
chains, ship-plates and anchors, tools and tool steel, office 


safes and other steel office equipment, and machinery of 
every description. 

The exports of this class of manufactures averaged 
$247,000,000 in the five-year period ending June 30, 19 14. 
The demand for war materials, coupled with higher prices, 
caused the value of such exports to shoot up to $1,133,746,- 
000 in 191 7, with only a slight falling off in 19 18. The 
after-war demand for structural material and other iron 
and steel manufactures kept the value of this class of ex- 
ports well over the billion-dollar mark in 19 19. 

The expansion of our manufacturing facilities during the 
war placed us in a position to meet any future market 
demands for this as for other class of manufactures. More- 
over, the fact that we supplied these and other manufac- 
tures to markets that had formerly been supplied by Europe 
has created new and valuable trade relations which presage 
future expansion. 

Meat and Meat Products. — Meat and meat products 
are still a much more important export than is generally 
realized. The fact that few cattle are now exported on the 
hoof, that method having been almost entirely displaced 
by the extensive use of refrigeration in the meat-packing 
industry, has led to a rather wide-spread belief that our 
exports of meats have practically ceased. As a matter of 
fact, despite our increase in population, these exports 
averaged in the five-year period between 1910 and 19 14 
nearly the same as those of the period 1895-99, though they 
were not as heavy as those of the intervening years. The 
value of the exports of meat and meat products for five- 
year periods is shown below: 


Exports in milHoos 
of dollars 

i8q^— QO 



^^70 77 


1905-09.... , 

I910— 14 


Statistics and estimates given out by the Department of 
Agriculture show that the number of cattle increased from 
43,902,414 in 1900 to 58,329,000 in 1915, which is a gain 
of nearly 33 per cent, or practically the same gain as in 
our population. The highest number of cattle recorded 
was 72,533,996 in 1907. Swine increased from 37,079,000 
in 1900 to 68,047,000 in 1916, or 85 per cent. The increase 
in the number of sheep in the United States has not kept 
pace with the growth in population. The number of sheep 
in 1900 is given as 41,883,000; in 191 5 they numbered 49,- 
956,000, but this is far below the number for the year 1903, 
which was estimated at 63,964,000. There is a fluctuation 
in the number of farm animals from year to year, occasioned 
by an abundance or by a lack of feed, by variations in 
prices, and by many other conditions. The fact remains 
that our meat exports promise to be of importance for 
many years to come. 

The war trade in meat and its products showed an im- 
mense gain, reflecting higher prices and greater demand. 
The value of such exports during the period of the war 
is shown in the following table: 

Fiscal year 

Exports in millions of dollars 










Still larger exports were recorded in 1919. The higher 
standard of li\ing throughout the world has had its effect 
in maintaining the demand for meat and meat products. 
Thus a market for any surplus we may produce seems 

Wheat. — While we unfailingly have a great quantity of 
v.heat for export, the amount marketed abroad each year 


shows great fluctuations, due to changing crop conditions, 
difference in prices, and in the international demand. The 
following table shows the production of wheat, the exports, 
and the percentage of the crop exported each year for the 
period between 1906 and 19 18, inclusive. The figures are 
for millions of bushels and include flour. 



















17. 1 

II. 8 




There is a gratifying increase during the thirteen years, 
especially on the side of production. The average for the 
first half of the period is about 671,000,000 bushels; for 
the last or seven-year period the average is 800,000,000 

The 1 919 wheat-crop was slightly larger than that of 
191 8. It is to be noted that in the table of production and 
exportation the exports of wheat for each year are placed 
with the crop of that year, although such exports actually 
took place after the close of the fiscal year. For instance, 
the 132,000,000 bushels of wheat exported from the 191 7 
crop were not sent out of the country until the following 
fiscal year. 

While the table shows that the United States is increas- 
ing the production of wheat to meet the demand, it must 


Expozrtatioix-— -—_ > • 

UNITED STATES, 1899-1916 

be recognized that the continuance of this satisfactory 
condition must depend upon an adequate supply of farm 
labor at fair wages being available, and upon the price of 
wheat remaining high enough to encourage production. 








Five-year averages, 1891-1916 

Petroleum, Copper, Wood, and Leather Manufactures. — 

Of the other exports enumerated, refined and crude pe- 
troleum, controlled and exported by a few corporations, 
have increased in value because of the wider use for these 
products occasioned by the improvements in the internal 
combustion-engine and by the most thoroughgoing selling 
organization in existence. Copper, wood, and leather 
manufactures exported reflect our skill in large-scale pro- 
duction, whereby the best modern machinery is made use 
of and the best product possible is turned out at a cost 
enabling us to meet the competition of any country in 
the world. 

Destination of Our Exports. — It is important to note 
carefully the continents and nations that afford us the best 
markets. It is to be noted, however, that we do not sell 
all of our exports directly to the country consuming them, 
as that we do not buy all of our imports from the country 
producing them. There is a group of nations that have 
long made it a practice to act as middlemen in the trade 
of the world, buying from one country and selling to an- 
other. The United Kingdom, Germany, Belgium, and the 
Netherlands had, before the war, an immense re-export 
trade. These nations through their long-established trade 
and steamship connections carried on an enormous trade 
with Africa, Asia, Australia, South and Central America, 



and with the islands of the sea, in which they acted prin- 
cipally as middlemen. England is often referred to as 
a nation of merchant traders, because of the enormous 
business she transacts between other nations. Before the 
war we bought quantities of Brazilian rubber, AustraHan 
wool. South African diamonds, Central American and 
Mexican mahogany, and many other articles from England, 
Germany, or the Netherlands, and sold to those trading 
countries our products, a considerable part of which 
eventually reached the countries ^ith which we had very 
little direct trade. 

The destination of our exports to the different grand 
dixdsions in 1900 and in 1914, with the percentage each 
took of our total exports, is shown in the following table: 


Our exports 

Per cent 
of total 















Our exports 

Pet cent 
of total 



North America 
South America 











Europe. — While Europe bought nearly two-thirds of our 
e:q)orts in 19 14, the percentage of finished manufactures 
sold to that continent constituted not quite 34 per cent of 
our total export of manufactured products. On the other 
hand, Europe afforded a market for nearly 84 per cent of 
our crude materials for use in manufacturing and for nearly 
70 per cent of our foodstuffs exported. The total exports 
to Europe increased from a little over a billion dollars in 
value in 1900 to nearly a billion and a half dollars in 1914, 
but this increase was not proportionally as great as that to 
North American countries, particularly to Canada, or to 
South America. This is because we extended the sale of 
our manufactures to newer and less-developed countries. 


Since the European nations, especially the United King- 
dom, Germany, France, and Belgimn, are the centres of the 
manufacturing industry of the world, they furnish ex- 
cellent markets for our surplus production of raw materials 
and foodstuffs, but cannot be looked upon as affording 
opportunities for the extension of finished manufactures in 
the same proportion as do such rapidly developing countries 
as Canada, Argentina, Chile, Brazil, and Australia. This 
does not mean that Europe is not an important market for 
our manufactures, for it is, of course, by far the best one, 
but it indicates that the percentage of increase in the sale 
of finished manufactures will most naturally be greatest 
in the countries in which manufacturing is little developed 
and in which the natural resources are being most rapidly 
developed. This consideration is important, for it ex- 
plains why such countries as those embraced in Latin 
America, in Oceania, and in other undeveloped regions are 
being given so much attention by those most interested in 
the extension of our foreign trade. Russia is in the same 
category as the other countries mentioned. This marvel- 
lous country possesses boundless resources; there has been 
during the past decade a remarkable awakening there, 
and with the establishment of a settled government and 
the return to normal political and industrial conditions, a 
revival of trade may be expected. Russia thus affords 
great potential possibilities for the building up of mu- 
tually beneficial trade relations with the United States, 
as well as with other great manufacturing countries. 

North American Countries. — Our trade with the neigh- 
boring countries in North America is increasing rapidly. 
Canada is our third best customer among the nations, 
taking each year more and more of our surplus products, 
especially those manufactures for which we are seeking a 
market. Mexico's trade is mostly mth the United States, 
from which it purchases iron and steel manufactures, 
notably machinery and equipment for its mining and other 


industries, and other manufactures. While the trade of 
Central America is not large, we are selling there in increas- 
ing quantity such manufactures as tools, hardware, ma- 
chinery, and textiles. Cuba is being developed largely by 
American capital, which means that the development 
material is obtained in the United States. Every North 
American country is experiencing an era of expansion, 
which makes their trade promise well for the future. 

South America. — The ten Latin American republics of 
South America are rich in natural resources that have only 
recently received the attention that is their due. The 
United Kingdom and Germany early developed trade 
relations wdth these countries, and they have supplied them 
with a large part of their imports. In recent years the 
United States has expanded its trade to the south. With 
the establishment of closer trade relations, more direct 
transportation facilities, and a better understanding of the 
mutually beneficial relations possible between the tw^o 
Americas, the trade is developing at a most encouraging 
rate. Our present trade with South America is much 
larger than that existing before the World War, and it 
is generally conceded that our exporters will be able to 
hold most of it. The Panama Canal wiU eventually be an 
important factor in binding the two Americas together. 
As railroad building and other development projects in- 
crease, the demand for structural iron and steel, machinery 
of all kinds, and staple manufactures will be felt through- 
out the world, and the United States will be called upon 
to supply its share. The branch banks now being es- 
tabhshed by American bankers and the readiness we are 
showing 10 invest in South American enterprises are two 
factors that are stimulating the trade between the two 
continents. Our trade with the leading countries of South 
America is discussed in some detail in another chapter. 

Asia. — Our direct export trade with Asia is developing 
very slowly. The United Kingdom controls a large part 


of the trade with India and other British possessions. 
Japan is rapidly developing manufacturing, and supplying 
not only its own needs but also a considerable portion of 
those of China and other neighboring countries, especially 
for coarse cotton goods. Our trade with Japan and China 
is of importance; that with the rest of Asia is still small. 
Our exports to Asia include those typical American manu- 
factures that find a market in every country in the world, 
such as machinery, railroad equipment, office supplies and 
equipment, and hardware. Cotton goods are also sold 
there in considerable quantity. Flour, meat products, 
cotton, and petroleum are the other products finding the 
readiest market. 

Oceania. — Australia and New Zealand are two countries 
that are rapidly increasing their production and their pur- 
chasing power. Our exports to these countries nearly 
doubled between 1907 and 1914. In 1916 there was an 
unprecedented expansion of our trade with Australia, 
which purchased goods valued at nearly $60,000,000 from 
us that year as against $45,000,000 worth in 19 14. In 
the three-year period from 191 7 to 1920, still larger totals 
were rolled up, largely due to higher prices. Our own 
island possessions are likewise proving a better market 
for our merchandise each year. Manufactured goods in 
wide variety constitute the bulk of our exports to these 

Africa. — In general the European countries having col- 
onies or dependencies in Africa control the bulk of the 
direct trade of that continent. In 191 5 our exports to 
Africa amounted to only $28,410,000. This was nearly 
doubled in the year 1918. They consisted mostly of 
machinery, railroad and mining equipment, hardware, 
cotton goods, and clothing. Our exports and imports to 
Africa normally just about balance each other. The 
African products that we purchase through the United 
Kingdom, France, Belgium, and other nations undoubtedly 



greatly exceed in value those we obtain direct, and our prod- 
ucts that eventually find their way to Africa amount to 
many times the value of those that we sell direct. The 
estabhshment of direct trade relations with African coun- 
tries, especially -^^ith South Africa, would result in a decided 
change in our statistics of trade. 

Our Twenty Best Customers. — In general, those nations 
that have afforded us the best markets in the past can be 
depended upon to continue to absorb a large volume of 
our products. Therefore, a close scrutiny of trade statistics 
in the normal period between 1905 and 19 14 is highly im- 
portant, as they indicate the probable trend of our com- 
merce in future. The following table shows our twenty 
best customers in the last pre-war year, 19 14, with the 
sales to those countries in 1905: 


Value of exports from 
United States 



United Kingdom 











































The table shows, in the decade preceding the outbreak of 
the war, a marked increase in our exports to each of these 


countries, with the exception of China, Japan, Mexico, 
and Denmark. Japan's influence in China has become 
so great that she has been able to deflect a large part of 
the trade to herself. Unsettled conditions preventing 












development decreased Mexico's imports. Inadequate 
steamship service has militated against our trade with 
Australia and New Zealand. Changes that have taken 
place in our trade since 19 14 are discussed in Chapter III. 


Americans Interests After the European War. American Academy 
of Political and Social Science. Annals, vol. 61, September, 

Austin, 0. P. International Trade After the War. New York, 191 7. 


Barrett, J. Latin America as a Field for United States Capital 
and Enterprise. Bankers^ Magazine, vol. 74, pp. 920-6, 
June, 1907. 

Claxtsen, John. America's Opportunity for International Trade. 
Washington Bankers' Association. Proceedings, 191 7, pp. 


Clalsen, John. Neiv Era of American International Trade and 
Finance. Economic World, n. s., vol. 14, pp. 544~9> October 
20, 1917. 

Duval, George L. Our Commerce with South America — the Prep- 
aration Required to Meet Intrenched Competition. National 
Foreign Trade Convention. Official Report of the Fifth Con- 
vention, 1 91 8, pp. 537-551- 

Grace, J. P. Commercial Opportunity of the United States in South 
America. Columbia University Quarterly, vol. 18, pp. 72-76, 
December, 191 5. 

Hill, Samtjel. The Future of American Trade with China, Japan, 
and Siberia. National Foreign Trade Convention. Official 
Report of the Fifth Convention^ 1918, pp. 493-9. 

HoGGSON, N. F. What Are Our Chances for After-the-War Orders ? 
System, vol. 31, pp. 13-20, January, 191 7. 

Howe, 0. H. Our Opportunities in South America. Education, 
vol. 37, pp. 504-513, April, 1917. 

Hutchinson, Lincoln. New Opportunities in the Pacific. Yale 
Review, n. s., vol. 3, pp. 708-725, July, 1914. 

Murphey, E. R. Where to Look for New Markets. System, vol. 
32, pp. 531-4, 718-721, 902-6; vol. ss, pp. 39-42, 191-3, 361-4, 
October, 1917-March, 1918. 

Narodny, Ivan. Russian Markets Offier a Great Opportunity for 
American Foreign Trade. American Bankers' Association. 
Journal, vol. 9, pp. 710-713, March, 1917. 

National Foreign Trade Council. World Trade Conditions 
After the War. National Foreign Trade Council. New York, 

Opportunities for American Commercial Endeavor in Russia. Ameri- 
can Manufacturers Export Association. Yearbook, 1916-17. 

Requard, G. G. Americans Opportunity. Moody's Magazine, 
vol. 19, pp. 233-6, May, 1916. 

Taussig, F. W. How to Promote Foreign Trade. Quarterly Jour- 
nal of Economics, vol. $2, pp. 417-445, May, 1918. 




Nature of Our Imports. — Within the confines of conti- 
nental United States are produced all of the absolutely 
essential articles required as food, clothing, and shelter for 
the population. We are, therefore, in a large measure, a 
self-sufficient people. But without foreign commerce we 
would be deprived of many of the luxuries and comforts 
and some of the necessities of modern Hfe. Our industrial 
development, too, would be greatly hampered by the lack 
of many articles used in manufacturing that are supplied 
by other countries. 

Therefore, though we produce a surplus of staple food- 
stuffs, of raw materials, and of manufactures, there are 
many commodities which we find it convenient or necessary 
to import. Our imports may be classified as follows: 

I. Those tropical and subtropical products that we are 
unable to produce at all, or in sufficient quantity to 
satisfy our wants. In this class are included coffee, tea, 
cocoa, spices, cane-sugar, rubber and rubber substitutes, 
and raw silk. Our tropical imports for the single year 
1916 were valued at $1,000,000,000, thus comprising nearly 
one-half of our total imports. Our consumption of such 
commodities is increasing rapidly, the value having doubled 
in the past decade. This increase is only partly due to 
higher prices. Some of these articles we produce in small 
quantity, notably cane-sugar, tea, and raw silk, but we 
find it more profitable to import most of them. We note 
that this class of imports supply us with many valuable 



articles of food and also with raw materials for use in our 


2. Staple commodities produced here, but in insufficient 
quantity to meet the demand, as wool, hides and skins, 
furs, paper stock, vegetable fibres (other than cotton), 
tin, and fertilizers. Without these our industries would 
be sadly crippled and the range of our activities greatly 

3. Articles of special types, grades, or qualities, produced 
in certain restricted districts, and needed to supplement 
our own production. An excellent example is Egyptian 
long staple cotton, so essential in some branches of the 
cotton-manufacturing industry. Thus we find that cotton 
is not only our leading export but that it also figures some- 
what prominently in our list of imports, totalHng $36,- 
000,000 in 1 91 8. Another example is our importation of 
Sumatra, Havana, and other tobaccos, which have certain 
qualities demanded by the trade. 

4. Manufactured articles that are not produced here or 
that differ in greater or less degree from those produced 
here. In this class of imports we find many articles that 
can be and are produced as well and as cheaply at home; 
in some cases the variation from the domestic product is 
slight, while in others it is wide. Among these imports 
are many articles that might be made here, but can be 
imported more cheaply. This is either because we lack 
the skilled labor with the special training and experience 
in those particular Hues, or because the conditions incident 
to the making of such articles are unsuited to our tempera- 
ment or standards. For instance, we are only slowly 
acquiring tlie special skill requisite in the manufacture of 
fine cotton embroideries and laces. Before the war we 
imported these to the value of about $40,000,000 annually, 
Swiss embroideries alone costing us $10,000,000 each 
year. So with hand-made articles, such as toys and knick- 
knacks. We have not the patient, plodding disposition 


characteristic of the Asiatic or even of the European 
workers who spend their lives making these things for our 
amusement. Neither are our workers able or willing to 
live on the low wages too often paid for such labor. Here- 
in lies one of the advantages of international trade: it 
enables each country to devote itself to the production of 
those articles for which it is especially well adapted and 
in w^hich it derives the most satisfaction. 

Articles Both Imported and Exported. — The division of 
labor among nations whereby each specializes to a certain 
extent not only upon the production of distinct classes 
of commodities, but also upon particular types, or styles 
or grades, results in a very free interchange of products. 
As illustrative of the cosmopoHtan character of the Ameri- 
can market, which absorbs a wide variety of commodities, 
often demanding imported articles because of their novelty, 
their distinction, or their superiority, supposed or real, 
over the domestic product, the appended table containing 
a list of articles that we both import and export in large 
quantities is given. The values are expressed in millions 
of dollars, and are for the year 191 5. 

Cars, carriages, and other vehicles 

Chemicals, drugs, and dyes 

Clocks, watches, and parts 

Cotton manufactures 

Earthen, stone, and china ware 

Manufactures of fibres and textile grasses 

(other than cotton) 

Fruits and nuts 

Furs and manufactures 

Glass and glassware 

Hides and skins 

Iron and steel and manufactures 

Leathers and manufactures of 

Paper and manufactures of 



Wood and manufactures of 

Wool manufactures 





















104. 1 















27 -3 



Source of Imports. — The proportion in which our im- 
port trade was distributed among the different grand 
divisions in 1900 and 19 14 is shown in the following table, 
which gives the values expressed in millions of dollars, 
and the percentage of our total unports suppKed by each. 


Europe . 

North America 
South America . 











II .2 

Per cent 

of total 

I goo 

II .0 





895 -6 

427 -3 



42. 1 

19. 1 

Per cent 
of total 


II. 8 
15 -2 
1 .0 

We regularly draw upon Europe for about one-haK of 
our imports. Manufactures come first in the list, with 
chemicals and such raw products as hides and skins and 
fibres holding important positions. Not all of our Euro- 
pean imports are European products. The United King- 
dom, Germany, France, Belgium, and the Netherlands 
all have a lucrative re-export trade. They assemble at 
their trade centres the products of many countries and sell 
these to importers the world over. 

North American countries are our next best source of 
supply, Canada leading, with Cuba next in importance, 
and Mexico third. Canada supplies us with timber, wood- 
pulp (used in paper manufactures), minerals, and grains. 
Cuba is a splendid source of supply for sugar, molasses, and 
tobacco. Mexico furnishes us with mercury, gold, silver, 
cabinet-woods, hemp, and coft'ee. Central America sup- 
pHes tropical products. 

From South America we obtain a large part of those 
tropical products that we need. Coffee and rubber are 
of the greatest importance. Minerals, live stock, and 
agricultural products are produced in abundance in most 


South American countries, and are exchanged for manu- 
factures. Hence, these as well as the other Latin American 
countries (the Central American republics, Mexico, Cuba, 
Haiti, and the Dominican Republic) afford splendid trade 
opportunities for those nations producing a surplus of 
manufactures and importing tropical and other raw prod- 

Asia supplies us with jute, tea, rubber, tin, goatskins, 
and Persian rugs. These commodities are obtained from 
India and other British possessions and from Persia. 
China and Japan are our best source of supply for tea, silk, 
camphor, and those distinctly Oriental products that find 
a steady sale in American markets. 

Oceania, which includes Australia and New Zealand 
and other islands of the Pacific, is a part of the globe in 
which we have not extended our trade as rapidly as have 
other nations. AustraHa's wool and hides are two products 
that we need and that we are importing directly in in- 
creasing quantities. Other imports from those countries 
have come to us largely through the United Kingdom and 
other European countries. Since these countries are as 
yet undeveloped as far as manufacturing is concerned and 
since they have rich natural resources that only await 
capital and labor to make them wonderfully productive, 
they are certain to hold a more and more important place 
in the world's trade. The great need to expand our trade 
with them is direct steamship routes, so that they may be 
able to send their surplus raw material across the Pacific 
and to obtain here the manufactured products and struc- 
tural material they require. 

Our direct trade with the great continent of Africa has 
been very small, constituting until after the World War 
less than 2 per cent of our imports and a trifle over i per 
cent of our exports. Yet that continent produces many 
commodities that we require, such as tropical products, 
hides and skins, ivory, and sponges. With the increase 


of the American merchant marine and the extension of 
American banking facilities to this as to other continents, 
a greatly increased direct trade may be predicted. 

Latin America as a Source of Imports. — The fact that a 
large part of our imports comes from South America is of 
great importance commercially. Theoretically, at least, 
a country from which we buy should offer a ready market 
for such of our exports as that country needs. Practically, 
this has not always proven true. For instance, we are 
Brazil's best customer, our total purchases of coffee, crude 
rubber, and other products from that country aggregating 
in a single typical year (1914) $101,329,000. In that same 
year our merchants exported to Brazil goods valued at 
only $29,963,000, leaving a credit balance in Brazil's favor 
of $71,366,000, and yet Brazil's imports consist of just those 
commodities that we most desire to sell in increasing 
quantities abroad. 

While we furnish a market for nearly one-half of Brazil's 
exports, that country buys only a little over one-third of 
her imports from us. The condition in regard to our trade 
with every one of the important South American republics 
is the same, our exports falling far below our imports in 
value, although this was not the case with respect to Argen- 
tina until after the outbreak of the World War. 

The result is that while we regularly obtain from one- 
fourth to one-third of our imports from Latin American 
countries, these countries afford a market for only one- 
tenth to one-eighth of our surplus commodities, and, con- 
sequently, our purchases from these countries fall not far 
short of double our sales. In the years 19 18 and 19 19 
our exports more nearly approached the value of our im- 
ports from Latin America. But in normal times European 
products have been preferred there. 

The reasons for this are various, among which may be 
mentioned the early hold other countries, such as England 
and Germany, obtained in Latin American markets, the 



Imports- -- 












Grouping the twenty Latin American republics together 


oft-reiterated unwillingness or inability of American mer- 
chants to conform to South American trade customs, and 
the lack until recently of adequate American-controlled 
banking facilities in Latin America. 

Exporters and bankers agree in recommending the fol- 
lowing, among other measures, in order to extend our Latin 
American trade, at least to the point where the imports 
we take from our sister American republics shall be fully 
offset in value by the exports we send them. 

First. — By obtaining from every source possible definite 
and detailed information as to the commodities imported 
by the different republics, so that the grades, qualities, 
design, and styles demanded may be manufactured and 
offered to the Latin American trade. 

Second. — By developing our export sales organization 
so as to eliminate misunderstanding and delay, and make 
available to Latin America, with the least possible expendi- 
ture of time and money, those commodities which they 
desire and which we can supply. 

Third. — By concerted effort on the part of our banking 
institutions to facilitate the financing of exports to Latin 
America and to co-operate in every way possible with 
American exporters so that they may have banking facili- 
ties which are the equal or superior to those enjoyed by 
the commercial houses of other exporting nations. The 
development in this respect in the past five years is most 
noteworthy, but more is yet to be done. 

Fourth. — By encouraging the growth of the American 
merchant marine, so that adequate shipping facilities, 
under the American flag, may be available for the ship- 
ment of American goods to these countries in which our 
markets are being extended. With a merchant marine 
flying a foreign flag, the odds are against the American from 
the start, as is shown by the pre-war conditions in which 
ships bringing Latin American products to the United 
States were routed so as to sail from here to a British port 


and thence to the Latin American port whence she started. 
Thus we were deprived of the direct shipping facilities to 
Latin America necessary to an active export trade. 

Such a triangular system had the further disadvantage 
of making it easy for the Latin American countries to buy 
their needed manufactured products direct from British 
firms, which obtained the raw materials from us. Since it 
is manufactured articles that are most difficult to market, 
the disadvantage of such a system is evident. While the 
establishment of direct trade relations with the less- 
developed countries during the war has had its effect in 
diminishing our three-cornered trade, the tendency is still 
to follow the old custom. 

See End of Chapter II 



Direct and Indirect Exporting. — There are two methods 
of marketing manufactured products in foreign countries. 
The first is through export commission houses and other 
middlemen. The second is by the direct sale of the product 
from the manufacturer to the foreign customers. These 
customers may be wholesale importing and distributing 
houses handling one or more lines of merchandise, whole- 
sale or retail mercantile establishments, or the ultimate 
consumer. The nature of the product, the established 
system of handling it, and other special conditions largely 
determine the details. The point is that in selling direct 
the manufacturer sells to the same customers as do the 
export commission houses. Instead of using the sales 
organization of the export house, the direct exporter de- 
vises and controls his own methods of reaching the buyers 
of his product. 

Sales Organization of Large Corporations. — The selling 
organization developed by those firms and corporations 
that have built up a large and successful export trade 
naturally vary according to the product and the countries 
to which sales are made. In general, however, the foreign 
sales organization consists of an export department in the 
central home office, in charge of an export manager; 
branch offices at the ports from which the bulk of the ship- 
ments are made; branch ofiices located in the foreign mar- 
kets being exploited, each in charge of a sales manager; 
travelling salesmen in the various foreign fields, who co- 
operate with the branch offices, and local agencies in those 
places where other representation is not maintained. 



The sales organization just outlined has usually developed 
by degrees, attaining perfected form only after some ex- 
port trade has been established. In every case it has been 
preceded by thorough investigation of the trade conditions 
and of the possibilities of extending the sale of the product 
in the foreign field. 

Preliminary Investigation. — The investigation conducted 
by large firms preparatory to entering the direct export 
field has two distinct sides: that carried on at home and 
that in the foreign country. Investigation at home makes 
use of statistics, consular reports and other documents 
issued by the United States Government and by those of 
the foreign countries under consideration, reports of mer- 
cantile and export associations, trade journals, books and 
articles dealing with the economic and commercial condi- 
tions of the countries, and of many other similar sources of 
information. It includes a consideration of transportation 
rates and transportation facihties, tariff laws affecting the 
sale of the product, banking facilities afforded for carrying 
on the proposed trade, and every other phase of the subject 
directly bearing on the extension of business abroad. 

The investigation conducted in the foreign field is often 
preceded by a trip of some duration made by a responsible 
ofiicer of the firm, who appraises the situation at close 
range, studies the possibihties for the sale of the product, 
the competition already in the field, the prevailing business 
methods, and the local customs and conditions having a 
bearing on the subject. If the field promises good returns, 
this preliminary investigation is followed by that made by 
experts, w^ho devote wrecks or even months to collecting 
data and preparing a complete report. The finished re- 
port is thus described by an authority on the subject: 

These trade reports show the general demand for the particular 
article under investigation; the quantities imported in prosperous 
and bad years, v/ith the latest figures of exports; the present source 
of supply and from what foreign countries the demand has been 


filled, and the stock on hand, with wholesale and retail prices. A 
comparison is made of the invoice prices, together with the freight 
charges. . . . This, added to the customs duties upon the article, 
gives the comparative cost of placing the American goods in the 
foreign country as against a competing line from Europe, and may 
be used as a basis for determining whether or not there is a profit in 
entering the market. These reports also show the terms of pay- 
ment which are customary and the manner of packing. They give 
a description of how business is conducted in the particular trade in 
question. They indicate through what hands it passes from the 
manufacturer to the ultimate consumer, and furnish a list of reliable 
merchants dealing in the article. 

Steps in Developing a Sales Organization. — The largest 
corporations have developed their foreign sales organiza- 
tion somewhat as foUows: 

1. By making a thorough study and investigation of 
the field, similar in general to that just described, for 
the purpose of ascertaining its trade possibilities. 

2. By organizing an export department. 

3. By introducing a thorough system of instruction 
for the benefit of every member of the export depart- 
ment, including those to be sent abroad. 

4. By establishing branch offices or houses in the trade 
centres of the various countries. 

5. By the selection of resident agents, usually by the 
managers of the branch offices, to handle the product, 
usually on a commission basis. The resident agents 
selected are, in most cases, men engaged in business in 
the community. 

6. By sending out travelling men, who work in con- 
junction with the branch offices and with the resident 

. agents. The salesmen push the sale of the product, which 
the customer purchases through the resident agent, or, 
in some instances, through the branch house. 

7. The preparation and distribution of catalogues, 
booklets, price-lists, and other advertising matter, all 
in the language of the country. 


Methods Employed by the Standard Oil Company. — An 

understanding of the complicated and thoroughgoing 
organization built up by the largest corporations will be 
greatly facihtated by considering in some detail that of 
the most successful of these, the Standard Oil Company. 
When that corporation first considered the advisabihty of 
entering the direct export field, instead of selHng to foreign 
countries through commission houses who distributed the 
product through agents in the various countries, it first 
made an exhaustive study of the situation. A period ex- 
tending over five years was occupied in preparing for the 
export business of that corporation, which has been the 
most successful of any in the world. Experienced men were 
sent abroad, studying markets, duties, restrictions on the 
conduct of business by foreign firms, customs and tradi- 
tions affecting the demand for their product, and other 
basic conditions. In some countries it proved difficult to 
secure permission to enter the field. Diplomacy, powerful 
influence, tactful suggestions as to desirable changes in 
the laws and governmental poHcy, and other well-directed 
propaganda were all resorted to as needed, in order to se- 
cure the right to carry on business under reasonably favor- 
able conditions. In some countries, where the policy of a 
fair field and no favor prevailed, little preliminary work of 
this nature was required; in others much missionary work 
was necessary. 

It was not until 1880 that the Standard actively entered 
the export field. In order to fully develop the possi- 
biHties of every district, it was found advisable to build 
up a selling and distributing system very similar to that 
used in the United States. It established branch offices in 
every important point, with central distributing stations 
where the oil could be suppHed to dealers and consumers, 
placed small stations wherever the need arose, put out re- 
tail wagons just as are used in the United States, and sup- 
plemented this direct selling organization with agencies in 


out-of-the-way places, where the consumption did not jus- 
tify placing a station. It did not merely '^ supply the 
trade"; it used every method and device possible to create 
a demand for its product. These included propaganda in 
the form of advertising, booklets, and other publicity, 
the solicitation of business, demonstrations of the uses of 
the product, and other methods of trade-building. In 
China and elsewhere, where modern lamps were unknown, 
the company supplied their customers with lamps giving 
excellent light with a small consumption of oil at a price 
lower than the cost of manufacture. 

Not only did this corporation, which has never believed 
in half measures, develop a sales organization of the 
highest efficiency, but it also improved its distributing 
system so as to reduce the cost of transportation. It 
installed a system similar to that used in the United 
States, where the oil is pumped from the well to storage- 
tanks, thence to the refinery, where the crude product is 
manufactured into refined oil, thence pumped into tank- 
cars, conveyed to the port, pumped into tank- steamers, 
and thus taken to the foreign port. Here it is pumped into 
tank-cars again, carried to great tanks at the distributing 
centres, and is pumped from these tanks into oil-wagons, 
to be taken to the substations and peddled from place to 
place. The use of barrels for shipment, which were costly 
and required much handling, has thus been eliminated to a 
large extent. 

The oil is sold to foreign consumers in cans just as it is 
in the United States. It is of interest to note that the 
value of selecting a trade-mark that appeals to the customer 
is recognized by this corporation, which in India supplies 
the public with the ''Elephant Brand" of oil put up in 
cans adorned with the picture of that sacred animal. Prac- 
tically all of the product sold abroad is said to be produced 
in the United States. Where the refined product is dis- 
criminated against by tariff schedules or otherwise, re- 


fineries are built and the crude product is shipped from the 
United States. It sells its product in every country of the 
world; it is stated that there were more Standard Oil 
wagons in Europe in 19 14 than in the United States. 

The United States Steel Corporation. — The decision of 
the United States District Court for the district of New 
Jersey, rendered in 191 5, denying the petition of the De- 
partment of Justice for a decree for the dissolution of the 
United States Steel Corporation, contains a clear statement 
of the part that such corporations have played in extending 
the foreign trade of the nation. The following summary 
of that part of the decision is from a bulletin issued by the 
National City Bank of New York: 

The court finds that by means of its extensive organization, its 
large capital, the diversity of its products, and the great volume of 
its business, the Steel Corporation has been able to greatly increase 
the exportation of iron and steel products. When it was organized, 
the total exports of such products from this country were about 
$31,000,000 per annum, but these sales were made in a desultory 
way, largely for dumping purposes, and without any attempt to 
develop the foreign trade in a systematic and permanent manner. 
The Steel Corporation created a subsidiary company, known as 
the Steel Products Company, to handle this business. It owns 
some 40 warehouses in important foreign trade centres in which 
ample stocks of all goods likely to be called for in the trade are 
carried. There are 15 of these warehouses in South America. 
There are many other places where the goods are kept on sale 
through representatives, over 300 in all, in 60 countries. These 
depots afford the facilities for the prompt despatch of orders to all 
parts of the world. For example, a warehouse is maintained in 
Antwerp, although there are practically no sales in Belgium, be- 
cause Antwerp is an important shipping centre with frequent sail- 
ings to many points, and for the same reason there is a warehouse 
at Trieste to accommodate trade in the Adriatic and eastern Medi- 
terranean. The result of efforts to create trade in British Columbia 
is described. A warehouse was established at Vancouver, but the 
freight rate on steel from Pittsburg to Vancouver was prohibitory 
as against the water rate from Liverpool and a customs discrimina- 
tion of ^^}4 per cent in favor of British steel. The Steel Products 
Company established a line of steamers of its own through the Straits 


of Magellan. These steamers touch at several ports on the west 
coast of South America and Mexico, some of which have no regular 
steamers from the United States, and they have been carrying con- 
siderable goods for other manufacturers in this country who have 
no other facilities for reaching these ports. In order to obtain re- 
turn freight, these steamers load with lumber or coal for the Gulf 
of CaHfornia; there they reload with copper matte for Dunkirk, 
France, and in France take on chalk for New York. 

The Steel Products Company now owns twelve steamers and has 
several times that number chartered. In order to justify such 
extensive arrangements for marketing and transportation as these, 
the court finds that a great variety and large volume of products 
is necessary. It finds that the Steel Corporation has gone beyond 
the capacity and equipment of its own works, and has aided the 
manufacturers of other steel products to enter the export trade 
by furnishing basic materials to them at special prices for this 
purpose and marketing their goods through their agencies. A 
list of 158 such manufacturers was furnished. 

Furthermore, in order to create an outlet for its goods, the Steel 
Products Company will take contracts for construction work where 
this is necessary, and to this end maintains a permanent engineer- 
ing force in Buenos Aires. It put up the first steel building in that 
city, and has put up most of the steel buildings in South America. 
These are the alert, effective, and aggressive methods by which the 
steel exports of the United States were increased from $31,000,000 
in 1901 to $91,000,000 in 1911. The court is of the opinion that 
such efforts are possible only to such an organization. 

While few corporations have found it necessary to adopt 
such thoroughgoing methods as those just outlined, the 
firms that have won marked success in the foreign field 
have, nevertheless, spent large sums of money in develop- 
ing this branch of the business, and have seldom reaped 
returns for the first few years. Such expenditures are con- 
sidered as part of the investment, which will produce satis- 
factory results in due time. The establishment of foreign 
connections, the gaining of thorough familiarity with con- 
ditions in the foreign field, the learning what to do and what 
not to do, and the training of a corps of expert workers all 
require time and patience, but once accomplished the re- 
sults have almost invariably proven eminently worth while. 


Sales Methods Used in Direct Exporting. — The sales 
methods used in direct exporting may be considered under 
fLve heads, as follows: 

1. Branch Offices established in the various trade 
centres, each under the management of an executive 
clothed with final authority in all but the most important 
matters affecting the pohcy of the corporation. 

2. Salesmen. — These are of two classes: those working 
out of branch houses in the foreign countries, and those 
sent out by houses that maintain no foreign branches. 

3. Foreign Agencies. — These are usually well-estab- 
lished firms of the nationality of the country, who are 
given the exclusive agency for the product for a city, 
district, or for the entire country. 

4. Advertising in export journals, trade journals, and 
local pubhcations. 

5. Distribution of Catalogues and circulars and direct 
correspondence with prospective customers. 

These methods overlap in many cases, even to the ex- 
tent of one firm making use of all. Each will now be con- 
sidered in some detail. 

Branch Offices. — These are located in the trade centres 
of the various countries. They operate either through 
salesmen or agencies or both. In most cases each branch 
maintains a corps of salesmen, each having a district al- 
lotted to him in which he makes every effort to push the 
sales of the product. Branch houses are sometimes execu- 
tive offices under the management of a general sales 
manager, who directs the work of the salesmen, appoints 
agencies, and co-operates with such agencies, attends to 
the forw^arding of orders, the receiving of shipments, to the 
collection of accounts, to the assembling of credit and trade 
information, and to other details of the business. Branch 
houses often carry a full fine of samples; sales are made 
from these samples and orders transmitted by cable. Those 


maintained by the largest corporations usually carry a 
large stock of goods. They thus become mercantile 
establishments, which supply their customers with their 
wares without waiting for an order to be shipped from the 
United States. The advantages of such a system are ob- 
vious, but the increased capital and the large organization 
entailed make it practicable only in the case of a limited 
number of corporations doing a business of immense pro- 

Salesmen. — Those manufacturers that consider the ex- 
tension of their foreign sales as an important factor in the 
business, and who have won or hope to win permanent 
success in the export field, have, in the great majority of 
cases, organized an efficient sales force, which they maintain 
in the foreign market being exploited. Providing the 
volume of export business that may be secured warrants 
the expense, a well-qualified salesman is considered the 
best means of getting that business. Where there is no 
branch office maintained, the duties of the salesman are not 
confined to pushing the sale of the goods. He may find it 
his duty to check up Hsts of prospects, to add to such a 
list, to distribute catalogues and advertising matter, to 
report on trade conditions and on the credit standing of 
prospective customers, to appoint local agents, and even to 
attend to the collection of accounts and the adjustment of 
any misunderstandings that may arise between his firm and 
their customers. It is readily seen that a salesman quali- 
fied to perform the various tasks suggested must be one 
of wide experience, proven probity, and unusual ability. 
Consequently, his remuneration is usually high; it consists 
of a salary and a commission on sales. The fact that the 
expenses of a salesman in the foreign field are generally 
much heavier than at home makes a fairly respectable 
income a necessity. 

Foreign Agencies. — These are of two classes: foreign 
business firms and manufacturers' resident agents. The 


largest part of the direct export business of the average 
manufacturer is secured and handled through foreign 
firms to which an exclusive agency for a district is granted. 
Merchants and small dealers are their customers. They 
have excellent opportunities to push the sales of a given 
product, because they are usually well-known and long- 
estabHshed firms of the same nationality as their customers. 
They understand and share the tastes and prejudices of the 
buying public, have the confidence of their fellow citizens, 
have a social position in the city in which they carry on 
business, and bear an intimate relation to the life of the 
community difficult for an outsider to acquire. They are 
thus able to adapt their methods to the demands of the 
trade and to secure business where an American would 
often utterly fail. German exporters have made the widest 
use of such agencies with most gratifying results. 

The method of selecting firms to act as agents is im- 
portant. While this is sometimes done by correspondence 
\Aith good results, it is considered better policy to make the 
appointment only after a personal visit to the field by a 
representative of the firm. When this is not practicable, 
correspondence is opened with persons or firms recom- 
mended by United States consuls, banks, and others. 

A general agency is confined to a territory of workable 
extent, seldom including a whole country. As a rule a firm 
is sought that does not handle competing lines, though, if 
there is considerable variation in price and quality, the 
same agency may successfully handle the products of com- 
peting firms. Here again the nature of the wares and local 
conditions govern. 

Local agencies are made use of in much the same way as 
are general agencies, their customers being the consumer 
and not other dealers. Such agencies are appointed either 
by the manager of branch offices, by salesmen, or by gen- 
eral agencies. Their operation is confined to a city, town, 
or small district. They often prove of great value in ex- 


tending the sale of a given product, though this is not al- 
ways the case. 

Another class of agents, not readily distinguished from 
salesmen, is that known as manufacturers' or resident 
agents. Such an agent lives in a trade centre, usually 
maintains an ofhce with sample-rooms, and represents 
either one manufacturer or a group of manufacturers. 
It is his business to promote the sale of the wares he repre- 
sents. He works on a commission basis. He deals not 
with the consumer, but with retail or wholesale firms. 
Manufacturers having small capital or small chance of 
developing a large volume of business in foreign markets 
often find it to their advantage to make use of a group rep- 
resentative, who handles several fines and often succeeds 
in building up a large volume of business for each of his 
principals. Such a representative is usually of the same 
nationaHty as his customers, though American salesmen 
sometimes develop such a business with marked success in 
markets with which they are famifiar. 

Advertising. — Advertising in foreign trade is used either 
to promote the sale of goods through salesmen and local 
agencies or to work up a mail-order business. The me- 
diums selected are export journals, trade papers, and local 
pubHcations. The Bureau of Foreign and Domestic Com- 
merce issues a document which contains a very complete 
list of all foreign publications, with data as to frequency 
of publication, extent of circulation, advertising and sub- 
scription rates, and the general character of the publication. 
Manufacturers are thus enabled to select their medium. 
Copy is prepared by the regular advertising department 
and translated by a skilled translator, who is thoroughly 
famifiar with the niceties of the language and with local 
customs and traditions. Many manufacturers carrying 
on an extensive advertising campaign in the foreign field 
employ an advertising agency, whose business it is to have 
a somewhat definite knowledge of the character of adver- 


tising that has the greatest pulling power in the market 
in question. 

The appeal made by the advertising copy scoring the 
greatest success in the United States often proves ineffec- 
tive in other countries. The finding of the point of con- 
tact, the emphasis made in the appeal, the whole form and 
structure and character of the advertisement require an ex- 
pert who knows the tastes, the character, the traditions, 
the prejudices of those prospective customers who may read 
the copy. It is only by looking at an article through the 
eyes of the foreign customer, and so framing the advertising 
copy as to play up the goods from this angle, that results 
can be won in foreign lands. The appeal may be in the 
price or in the quality, in the durabihty or the fragility, in 
the size or shape, in the form or color. It may be because 
it is a novelty, something new and strange, or because it is 
a staple, well known and familiar. Where the color counts 
not at all in the domestic sales, it is not infrequently found 
to play an exceedingly important part in foreign sales. 
Unless the appeal is correctly determined, foreign adver- 
tising necessarily fails to create the desire for the article 
which is the purpose of all advertising. The firm exploit- 
ing the foreign field finds the point of contact, and frames 
its advertising accordingly. Closely allied to this is the 
importance, the character, size, shape, and color of the con- 
tainers often hold in the sale of the article in the foreign 
market. When these are cleverly adapted to the trade, 
the placement of the goods is often greatly facilitated; 
trade-marks and trade names are likewise of importance, 
often proving the winning factor in the sale of the goods. 

Catalogues, Circulars, Direct Correspondence. — The 
distribution of catalogues, circulars, and price-lists through 
the mails, followed by systematic correspondence, is a 
method of reaching the foreign buyer that has been used 
with gratifying results by many American manufacturers. 
Special editions of the firm's catalogue are issued in the 


required language, and are distributed to selected lists of 
prospects. The export catalogue includes only those lines 
or articles adapted to the needs of the community in which 
it is circulated. It contains a definite description of the 
articles, with exact weight and dimensions as packed for 
export, with approximate cost of delivery by mail, express, 
or freight, as the case may be. The price is stated in 
United States money and in the money of the country in 
question. The duty is specified where this is practicable. 
Thus the prospective customer is able to determine just 
what the article will cost him delivered. 

While every kind of commodity, from locomotives and 
gas-engines to pins and carpet-tacks, may be and have 
been sold from catalogues, this method is especially well 
adapted for selling articles of comparatively small size 
and weight, which can be delivered by parcel-post. 

International Parcel-Post. — The place occupied by the 
parcel-post in international commerce is far more im- 
portant than is usually realized. In 191 3 parcels valued 
at $45,000,000 were sent out of England by parcel-post; 
those sent from Germany and from Austria-Hungary ex- 
ceeded this figure; France led all the nations in the extent 
of overseas con^nerce thus transported, the value of such 
exports being over $113,000,000. Other nations Hkewise 
carried on a large parcel-post business, which is not taken 
cognizance of in the ofiicial statistics of foreign commerce, 
but which aggregate many milHons of dollars annually. 
The volume and value of the commerce thus carried on in 
191 5 and 1916 greatly exceeded that of the period ante- 
dating the World War, England alone doubling the value 
of the merchandise sent out of the country through this 
medium. The development of the parcel-post in the 
United States has added a new and effective method for 
the extension of our trade relations with other nations. It 
is especially helpful in the first stages of exporting, where a 
manufacturer begins to explore tentatively the opportuni- 


ties afforded for the sales of his wares to foreign consumers. 
While no record is kept of the value of wares thus sent 
to foreign countries, it is estimated at $50,000,000 for 

Extensive mail-order and catalogue trade has thus been 
obtained by manufacturers of articles suitable for this 
method of transmission, notably shoes, books, gloves, con- 
fectionery, and household utensils. Consular invoices 
are not required on parcel-post, except in the case of a few 
countries, which means a considerable saving; the charge 
for a minimum bill of lading required by ocean carriers on 
small shipments is likewise avoided. A customs declaration 
is required. The form is obtainable at United States post- 
offices. The contents of each parcel must be accurately 
described and the value stated on this declaration, which 
is attached to the parcel in the form of a tag. Parcels 
must be so wrapped as to permit their contents to be ex- 
amined by postmasters and customs officials. In general, 
liquids, poisonous, explosive, and inflammable substances 
are excluded. Articles dutiable in the country of destina- 
tion are admitted. Arrangements made by the United 
States with most foreign countries limit the weight of such 
parcels to eleven pounds and the size to six feet by three and 
one-half feet. The rate is twelve cents a pound or fraction 

The Webb-Pomerene Act. — In closing the discussion of 
export sales organization, the effect of the Webb-Pomerene 
Act, passed in 19 18, calls for consideration. That act 
authorized the formation of export associations by manu- 
facturers of competing products. This opened the way 
for the pooling of interests by the firms engaged in export 
business. Under the law the export sales organization of 
one firm or corporation may be, by mutual consent, taken 
advantage of by another, foreign territory may be divided 
among competing firms, and other arrangements made to 
further the export trade of the firms concerned. 


The Guaranty Trust Company of New York in its cir- 
cular of January 29, 1920, has this to say of the law: 

The Webb-Pomerene law has released this country from pre- 
vious legal restrictions, and made possible forms of combination quite 
as effective as those hitherto adopted in Germany, England, and 
elsewhere. More than one hundred organizations of American 
exporters have filed papers with the Federal Trade Commission 
since the passage of the Webb law, indicating their intention of 
combining in this way. They will achieve a double result. First, 
they will be able to compete with European selling organizations 
in Latin America, the Far East, and other outside markets. Second, 
they will be able to oppose a united front to all attempts of European 
buying combinations to depress American export prices through 
playing one American concern against another. The Guaranty 
Trust Company of New York has issued a booklet on Combining 
for Foreign Trade, explaining in considerable detail the possible 
forms of export combination under the Webb law, and illustrating 
by charts some of the more famous European combinations. 


Arnold, J. H. Advancement of American Trade Interests in China. 
Overland Monthly, n. s., vol. 57, pp. 457-470. May, 1911. 

AuGHiNBAUGH, W. E. Selling Latin America. Boston, 191 5. 

DuDENEY, F. M. Exporters^ Handbook and Glossary. New York, 

FiLSiNGER, E. B. Exporting to Latin America. New York, 191 6. 

FoRTESCUE, G. South American Trade Hints. Bulletin Pan- 
American Union, vol. 32, pp. 261-9. February, 191 1. 

Hough, B. 0. Practical Exporting. New York, 191 5. 

Landau, H. L. Starting Trade with Latin America. System, vol. 
26, pp. 478-482. November, 1914. 

McCoRMiCK, C. H. What Seventy-One Years in Business Have 
Taught Us. System, vol. 31, pp. 148-154. February, 191 7. 

Rose, S. H. Common-Sense Majiagement of an Export Department. 
Chicago, 191 7. 

U. S. Bureau of Foreign and Domestic Coiimerce. Exporting 
to Australia. Practices and Regulations to Be Observed by an 
American Shipper. (Miscellaneous series no. 45.) Washing- 
ton, 1916. 

Wyman, W. F. Organizing for Export Trade. Systemy vol. 28, 
pp. 13 1-7. August, 1915. 


Wyman, W. F. How Advertising Gets Foreign Trade. System, 

vol. 27, pp. 613H519. June, 1915. 
Wyman, W. F. How to Go After Foreign Trade. System, vol. 28, 

pp. 23-29. July, 1915. 
Wyman, W. F. Planning a Sales Campaign in South America. 

System, vol. 26, pp. 371-6. October, 1914. 



Importance in Development of International Trade. — 
The part played by export commission houses in inter- 
national trade has been an important one since their rise 
in the sixteenth century. Their service in facilitating the 
exchange of products is well described by Professor Clive 
Day in his History of Commerce. In describing the ex- 
tensive trade of a wholesale merchant of Frankfort about 
1600, who bought silk and drugs in Venice, spices in Am- 
sterdam, and sent them for sale to Hamburg; iron and wax 
in Hamburg and sent them to Spain; indigo and wool in 
Spain and sent them to Amsterdam and Antwerp; rye in 
Amsterdam and sent it to Genoa, Professor Day says: 

Such a business would have been impossible in the Middle Ages, 
when a merchant accompanied his wares or shared his responsi- 
bilities with a few associates. It was made possible now by the 
development of the commission trade. Commission merchants, or 
factors, made it their profession "to buy and sell for other business 
men for a certain profit which is given them for their trouble by 
the principals." Sometimes they were in business on their own ac- 
count also; sometimes they were specialists in various lines. A 
writer of the seventeenth century distinguished five classes: those 
who lived in a manufacturing or commercial centre and bought 
goods for others; those who sold goods for others; the correspon- 
dents of business men and bankers who make collections and re- 
mittances of money for them; forwarders, who received and for- 
warded goods at places of transshipment, and, finally, the agents 
for carriers, who distributed and collected the load of a freight- wagon 
in a city. The duties of a mercantile factor, in general, were to 
advise his principal frequently concerning the market for wares, 
the course of exchange, etc., to acknowledge letters punctually, 
and to follow orders exactly. The commission varied from 5 



per cent of the value of the goods in the West Indies to 2 per cent 
or even less in some of the European countries. 

From that time to the present the commission house has 
promoted the free exchange of the commodities of one 
nation for those of others by keeping up a world-wide or- 
ganization, which the merchants and manufacturers of 
every nation have found it to their advantage to use to a 
greater or less extent. The great export trade of both 
England and Germany was largely developed through 
these agencies, which are to-day, despite the tendency to 
eliminate the middleman, no inconsiderable factor in inter- 
national trade. 

Services of Export Commission Houses. — A large part 
of the foreign trade of the United States has been developed 
through export commission houses located at New York 
and other ports. These houses may be purchasing agents 
for foreign buyers or selHng agents for American products. 
The largest houses have business connections in all parts 
of the world, while others confine their operations to one 
or two fields. 

The commission house, handling a larger volume of busi- 
ness than the individual merchant or manufacturer, and 
using one selling organization to market the output of 
many manufacturers, is able to keep the selling expense at 
the minimum. Manufacturers having a comparatively 
small output and those specializing in one or two articles 
frequently find it to their advantage to sell through com- 
mission houses. Others enter the foreign field through 
commission houses, and later develop their own export 
sales organization. 

The following, from Westerfield's Middlemen in Eng- 
lish Business, gives a clear idea of the function of com- 
mission houses: 

A commission house buys and sells in foreign trade, in its own 
name, for a number of principals a variety of goods, on commission. 


It receives the goods by consignment from a merchant or manu- 
facturer. It is intrusted with the possessions, control, manage- 
ment, and disposal of the goods sold. It does business in its own 
name, but on the account and at the risk of the principal. 

These houses are houses of reputation, capital, and credit. They 
allow the consignor to draw on them for a large per cent of the value 
of the goods consigned, immediately upon receipt. Such advances 
require large capital on the part of the consignee. They store the 
goods, sell them in their own name, and guarantee payments of the 
accounts to the consignor. They carry out the shipping details, 
caring for lading, shipping, insurance, commercial papers, etc. 
They also buy goods upon order from foreign houses, and finance 
and ship the order, collecting the outlay from the consignee. Their 
profits arise from the commission paid, interest on their outlay, 
insurance, profits, etc. 

The advantages that are realized by a foreign firm in buying 
through a commission house are: first, that all orders may be for- 
warded and all payments made to one person instead of dealing 
with various firms; and that likewise all shipments are received on 
one bill of lading; and, secondly, that larger credit is likely to be 
got from a commission house, it being acquainted with the general 
condition of trade and having wider banking connections. . . . 
It is equally advantageous for the producer to dispose of his goods 
through the commission house, for the house carries out the de- 
tails of shipping and procures lower freight rates on the large bulk 
shipments than can be had on the small quantities the manufacturer 
would have to ship; and, further, the commission house is a home 
firm whose financial strength is easily investigated, against which 
suits for the recovery of debts are made according to home laws, 
whereas if the dealing was done directly by the producer, collections 
would be made abroad. 

The obvious disadvantages engendered in the dealing through 
the commission house are that the house handles a variety of goods 
and is not specialist in any, and that the house usually wants an 
exclusive agency for the principal, and the granting of this monopoly 
mav result in limiting the market for the principal's goods. 

Different Types of Export Houses. — Some export com- 
mission houses limit their sales to a few lines of goods in a 
few markets; others accept or solicit orders for practically 
every commodity that caters to the wants of man and carry 
on business in every part of the world. Some are old- 


established houses of the highest standing, which possess 
abnost unlimited capital, own their own ocean-carriers, 
own or control banking institutions, and handle millions 
of dollars' worth of business annually. Others are firms 
possessing little capital and experience, struggling side by 
side with the individual manufacturer to secure a foothold 
in the markets of the world. It is only by careful investi- 
gation that the standing of such houses can be determined. 
Banks and mercantile agencies are the best sources of in- 
formation as to the responsibihty of such firms. 

Export commission houses are so varied in type that it is 
difficult to classify them, but the following classification 
gives a fair idea of their activities. 

1. Indent houses — These are strictly commission houses, 
buying goods only after orders have been received for 
the same. They deal in practically every coromodity 
in any quantity. They purchase from any manufacturer 
offering the goods at the best prices. Their customers 
may be importing houses located in foreign markets, 
wholesale or retail firms, or individuals. Orders are re- 
ceived either through foreign branch houses, foreign sales- 
men, or by direct relations with the foreign buyers 
established by means of correspondence, catalogues, 
advertising, or otherwise. 

2. Commission houses or trading companies which 
handle all products they can place in the foreign field, 
charging the American manufacturer a commission for 
their services. Such houses sell to the foreign buyer at 
the manufacturer's price, receiving their commission 
from the seller and not from the buyer. This commission 
covers the cost of documentation, of the expenses inci- 
dental to shipping the goods, of financing the shipment, 
and of other similar expenses. The coromission is com- 
monly 5 per cent, though it may be as low as 2^ per 
cent, or as high as 10 per cent. These firms do not 


limit their services to any group of manufacturers, but 
reach out for all the business they can handle. 

3. Merchant houses which buy from manufacturers 
on their own account and sell to their customers through 
branch houses or established agencies. These mer- 
chants do not operate on a commission basis. They 
are mercantile establishments buying in the United 
States and selling in foreign countries. 

Advantages of Selling Through an Export House.— The 

large volume of business transacted by the oldest estab- 
lished export houses gives them an advantage in marine 
freight rates which is a factor in their success. In many 
instances they are able to assemble a large number of orders 
from one place and make one shipment of these, with re- 
sultant advantages not only in freight and transfer charges, 
but also in the saving of the cost of documentation and 
other incidental items. The buyer of various kinds of 
goods finds it to his advantage in many cases to place his 
order v/ith an export commission house, which assembles 
the goods, packs them properly, and ships them on one bill 
of lading and under one consular invoice. This saves 
much detail work, expedites the clearance of the merchan- 
dise at the custom-house, and involves the minimum ex- 
pense for packing, freight, insurance, consular fees, etc. 

The larger and more successful export commission houses 
have well-estabHshed trade relations with most of the im- 
portant buyers in the markets in which they transact busi- 
ness; they are thus in close touch with financial and trade 
conditions, and are in a position to determine with consider- 
able accuracy how and to whom credit may be extended 
with safety and how large a quantity of a given commodity 
a market can absorb. Their extensive trade connections, 
their long experience in the foreign field, their minute 
knowledge of the difi erent conditions and requirements of 
the various markets, and their mastery of the details in- 


volved in making export shipments all enable them to 
carry on trade with the minimum of friction and Iocs. 

Many of these houses were pioneers in the export trade 
of the United States. It is estimated that more than half 
of our exports to countries other than Europe have been 
sold through export commission houses. The extent of 
the business thus transacted is thus seen to be enormous. 
Their methods of securing business in foreign markets 
and of handling that business do not differ materially 
from those used by other large firms engaged in direct 
exporting. The larger houses have a complete sales or- 
ganization in the markets in which they seek business 
and all have representatives in the ports to which they 
ship goods. A study of the methods used by large manu- 
facturing firms carr^dng on an extensive direct export trade 
gives the student an understanding of the methods that 
are likewise used by the large export houses. 

Promoting Trade Through Export Houses. — While oc- 
casional orders may be obtained through export commis- 
sion houses with Httle effort on the part of the manufacturer, 
large and permanent trade is not so easily secured through 
these agencies. Ordinarily, it is necessary for the manu- 
facturer to co-operate closely and continuously with the 
export commission house, if he desires to extend the sale 
of his product in the foreign market through such an agency. 
This co-operation takes the form of advertising in foreign 
and trade papers, of a judicious distribution of catalogues, 
of the supplying of samples where practicable, and even, in 
some cases, of sending salesmen to the foreign market to 
assist in introducing and pushing the sale of his goods. A 
demand is thus created among the customers of the ex- 
port cormnission house for his product, ^vith resultant sales. 

Export houses not infrequently demand the exclusive 
agency of a manufacturer's product in one or more foreign 
markets before they will agree to handle his business. In 
return for the granting of such an exclusive agency, they 


agree to push the sales of his product to the exclusion of 
similar lines of other manufacturers. The granting of 
such an agency binds the manufacturer to sell only through 
the house in question for a tenn of years. Such a contract 
may add greatly to the sales of a manufacturer; on the 
other hand, it may prove a handicap to the extension of the 
export business of the firm. It is repeatedly charged that 
unscrupulous houses have induced manufacturers to grant 
exclusive agencies in order to keep their goods out of cer- 
tain markets. By living up to the letter of the contract, 
they are able to bind the manufacturers without attempt- 
ing to produce a satisfactory volume of sales for their 
products. Reputable houses of long standing can be 
depended upon to carry out a contract in all fairness, but 
otliers have taken advantage of manufacturers and have 
thus reflected on all engaged in the business. 

The Handling of Staple Products. — It must not be sup- 
posed that the business of the export commission houses 
is confined to the handling of manufactured articles. On 
the contrary, the bulk of their trade has been in such staple 
products as cotton, wheat, flour, cottonseed, petroleum, 
copper, and such other raw materials as have largely entered 
into our foreign trade. They still hold an important posi- 
tion in the exportation of such commodities, as explained 
in the chapter devoted to the exportation of raw materials 
and foodstuffs, though the tendency in recent years has 
been to place the handling of such products with firms 
specializing in each, or to export them directly, as in the 
case of petroleum and its products. Much flour is likewise 
now exported by the big niilling concerns and a considerable 
portion of the cottonseed exported is now sold by the gin- 
ners direct to foreign buyers. The tendency is to eliminate 
the commission house wherever the volume of business war- 
rants the building up of a selling organization of world- 
wide proportions. 

The Export Commission House in Latin American 
Trade. — It is stated that over two-thirds of the exports 


from the United States to Latin America are even now 
handled by export commission houses, located for the most 
part at New York, New Orleans, and San Francisco. In 
this trade the export house often has a very important func- 
tion, as it not infrequently acts as an import as well as an 
export agent. In various Latin American trade centres 
native firms of long standing act as agents for the owners 
of plantations, mines, and other producing properties, 
importing from the United States and other countries the 
supplies needed for an entire season, and receiving in ex- 
change their produce to be marketed abroad. Such a 
firm, which is as much an importing as exporting house, has 
connections in the various markets with export houses, 
and consigns to these the commodities in which it deals. 
The New York or New Orleans export commission house 
transacting business "^ith such a concern must perforce 
be an importing house also. It receives the goods thus 
consigned to it and sells them on a commission basis. Usu- 
ally it sends back manufactured or other products to the 
full value of the consignment. These are purchased out- 
right from manufacturers or elsewhere, and are packed and 
shipped to the Latin American importer, who pays the 
usual 2j^ or 5 per cent commission for the service. The 
rubber industry of Brazil affords an excellent example of 
business so conducted, the entire supplies for a concession- 
aire and his employees being imported by a ]Manaos firm, 
who later receives the season's crop of rubber and exports 
it, usually through a commission house in New York. 

The part taken by export commission houses in Latin 
American trade is thus described by a recent writer on the 
subject : 

Hitherto it has cost the general manufacturer nothing to market 
his goods in Latin America beyond the trifling expense of publish- 
ing a few special catalogues. He has received his orders from the 
export commission houses and has been paid prompt cash for his 
goods as soon as they have been placed on board the steamer in 
New York or other ports of shipment. He has also been relieved 


to a great extent from the claims from foreign buyers when the 
goods shipped are of inferior quality or not according to the order, 
or not shipped on contract time. Since the buyer looks first to the 
commission merchant, and holds him responsible for any deviation 
from his contract of purchase, the export commission house has 
shouldered the burden. It is the commission merchant, further- 
more, who has stood all the expense of maintaining agents and sales- 
men in the principal commercial centres of Latin America, of send- 
ing special travellers from time to time, of employing experts ac- 
quainted with foreign languages to attend to the details of shipping, 
correspond^ce, making up of commercial and consular invoices 
in which the slightest mistake or deviation from the prescribed 
form will involve heavy fines in the foreign custom-houses, who ad- 
vances the money to prepay freight and ocean charges, and who 
risks his capital in granting the long credits required. 

While the field of the export commission house is nar- 
rowing from year to year, it nevertheless still has an im- 
portant function to perform in the United States as well 
as in the United Kingdom and Germany, where it is even 
more strongly intrenched than it is here. 


FiLSiNGER, E. B. Exporting to Latin America. New York, 1916. 
Hough, B. O. Practical Exporting. New York, 191 5. 
Shaw, A. W. Some Problems in Market Distribution. 1915. 
Westerfield, R. B. The Factor and the Commission Houses. 

(In his Middlemen in English Business.) 1915, pp. 354-361. 
Commission House in Latin American Trade. Quarterly Journal 

of Economics, vol. 26, pp. 118-139. November, 1911. 
The Compradore : His Position in the Foreign Trade of China. 

Economic Journal, vol. 21, pp. 636-641. December, 191 1. 
Doing Business Through Commission Houses. (In U. S. Bureau of 

Foreign and Domestic Commerce. Export Trade Suggestions. 

Miscellaneous series no. 35.) 1916. 
Export Merchants. (In U. S. Bureau of Foreign and Domestic 

Commerce. German Foreign Trade Organization. Miscel- 
laneous series no. 57.) 191 7, PP- 14-16. 
Marketing Agencies Between Manufacturer and Jobber. Quarterly 

Journal of Economics, vol. 31, pp. 571-599. August, 1917. 




Methods in General.— The methods used in the exporta- 
tion of raw materials and foodstuffs, collected from the 
farms, forests, and mines of the nation, differ radically 
from those employed in the sale of manufactured products. 
Such commodities do not meet in foreign markets the keen 
competition found in the case of manufactures; as a rule 
they are eagerly sought by the populous manufacturing 
and commercial nations that depend upon other countries 
for the food and raw materials needed to nourish their 
population and supply their factories with the materials 
essential to industry. No extensive sales organization for 
the marketing of such products need be maintained in 
foreign countries. Cotton, grain, and other commodities 
are sold to foreign purchasers largely through operations 
conducted by dealers having connections in foreign markets. 
Prices are quoted and contracts for delivery are made by 
cable. Brokers not infrequently maintain offices in the 
great world markets, and, where practicable, sell from 
sample as directed by their principals. On the other hand, 
large foreign buyers often send their agents here to contract 
for their supplies. 

In any case, there is little or no direct exporting by the 
producer, unless the product is one controlled by a few 
great corporations, as in the case of petroleum. The 
product leaves the hands of the producer long before it 
reaches the foreign buyer, who ahnost invariably purchases 
it from brokers or agents of large dealers who have secured 



it more or less directly from its original owner. It is a 
well-recognized fact that our foodstuffs and raw materials 
pass through too many hands before they reach the con- 
sumer, and that the organization of middlemen that has 
been built up has become a burden alike to producer and 
consumer. The middleman undoubtedly has a place in 
production and distribution, but only when he serves a 
useful and necessary purpose. The methods by which the 
various raw products are collected and distributed are best 
understood by considering the most important in some de- 
tail. As a rule the producer does not know whether his 
product is to be consumed at home or exported. He sells 
it to practically the same agencies in either case, and it is 
not sold to foreign buyers until it has been concentrated 
in great quantities in the hands of a few big dealers. As 
our most important agricultural export is cotton, it will be 
considered first. 

Cotton. — Little American cotton passes directly from the 
grower to English or other spinners. The greater part of 
the 6,000,000 bales annually exported passes through from 
two to six agencies between the grower and the spinner. 
These are successively the local storekeeper, the local cot- 
ton merchant, the buyer of one of the great cotton mer- 
chants of the central markets, the exporter, the English 
importer, the English broker, the spinner's agent, and 
finally the spinner. 

Numerous variations may occur in the process, with the 
elimination of one or several of the agencies enumerated. 
For instance, the farmer may sell not to the local store- 
keeper but to the local cotton merchant or to agents of 
the great cotton merchants of the primary markets. Large 
growers may even consign their cotton to commission houses 
located at the principal ports. Again, the local storekeeper 
may eliminate the local merchant and also the buyers of 
larger houses, and may sell direct to English buyers or 
other importers. 


The method used by the grower depends largely upon his 
financial condition. Those methods most commonly used 
fall under three heads, as follows : 

1. Method used by the small farmer who needs credit. 

2. Method employed by the farmer able to finance 

3. Method in vogue on large plantations. 

1. The cotton farmer is usually in debt, and he finds it 
necessary to contract to sell his crop to the local store- 
keeper, from w^hom he obtains his groceries and necessary 
supplies on credit. As a rule such credit is extended to 
40 or 50 per cent of the estimated value of the crop. In- 
terest is charged on the account and high prices are the 
rule. As the raw cotton is picked, the farmer brings it to 
the storekeeper, before it is ginned. When he has delivered 
his entire crop, the merchant makes up his account, credit- 
ing or paying the farmer for the balance due him. There 
is no system of grading; the farmer is seldom an expert 
judge of his owti product; consequently, he is never paid 
the highest price, but usually receives the price of medium 
or low grade cotton. The storekeeper himself is not 
the best judge of cotton; he has to grade down in order to 
protect himself. He sells to local cotton merchants or 
to cotton buyers representing la^ge cotton dealers; very 
rarely he sells to spinners' agents. 

2. Not all cotton-growers find it necessary to obtain 
credit from the local store to tide them over until their 
crop is marketed. In such cases, the grower takes his 
cotton to the gin, where the seed is removed and the 
cotton is baled. Then he disposes of it just as the local 
storekeeper disposes of the cotton he secures; that is, he 
sells it to the local cotton merchant or to a buyer represent- 
ing the big dealers or spinners. If the price is low, the in- 
dependent farmer may store his cotton in the local ware- 


house owned by the local cotton merchant, to be sold later 
by the latter on a commission basis. While the farmer 
who is able to finance himself reaps a greater reward for 
his labor, his cotton, nevertheless, passes through many 
hands before it reaches the domestic or foreign spinner. 

3. The large plantations are mostly owned by corpora- 
tions or syndicates, which rent their land in small parcels 
to poor cotton-growers, either for a fixed rental or on a 
percentage or ''share" basis. The corporation almost 
invariably owns a general store, which extends credit to 
the tenant for his season's supplies. It likewise owns a 
gin. When the cotton is picked, the grower delivers it 
to the store or gin, as the case may be, and receives whatever 
price may be determined upon by the company buyer. 
That the price is not the highest, goes without saying. 
After his account is settled, the grower too often finds that 
he has not enough money left to buy food and clothing for 
the winter, but, as he has no other resource, he continues 
year after year in the same unprofitable grind. 

It is generally conceded that the farmers of the Southern 
cotton-producing States, who raise the bulk of the world's 
supply, seldom or never receive their just returns for their 
crop. The following statement, taken from the United 
States Department of Agriculture Yearbook for 191 2, de- 
scribes the situation: 

Present methods of distribution of many agricultural products 
are indirect, wasteful, expensive, and even destructive. In this 
respect cotton suffers fully as much as any other crop. A complex 
commercial mechanism has been developed, many elements of 
which are distinctly not in the interest of the producer, the manu- 
facturer, or the ultimate consumer. It is not too much to say that 
our present method is susceptible of a great deal of improvement 
at every step from field to factory. It has been estimated by 
close students of the question that the present slipshod and wasteful 
system entails an annual loss to the growers of from $25,000,000 to 
$70,000,000. It is impossible to do more than approximate the 
total loss, but it is certainly exceedingly large. 


There are two well-defined tendencies in tlie cotton- 
producing sections that promise better marketing conditions 
for the future. The first is for the cotton manufacturer, 
both domestic and foreign, to buy direct from the cotton- 
grower, or at least from the local merchant who buys 
either from the grower or from the storekeeper. Thus 
brokers, factors, and dealers are eliminated. The other 
movement is for co-operative selling by the producers. 
The Yearbook of the Department of Agriculture for 191 2 
cites several examples of successful co-operative cotton- 
growers' associations. The growers of Montgomery, Ala., 
have constructed a gin and started a general store, where 
members receive credit. Warehouse facilities are also 
provided, w^here the cotton may be stored when the mar- 
ket conditions are bad. This association sells both to 
domestic and foreign buyers, though the greater part of 
the output is sold directly to Liverpool agents of English 
spinners. At Greenwood, Miss., a group of farmers 
organized a cotton buying and selling company; they han- 
dle their own output and that of other farmers who care 
to sell to them. The cotton-growers of Lnperial Valley, 
Cal., some years ago organized along the lines of the 
Citrus Growers' Association of California, w^hich so effi- 
ciently markets that product. An exchange and a bank 
were organized and warehouse facilities provided. WTien 
the cotton is ready for market, it is ginned and placed in 
the association warehouse, where it is graded by an expert. 
Then warehouse certificates are issued to the owners, upon 
which a loan may be obtained at the bank. While in the 
warehouse the cotton is insured. When the price is favor- 
able, the cotton is sold through a broker to manufacturers 
or to cotton merchants, preferably to the former. The 
exchange and bank are not now directly controlled by the 
growers. W^ith the general adoption of some such system, 
direct exporting of cotton by producers through their as- 
sociation would replace the methods now in vogue, whereby 


some half-dozen middlemen take their toll from each sea- 
son's crop. 

Export cotton is shipped from the various local markets 
either to central markets of the interior or to the ports of 
shipment direct. At large shipping-points the cotton is 
compressed so as to reduce its bulk one-half. From the 
compress points export cotton may be shipped on a through 
bill of lading to the foreign point of destination. 

English spinners purchase their American cotton in three 

1. Through buyers sent to the United States for that 

2. From the Manchester or Liverpool branch of an 
American cotton merchant. 

3. From English importers or brokers representing 
import houses. 

Havre is the great French cotton-market. American 
cotton is sold there by American exporters either to im- 
port houses or to cotton merchants, through brokers. 
American cotton sold to Germany between 190c and 19 14 
was shipped to great import houses at Bremen or Hamburg, 
which sold to German and other spinners. There was some 
direct importing of raw cotton by spinners. 

In 1 91 4 over 37 per cent of the raw cotton exported went 
to the United Kingdom, 30 per cent to Germany, and 12 
per cent to France. From 80 to 85 per cent of cotton ex- 
ports are shipped from the Southern and Gulf ports, Galves- 
ton leading with over two-thirds of the total, with New 
Orleans and Savannah next in importance. 

The price of cotton, as well as of grain and other farm 
products, is influenced or determined by operations con- 
ducted on the great exchanges. These are corporations, 
organized to promote the buying and selling of certain 
commodities by their members. The trading is not done 
by the exchange but by the individual members. The 


two great speculative cotton exchanges of the United 
States are those at New York and New Orleans. A com- 
paratively small amount of actual or spot cotton is bought 
or sold on the New York exchange, though New Orleans 
is a spot as well as a speculative market. Liverpool is the 
great cotton exchange of England. Many States of the 
cotton belt have enacted laws prohibiting the sale of cot- 
ton futures. It is worth emphasizing that cotton ex- 
changes were in their origin primarily associations of mer- 
chants and were intended to facilitate the business of 
such merchants. Although spinners (the consumers) and 
planters and growers (the producers) are sometimes mem- 
bers of exchanges, the basis of such organization is the 
cotton merchant. The merchant is a dealer in actual 
cotton. He may buy either directly from the grower or 
from so-called interior merchants, who are practically 
storekeepers and who collect cotton directly from the 
grower. Such a merchant, it may be noted, is generally 
spoken of in the trade as a "buyer," the term having a 
technical sense. Other cotton merchants who receive 
cotton on consignment to be sold on a commission basis 
are known as "factors." They sell their cotton to cotton 
"buyers" and seldom directly to spinners. There are thus 
two sets of middlemen. The number of factors, it may be 
noted, has decreased heavily in recent years. A cotton 
exchange also includes a great many brokers who may not 
handle actual cotton at all, but who simply act as agents 
for other interests, particularly for spinners, merchants, or 
speculators, either in the purchase or sale of spot cotton 
or of future contracts. Many brokers, it may be noted, 
deal exclusively in contracts and have nothing to do with 
spot cotton, while so-called spot brokers frequently have 
nothing to do with future contracts. Many speculators, 
particularly those conducting extensive operations, are 
members of cotton exchanges, as this entitles them to 
lower rates of brokerage and to other advantages not avail- 


able to outsiders. Of course any one of the interests 
named may exercise the functions of another. Thus, a 
merchant may act as a broker or he may be a heavy specu- 
lator. A speculator in turn may be interested in the 
ownership of mills as a spinner. 

The proper and professed functions of a cotton exchange 
may be briefly enumerated £ls follows; 

1. The maintenance of suitable facilities for the con- 
duct of business by its members. 

2. The adoption of rules and regulations for the 
conduct of such business. 

3. The collection and dissemination of useful informa- 

4. The maintenance of just and equitable principles 
in the trade. 

The system of future trading in cotton and, for that 
matter, in other staple products similarly dealt in, is based 
on contracts on the part of the seller to deliver, and, con- 
sequently, on the part of the buyer to receive, at a time 
subsequent to the making of the contract, a certain quan- 
tity of the product at a stipulated price. So far as the 
operation of the contract is concerned, it is immaterial 
whether or not the seller, at the time the contract is en- 
tered into, has the product in his possession, and, in fact, 
the term "futures" is very generally associated with 
transactions made at a time when the seller does not actu- 
ally have the product on hand. In this case he is, in the 
language of the trade, ''selling short," relying on his ability, 
before the maturity of his contract, to obtain the product 
which he has thus contracted to deliver or to purchase 
another contract to offset the one thus sold. A future con- 
tract is, however, quite as properly such in cases where 
the seller has the goods on hand at the time of entering 
into the contract, provided the delivery is set for some future 


date. A ^'future" differs from a ''spot" transaction in 
that the latter invariably represents goods actually on 
hand or instantly available at the time the contract is 
made, and, moreover, contemplates an immediate or an 
approximately immediate delivery.* 

Cotton and other exchanges afford legitimate merchants 
the opportunity of msuring themselves against loss through 
fluctuations in prices by hedging, which is the offsetting 
of real transactions by speculative ones. Thus cotton 
merchants, manufacturers, or exporters buying large quan- 
tities of cotton for which there is no immediate market 
protect themselves against a fall in prices by selling con- 
tracts for future deHvery. Then if the price of cotton falls, 
the merchant, though losing on the actual cotton he has 
purchased, gains an equal amount on the transaction in 

Similarly, the speculative market may be used by cotton 
merchants or brokers who make contracts with spinners 
for the actual delivery of a specified number of bales of 
cotton at a fixed price at a future date. Such contracts 
are frequently made before the cotton is available. If the 
price goes up before the merchant or broker obtains the 
cotton he has agreed to deliver, he will lose unless he hedges. 
He does this by buying on the exchange cotton futures for 
deHvery at the specified dates. Then if the price advances, 
he loses on the actual cotton he must purchase and deliver 
to the spinner, but he gains correspondingly on the cotton 
futures he purchased. The speculative market thus be- 
comes an insurance against loss in legitimate business 

Wheat. — The exportation of wheat is mostly in the 
hands of the great grain dealers that control lines of eleva- 
tors found in every big producing section. Following the 
harvest, the farmers haul their grain to the local markets 

* United States Bureau of Corporations: Report on Cotton Exchanges ^ 
part I, 1908. 


in two, four, or six horse wagons, or in motor- trucks, some 
of them especially constructed for this purpose and known 
as grain-tanks. In these local markets the farmer either 
stores the wheat in a storage elevator or sells it to one of 
the elevator companies. The elevators are owned either 
by local grain dealers or by the corporations owning ex- 
tensive elevator lines and having headquarters in such 
primary markets as Chicago or Minneapolis. In some 
cases a number of farmers form a co-operative association, 
build their own elevator, and hold their grain until market 
conditions seem most favorable. Such an association 
usually maintains an agent at one of the primary markets, 
who eventually makes the sale to one of the big grain 
dealers located there. There is some competition between 
the local grain dealer, who buys from the farmers only to 
sell again to the big dealers or to the milling companies, 
and the line elevator companies, which not infrequently 
enables the producer to receive more for his crop than would 
otherwise be the case. The dealers controlling the line 
elevators often send buyers out to the farms during or 
after the threshing season to negotiate with the farmers for 
the sale of their wheat; their success depends upon the 
price offered and upon the farmers' need of immediate re- 
turns for their crop. If the farmers believe that the price 
is going up, they may store their wheat in elevators at a 
fixed price per month, and borrow from 80 to 90 per cent 
of its market value from the local bankers, putting up 
their elevator receipts as collateral. 

Whatever the immediate method employed by the 
farmer in the disposal of his crop, that for export eventually 
comes into the possession either of the big milling companies 
or the big grain dealers located in the primary markets. 
It is then exported, either as wheat or as flour, as the case 
may be. MinneapoHs is the greatest flour-milling city of 
the continent. It is situated in the heart of the wheat- 
producing country, and has unlimited power supplied by 


the Falls of St. Anthony. Flour exported from Minneapolis 
goes mostly by rail to the Atlantic ports. 

The greatest wheat-market is Chicago, where millions 
of bushels of wheat are assembled and distributed each 
year. Duluth, Kansas City, St. Louis, and Milwaukee 
are other grain centres. Export wheat flows from the pro- 
ducing regions of the Northwest in three general directions, 
east, west, or south. The eastern channel is by way of 
the great lakes, or the railroads paralleling the lakes, to 
Montreal or New York or other Atlantic ports. The 
southern route, taken by the wheat of Kansas, southern 
Illinois, Oklahoma, and Texas, finds its outlet at New 
Orleans or Galveston. The wheat of the Northwest — 
Washington, Oregon, Idaho, and western Montana — ^is 
shipped to Portland or to the Puget Sound ports. Cali- 
fornia wheat intended for export is assembled at San Fran- 
cisco. Most of the wheat shipped from the Pacific coast 
ports goes to England, though a part of it is sent to the 
Orient. Pacific coast wheat is handled in sacks instead of 
in bulk, as it is shipped in cargo lots, and there is danger 
of a xuU cargo of grain shifting. Grain warehouses instead 
of elevators prevail in this region. Most of the ware- 
houses are provided with conveyers, operated by steam or 
electricity, for handling the sacks and loading them on 

While some Pacific coast wheat is handled by various 
co-operative growers' associations, which have agents at 
the ports who sell to exporters, most of the wheat for ex- 
port is purchased directly from the growers by agents of 
the big wheat companies, w^hich export only a part of what 
they buy. These firms have close trade connections with 
buyers at European markets, maintaining representatives 
there. The wheat is usually sold before it is shipped, fre- 
quently before it is purchased from the farmers. The 
journey from San Francisco to Liverpool in the ordinary 
saiKng vessel consumes four or five months, and if the wheat 


were not sold before shipment, price fluctuations might 
be so great as to cause heavy losses.* The exporter pays 
the marine insurance and, after the consignment is de- 
livered at its destination, the ocean freight. However, 
prices quoted in England for cargoes of Pacific coast wheat 
"to arrive," regularly include ocean freight and marine 
insurance, so the exporter, in drawing upon the European 
buyer, must deduct in his draft the amount to be paid 
for ocean freight. After the buyer examines the wheat on 
its arrival in England, if he is not satisfied with the grade, 
he may appoint an arbitrator and call upon the seller to 
appoint another, the two having power to choose a third. 
The board thus chosen decides the matter in controversy. 
Shipments to Europe are frequently made to a port of call. 
Sailing vessels are often chartered to go to Falmouth, 
Queens town, or Plymouth, in the British Isles, where or- 
ders are given as to final destination. For steamships the 
port of call is usually St. Vincent, in the Cape Verde Islands, 
or Gibraltar. 

Cattle. — Cattle, which were formerly exported on the 
hoof in great cattle-boats, now reach the foreign mc^rket 
in the form of dressed beef, or of dried or canned meat. 
Cattle for export are sold in the same way as those for 
domestic consumption. The cattle are shipped from the 
great ranches of the West to the cattle-markets of Chicago, 
Kansas City, Omaha, and Minneapolis, which are also 
the great meat-packing centres. Here they are placed in 
the stock-yards, where brokers or representatives of the 
leading meat-packing concerns purchase them at the 
market price. There are also cattle buyers in nearly every 
State, whose business it is to purchase from the farmers 
having only a few head of stock for sale each year. These 
are assembled and shipped in car-load lots to the central 
markets and handled in the same way as the range cattle. 

* United States Department of Agriculture. Bureau of Statistics, 
Bulletin no. 89. 


Cattle are thus sold by the producer either directly to the 
meat-packing concerns which control this industry or to 
a middleman or broker who sells to these concerns. 

The refiigerator-car, which came into general use in the 
late seventies, has made it possible to centraKze the slaugh- 
tering and meat-packing industries at a few points, where 
cattle are shipped alive from the range or from the farm. 
Ocean steamers have refrigerator-rooms in which the chilled 
or frozen meat is conveyed to the European markets. 

Swine and sheep exported are handled in the same way 
as cattle. The surplus of food animals for export is de- 
creasing as the area of the rangeland decreases, though, with 
a fair price insured and favorable marketing conditions, 
fanners could and would greatly increase the production 
of cattle and other farm animals. As the number of cattle 
on the ranges decrease, the number produced on farms 
and fed on alfalfa and other field crops can be made to 
correspondingly increase. There is no doubt that the dis- 
couraging conditions in regard to transportation and prices 
that the cattlemen have experienced in the past has had 
much to do with the comparative decline in this industry. 

Tobacco. — Over one-third of the tobacco of the world 
is grown in the United States, and about one-third of this 
is produced in the single State of Kentucky. Louisville, 
Ky., is the greatest tobacco-market in the world. As 
tobacco is a crop requiring much labor, it is usually grown 
by fanners in comparatively small quantities in conjunc- 
tion with other crops, and not on great plantations as under 
the old system of slave labor. 

About one- third of the crop, or 350,000,000 pounds, is 
exported, either by dealers, exporting houses, or the agents 
of foreign buyers. The United Kingdom has been the 
biggest buyer, wdth Germany next. Tobacco is exported 
in casks or hogsheads, weighing on the average 1,000 
pounds, or in bales weighing about 120 pounds. 

A large part of Southern tobacco is sold at auctions held 


in the local markets. The growers haul the tobacco to the 
nearest market and place it in public warehouses, where 
each lot is weighed and tagged, and auctioned off to the 
highest bidder, the grower reserving the right to reject 
all bids. The auctions are operated under state and local 
regulations. Some tobacco is delivered b}' the grower 
packed in hogsheads. This is called ''prized" tobacco, 
and is sold by sample. 

Not all tobacco is sold at auctions. Part of the Southern 
crop and practically all of that grown in the North is sold 
at private sale, either at the farms or after being hauled 
to the local market. The buyers of tobacco for export 
may be representatives of large tobacco exporters, or may 
be dealers who later sell to exporters. Foreign manufac- 
turers sometimes send buyers to the United States who buy 
either from the growers or from dealers. Some of the big 
tobacco manufacturers export raw as well as manufactured 
tobacco. The consolidation of the tobacco-manufacturing 
industry has decreased the number of buyers in Louisville 
and elsewhere. 

Even free-trade England levies a tariff on tobacco im- 
ported, the object being to produce revenue. The broker 
or manufacturer importing the tobacco has it placed in a 
bonded warehouse, thus avoiding the pa3mient of the duty 
until he is ready to use the tobacco. It usually remains 
two years in this warehouse, as a reserve supply in case 
of crop failure is thus assured, and the tobacco is improved 
by seasoning. 


BuRZETT, C. W. Cotton— Its Cultivation, Marketing^ and Manu- 
facture. New York, 1916. 
CoPELAND, Melvil T. The Cotton Manufacturing Industry of the 

United States. Chapter 7. Cambridge, 191 2. 
Critchell, James T., and Raymond, Joseph. A History of the 

Frozen-Meat Trade. Chicago, 191 2. 
DoNDLiNGER, P. T. The Book of Wheat, New York, 1916. 


Edgar, W. C. The Story of a Grain of Wheat. New York, 1903. 

Heylin, N. B. Buyers and Sellers in the Cattle Trade. Phila- 
delphia, 1 913. 

Jacobstein, Meyer. The Tobacco Industry. (Columbia Univer- 
sity studies in history, economics, and public law, vol, 26, no, 3.) 

KiLLEBREW, J, B,, AND Myrick, H. Tobacco Leaf. New York, 

Marsh, A. R. Cotto7i Exchanges and Their Economic Functions. 
In Annals of the American Academy of Political and Social 
Sciences, vol. 38, pp. 571-598, September, 1911. 

Powell, George H, Co-operative Agriculture. New York, 191 3. 

Price, T. H, King Cotton in Field, Mill, and Mart. Outlook, 
vol, 106, pp. 714-722. March 28, 1914. 

Smith, Rollin E. Wheat Fields and Markets of the World. St. 
Louis, 1908. 

U. S, Bureau of Corporations. Report on Cotton Exchanges. 

U. S. Department of Agricutlture. Yearbook. Improved Meth- 
ods of Handling and Marketing Cotton. Yearbook, 191 2, pp. 

U. S. Department of Agriculture. Bureau of Plant Industry. 
The Classification and Grading of Cotton. Farmers' bulletin 

U. S. Department of Agriculture. Bureau of Plant Industry. 

The Relation of Cotton Buying to Cotton Growing. Bulletin 

no. 60. 
U. S. Department of Agriculture. Bureau of Statistics. 

Methods aftd Routes for Exporting Farm Products. Bulletin 

no. 29, 
U. S. Department of Agriculture. Bureau of Statistics. 

Wheat a^nd Flour Prices from Farmer to Consumer. Bulletin 

no. 130. 
U. S. Department of Agriculture. A Study of Cotton Market 

Conditions with a View to Their Improvement. 1917. 
Young, Thomas M. The American Cotton Industry. New York, 




The Documents and Details of an Export Shipment. — 

The care and exactness required in making out the docu- 
ments incidental to every export shipment have discour- 
aged many a small manufacturer from attempting direct 
exporting. The number and character of the documents 
differ somewhat in accordance with the country of destina- 
tion, and this adds to the difficulties of the subject. How- 
ever, exact information as to the rules governing shipments 
to each country may be obtained from the Bureau of For- 
eign and Domestic Commerce and also from the consuls 
of the respective countries. In general, the documents 
required are the commercial invoice, the railroad and 
steamship bills of lading, the export declaration, the in- 
surance policy or certificate, the consular invoice, and the 
draft. There are other documents involved in the details 
of making shipments, and the use of these will be best 
understood by following an export shipment from the time 
the order is received until it leaves the United States port. 
After an order has been received by a manufacturer, and 
is assembled ready for shipment, it is packed strictly ac- 
cording to instructions or to the known requirements for 
goods destined to the point in question. A packing or 
shipping list is made out for the convenience of the shipping 
department, and the export invoice is filled out with the 
greatest care and exactness. When the goods have been 
properly packed and each case or package plainly marked 
with initials or other letters or characters, they are delivered, 
in the case of inland manufacturers, to the railroad, and 
a bill of lading secured. There are usually three copies 



of the bill of lading. These, together with three copies of 
the export invoice, are immediately mailed to the agency, 
branch, or employee at the port, that is to take charge of 
the forwarding of the shipment from that point. 

When the goods arrive at the port, the agent must se- 
cure a shipping permit from the steamship company, 
claim the goods from the railroad by presenting the bill 
of lading, make arrangements for the hauling of the ship- 
ment to the steamship pier, prepare and have certified 
the required number of copies of the consular invoice, make 
out and attest an export declaration on forms provided by 
the United States Custom-House, have this properly certi- 
fied by a customs official, prepare the steamship bills of 
lading on forms provided by the steamship company, 
prepay the freight, and secure the signature of the steam- 
ship agent to the bills of lading, and deKver the export 
declaration to this official, to be used in the clearance of 
the ship. Unless the insurance policy has been taken out 
before shipment, this must also be attended to. In case 
of a blanket policy, under which different shipments may 
be made upon the issuance of an insurance certificate, the 
latter is procured by the manufacturer and forwarded to 
the shipping-agent at the port along with the railroad bill 
of lading and the invoice. With this general review of 
the details incident to making an export shipment, each of 
the important docimients will now be considered at some 

Export Invoices. — The heading of the export invoice 
gives the name of the shipper and of the consignee, with the 
address of each; the name of the steamship on which the 
goods are carried; the distinguishing marks, initials, or 
nmnbers by which the various packages or cases constitut- 
ing the shipment may be identified; the number of pack- 
age.; or cases included in the shipment; and, in most cases, 
a code word that may be used in applying to the whole 
invoice in cable communications. 


In the body of the invoice are stated the number of 
packages or cases with the outside measurements and cubic 
contents of each, the number of articles contained in each 
package, an exact and specific description of each article 
included, the price of each article, tie total price of all 
articles contained in each package, and a footing showing 
the value of the entire shipment. The exact nature of each 
package, as box, barrel, bale, crate, or cask is designated; 
each article is specifically described as to the material of 
which it is made, its use, and the parts belonging to it, 
where these are packed separately. For instance, a desk 
is described as made of oak, with brass knobs; chairs, of 
oak frames, with leather seats and hair stufi&ng. The words 
furniture, hardware, groceries, cloth are not used, but 
sofas, hammers, caimed corn, and cotton unbleached cloth 
are substituted, as being more specific. Every article in 
the shipment is included in the invoice, though it may not 
have any commercial value; this applies to catalogues, 
calendars, and other advertising matter. The prices are 
usually expressed in United States money; it was foirnerly 
the custom to change this into English money after the 
footing was made, but since dollar exchange has become so 
firmly established, this is no longer the rule. 

The letters ''E. & O. E.'' are found on many export in- 
voices. They indicate ''Errors and Omissions Excepted. ' 
As a rule abbreviations are avoided, as their use may re- 
sult in confusion and misunderstanding. As export iri- 
voices eventually pass into the hands of foreign custon^cs 
ofiicials, every effort is made to expedite the clearance oi 
the goods by making the invoice specific, detailed, comple te, 
exact, and clear in every respect. Where even a slight 
discrepancy is found between the description of goodfs in 
the invoice and the actual contents of the packages, heavy 
fines may be imposed by the foreign customs officials, and 
costly delays result. 

It is not customary for the full name and address oil the 


consignee to appear on the packing-cases; hence, it is im- 
portant that the numbers or letters or characters used be 
indicated clearly on the invoice, with absolutely no devia- 
tion from the mark as it actually appears on the packages. 

A knowledge of the customs regulations of the coun- 
tries to which goods are shipped is all-important for the 
export shipping-clerk. Without such knowledge, it is 
impossible for him to avoid costly errors, serious misunder- 
standings, and the piling up of many claims. With study, 
care, and exact attention to details, the making out of 
export invoices becomes a simple task. 

The Shipping Permit. — Even when arrangements have 
been made in advance for steamship space on a specified 
date, it is necessary to secure a shipping permit from the 
steamship agent before goods are delivered at the pier. 
This permit specifies the goods to be shipped, the number 
of packages, the steamer, and the day or days on which 
they may be laid down at the pier. When the freight is 
delivered, a dock receipt is issued, which contains a memo- 
randum of the number of cases or packages, the marks 
thereon, and the weight and cubic contents of the same. 

Consular Invoices. — Consular invoices are required by 
all of the Latin American republics except Uruguay. 
They are not required for shipments made to European or 
other countries. Those covering export shipments to 
Argentina, Brazil, Chile, Cuba, and Mexico may be writ- 
ten in English; for all other Latin American countries it is 
required that consular invoices be written in Spanish. 

The consular invoice contains all of the information 
found in the commercial invoice, with such additional facts 
as may be required by the laws of the country to which the 
sliipment is made. They are made out in triplicate on 
special forms obtainable from the consul of the country 
in question. They are prepared by the shipping-agent, 
and are then translated by a professional translator, who 
is thoroughly conversant with the specific requirements of 


the republic to which the goods are consigned. The em- 
ployment of an inexperienced translator often leads to 
difficulties which may prove expensive in the long run. 

When completed the consular invoice is presented to the 
consul for certification, the bill of lading being attached 
thereto. The certification of the bill of lading is required 
by some republics. The number of copies of the consular 
invoice required varies, some countries providing for as 
many as four, though three is the usual number. Specific 
information as to the requirements is obtainable by appli- 
cation to the consul of the foreign country; they are con- 
stantly being modified. The fee for consular certification 
varies according to the country in question and to the 
character and value of the shipment. In some cases it is 
merely nominal; in others, a percentage of the value of 
the goods is charged, which may make the cost of this 
docimient an important item. 

Shipper's Export Declaration. — The United States cus- 
toms regulations require that the shipper or his agent 
prepare and file an export declaration for every shipment 
to foreign countries. This declaration is made out in 
duplicate on forms provided. The original is left with the 
collector of customs and the duplicate delivered by the ship- 
per or his agent to the steamship officials. Clearance, or 
permission to leave port, is not granted a vessel until such 
a declaration has been filed for each part of the cargo with 
the collector of the customs. The declaration as filled out 
by the shipper contains an accurate description of the 
articles contained in the shipment, a specific description of 
the number and kinds of packages, and of the quantity in 
tons, pounds, gallons, yards, etc. The value of the articles 
is stated on the original declaration, but need not be given 
on the duplicate copy. The duplicate, which does not dis- 
close the value of the goods, is handed over to the shipper's 
agent at the port or to the carrier as proof of compliance 
with the customs requirements. The duplicate export dec- 


laration must be certified by the collector of customs or 
his deputy before it is delivered to the carrier. The ex- 
port declaration must be sworn to by the shipper or his 
agent, either before the collector of customs or before any 
officer authorized to administer oaths. No oath is required 
for exports sent by land nor for shipments valued at less 
than $100. 

Since the oath may be taken before a notary public, 
the inland shipper is thus enabled to make out and attest 
this document at the time the goods are shipped to the port, 
and to forward it to his agent at the port, along with the 
railroad bill of lading and the commercial invoice. 

Railroad Bill of Lading. — A bill of lading is the written 
instrument issued by a common carrier w^hen it takes pos- 
session of the goods to be transported. A bill of lading has 
three distinct uses : first, it is the receipt given by the trans- 
portation company to the shipper for the goods delivered 
by him to the company or carrier; second, it is an agree- 
ment or contract for the transportation of the goods; third, 
it is a docimient showing the title to the goods shipped. It 
is signed by the shipper or his agent and also by the agent 
of the railroad company. It is usually necessary to present 
the bill of lading to the railroad freight-agent at the point 
of destination in order to secure possession of the goods, 
although this rule is not always enforced in the case of 
large and well-known shippers. 

The bill of lading contains a description of the merchan- 
dise shipped, with the number of packages, the distinguish- 
ing marks on each, the weight, the freight rate, and the 
route aU clearly specified. Railroad freight may or may 
not be paid in advance. Through bills of lading are some- 
times issued, on which goods are carried not only to the 
port, but also by ocean-carrier to the foreign point to which 
they are consigned. Such bills of lading are the rule for ship- 
ments in car-load lots. Special railroad rates are granted 
on certain classes of exports, as well as of imports. These 


apply only to car-load lots, ard goods so shipped are on a 
through bill of lading to the foreign port. They are con- 
signed in care of the railroad company's foreign freight-agent 
at the port of shipment, who attends to the details of trans- 
shipment. The commodities upon which such special rates 
are granted include grain, flour, pig iron, steel rails, and 
agricultural implements. 

Steamship Bill of Lading. — Steamship bills of lading are 
made out on forms specially provided, which contain an 
exhaustive list of printed conditions under which the con- 
tract to carry the goods is made. The name of the 
shipper, and of the consignee, unless, as is most often the 
case, the goods are consigned to the order of the shipper, 
are given, as is also the name of the steamship and of the 
line to which it belongs. The merchandise is described in 
detail, with the number of packages, identifying marks, 
weight, and measurements of each. 

Steamship bills of lading specifically state that lighterage 
charges, the cost of landing, wharfage, and all other ex- 
penses ''beyond ship's tackle" shall be charged to the con- 
signee or shipper. In other words, freight rates apply from 
and to ship's tackle, the tackle being the apparatus for 
raising and lowering heavy weights. 

Another provision found in bills of lading is to the effect 
that the goods shall be received by the consignee at vessel's 
tackle ''immediately upon her arrival at place of delivery, 
without regard to weather, and if the consignee be not on 
hand to receive the goods when discharged, the carrier 
may deHver them to any lighterman, wharfinger, or other 
party believed to be responsible, or they may be landed on 
wharf or beach or bank or stored in hulks or put in Hghters 
for the owner and at owner's risk and expense." The 
necessity of notifying the consignee when he may expect a 
shipment to arrive is apparent. 

Bills of lading are customarily made out to the order of 
the shipper and by him indorsed in blank, so that the title 


to the merchandise remains -^ath the holder of the bill of 
lading. Bills of lading drawn to the consignee or his order 
are not accepted by banks as part of a documentary bill 
of exchange presented for discount, because the holders 
of such bills of lading have no lien on the goods. In case 
the customer has paid cash, or cash against documents in 
the port of shipment, the bill of lading may be made out to 
his order. 

Bills of lading are made out in triplicate, and the num- 
ber of copies issued is always stated on the face of the docu- 
ment. This is because a bill of lading is a negotiable in- 
strument, and the possession of any one copy entitles the 
holder to the possession of the goods, provided it has been 
indorsed in blank by the shipper. Additional copies that 
are unsigned may be made out for the use of the steamship 
company or for other purposes; these are valueless as far 
as the ownership of the goods is concerned. It is the cus- 
tom to prepay the freight on export shipments, and many 
steamship companies require this. When the freight is 
paid, the agent of the steamship company signs the number 
of copies indicated on the face of the bill of lading and 
delivers them to the shipper or his agent. 

The bin of lading is sent to the consignee, either through 
a bank with draft attached, or direct by mail. 

Railroads and other carriers of domestic shipments 
make delivery quite generally without presentation of the 
bill of lading. This is not done in the case of ocean freight. 
The bill of lading is evidence of title to the goods and must 
be presented to the ocean-carrier in order to gain posses- 
sion of them. The consular or commercial invoice must 
also be in the hands of the consignee before he can have the 
goods passed through the custom-house. It is of \dtal im- 
portance that these documents reach the consignee or his 
agent as soon as the goods arrive, or at an earlier date if 
possible. For the documents to miss the ship on which 
the goods are carried invariably leads to serious difficulties, 


unless mail service is much more frequent than is the case 
to most ports. The customs requirements of most coun- 
tries provide that goods be taken from the custom-house 
promptly. In Latin American countries and in some others 
fines are assessed the consignee when he fails to claim and 
remove the goods within a specified number of hours. 
Failure of the shipping documents to arrive thus proves 
costly, as well as inconvenient, and sometimes results in 
the rejection of the shipment by the consignee. 

The Shipper's Agent at the Port. — The necessity for the 
inland manufacturer to have an agent or employee at the 
port of shipment is apparent. This representative, as 
previously explained, claims the merchandise, has it trans- 
ferred to the dock, and attends to the documentation and 
shipment. In order to avoid delay, the representative is 
usually given the shipper's power of attorney; he is thus 
enabled to make oath to the correctness of the consular in- 
voice, and to the shipper's export declaration, where this 
has not been made out and attested by the shipper in ad- 
vance. If a credited representative with power of attorney 
to act for the shipper is not maintained at the port, it is 
necessary for the documents to be mailed back to the ship- 
per for proper indorsement and oath, thus entailing delay 
that may result in their missing the boat. Some inland 
shippers avoid this difficulty by employing a forwarding 
agent who is authorized to make the shipment in his own 

Since specific knowledge, absolute exactness, and un- 
varying promptness are all required in attending to the 
documents and details involved in making an export ship- 
ment, it follows that there are numerous agencies that 
make it their business to attend to this work for inland and 
other shippers. These agencies include freight-forwarding 
companies, manufacturers' export agencies, transfer com- 
panies, and foreign freight-agents of railroad and steam- 
ship companies. The manufacturer who has only a small 


volume of export business usually finds it to his advantage 
to make use of one of these agencies, while a firm having 
a large export trade maintains a branch office at the port. 
The services rendered by each of the agencies may be 
briefly considered here. 

Freight-Forwarding Agencies.— There are in New York, 
Philadelphia, Boston, New Orleans, San Francisco, and 
other ports large companies organized for the specific pur- 
pose of forwarding export shipments for manufacturers 
or others. The forwarding charges are usually based 
on a percentage of the value of the goods, and are charged, 
by agreement, to the consignee. In case of c. i. f. quota- 
tions, they are included in the price quoted. Reliable for- 
warding agents make a reasonable charge for their services, 
and handle all shipments intrusted to them promptly and 

As soon as the forwarding agent receives the railroad bill 
of lading and the invoice, he claims the goods, which have 
been consigned to him, takes out the shipping permit, has 
the goods transferred to the pier, attends to completing the 
documentation, pays the ocean freight, the consular fees, 
and all other charges, and arranges, in many cases, for the 
negotiation of the draft at a bank or through a broker. He 
then adds the total shipping expenses, including his own 
charges, to the footing of the export invoice and fills in the 
full amount on the draft, which has been drawn by the ship- 
per in blank. He then takes the documents to the bank as 
promptly as possible, so as to allow ample time for their 
examination. If found correct and satisfactory to the 
minutest detail, the bank does one of three things, according 
to previous agreement. 

1. It discounts the bill of exchange and credits the pro- 
ceeds to the shipper or his agent. 

2. It accepts the draft, thus enabling the shipper to 
discount it, either at that or at some other bank. In this 
case, the draft has been drawn, by previous agreement, not 


on the consignee but on the bank. This does not prevent 
another draft, drawn on the customer being made and for- 
warded for collection. 

3. It forwards the documents to its branch or corre- 
spondent bank located at or near the place of destination, 
where the draft is to be either accepted or paid, as explained 
in the chapter on financing export shipments. 

Manufacturers* Export Agents. — Those manufacturers 
who are not prepared to maintain a branch ofiice at the 
port of shipment often have recourse to export agents, 
who represent a group of manufacturers. The compensa- 
tion is usually on a commission basis. Such agents 
handle the export shipments intrusted to them in precisely 
the same way as do other freight forwarders. Hence, their 
services in this direction need not be elaborated. But a 
manufacturers' agent often undertakes to perform other 
services, such as the distribution of catalogues and samples 
and the obtaining of orders, whether domestic or foreign. 
The foreign business obtained comes mostly through ex- 
port commission houses, which find it convenient to place 
a foreign order with the agent in the field rather than with 
a manufacturer at a distance. 

Other Forwarding Agents. — The other agencies that may 
be employed by the manufacturer to attend to the forward- 
ing of export shipments at the port are tran_sfer companies 
and the agents of railroad and steamship companies. The 
work of these is exactly similar to that of the freight-for- 
warding agencies ahready described. Nearly all of the large 
raihroads mamtain export agents at the various ports, whose 
duty it is to attend to the details of shipping export freight 
that has been carried from the interior to the port over 
their company's lines. Many steamship companies likewise 
have agents who may be employed to attend to the foreign 
shipments. Large transfer companies maintain an export 
department in charge of an employee competent to attend 
to the details of making export shipments. The charges do 
not differ from those made by other forwarding companies. 



Duncan, C. S. The Uniform BUI of Lading. Journal of Political 

Economy, vol. 25, pp. 679-703, July, 191 7. 
Exporters^ EncydopcBdia. New York, 191 7. 
Galloway, Lee. Organization a?id Management. Part 1, chapter 

6. New York, 1913. 
Hooper, Frederick. The Import a}id Export Trade ; or, Modern 

Commercial Practice of the United Kingdom with Documents. 

London and New York, 1905. 
Hough, B. O. Ocean Traffi-c and Trade. Chicago, 1914. 
Hough, B. 0. Practical Exporting. New York, 1915. 
International Bureau of the American Republics. Consular 

Fees and Invoices of Latin American Countries. Washington, 

JohinTSON, Emory R. Ocean atid Inland Water Transportation. 

Chapter 5. New York, 1906. 
Johnson, Emory R. Principles of Ocean Transportation. New 

York, 191 8. 
Kent, F. I. Financing Our Foreign Trade. Annals of the Ameri- 
can Academy of Political and Social Science, vol. 36, pp. 492- 

Margraff, Anthony W. International Exchange. Chicago, 1908. 
National City Bank, New York. An Export Order. New York, 



Import Regulations. — In order to enforce the customs 
laws and regulations of the United States, definite rules 
governing the importation of merchandise are in force. 
These provide for the taking out of consular invoices at 
the place of purchase or shipment, for the following of a 
fixed procedure in the clearance of imports through the 
United States Custom-House located at the port of entry, 
describe the exact methods to be followed in the examina- 
tion and appraisement of the goods by customs officers, and 
clearly set forth the conditions under which imported mer- 
chandise may be placed in a government bonded warehouse 
and kept there until the importer is ready to pay the duty 
and remove the goods. Goods that are on the free list, 
as well as those upon which an import duty is assessed, 
must be cleared strictly in accordance with the rules pro- 
vided by law. 

The purpose of these laws and regulations is twofold: 
first, in order to facilitate the collection of the duties on 
imports, which make up a large part of the revenue of the 
federal government; second, to enable the government 
to collect accurate statistics of articles imported, including 
their price, quantity, source, and destination. It often 
happens that goods imported are later exported; in that 
case, where an import duty has been paid, it is refunded in 
the form of a ''drawback" providing proof is produced that 
either the specific articles or the raw materials from which 
they were manufactured were imported and duty paid 



thereon. A great convenience for importers is the use of 
government bonded warehouses, where goods subject to 
duty may be placed, the collection of the duty being deferred 
until such time as the importer may wish to gain possession 
of a part or all of the goods. The interest saved by thus 
postponing the payment of duties amounts in the aggre- 
gate to a huge sum. Importers thus find it desirable to 
purchase staple articles from abroad in large quantities, 
thereby securing price concessions, a policy that would be 
impracticable if the full amount of the duty was exacted 
upon the entry of the merchandise. 

Import Documentation. — The documents required in the 
importation of goods are the consular invoices, the bill of 
lading, and the import declaration. For all goods imported 
into the United States to the value of $100 or more, there 
must be taken out a consular invoice, certified to by the 
United States consul at the point of sale, manufacture, or 
shipment. Three copies of such invoice are made out. 
One copy is kept by the consul, one is forwarded by the 
consul to the collector of customs at the port to which the 
goods are shipped, and the third copy is given to the ex- 
porter. This third copy is stamped with the official seal 
of the consul and the revenue stamp of $2.50 is affixed to 
it. The consular fee is thus uniformly $2.50. If the 
shipper desires, a fourth copy may be made out for his files. 
Two forms of consular invoices are in use. One is on blue 
paper and is used when the merchandise has been purchased 
outright; the other is on white paper and is issued when the 
goods are shipped on consignment to the United States, 
their ownership remaining with the shipper. 

Each shipment must be entered at the United States 
Custom-House within forty-eight hours of the official entry 
of the vessel. The entry of a vessel is made by the de- 
positing of the ship's papers at the custom-house. In the 
same way, the entry of a shipment is made by depositing 
at the custom-house the consular invoice, the bill of lad- 


ing, and an import declaration. The import declaration 
must be made out on forms provided by the Treasury 
Department or approved by that department. In this 
declaration the importer or his agent must declare that 
the invoice contains an accurate account of the goods con- 
tained in the shipment, and that it correctly and fully 
specifies the exact cost of the goods, as well as the value 
of all cases, boxes, and crates in which the goods are shipped, 
and of the cost of packing the goods for shipment. He 
must further declare that no discount or bounty has been 
received and that no other invoice or bill of lading exists, 
and that no effort whatsoever has been made to defraud 
the United States Government of lawful duties. The 
importer is also required to promise that if any error in 
the invoice is later discovered, he will immediately report 
such error to the collector of customs of the district. The 
import declaration contains a complete description of the 
goods, the number of packages included, the contents of 
each package, the cost of each article in the money in which 
the invoices are made out, and other details. If there is 
any defect in either the invoice or the import declaration, 
goods are placed in the custody of the collector in a ware- 
house, where they are kept until their value is determined. 

Different entries may be made. Goods not subject to 
duty and those needed immediately are covered by an 
import or consumption entry, and are released as soon as 
they can be examined by the customs officials, and the duty, 
where there is one, is assessed and paid. Goods destined 
for an interior point may be shipped in bond in sealed cars, 
and the goods cleared there. Goods which it is desired 
to place in government bonded warehouse are subject to 
special conditions. The importer is required to furnish 
a bond guaranteeing that the goods will be withdrawn 
within three years of the date of entry and that the duty 
wiU be paid upon withdrawal. 

Bonded warehouses, under strict government control, 


are provided for the convenience of importers who do not 
wish to gain immediate possession of imports. The goods 
in this case are placed in bonded warehouses and held un- 
til the duty is paid. As this duty is often a very large 
amount, the saving in interest to the importer is an item 
of importance. 

Bonded warehouses are usually owned by the govern- 
ment, but they may be the property of private individuals 
or firms, located near the factory or other place of business 
of the individuals or firms owning them. In either case 
they are built in strict conformity to government specifica- 
tions and are fireproof. Warehouses of this kind are often 
built in the interior of the coimtry, far from the port of 

Each bonded warehouse is in charge of a government 
official whose title is that of storekeeper, who keeps exact 
account of all merchandise brought into or removed from 
the warehouse. No goods can be withdrawn from a bonded 
warehouse without a written order or permit from the 
collector of the port through which the shipment entered 
the country. 

Goods may be withdrawn from a bonded warehouse in 
quantities desired by the importer, the duty being paid on 
the portion desired before their removal. 

American manufacturers whose trade is largely with 
foreign countries find it convenient to bond their factories 
to the government, which converts them into bonded 
warehouses under government regulations. They can then 
have the raw materials imported brought to the factories 
under bond, and, without paying duty, manufacture these 
materials into finished goods and export them. Where 
practically all of the raw materials used in a plant are 
imported, such a procedure has advantages over paying 
duty when the materials are received and then securing 
a drawback of the duty paid when the finished products, 
manufactured from the imported materials, are exported. 


The Appraisement of Imports. — A preliminary appraise- 
ment is made by customs officials and duties assessed ac- 
cording to the value and character of the goods as set forth 
in the documents. Only a part of a shipment is ordinarily 
subjected to examination; unless it is found that there is 
some discrepancy between the description and the goods, 
or unless there is some other reason for suspecting the hon- 
esty of the importer, the entire shipment is delivered to the 
importer as soon as this partial inspection is completed. 
If the importer is anxious to obtain immediate possession 
of the goods, all but the part to be examined may be de- 
livered to him upon the filing of a bond guaranteeing the 
return of the goods delivered if such return should be re- 
quired. A delivery permit is issued by the customs officials 
for each shipment or part of shipment to be withdrawn by 
the importer. 

Import Methods — Manufactures. — Having briefly re- 
viewed the methods by which imported merchandise is 
passed through the United States Custom-House, we will 
proceed to a consideration of the commercial channels 
through which the products of foreign countries pass from 
the producer to the American importer. About 40 per 
cent of our imports consist of wholly or partly manufactured 
articles, the major portion of which are cotton, woollen, 
silk, and linen textiles and their manufactures. Leather, 
paper, wood, and their manufactures, art works, china- 
ware, jewelry and precious stones, millinery, clocks, watches, 
and furs are other manufactured articles imported each 
year to the value of millions of dollars. For the most part, 
such articles are imported by wholesale mercantile estab- 
lishments and by large retail stores carrying on business in 
the leading cities. Both of these maintain special repre- 
sentatives or buyers abroad, who devote their entire time 
to keeping in closest touch with the markets, the changes 
in styles, and the leading sources of supply. In addition 
to these resident buyers, others are sent abroad from time 


to time to secure special classes of goods, more particularly 
those greatly affected by the prevailing modes. Smaller 
wholesale and retail mercantile establishments make their 
purchases through buying agents located in Paris, Lon- 
don, Berlin, Dresden, and dozens of other trade centres. 
These agents may represent the goods of one or more manu- 
facturers, or may buy in the open market; they may make 
purchases for two or three American importers or for scores 
of them, according to the nature of the merchandise han- 
dled by them and to other conditions. The methods em- 
ployed are so varied that it is impossible to give in brief 
space a complete classification. However, the buyers rep- 
resenting American importers, whether they be employed 
by one firm or by a score, all look to practically the same 
source for the goods desired. That source is largely de- 
pendent upon the particular goods to be purchased. Pari- 
sian millinery and wearing apparel are purchased from the 
manufacturer, who is often a famous modiste employing 
hundreds of work-people. Laces, embroideries, and trim- 
mings may be purchased direct from the manufacturer 
or from a manufacturer's agent. In the case of hand-made 
goods, the buyer seldom comes into direct contact with the 
workers or their employers, but buys from a collector who 
purchases the goods outright and sells them to foreign 

Many staple manufactured articles are purchased by 
American importers through export commission houses 
located in the different trade centres, thus obviating the 
necessity of maintaining special buyers abroad. A very 
large percentage of both German and English manufactured 
goods are sold through these agencies, though their ascen- 
dancy is greatest in exports sent to Latin America. Orien- 
tal wares are purchased through great mercantile houses 
situated at the ports, through export commission houses, 
through brokers, or by special buyers, just as in European 


A custom handed down from the Middle Ages is the 
marketing of goods through merchandise fairs, held at 
stated intervals at certain trade centres. Such fairs still 
persist in some parts of Europe. Those still drawing buy- 
ers from other nations, including the United States, are 
the famous ones held in Leipzig, Frankfort, Lyons, and 
Nizhni Novgorod. By far the most important of these 
has been the Leipzig fairs held at New Year's, Easter, and 
Michaelmas. Buyers from all parts of the world have 
attended these, to view the advance display of manu- 
factures for the next season and to give orders. The value 
of the annual sales made at these fairs is estimated at 
$50,000,000. The merchandise displayed has consisted 
principally of furs, for which Leipzig is the great world 
market, glass, cloth, leather and leather manufactures, 
wooUen goods, carpets, and musical instruments. In 191 5 
and 191 7 both the United Kingdom and France made 
an effort to revive their olden-time fairs. The fair held 
at Lyons, France, in March, 1916, was a notable success, 
being attended by many buyers from America and other 
lands. Orders were taken for over $10,000,000 worth 
of goods, and nearly as many more had to be refused 
because of the inability of the manufacturers to promise 
delivery in the near future. This fair is held annually. 
Silks, laces, and other distinctive French manufactures 
are displayed, as well as many other products. Another 
fair was held in the Victoria and Albert Museum, London, 
in February and March, 1917, at which exhibits of toys, 
earthenware and chinaware, glass, notions, stationery, and 
other manufactures were made, and orders were taken 
from buyers. At the same time a fair was held at Glas- 
gow, Scotland, at which textiles, clothing, canned and 
preserved food products, boots and shoes, and other articles 
were exhibited by manufacturers. The success of these 
attempts points to a wider use of these world markets in 
the future. 



U. S. Treasury Department. Customs Regulations of the United 

States Prepared for the Instruction and Guidance of Customs 

Officials. 191 5. 
U. S. Treasury Department. Drawbacks Under the Present 

Tarif Acts. 64th Congress, ist session. Senate document 

no. 532. 1916. 




Methods in General. — While the same legal regulations 
apply to the importation of raw materials and foodstuffs 
as to manufactured articles, each of the great staple com- 
modities is handled by a method developed from long years 
of custom, and each has distinguishing features of impor- 
tance. Just as in the exportation of raw materials and food- 
stuffs from the United States there is found a complicated 
system of middlemen and specialists, with prices and grad- 
ing of products influenced or determined by the specula- 
tive exchanges, so we find more or less complicated machin- 
ery in our import trade in the staple articles. The great 
staple raw materials and food products which we import 
in large quantities are wool, hides and skins, india-rubber 
and gutta-percha, coffee, sugar, tea, and silk. The trade 
channels through which each of these passes from foreign 
producer to the American manufacturer or distributer will 
be considered separately. 

Wool. — The United States is second only to Australia 
in the production of wool, the annual clip averaging about 
300,000,000 pounds, which is between one-ninth and one- 
tenth of the world's total wool production. But our con- 
sumption of this commodity is so great that we find it 
necessary to import each year about two-fifths of the 
amount consumed here. The domestic wool is of two 
classes, both of fine quality, suitable for the manufacture 
of cloths, dress-goods, and other fabrics. We do not pro- 
duce a sufficient quantity of these classes of wool to supply 
our needs, but import about one-fourth of such wool used. 



Other wool imported is the coarse variety produced mostly 
in Persia and Asiatic Turkey used in carpet manufactur- 
ing. There are also other classes of wool imported, nota- 
bly that of the alpaca, the Angora goat, and the Cashmere 

The following table, gi\'ing our production and our im- 
portation of wool, in millions of pounds, for different years, 































shows how our consumption of this product has increased. 
The exports of raw wool average less than 5,000,000 
pounds annually. 

For many years London was the foremost wool-market 
of the world. In the great wool exchange there was as- 
sembled each season practically the entire wool-cHp of the 
world. Thither came wool manufacturers or their repre- 
sentatives from every country in which wool was manu- 
factured, to purchase their year's supply at the great auc- 
tions held at the wool exchange. The advantage of thus 
assembling the wool of the world in one market was prin- 
cipally due to the fact that there are many different grades 
of wool, each having its special use, and the manufacturers 
were thus enabled to select the different kinds required all 
at one time. The producing countries have for some years 
been making great and successful efforts to have these 


annual auctions held within their own borders, and the 
entire clip of Australia, the greatest wool-producing coun- 
try, is now sold at auctions held at Melbourne and Sydney. 
These sales are attended by wool manufacturers from every 
land, who, however, must look elsewhere for the grades of 
wool not grown in Australia. The great wool -consuming 
countries have likewise challenged London's wool suprem- 
acy, with the result that Boston, New York, Philadelphia, 
Bremen, Hamburg, Antwerp, Amsterdam, and other cities 
annually hold great wool-auctions attended mostly by 
domestic buyers. London is still the greatest international 
wool-market, though Boston actually handles a larger 
volume of that commodity. The wool handled in Boston 
is largely of American production, while that sold in Lon- 
don comes from many lands. Only recently has South 
American wool been handled in London; it is of a coarse 
variety which English manufacturers have refused to use. 
French and German manufacturers have used it to ad- 
vantage, and by a long process of patient experimenting 
have succeeded in devising methods of working it up into 
cloth having an even finer and softer finish than that made 
of finer wool. 

Most of the wool imported into the United States is 
purchased at the London auctions or at the auctions held 
in Australia, New Zealand, or South Africa. It is either 
purchased through brokers or from wool merchants, and 
is usually selected by the manufacturer or his representa- 
tive in person. 

Henry B. Smith, in The Sheep and Wool Industry of 
Australasia, thus describes wool-selling in AustraHa: 

The wool is offered in large, well-lighted stores, and is on view 
from six o'clock in the morning, at which hour buyers can be seen 
making a start, the Ught being quite good. 

Two brokers' catalogues are offered daily, with a few exceptions, 
the combined offerings being limited to 12,000 bales per day. 
Buyers therefore need to start early if they wish to view all the wool 


offered, as the sale starts punctually at three o^cIock of the same 
day the wool is shown. 

The auctioneer at a wool sale very seldom has to ask for a bid. 
Usually as soon as he mentions the catalogue number of the lot 
being offered, the buyers fairly shriek and yell at him the price 
they are willing to pay, every one in the not unmusical choir try- 
ing to yell his bid louder than the other. 

The lots are knocked down and sold quicker than the average 
person can write down the price bid. The sale being over, the 
wool-brokers have the invoices for £100,000 to £120,000 worth of 
wool in the hands of the different buyers the same evening or the 
first thing the following morning. 

The speed with which everything connected with wool-selling 
in Australia is effected is truly wonderful; it speaks well for the 
system and manner in which the sales are conducted by the selling 
brokers. . . . 

Farmers are supplied by the selling brokers with printed weight- 
books and other necessary printed forms. . . . Most of the stores 
have a railway-siding running alongside, the bales being unloaded 
from the railway-trucks right on to the store platforms, thus avoid- 
ing all town cartage expenses. Most of the brokers have an up- 
to-date shearing-shed on the premises. A sum of sixpence per 
sheep is charged for shearing; this includes cost of classing, baling, 
and branding the wool. 

The way in which the wool merchants and brokers come 
into possession of the bulk of the wool-clip of the world 
is of interest. In nearly every country there are expert 
wool-buyers, representing wool merchants or, occasionally, 
wool manufacturers, who make it their business to go from 
place to place for the purpose of buying the wool produced 
in each section. These buyers purchase the wool either 
from the grower direct, from local wool-dealers, or from local 
storekeepers, the latter ha\dng taken the wool in trade 
from their customers. The large wool-growers prefer to 
sell to these buyers, thus eliminating the local middlemen, 
but they are not always able to do so, as they are often 
obhged to go in debt for their supplies before the wool is 
ready for market. In this case, they must deliver their 
clip to the local merchant who has extended the credit. 


This merchant may be the general storekeeper, a dealer in 
wool with strong banking connections, or a commission 
merchant. In Australia, as soon as the wool is placed in 
the warehouse and before it is auctioned off to foreign 
buyers, further advances are made on it by the local dealers. 
The fact that the wool is so often mortgaged in this way 
works to the disadvantage of the grower, who has to pay 
high interest rates and seldom receives the highest market 

In England local fairs have long been held at which wool 
is sold by the growers to buyers representing wool merchants 
or wool manufacturers. Competitive bidding among buy- 
ers for the clip of large growers or for the stock held by a 
local merchant is also common in England and Scotland. 

The methods used in marketing wool in the United 
States may be briefly outlined here. The wool grown in 
small quantity on the farms of the East and Middle West 
is sold by the farmer either to the general store or to local 
wool merchants. All kinds of fleeces are indiscriminately 
stuffed into bags and sold without any attempt at grad- 
ing. The local buyer either consigns the wool to a commis- 
sion house in a primary market or sells it outright to a 
buyer representing a Boston, Philadelphia, or other wool 
merchant. In either case, the price paid is determined by 
the poorest wool in the lot — which shows the loss sustained 
by the grower in neglecting to sort and grade his fleeces. 
The wool produced on the great sheep-ranches of the West 
is sold to better advantage. Wool-buyers representing 
either wool merchants or manufacturers keep in close touch 
with the producers, and often endeavor to make contracts 
for the purchase of the clip before the shearing season. 
Not infrequently, competitive bids are made by different 
wool-buyers either before or after the product is ready for 
market. These bids are usually in v/riting, and the grower 
is free to accept one or decline all. In Montana, Wyoming, 
and other great wool-producing States warehouses are 


provided where the clip from each ranch may be stored. 
Buyers sample and bid on the wool thus stored. When the 
demand is brisk, the price obtained may be even higher 
than the market. 

The function of the wool-buyer in international trade is 
one of importance, for through his hands passes all the wool 
of commerce. "The v/ool-buyer," says a recent writer, 
"must have at his fingers' ends not only the probable pro- 
duction each year of every part of the United States, but 
also of every wool-producing country on the globe. He 
must know as accurately what is going on in the London 
market as what the demand is likely to be in Lawrence, 
Mass. He must watch with equal care Boston, Buenos 
Aires, and Australasia. The successful wool-buyer must 
combine all his world-wide data and interpret them. 
Upon the soundness of his deductions depends a profit 
or loss which may reach miUions in the aggregate." 

Both the wool-buyer and his principal, the wool merchant 
of the primary market, seem to be necessary as interme- 
diaries in the wool trade, since the grades of wool needed 
by the manufacturer are numerous. It is thus to the ad- 
vantage of the latter to purchase from the carefully cleaned 
and graded stock of the wool merchant just the quantity 
and variety of wool he desires rather than to attempt to 
secure his supply from the growers. 

Hides and Skins. — In looking over the list of imports 
of the United States for 1915, we find that "hides and skins, 
other than fur," were imported that year to the value of 
$104,177,106, while leather and manufactures of leather 
exported were valued at $120,727,156. This indicates the 
importance of our leather industry, which not only supplies 
our enormous domestic demand, but also has provided a 
surplus for export averaging over $57,000,000 in normal 
years. The uses for leather are many, but boots and shoes, 
gloves, purses, hand-bags, suitcases, belts, harness, saddles, 
machine-belting, furniture and automobile upholstery are 


the leading articles requiring this material. The domestic 
supply of hides and skins for the manufacture of leather 
falls far short of the demand, necessitating our drawing 
upon other countries for about one-third of our supply. 
The hides and skins most used are those of the cow, steer, 
calf, goat, sheep, chamois, pig, horse, colt, deer, alligator, 
kangaroo, bison, seal, and porpoise. 

The centre of the leather-manufacturing industry of the 
United States has long been Philadelphia, which early de- 
veloped this industry, largely because of the plentiful 
supply of the essential oak and hemlock, the bark of which 
is used in tanning. It is estimated that about two- thirds 
of the goatskins that enter international trade are assem- 
bled at Philadelphia, and that one-half of the sole leather 
and nine-tenths of the glazed kid and colt skin manufac- 
tured in the United States are made in that city. New 
York is the centre of the belting industry, and here are 
turned out each year thousands of belts of great strength 
and durability for use in various manufacturing industries. 
Boston is also a great leather-market. The leather made 
in the centres mentioned is purchased by boot and shoe and 
other manufacturers, who seldom purchase the raw hides 
and skins. 

The leather industry is controlled largely by a few great 
corporations, who draw upon every part of the world for 
the hides and skins required. Cattle hides are supplied 
by the United States, Canada, Mexico, and South America. 
These are mostly assembled by the large meat-packing 
concerns, which own tanneries and dispose of the hides 
after they are tanned. Calfskins are largely obtained 
from the dairy farms of the United States, where the calves 
are sold for veal, and their skins later converted into high- 
grade leather. In passing, it may be noted that this whole- 
sale slaughter of calves is responsible for our dwindling 
supply of cattle and dairy products. 

The hides that we obtain aknost entirely by importa- 


tion are those of the goat and the chamois. These come 
from the hill countries of India, from Switzerland, Russia, 
Spain, northern Africa, China, South America, Turkey, 
Arabia, and the Balkan States. Goats are used for food 
in most of these countries and their skins carefully pre- 
served, to be sold at stated periods to buyers who make 
regular visits to the local markets, where the skins are 
brought by the breeders. These buyers represent dealers 
of the primary markets, who export the hides in ship-load 
lots. London merchants secure great quantities of these, 
and re-export them to the United States. Marseilles is 
another important market for hides and skins, especially 
for those of northern Africa. The product of China and 
South America is largely imported direct by American 
leather companies, who buy either through brokers or their 
own representatives maintained there for that purpose. 
Many of these are natives, whose familiarity with the cus- 
toms and traditions of the people enable them to procure 
the hides at the best prices. 

Rubber and Gutta-Percha. — India-rubber, or caoutchouc, 
is obtained from the juice, called latex, of certain tropical 
trees, which are tapped in much the same way as the 
sugar-maple is for its sap. These trees are grown in the 
wild state in tropical jungles, or on cultivated plantations 
in tropical countries. Until recently the supply of wild 
rubber greatly exceeded that produced on plantations, but 
the increased use of rubber for automobile tires and other 
purposes has so broadened the demand that it has been 
found profitable to plant and cultivate great areas. About 
two-thirds of the rubber of commerce is now produced on 

Most of the wild rubber is produced in the tropical forests 
of the Amazon and its tributaries in Brazil, and two- thirds 
of this is regularly exported to the United States. The 
city of Manaos on the Negro River, one thousand miles 
from the Atlantic, is the centre of the industry. The rub- 


ber-trees are on public land and concessions are granted 
by the government to individuals or companies. The ex- 
penses incident to the gathering of the crop are heavy; 
the concessionaire advances the rubber-gatherers he em- 
ploys all the necessary supplies for the season, including 
groceries, clothing, utensils, firearms, and ammunition. 
He receives those supplies from a commission house at 
Manaos, to which he later delivers the crop. If the sea- 
son is a good one, the concessionaire may make a fortune, 
but if conditions are unfavorable, the returns for the sea- 
son may be insufficient to pay for the supplies. 

The rubber is delivered to the commission house in the 
form of biscuits weighing several pounds each. The com- 
mission house consigns the product in cargo lots to New 
York brokers or sells it outright to American importers. 
About two-thirds of Brazil's rubber yield is thus exported 
to the United States, most of the balance going to British 
importers. American rubber manufacturers thus obtain 
their supply either through brokers or importing houses, 
or through direct relations with the Brazilian commission 

It is estimated that fully nine-tenths of the supply of 
plantation rubber is produced on plantations owned by 
British capitalists. These are located mostly in British 
India and in the Dutch East Indies. These plantations 
are controlled by a single great investment corporation, 
which brings each season's output to England, where it is 
either manufactured or sold to buyers for manufacturers 
of other countries. The United States manufactures 
about two-thirds of the rubber used in the world. Our 
supremacy in this industry is largely due to the discovery 
and use of highly efficient methods in manufacture. 

Gutta-percha is similar to rubber in being obtained from 
the juice or milk of trees. It is produced mostly in the 
Philippines, Borneo, and Sumatra. It is used as an in- 
sulating material in the construction of ocean cables, and 


also in the manufacture of golf-balls and similar articles. 
It is imported either directly by the manufacturers or by 
brokers acting for commission houses located at the cen- 
tres of production. 

Sugar. — The consumption of cane and beet sugar in the 
United States totals nearly 9,000,000,000 pounds annually, 
ivhich means that our per capita consumption falls only a 
little short of 90 pounds. About 22 per cent of this is 
produced in the United States; nearly 25 per cent is ob- 
tained from Hawaii, Porto Rico, and the Philippines; 
the balance, or about 53 per cent, is imported chiefly 
from Cuba. About one-third of the domestic production 
is cane-sugar. Our ability to produce a much larger pro- 
portion of the sugar consumed is unquestioned. The 
sugar trade in the United States is absolutely controlled 
by a few corporations or trusts, which own or control most 
of the plantations in our island possessions and Cuba. 
Consequently, the importation of sugar is made directly 
by the producers, who own refineries in the United States. 
Most of the sugar is thus imported in its raw state. 

Tea. — Formerly most of the tea used in the United States 
came from China and Japan, but Ceylon and India teas 
have largely replaced these in recent years. The teas of 
India and Ceylon are grown on great plantations, owned 
mostly by British firms of immense capital and influence, 
which have the product packed and shipped to London 
each season. In London it is placed in bonded warehouses, 
as there is a high duty on its importation, and is kept in 
these warehouses for a period of some months. It is sold 
at great public auctions held at Mincing Lane, London, 
which are attended by wholesale tea merchants from many 
countries. An elaborate system of sampling and tasting 
has been developed, and the grades are most exactly de- 
fined and separated. Some of the largest owners of tea- 
plantations in Ceylon and India sell most of their product, 
put up in cans holding as little as a quarter of a pound 01 


in chests containing large quantities, direct to wholesale 
merchants or jobbers without the formality of an auction. 
Much Chinese tea is imported into England, but the greater 
part of this is re-exported by tea merchants, some of it 
being purchased by American tea-importers. Ceylon, 
India, and Japan tea is handled largely by the use of 
machinery, while that of China is still picked, cured, and 
packed by hand. 

Chinese and Japanese teas are grown on small farms or 
even in the back yards of the peasants, who cultivate it 
with the greatest care, pick it, and cure it sufficiently 
to retain the flavor. It is sold to tea merchants or 
commission men, through buyers who make regular trips 
through the tea-producing territory. It is then taken to 
great ^' hongs," or warehouses, where it is dried, cured, and 
prepared for market. From the '^ hongs" it is sent to the 
ports and shipped, or sold to export merchants, who repack 
it and consign it to importers located at the ports of the 
country to which it is shipped. American tea-importing 
merchants either buy their teas outright from the Chinese 
and Japanese exporters, or handle it on a commission 
basis; the former method is the one commonly followed. 
The importer distributes it to wholesalers or jobbers, 
who, in turn, sell it to retail dealers. 

It has been demonstrated that tea can be grown success- 
fully in many of our Southern States, but the labor required 
in its production is so great that it does not pay in this 
country. We annually import about $17,000 000 worth of 
this beverage. 

Raw Silk. — Another semitropical product that there is 
every reason to believe might be produced successfully in 
the United States is raw silk. The Department of Agri- 
culture has for some time been carr^dng on experiments 
with silkworms, and the results have been satisfactory. 
Much labor and patient handling is required for success in 
this industry, which accounts for the slow progress made by 


those unaccustomed to the industry. Our raw-silk im- 
ports in 19 1 5 exceeded $83,000,000 in value, most of it 
coming from Japan, China, Italy, France, Spain, and 
India. We regularly import twice as much silk from Japan 
as from the whole of Europe. About three-fourths of the 
raw silk imported is brought from Japan and China by 
American importers located at San Francisco. It is 
shipped from that port in special trains to New York, 
which is the greatest raw-silk market, next to Shanghai, 
in the world. The silk is handled in New York either by 
commission merchants, brokers, or by importers main- 
taining branches in San Francisco. There it is graded, 
sampled, and sold to buyers for silk manufacturers. The 
United States imports about one-half of the raw silk that 
enters commerce; it is, therefore, the greatest silk-manu- 
facturing country in the world. Paterson, N. J., is the 
centre of silk manufactures in this country. 

Coffee.— The United States is the leading coffee- consum- 
ing country in the world, nearly 1,000,000,000 pounds be- 
ing used here annually. The per capita consumption of 
this beverage is, therefore, about 10 pounds a year. With 
the exception of about 9,000,000 pounds obtained from 
Hawaii and Porto Rico, the immense quantity consumed 
is obtained from foreign countries, chiefly Brazil, Colombia, 
Venezuela, Central America, and Mexico. By far the 
largest amount comes from Brazil, which supplies us T\^th 
about 775,000,000 pounds annually. This coffee is grown 
on great plantations in the states of Sao Paulo, Rio de 
Janeiro, Minas Geraes, and Espirito Santo. A coffee- 
plantation with its carefully pruned trees, with their dark- 
green shiny leaves, white blossoms, and red berries, is a 
beautiful sight. The harvesting of the berry begins in 
April or May and lasts until August. Each tree yields 
from two to three pounds of berries, which are gathered 
by hand. i\s soon as it is harvested the coft'ee is taken by 
the planter to a central station, where it is cleaned, dried, 


and put through a machine that hulls and polishes it. It 
is then packed in jute bags and shipped to a broker either 
at Santos or Rio de Janeiro, who handles it at a 3 per 
cent commission. 

The broker grades and repacks the coffee and then dis- 
poses of it in one of three ways : 

1. He sells it direct to the buyers of American or other 
importing houses. 

2. He sells it to American or other importers on cable 

3. He sells it to local exporting houses. 

Some Brazilian coffee is consigned in cargo lots to New 
York or New Orleans coffee-brokers, who, upon cabled 
instructions from the consignee, display samples and sell 
on a fixed commission oi }4 or yi per cent. The coffee is 
shipped mostly by tramp steamers. New York and New 
Orleans are the leading coffee-markets of the United States. 

The coffee-broker in New York or New Orleans sells 
through brokers to wholesalers or jobbers, who are usually 
the roasters. The movement of coffee after it reaches the 
United States is thus described: 

Green coffee is another product that is sold principally 
through brokers — from the importer through the broker 
to the roaster (usually the wholesale grocer). Here, again, 
the principal economy is due to the fact that the broker 
sells for a number of different houses. One or two of the 
largest coffee-importing houses have their own sales 
organizations with salaried representatives in all large 
cities, who sell direct to roasters. One large New York 
house has its own representatives in five of the largest 
trade centres in the country and uses brokers in other 
cities. . . . 

Usually a coffee-broker has exclusive sale for his princi- 
pal in the market in which he is located. . . . The cus- 
tomary brokerage fee is 15 cents a bag of 132 pounds, 


which amounts to about one-eighth of a cent a pound, or 
about I per cent of its value. Sometimes the coffee-broker 
also represents a foreign exporting house direct, rather 
than a domestic importer.* 


Akers, C. E. The Rubber Industry in Brazil and the Orient. Lon- 
don, 1914. 

Beadle, Clayton. Rubber ; the Production and Utilization of the 
Raw Product, London and New York, 191 1. 

Bean, C. E. W. On the Wool Track. London, 1910. 

Brannt, W. T. India-Rubber, Gutta-Percha, and Balata. Phila- 
delphia, 1900. 

Brazil, the Land of Rubber. New York, 191 2. 

Bro'vv'N, Harold. Rubber ; Its Sources, Cidtivation, and Prepara- 
tion. London. 

Canada. Department of Agriculture. Review of Co-operative 
Wool Sales in Canada. Ottawa, 191 7. 

Cave, Henry W. Golden Tips; a Description of Ceylon and Its 
Great Tea Industry. London, 1900. 

Cherington, Paul T. The Wool Industry of tlie United States, 
Chapters 10, 12. New York, 1916. 

Coffew, W. C. Growing and Marketing Wool. Champaign, 111., 

Geerligs, H, C. p. The World's Cane-Sugar Industry. New York, 

Henry, J. H. Thirty-Five Years of Oil Transportation — the Evolu- 
tion of the Tank-Steamer. New York, 1907. 

Ibbetson, a. Tea from Grower to Consumer. London, 1910. 

Keable, B. B. Cofee from Grower to Consumer. London, 1910. 

Marshall, T. R. Wool-Growers and th£ Wool Trade. 1915. 

Sheffeld, Charles A. Silk ; Its Origin, Cidture, and Manufac- 
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Smith, Henry B. The Sheep and Wool Industry of Australi-a. 
Melbourne, 19 14. 

Surface, George T. The Story of Sugar. New York, 1910. 

Thurber, F. B. Cofee from Plantation to Cup. New York, 188.3. 

Torrey, Joseph. Tlie Rubber Industry. Official Report of the 
4th International Rubber Congress held in London in 1914. 
London, 1914. 

Tower, Walter. The Story of Oil. New York, 190Q. 

* Quarterly Journal of Economics, vol. 32, p. 598, August, 1917. 



The commodities entering our foreign trade depend 
upon the railroads, inland waterways, and ocean carriers 
for their transportation. The products of interior points 
must first be conveyed to the ports, either by the railroads 
or by the inland waterways, and thence taken by ocean 
carriers to the foreign ports of destination. The network 
of railways that penetrate to every part of the country 
collect from the points of production the raw materials 
and foodstuffs for export, as well as those to be retained 
for domestic consumption, and bring them to some central 
distributing point, such as Chicago, St. Louis, Kansas City, 
Omaha, or Duluth. Here, also, are assembled the manu- 
factured products of the surrounding territory. The sur- 
plus commodities of all kinds that are destined for export 
are then forwarded to the seaboard, either by rail or by 
water, or by a combination of the two. At the ports these 
commodities are assembled at the wharfs, where they 
are loaded on the outbound vessels to be conveyed to the 
foreign ports of destination. 

Our imports from overseas enter the country through 
the ports, but only a fraction remain there. The bulk 
are taken up by the railroads and carried to the inland 
distributing points, where they are despatched as needed 
to scattered towns and hamlets of widely separated re- 
gions. A small portion of our imports is brought to in- 
terior points over our inland waterwa3^s. Inland trans- 
portation facilities, then, are quite as important a factor 
in our foreign trade as are ocean carriers. Only those 



exports produced at the seaboard and those imports con- 
sumed there are in any way independent of the wonder- 
ful network of railways and waterways with which our 
country is provided. 

A consideration of the facilities now available for the 
transportation of our foreign as well as of our domestic 
commerce is essential to the understanding of the organ- 
ization of our foreign trade. These will now be discussed 
under the following heads: 

1. Railroads. 

2. Inland waterways. 

3. Ports and terminal facilities. 

4. The American merchant marine. 

5. Ocean trade routes. 

Railroads of the United States. — The railroad mile- 
age of the United States, exclusive of that owned by switch- 
ing and terminal companies, was in 1914 252,230 miles. 
This is about 40,000 miles more than the total mileage of 
all the railroads of Europe, and is approximately three- 
eighths of the railroad mileage of the world. The rail- 
roads were built by a large number of independent com- 
panies, many of which received Uberal aid and encourage- 
ment from the federal government, but by a gradual 
process of consoHdation they have been brought under the 
control of a small number of capitalistic groups, so that 
in 191 7 four-fifths of the railroad mileage of the country- 
were controlled by less than a dozen financial interests. 
The right of the federal government to control the rail- 
roads through preventing unfair discrimination in rates, 
pooling, the granting of rebates, and other unfair practices, 
notoriously common for many years, has finally been es- 
tablished. The general regulation of railroads engaged in 
interstate commerce rests with the Interstate Commerce 
Coromission, created by act of Congress in iSSj. The 
powers of this commission have been enlarged from time 
to time; its decisions have proven, in the main, highly 


satisfactory. Before the railroads were taken over by 
the federal government in January, 1918, those in control 
were advocating the federal incorporation of interstate 
carriers, thus removing them from the jurisdiction of the 
various States. 

A convenient grouping of the railroads of the United 
States is in three divisions, as follows: 

1. The territory north of the Potomac and Ohio 
Rivers and east of the Mississippi. 

2. The territory south of the Potomac and Ohio 
Rivers and east of the Mississippi. 

3. The territory west of the Mississippi. 

In the first division are the New England roads and the 
trunk lines. The New England roads mostly terminate 
at Boston. The trunk lines connect the Great Lakes and 
the Ohio River regions with the Atlantic coast. Buffalo, 
Cleveland, Detroit, Toledo, Chicago, St. Louis, Indian- 
apolis, Cincinnati, and Pittsburg are leading commercial 
centres served by these roads. This group of roads, with 
a network of ramifications extending to every part of the 
territory covered, has the most highly developed manu- 
facturing region of the United States in its territory. 
Hence it carries the largest traffic of any group. 

In the second division are the Southern roads, which have 
an im.mense traffic in cotton, lumber, and coal, which are 
carried from interior points to the coast cities of Norfolk, 
Wilmington, Charleston, Savannah, Jacksonville, Tampa, 
Pensacola, and New Orleans. 

In the third division, that west of the Mississippi, are the 
southwestern roads, the Granger roads, and the great 
transcontinental Hues. The Southwestern roads furnish 
an outlet for the grain, lumber, live stock, and cotton of 
the region southwest of St. Louis. The principal cities 
served by these roads are St. Louis, Memphis, and the 
Gulf ports of Galveston and New Orleans. 

The Granger roads, which were originally built or pro- 


jected by farmers of the territory they now serve, carry 
grain, live stock, and other agricultural products to the 
great distributing centres of Chicago, St. Louis, Kansas 
City, and Duluth. 

The transcontinental lines are those roads that connect 
the Pacific coast with Chicago, St. Louis, and other Mis- 
sissippi Valley points. There are three such lines in the 
North and six in the South. The Northern lines are the 
Great Northern, the Northern Pacific, and the Chicago, 
Milwaukee, and St. Paul Railway, all connecting Puget 
Sound points with the ports of Lake Superior and with 
Chicago and St. Louis. The Southern transcontinental 
lines include the Southern Pacific, the Union Pacific, the 
Atchison, Topeka, and Santa Fe, and the Western Pacific. 
Two other lines extend from the coast to Salt Lake City, 
v/here connections are made for Chicago and other Missis- 
sippi Valley points. These lines are the Oregon Short 
Line from Portland, and the Los Angeles and Salt Lake 
Railway from Los Angeles. 

Inland Waterways. — The navigable rivers and lakes of 
the United States, with the ship canals, make a wonder- 
ful system of inland waterways, over which a much larger 
traffic than is now carried could be handled to advantage. 
With the exception of the Great Lakes, our inland water- 
v/ays have been allowed to fall into comparative disuse. 
The Mississippi River alone, with its navigable branches, 
might be used to furnish cheap transportation for thou- 
sands of tons of freight that are now shipped by railroad 
to the Atlantic coast ports. A more extensive use of 
these natural arteries of trade, with the resultant lowering 
of freight costs, w^ould enable us to compete on more favor- 
able terms in the markets of the world. When the rail- 
roads adopt the practice of routing freight through, even 
when it is carried for a part of the distance over inland 
waterways other than the Great Lakes, when the federal 
government adopts a more uniform and more scientific 


method of making appropriations for the improvement of 
such waterways, and when the financial interests of the 
nation lend their support to the greater utilization of our 
rivers and canals, the advantage to the farmers, manu- 
facturers, and merchants of the interior will be reflected 
in a greater production of commodities at a decreased cost 
to the consumer. The New York Barge Canal — an en- 
largement of the Erie Canal — has just been built in order 
to win back to New York her primacy in the export grain 
trade, which had been lost owing to the competition of the 
water routes by way of the St. Lawrence on the north, 
and of the short rail routes to the Gulf ports in the south. 
Other projected canals include one to connect the Ohio 
River mth Lake Erie from Pittsburg, another to connect 
Lake Erie with Lake Michigan in a direct line, and a series 
of canals to connect Lake Michigan with the Mississippi 

The Great Lakes afford in conjunction with the Erie 
Canal a through waterway from the great lumber, grain, 
iron, coal, and copper producing regions along or near 
their borders to the Atlantic seaboard. Traffic in these 
commodities is enormous, that passing through the St. 
Marys or Soo Canal far exceeding in tonnage the freight 
carried through any other canal in the world. The great 
assembling and shipping centres of the Great Lakes region 
are Duluth and Superior, Milwaukee and Chicago. To 
Duluth, the head of navigation on the Great Lakes, and 
Superior, just opposite Duluth, immense quantities of 
grain, flour, lumber, iron ore, and copper are assembled 
by the numerous railways that penetrate to the remote 
corners of Minnesota, Wisconsin, and the Dakotas, and 
thence shipped to the manufacturing cities along Lake 
Erie or through to Buffalo, where part continues by way 
of the Erie Canal to the seaboard, and a larger part is car- 
ried by rail either to New York, Boston, Philadelphia, or 


Chicago, the greatest railroad centre in the world, col- 
lects the products of the great northern section of the 
United States, and ships such bulky commodities as grain, 
lumber, iron ore, and coal over the Great Lakes. Those 
commodities intended for export are transshipped at Buf- 
falo, and carried by rail or water to New York. Not all of 
the commodities enumerated are shipped by water; the 
trunk lines carry great quantities of coal, iron, lumber, and 
grain, making rates that, w^hen time is a factor, secure a 
large volume of such traffic. During the winter months, 
when the Lakes are frozen, all the traffic is necessarily 
diverted to the railways. 

Ports and Terminal Facilities. — The seaport is the gate- 
way through which nine-tenths of our foreign trade pass. 
From every producing section of the country the commod- 
ities that are destined for other countries are sent by rail 
or water to the ports, to be taken as line or charter traffic 
to their destination overseas. The facihties provided at 
the ports for the handling of freight received there for 
transshipment vary greatly. As a rule, the largest ports 
have a succession of piers or wharfs extending at right 
angles to the shore-line along which the vessels may lie 
while loading or discharging cargo. Ports that have closed 
harbors and sufficient space for a great number of piers 
and wharfs have a great advantage over those that are 
mere open roadsteads, without protection from winds and 
storms, such as are common along the coasts of South 
America. In such an open roadstead freight must be dis- 
charged into lighters, or small open boats. When the water 
is rough, it is sometimes impossible to discharge a cargo 
in an open roadstead, and a ship is obliged either to wait 
for days or to carry the cargo destined for that port to 
another or to keep it on board until the next trip. 

The Atlantic and Gulf coasts of the United States have 
numerous closed harbors, which have been so improved 
as to afford facilities for the loading and unloading of 


hundreds of ships at a time. A large part of the work of 
loading and unloading is done by the aid of machinery run 
by electric or steam power. Hydraulic cranes, hoisting 
apparatus by which twenty tons or more of merchandise 
can be lifted at one time, huge coal-buckets and steam- 
shovels, elevators, and other devices are available in the 
large ports. Ships are thus able to load or unload in a 
few hours, instead of requiring several days, as was formerly 
the case. The floating elevators, which are towed alongside 
the vessel in which wheat is carried, furnish an excellent 
example of the aid such devices are to commerce. By 
their use a cargo of 300,000 bushels of wheat can be loaded 
in two hours. 

The federal government, through the power conferred 
by the Constitution to regulate commerce, has control 
over the channels of rivers and of harbors in general, 
though the State usually has control of docks, wharfs, 
and the mechanical appliances provided for the loading 
and unloading of vessels. This authority is sometimes 
conferred upon the municipality, as in the case of New 
York City, where most of the wharfs and piers are owned 
by the city and administered by a city official, known as 
the harbor master. In Philadelphia, most of the harbor 
front is held in private ownership, but it is subject to the 
regulations of the State and city, and is administered by a 
public official. In California the harbors are under the 
control of the State, that of San Francisco being owned 
and managed by the State. Since the expenditures for 
wharfs, piers, facilities for handling merchandise, ware- 
houses, and elevators reach enormous proportions, these 
are usually divided among the national and State govern- 
ments, with supplementary improvements made by private 

A greater co-ordination between railroads and port ad- 
ministration is needed, so that each might plan its terminals 
with due reference to the other. As it is now, railroad 


freight destined for ocean shipment is often unloaded miles 
away from the wharf, to which it must be carted, causing 
unnecessary expense and trouble. Piers having railroad 
tracks in the middle, with ships moored at either side, en- 
able a vessel to be loaded cheaply and expeditiously. 

About half of our foreign trade passes through the port 
of New York; a larger proportion of imports than of ex- 
ports are handled at this port. Galveston is second only 
to New York in the value of its export trade, which is largely 
made up of raw cotton. Boston ranks next to New York 
in the value of both imports and exports, with New Orleans 
as a closer third. The value of imports and exports passing 
through the port of Boston about balance each other, while 
New Orleans exports nearly four times as much as it im- 
ports. From the Southern ports great quantities of raw 
materials are exported, which accounts for the excess of 
exports over imports. The Pacific ports are steadily in- 
creasing the volume of commerce passing through them, 
though they have been greatly handicapped since the open- 
ing of the Panama Canal by the dearth of shipping. San 
Francisco is the most important port of the West coast. 
Next come the ports of Puget Sound. Los Angeles has 
converted its port at San Pedro from an open roadstead to 
a splendid harbor, and the port of San Diego has likewise 
been greatly improved in recent years. As soon as an 
adequate supply of shipping is available for the Panama 
Canal route, the trade of the Pacific coast is sure to increase 
at a wonderful rate. 

American Merchant Marine.— With ship-building, fish- 
ing, whaling, and commerce all profitable pursuits in New 
England and the Middle Colonies, the American merchant 
marine achieved a position of prominence in the early colo- 
nial period. As early as July 4, 1631, a thirty-ton bark, 
the Blessing of the Bay, was launched for her owner. 
Governor John Winthrop, of Massachusetts Bay. It is 
interesting to note that it was for the purpose of promoting 


foreign trade that lliis ship was built; in the words of 
Governor Winthrop: *' The general fear of want of foreign 
commodities set us on work to provide shipping of our own." 
In 1640 Salem celebrated the launching of a 300- ton ship, 
and Boston followed two years later with one of the same 
tonnage. By 1676 over 430 vessels were owned in the 
Massachusetts Bay Colony alone. These ships were either 
engaged in fishing, whaling, or in trade with the West 
Indies or with European or other ports. 

After 1 7 14 the schooner, with its two-masted fore-and- 
aft rig, was the best-known type of Yankee keel. For over 
a century and a quarter it maintained the first place in 
overseas commerce, to be supplanted finally by the far- 
famed clipper. Before the Revolution the Americans had 
won first place both in ship-building and in the carry- 
ing trade. After independence was gained, the merchant 
marine forged ahead, despite the attacks by the Barbary 
pirates, and by both the French and English during the 
French Revolution and later. Trade with the most remote 
countries was developed by the hardy adventurers who rep- 
resented the United States on the sea, China, the East 
Indies, India, the African coasts, the Pacific islands — all 
offered trade advantages which were promptly seized. 

The supremacy of the United States was unquestioned 
until steamships came into use. In 1838 two of these, the 
Sirius and the Great Western, made the trip from Liver- 
pool to New York. The next year the Cunard Line was 
founded by an English company, and steamship traffic 
across the Atlantic was placed on a permanent and profitable 
basis. The people of the United States were not content 
to see their maritime leadership disappear without making 
an effort to meet the new conditions, so the Collins Line 
of steamships was established by an American company, 
with the aid of Congress, in 1850. The time required by 
the steamers of the Collins Line to make the trip from New 
York to Liverpool was several hours less than that made by 


the Cunarders. The rivalry was keen, but ten days was 
the shortest time made. 

The famed Yankee sailing-vessels which had long borne 
the Stars and Stripes to every port of the world did not pro- 
pose to bow before the steamship. Instead, renewed efforts 
were made to improve both their speed and carr>dng capac- 
ity. The famous Yankee cHppers, '^long, low, rakish" 
craft, were the result. The speed made by these remark- 
able sailing-vessels was for a brief decade the marvel of the 
world. At a time when the speed of the fastest ocean 
steamship did not exceed fourteen miles an hour, the Sover- 
eign of the Seas, the Comet, the Flying Cloud, the Sea 
Witch, the New World, and their fleet sisterhood were mak- 
ing as high as fifteen, sixteen, and even seventeen miles 
an hour throughout a twenty-four-hour period. It was 
an ordinary occurrence for one of these slim, graceful 
clipper ships to overtake and pass a transatlantic steamer 
in mid-ocean, and to make the voyage in less time than was 
taken by its unwieldy rival. Twelve days for crossing the 
Atlantic was a record made by more than one famous 
clipper, proudly fl>ing the American flag. 

The Civil War put an end to our maritime supremacy. 
This, however, might have been regained had not the press- 
ing need for more railroads to keep pace with the develop- 
ment of the West offered a more enticing field for the in- 
vestment of capital, which turned to the huge profits to 
be made in railroad building and railroad financing, leaving 
the sea-traffic to England and other nations. The sup- 
planting of the wooden ship by that made of iron and steel, 
which became general in England in the early fifties, worked 
a revolution in the ship-building industry, and enabled 
England to build ships more cheaply than the United 
States. This has been a very important factor in the de- 
cline of our merchant marine. 

The tonnage of vessels engaged in foreign trade steadily 
declined from i860 to 19 13. From the adoption of the 


Constitution to 1840 an average of 85.5 per cent of our 
foreign trade was carried in American bottoms. This 
had fallen to 75 per cent in 1862, to 31.9 per cent in 1871, 
to 9.3 per cent in 1900, and to lo.i per cent in 19 13. It 
had long been felt that measures should be taken to re- 
habilitate our merchant marine, but it was not until the 
outbreak of the European War that any adequate effort 
was made to do this. In August, 19 14, a law was passed 
by Congress admitting foreign ships to American registry. 
This resulted in an immediate increase in American ship- 
ping. Ship-building was likewise stimulated by the dearth 
of ocean carriers due to the sinking of vessels by the bel- 
ligerents. A strong sentiment in favor of making a con- 
certed effort to regain our lost shipping supremacy resulted 
in the passage of a law in September, 1916, providing for 
the organization of a $50,000,000 corporation to build or 
buy merchant ships, under the direction of a national ship- 
ping board. The ships bought or built were to be avail- 
able for lease or charter by private interests or were to be 
operated by the government if private interests failed to 
take them. 

Every shipyard immediately began to speed up, so that 
some headway had been made when the United States 
entered the war the following April. Under the pressing 
need for ships to carry soldiers, war materials, and supplies 
overseas and to replace those being sunk by the enemy, 
the United States Shipping Board made every effort to 
speed up the production. Standardized ships, by which 
different parts were made in specialized yards and fabri- 
cated or assembled in central yards, were soon being turned 
out at a surprising rate. In the fiscal year of 1918, 
1,430,793 gross tons of shipping were completed, an output 
which exceeded the total for the five-year period preceding. 
This, added to the enemy vessels taken over and to those 
chartered or requisitioned from neutral countries, made an 
addition of some 5,000,000 tons of shipping during the period 
we were in the war. 


In 1 9 14 the American tonnage engaged in foreign trade 
totalled 1,066,288 gross tons, while the entire tonnage, 
including that engaged in the coastwise trade and in the 
fisheries, was 7,928,688 gross tons. This had increased to 
about 12,000,000 gross tons by the end ofi9i8. Ini9i4 
the United States had only 15 vessels of 1,000 tons and 
over engaged in overseas trade. A tabulation made late 
in 1 919 showed that there were at that date 1,280 Amer- 
ican ships engaged in ocean traffic, over 1,000 of these 
having been built by the United States Shipping Board 
in a period of two years. 

The Demand for Free Ports. — With the re\'ival of the 
American merchant marine has come a demand for a sys- 
tem of free ports in the United States which would over- 
come the obstacles to the free course of trade in foreign 
merchandise which our tariff laws have erected. A free 
port is a section of water frontage with docks, warehouses, 
and other terminal facilities, and a restricted area of ad- 
jacent land, altogether comprising a zone which is free 
from the customs regulations of the nation. 

Into a free port the ships of the world may enter and dis- 
charge their cargoes without the delay incident to the cus- 
toms inspection and the payment of duties. In such a 
port warehouses are provided where cargoes may be stored 
until there is a demand for them elsewhere. The territory 
included in the free-port zone may be large enough to per- 
mit the erection of factories where the raw materials as- 
sembled from other countries may be manufactured and 
shipped overseas, without the payment of duties on the 
imported materials. While a drawback is obtainable un- 
der our present system, against duty paid on imported raw 
materials when the goods manufactured from them are 
exported, the forms to be filled out and the strict regulations 
necessary to prevent fraud are more or less of a restraint on 
manufacturers. This privilege of manufacturing from im- 
ported raw materials, without pa}Tnent of duty, is, however, 
a secondary and minor advantage of the free port. 


The principal advantage of a free port is the stimulus 
it gives to the trade in foreign merchandise and to the carry- 
ing trade. The free port is a magnet that draws the ships 
of the world; first, because here they may discharge their 
cargoes without restriction or delay; and, second, because 
in such a port they are sure of finding return cargoes for 
whatever port they may be bound. 

In the free port cargoes may be broken up and reassem- 
bled; raw materials may be assorted, graded, cleaned, or 
even manufactured, and then taken to the best market, 
free of customs restrictions. Thus, free ports give to a 
tariff country the advantages of free trade in so far as the 
re-export trade is concerned. Goods moved from the free 
port inland are, of course, subject to the customs laws of 
the country. 

A free port not only stimulates the re-export trade, but 
becomes a vehicle through which domestic merchandise 
is given a wider world market; to free ports as to all 
merchandise marts traders from the four comers of 
the globe are drawn, for here they find wares from every 
land, including displays of domestic merchandise. In a 
free port sales are made, then, of domestic as well as of 
foreign merchandise. Buyers come primarily to contract 
for wares from far countries, but once in the free port, 
they commonly extend their interest to include the products 
of the country of which the free port is the market-place. 

The advantages of the free port are thus set forth in a 
recent article in the Annals of the American Academy of 
Political and Social Science: 

The great bulk of the carrying trade is done by Great Britain, 
because she is a free-trade country, and a reference to the rise of 
British shipping in the years which followed the repeal of the corn 
laws shows a tremendous and immediate increase in her oversea 
trade following the establishment of free trade. For fifty years 
she has been mistress of the seas for the very simple reason that 
ships could come to her ports from all over the world; they could 


there discharge their cargoes and find other cargoes awaiting them 
without delay. Here there were no obstacles, obstructions, or 
tariff barriers to interfere with traffic. All history is unanimous 
in its demonstration that carrying trade will go hundreds of miles 
to escape tariff barriers. Protective tariff's killed the Spanish trade; 
they destroyed the rich and prosperous cities of the Netherlands. 
They killed our own foreign shipping; for commerce hates tariff 
barriers. In recent years Germany has begun to compete with 
Great Britain for the carrying trade of the world. She has been 
able to do this through her free ports, which have existed in Ham- 
burg, Bremen, and Lubeck ever since the Franco-Prussian War. 
These concessions were insisted on by these old free cities when they 
entered the Empire. And by imperial law there exists in the har- 
bor of these cities a large free harbor, into which ships can come and 
go without the payment of customs duties upon their cargoes. By 
this means a free counter is provided, across which goods can be 
exchanged and transshipped to other destinations. Or they can 
be placed in great storage warehouses, where they can remain for 
an indefinite period until cargoes have accumulated for other ports. 
If desired, they can be shipped at any time into the Empire on the 
payment of the customs duties. 

Ocean Trade Routes. — Only about one-tenth of our for- 
eign trade is transported by land; most of it is overseas 
commerce. Hence, a general idea of the great ocean routes 
by which our trade is carried is important. The trade 
route that is by far the most important to America is the 
North Atlantic route. While it would seem that there 
are many routes across the North Atlantic, the fact is that 
the lines from and to the various ports all practically con- 
verge in mid-ocean, so that there is one route with many 
branches at either end. On the western end are the ports 
of the St. Lawrence, of the North Atlantic, of the Gulf of 
Mexico, and of the Caribbean Sea. The most important 
of these are, following the order from north to south, 
Montreal, Quebec, Halifax, Boston, New York, Phila- 
delphia, Baltimore, Havana, Pensacola, Mobile, New 
Orleans, Galveston, Vera Cruz, and Colon. On the eastern 
or European end of the North Atlantic route the principal 


f)orts are Liverpool, Glasgow, Belfast, London, Havre, 
Antwerp, Rotterdam, Amsterdam, Bremen, Hamburg, 
Copenhagen, and Christiania, Direct lines of this route 
also penetrate as far as Stockholm, Riga, and Petrograd. 
Over half of the tonnage of international trade is carried 
over this route. 

A route of the greatest importance is the one that takes 
up the threads of the North Atlantic route at the European 
ports and extends them through the Mediterranean Sea, 
the Suez Canal, and the Red Sea to India and southwestern 

Another route connecting the North Atlantic ports of 
America and of Europe with the East Indies and the Orient, 
on the one hand, and with Australia and New Zealand, on 
the other, is the one that passes south of Africa and thence 
to the east. This route is longer than the one to the 
Orient by w^ay of the Suez Canal, but it is used by freight- 
ships to save canal tolls. Fast mail and passenger steamers 
do not follow this route, but it is an important one for 
freight-steamers and sailing-vessels. Most of the vessels 
following this route call at Cape Town, the great trade 
centre of South Africa. 

A route that will lose its importance with the develop- 
ment of the Panama Canal trade is the one connecting the 
Atlantic ports of the United States and Europe witli the 
west coast of South America. Some of the lines of this 
route extend only to the eastern ports of South America; 
others carry vessels around the continent and up the west 

There are two main-travelled routes across the North 
Pacific. The first connects the ports of the Pacific — Van- 
couver, Seattle, Tacoma, Portland, San Francisco, Los 
Angeles, and San Diego — with Yokohama, Shanghai, 
Hong Kong, and Manila. The most direct line of this 
route is the one from San Francisco to Yokohama which 
follows the great circle connecting these two points, pass- 
ing nearly 1,000 miles north of Honolulu. 


The second North Pacific route is the one connecting the 
Pacific ports of North America with those of New Zealand 
and AustraHa. Vessels of this route either call at Honolulu 
and Samoa or dip down to Tahiti and then proceed to New 
Zealand or Australia. 

The Panama Canal makes the circumnavigation of the 
globe a simple matter. Ships leaving European ports for 
the Orient by way of the Suez Canal may continue their 
journey to the Pacific ports of North America, where they 
can take on new cargoes, pass through the Canal, and thence 
across the Atlantic to the home ports. Trade between the 
Atlantic and the Pacific ports of the Americas is that most 
directly affected. Hitherto, this had to be carried around 
Cape Horn or else transshipped at Panama. Likewise, 
the trade between the Atlantic ports of the Americas and 
the Orient or Australasia is greatly facilitated by the Canal. 
The Canal shortens the distance from New York to San 
Francisco about 7,800 nautical miles, to Honolulu about 
6,600 miles, to Valparaiso over 3,700 miles, to Yokohama 
nearly 3,800 miles, to Shanghai about 1,800 miles. From 
San Francisco to Liverpool the distance is shortened 5,600 
miles, to New Orleans 8,800 miles, and from New Orleans 
to Yokohama 5,700 miles. Our trade with the Orient, 
with Australasia, and wdth South America is bound to be 
stimulated as the trade routes of the world are gradually 
altered so as to make use of this great waterway. 

Aircraft in International Trade. — The tremendous ad- 
vance in aviation during the war has made the question of 
the use of aircraft for commercial purposes no longer a theo- 
retical one. The transportation of mail and lighter freight 
by airplanes has proved entirely practicable, and the ex- 
tension of this use to overseas commerce has begun. In 
this development Great Britain has taken the initiative 
by organizing corporations for the purpose of building 
airships for use in foreign trade. Strategic points for air- 
craft stations have been secured in various countries and 
aircraft routes selected and mapped out. 


The most obvious use of the ships of the air in inter- 
national trade is as feeders for the ships of the sea. Rush 
merchandise that is not too heavy can be brought to the 
port in vessels and loaded at once into great dirigibles 
and transported inland in a few days where it would take 
weeks for delivery by the old methods. In South American 
and other countries where transportation facilities inland 
are poor, the advantage of aerial navigation is most marked. 

Lighter and smaller airplanes are of use as mail and ex- 
press carriers, especially for the rapid delivery of blue- 
prints, plans, and specifications for engineering works, and 
for other important documents for which rapid delivery 
is highly desirable. 


Bates, William B. The American Marine. New York, 1902. 
Chatterton, E. Keble. Ships mid Ways of Other Days. Lon- 
don, 1913. 
Clark, A. H. The Clipper Ship Era, 1 843-1 869. New York, 

Dunn, Russell L. The Efect of the Panama Canal on Sea Traffic. 

63d Congress, 2d session. Senate document no. 540, serial 

no. 6595. Washington, 1914. 
Fletcher, R. A. Steamships ; The Story of Their Development 

to the Present Day. London, 19 10. 
Hill, Charles S. History oj American Shipping ; Its Prestige, 

Decline y and Prospects. New York, 1883. 
Hough, Olney B. Ocean Traffic and Trade. Chicago, 19 14. 
Howe, Frederic C. The Free Port an Agency for the Development 

of American Commerce. Annals of the American Academy of 

Pohtical and Social Sciences, vol. 59, part 3. 
HuTCfflNSON, Lincoln. The Panama Canal and International 

Trade Competition. New York, 191 5. 
Johnson, Emory R. Elements of Transportation. New York, 1916. 
Johnson, Emory R. Ocean and Inland Water Transportation. 

New York, 1906. 
Johnson, Emory R. The Panama Canal and Commerce. New 

York, 1916. 
Johnson, E. R., and Huebner, G. G. Shipping in Its Relation to 

Our Foreign Trade. New York, 1916. 


Johnson, E. R., and Huebner, G. G. Principles of Ocean Trans- 
portation. New York, 1918. 

Keys, C. M. Changing the Transcontinental Trade Routes. World's 
Work, vol. 24, pp. 403-14. August, 191 2. 

McElwee, Roy S. Ports and Terminal Facilities. New York, 

Mahan, a. T. From Sail to Steam. New York, 1907. 

Merchants' Association of New York. Fuiution and Utility 
of Free Ports. New York, 191 8. 

Paine, R. D. The Ships and Sailors of Old Salem. Chicago, 191 2. 

Parker, Walter. Inland Waaler Transportation — a Factor in 
Foreign Trade Development. Fifth National Foreign Trade 
Convention. Report, 1918. pp. 345~354- 

Smith, Joseph Russell. The Ocean Carrier. New York, 1908. 

Smith, Joseph Russell. The Organization of Ocean Commerce. 
Philadelphia, 1905. 

U. S. Bureau of Foreign and Domestic Commerce. Trans- 
Pacific Shipping, 1916. (Miscellaneous series no. 44.) 

U. S. Bureau of Foreign and Domestic Commerce. Government 
Aid to MerchafU Shipping. 1916. (Special agents series no. 119.) 

U. S. Bureau of Foreign and Domestic Commerce. Ports of the 
United States. 1916. (Miscellaneous series no. 33.) 

U. S. Tariff Commission. Free Zones in Ports of the United, States. 


Importance of Ocean Transportation. — Since overseas 
commerce, which forms by far the larger part of interna- 
tional trade, is dependent upon ocean transportation, the 
importance of this subject is apparent. Fully nine-tenths 
of the foreign commerce of the United States is overseas 
commerce; all of the foreign trade of the United Kingdom 
is sea-borne, and the greater part of that of all other na- 
tions taking an active part in international trade is trans- 
ported over the sea. The ocean has been characterized 
as the great international highway; it is the common prop- 
erty of all the nations, over which the ships of every coun- 
try go and come on a basis of equality. 

T3rpes of Ocean Traffic. — There are two distinct types of 
ocean trafl&c, known as Hne and charter traffic. The first 
is primarily intended for passenger, mail, and express 
service, though great quantities of freight are also carried. 
The ships used on the lines are steamships; they sail on 
definite routes according to fixed schedules, depending 
upon regularity and speed for their support. They carry 
all freight except that shipped in cargo lots on chartered 

Charter traffic is carried by ships operated as single 
units, owned either by corporations or by individuals. 
They are called tramps because they are wanderers con- 
stantly moving from one place to another, regardless of 
previous routes or any other consideration but the call of 
the moment. A tramp steamer may be loading lumber in 
Seattle in one month, may be leaving Liverpool with a 

1 60 


cargo of coal a few weeks later, may next appear in Buenos 
Aires, where the coal is discharged and wheat secured to 
be taken to Hamburg, or Liverpool, or Bombay. Wherever 
traffic offers the tramp steamer goes, provided the chances 
of securing a return cargo at a fair rate seem favorable. 
The tramp service includes all of the sailing-vessels, but 
it is not confined to these. The steamships engaged in this 
service are generally those of great carrying capacity 
and comparatively slow speed. Tramp ships may be char- 
tered for a certain voyage, for a stipulated length of time, 
or for the carrying of a cargo at an agreed price per ton. 
They are available only for the large shipper who can make 
shipments in cargo lots. 

The rates for such shipments are lower than those obtain- 
able from steamship-lines, and the service, unless great 
speed is required, is satisfactory. Such raw materials as 
grain, cotton, coal, iron ore, lumber, sugar, and petroleum, 
and such heavy manufactured articles as steel rails, loco- 
motives, and hea\y machinery are carried by tramp ships, 
which may be chartered to carry a cargo to any port from 
any other port. By far the larger part of ocean freight is 
handled by charter traffic. Professor J. Russell Smith, in 
his comprehensive work entitled Industrial and Commercial 
Geography^ thus sums up the service afforded by regular 
steamship-lines and that given by tramp ships: 

These two types of ocean service work together like freight- 
trains and express-trains. The tramps handle the trade of vast 
quantity; the liners handle the trade of high value and the ship- 
ments of small size and great number. The lines, therefore, serve 
the greater number of shippers. They serve the multitude who can- 
not fill a ship with one consignment, and among manufacturers 
there must be thousands of small shipments of finished goods to 
one that requires a tramp to handle it. The manufacturing state 
may depend upon the thousand ships that bring food and materials, 
but there is an equal dependence upon the 300 big liners that carry 
to market with greater speed the myriad small consignments of 
manufactured exports. Conversely, the raw-material-producing 


country like Argentina depends largely upon tramps to take its 
exports and upon liners to bring its imports of valuable manu- 
factured goods. 

Ocean Freight Rates. — Water transportation is cheaper 
than that by land. Only the carrier has to be supplied 
by man; the highway is supplied by nature. Hence, there 
is no expense for road or road-bed, none for terminal facili- 
ties, none for other equipment than the vessel. Harbor 
improvements are made and terminal facilities provided 
at each port by the State or municipality. While large 
steamship companies often build their own wharfs and 
docks in order to facilitate the loading and unloading of 
their vessels, this is merely a matter of choice and not of 
necessity. In all of these respects the ocean carrier has 
an advantage over the land carrier, the railway. Less capi- 
tal is thus required for ocean than for land transportation. 
These conditions all make for free competition among 
ocean carriers, with the consequent reduction of the charges 
made for ocean transportation of freight. 

This free competition not only tends to keep freight 
rates low in normal times, but also causes those rates to 
fluctuate from time to time, so that it is difficult to deter- 
mine long in advance what the freight on a given ship- 
ment ^ill cost. General quotations are seldom given by 
steamship companies, as the rates are so subject to change, 
being materially affected by seasonal and other conditions. 
But exact quotations are given for a specific shipment of 
a certain kind and quantity of goods at a fixed date between 
two ports. Since two shipments of the same size, weight, 
quality, and character, made at different dates between the 
same two points, may vary considerably in freight charges, 
great care must be exercised in figuring this item before 
making c. i. f. price quotations, which include the cost, 
insurance, and freight. 

The bulk of manufactured articles are shipped by line 
traffic in comparatively small quantities and not in full 


cargo lots by charter traffic. Ocean carriers reserve the 
right to compute freight either by weight or measurement, 
''ship's option." The weight ton is the long ton of 2,240 
l^ounds, though the metric ton of 2,204.62 is generally used 
in computing freight shipped from countries using the metric 
system of weights and measurements. The weight ton is 
used in calculating freight charges on heavy articles, such 
as grain, coal, iron ore, steel rails, and heavy machinery. 
The measurement ton is 40 cubic feet. It is used in com- 
puting ocean freight on bulky articles that run Hght, that 
is, that weigh less than 56 pounds to the cubic foot or 
than 2,240 pounds to 40 cubic feet. Most manufactured 
articles are, therefore, carried by the measurement or cubic 
ton. Where several tons are charged for on the basis of 
the measurement ton, the weight of the shipment may be 
actually less than a ton. An article weighing 2,240 pounds 
or less but measuring 80 cubic feet is charged as two tons. 
It is customary to make an extra charge on packages of ex- 
tra size or weight, or of unwieldy shape. Sometimes the 
charge is reckoned neither by weight nor by volume, but 
by the piece or dozen. Thus, quotations are sometimes 
given by the barrel or case or package. Since there is no 
uniformity in the methods of determining freight rates, 
this item must be ascertained by obtaining direct quota- 
tions from the company through which a shipment is to be 

As a general rule all but full cargo shipments must be 
sent as general cargo by regular Hne steamers, but there 
is an exception in the case of berth cargo, which consists 
of partial cargo taken at times by tramp ships and liners 
to complete the lading. The conditions under which such 
parrial cargoes are shipped are thus described by Professor 
Emory R. Johnson in his work entitled Ocean and Inland 
Water Transportation: 

It frequently happens that both chartered and Hne vessels may 
seek shipments of small quantities to complete the lading of the 


ships, or shipments of some special kind of a commodity needed as 
a complement to the main cargo. A vessel loading with cotton 
will gladly take a part cargo of steel rails or pig iron to place in 
the bottom of the vessel; and vice versa, a ship whose chief cargo 
is heavy freight, will welcome shipments of a light and bulky char- 
acter that will take up the unoccupied space with profitable cargo. 
This search for freight to complete or complement the cargo of a 
chartered or line vessel introduces bargaining methods into the 
making of rates. 

Berth cargo may thus consist of two or three commodities 
of varying weight or bulk, or, in some cases, of even a large 
variety of commodities secured in the form of small ship- 
ments, in no wise differing from the shipments usually 
made over line steamers. When the opportunity is offered 
to make small shipments in this way, shippers are quick 
enough to take advantage of it, for the rates thus secured 
are unusually low. 

Large shippers who have a somewhat regular volume of 
exports to ship each month find it to their interest to con- 
tract with steamship-lines for the transportation of a 
stipulated amount of ocean freight each month or each sea- 
son. Rates secured under such contracts are usually lower 
than those obtained otherwise, though the fluctuations in 
rates are so great at times that it is impossible to deter- 
mine this point in advance. The shipper making such a 
contract is certain of having the shipping facilities needed, 
and, knowing in advance what his freight will cost, he is 
enabled to quote c. i. f, prices without incurring the risk 
of ha^/ing the freight cost double or treble between the time 
he makes the quotation and the date of shipment. 

Ocean freight is usually prepaid by the shipper, and this 
charge is specifically added to the bill rendered the con- 
signee, and is included in the draft drawn against the ship- 
ment. In case the goods have been sold under a c. i. f. 
quotation, the freight does not appear on the bill, as it is 
included in the price. Primage is sometimes spoken of 
in connection with ocean freight. It is a charge that still 


appears on ocean bills of lading, a survival of the days when 
the captain and the crew were given a sum of money in 
appreciation of the care they exercised in handling the 

Parcels Receipts. — Steamship companies require a mini- 
mum payment for the issuance of a bill of lading. The 
disadvantage of making a small shipment, the freight on 
which is the same as on one several times as large, is evi- 
dent. When a small shipment is imperative, it can be 
handled best through a freight forwarding agent or by the 
use of a parcels receipt. A parcels receipt is a substitute 
bill of lading, designed to meet the requirements of small 
shippers. Goods thus shipped are not subject to trans- 
shipment, so their use is restricted to direct ports of call 
of the steamship in which the parcel is shipped. The 
weight, size, and value of shipments for which parcels 
receipts are issued vary with the different steamship com- 

Ocean Freight-Agents. — Steamship companies maintain 
freight-agents at their ports of call and also in large in- 
land cities whose function it is to secure freight and to make 
arrangements for the shipments booked over their lines. 
Tramp steamers do not have such agents, but their carry- 
ing trade is greatly facilitated by the emplo>Tnent of ship- 
brokers, who practically direct the operation of charter 
traffic. These brokers maintain offices at the leading 
world ports and by an extensive use of the telegraph, the 
cable, and wireless telegraphy keep in constant touch 
\dth the movements of all charter vessels on their list and 
also mth the export and import needs of every nation and 
of every district. They work on a commission basis, and 
are indefatigable in their efforts to find ships for commodi- 
ties to be carried from one port to another, and to find 
cargoes for tramp vessels in every part of the world. 

Railroads ha\dng terminals at the seaboard maintain 
foreign freight-agents who keep freight or station agents 


at inland points informed of changes in foreign freight 
rates. These agents, as well as others representing fast 
freight lines, are experts in every detail of making foreign 
shipments. They are able to quote through rates from 
interior points to overseas destination on specific shipments 
for definite dates; they reserve cargo space for shipments; 
supervise the through movement of export freight; direct 
its transfer at the port of shipment, and attend to the 
final details of ocean shipments. Freight thus handled is 
on through bills of lading, in which the rate paid includes 
all the expenses incident to the shipment. 

In the Department of Agriculture bulletin entitled 
Methods and Routes for Exporting Farm Products the 
following information on export shipments is given: 

Merchandise shipped by the all-rail eastern route generally passes 
over several railroads before reaching its final destination, so that 
to simplify the methods of handling such through freight, as well 
as to insure its expedition, companies known as fast freight lines 
have been organized. These companies may or may not own 
rolling-stock, but their main object is to facilitate the rapid transit 
of tonnage over various lines of road in accordance with contracts 
entered into with the latter, and to generally supervise the through 
movement of all such freight, although to all intents and purposes 
the trafiic is under the control of the Hne over whose rails it is 

In the movement of export freight, these fast freight lines are 
extensively employed, as prompt delivery is always essential. In 
many instances railroads having terminals at seaboard cities em- 
ploy a foreign freight-agent, whose duty it is to communicate the 
ocean rates at least once a week to interior line agents, and should 
changes in the rates occur during the week the line agents are noti- 
fied by telegram. Any one wishing to export merchandise from 
interior points can receive all necessary information as to rates, 
routes, bills of lading, etc., by applying to the local fast freight- 
agent, who is generally represented by the freight or station agent 
of the railroad. . . . The rates submitted by these line agents 
will always be through rates from the place at which the fast 
freight line takes care of the freight to its foreign destination. 
The shipper has therefore nothing to do with the ocean rate, as it is 


of course included in the through rate quoted by the agent. In the 
event of a shipper living at an interior point, from which a local 
haul has to be made to the place at which the merchandise is con- 
signed to the fast freight Hne, the local rate covering such haul 
combined with the through rate given by the agent will be the 
rate to destination. 

C. I. F. Quotations. — Closely allied with the subject of 
ocean freight is that of quoting prices to foreign customers 
which cover not only the cost of the goods but also the cost 
of the freight to the port of destination. Such a quotation 
is referred to as a c. f. or c. a. f. quotation, meaning cost 
and freight. A c. i. f. quotation is one in which the cost 
of the goods, the marine insurance, and the freight are in- 
cluded. Such a quotation shows the exact cost of the goods 
on board ship at the port of destination. It does not in- 
clude the cost of landing or lightering or customs charges 
at the port of destination. 

Such charges are usually assumed by the consignee, 
whose familiarity with the customs of his own port enables 
him to determine the approx'mate expense incident to the 
landing of a foreign shipment and the duty that will be 
assessed. The cost of consular invoices, foreign exchange, 
and other incidental expenses are not usually included in 
c. i. f. quotations, though these must be included if it is 
definitely agreed that the price quoted covers the cost and 
all expenses up to the arrival of the goods at the port of 
destination. Foreign buyers are often deterred from plac- 
ing an order in the United States because of their lack of 
familiarity with the cost of inland freight or their misgiv- 
ings over possible charges that may be made for packing, 
drayage, or other incidentals. The quotation of a price 
covering the cost of the goods in the foreign port is often 
the deciding factor in the placing of an order. Conse- 
quently, the making of c. i. f. quotations is becoming more 
and more common in our export trade. 

The making of a c. i. f. quotation requires care and ex- 


actness. The quotation must be carefully calculated in 
order to avoid loss due to freight or insurance being higher 
than was estimated. It is customary to overestimate the 
cost of cartage and of both freight and insurance rather 
than to err in the other direction. It is a simple matter 
to lower a quotation, but is considered a poor business 
policy to raise one that has been submitted. The method 
of figuring a c. i. f. quotation is simple. The total expenses 
incident to the shipment are determined by adding together 
the charges for packing, cartage, inland freight, insurance, 
ocean freight, and any other items to be included, such as 
the cost of the consular invoice and of the exchange; this 
total being ascertained, the percentage it bears to the total 
cost of the goods is figured and this percentage added to 
the price of each article. For example, if the shipment 
consists of 14 articles priced at $100 each, making a total 
of $1,400, and the cartage is $6, the inland freight $12, the 
marine insurance $22, and the ocean freight and other 
expenses $44, then a total of $84 is to be added to the price 
of the goods. This $84 is 6 per cent of that price, $1,400. 
Consequently, 6 per cent is to be added to the regular 
price of each article. Hence, the c. i. f. quotation of each 
article in the shipment will be $106 instead of $100, and 
the 14 articles will be quoted at $1,484 instead of $1,400. 

There are other quotations that may be considered here. 
F. O. B. (Free on Board) means that the goods are to be 
delivered on board the steamer at the port of shipment at 
the expense of the seller. F. A. S. (Free at Side) means that 
the shipper is to deliver the goods alongside the steamer or 
lighter in the port of shipment in proper shipping condition. 
F. F. A. (Free from Alongside) means that the shipper pays 
the lighterage charges in the port of destination from the 
steamer. In each case all the subsequent charges are for 
the account of the customer. 

Packing Overseas Shipments.— The packing of foreign 
shipments is an important factor in exporting. The im- 


portance of exercising the greatest care in every detail of 
packing and shipping has become generally recognized by 
exporters of the United States, who have been severely 
criticised in the past for carelessness or failure to follow 
instructions to the letter in preparing their goods for ship- 
ment. It has been said that American packing methods 
are inferior to those of England and Germany, and that 
this has been the cause of losing much profitable trade in 
many markets. The extreme care now given to this de- 
tail in all exporting houses has put an end to most of the 
complaints and criticism on this score. 

In packing a foreign order, there are two distinct con- 
siderations: first, the protection required during transit, 
and, second, the customs regulations of the foreign coun- 
try to which they are consigned. 

The final place of destination of the goods determines the 
methods of transportation to be employed from the be- 
ginning to the end of the journey. In many cases, the 
ocean trip is only one stage; numerous transshipments, 
inland railroads, pack-trains, caravans, small river-boats, 
and even canoes may all be resorted to before the goods 
reach the customer. Hence, goods that leave the factory 
in excellent condition, apparently so stoutly packed and 
carefully protected as to be safeguarded against the rough- 
est handling, not infrequently reach their destination in a 
badly damaged condition. 

The treatment that export shipments are liable to be 
subjected to is best illustrated by a concrete example. Let 
us follow the shipment of a number of cases of household 
utensils to an inland point in Chile. The goods are manu- 
factured in Pennsylvania, shipped to New York by rail, 
and there dumped in the freight-sheds, to be later carted 
to the steamship wharf. Here they are loaded on trucks 
and taken to the side of the ship, where a rope sling is 
spread out to receive them. Into this they are heaved by 
sweating longshoremen, who are driven to the last ounce of 


energy they possess by the contractor who has the loading 
of the ship in hand. When this sling or rope net is filled, 
a great steel hook is coupled to it and it is hauled up over 
the ship's side. Often, through the miscalculation of the 
engineer in charge of the donkey-engine that operates this 
crane, the swaying mass, weighing several tons, crashes 
against the steel side of the ship, or, if it clears this, it may 
be jammed against the steel-shod hatchways of the hold, 
and land with a thud on the lower deck, where the pack- 
ages are again man-handled by the longshoremen and stored 
away in the ship's compartments in record time. Many a 
package freely marked with that most useless of legends, 
"Handle with care," is hurled into some sharp-edged corner, 
where it is smashed like an egg-shell and its contents lit- 
tered over the floor, to the joy of the grinning freight- 
handlers. Avoiding such a mishap, the packages are 
stored in the hold and start on their long voyage through 
heaving seas half round the world. If the voyage is a 
rough one and the ship encounters heavy seas or one of 
those lashing hurricanes that toss her about like a cockle- 
shell, causing part of her cargo to shift, the cases that are 
not a product of the packers^ art, inner stayed and outer 
strapped and cleated, will be a sorry sight, and the house 
shipping them will spend months in a vain endeavor to 
convince the consignee that the goods were ''properly 
packed but roughly handled." If the voyage is a smooth 
one through summer seas, the goods may arrive at the 
port of Valparaiso in prime condition. Here the ship drops 
anchor in the open roadstead, where the bobbing lighters 
come alongside to receive the cargo. The great rope 
sling is again spread out and the ship's crew, assisted by 
murderous-looking longshoremen, roll or tumble the goods 
end upon end or heave them from the top of some tier 
packed close to the roof to the ship's floor, where they are 
jammed together into the net, and hauled up rasping and 
grinding against the hatches and let down with a smash 


and a jolt into the lighter, which conveys them to the 
wharf, where they are again roughly unloaded. Passed 
through the custom-house through the services of a cus- 
toms broker, they are ready to start on their inland jour- 
ney over stiff grades on an open flat car to the end of the 
railroad; then, strapped on burros or mules, they go jog- 
ging on their way to reach the buyer after a ten-day trip, 
during which they have been left out in the open at night 
and subjected to all the extremes of heat and cold and the 
varying degrees of moisture that are to be encountered on 
such a journey. Unless each case was perfectly packed 
and was lined with tarpaulin or other moisture-proof ma- 
terial, the customer will open the long-awaited shipment 
only to find that the goods are broken, marred, dented, or 
rusted, in which case he firmly vows never to place another 
order in the United States. 

The Effect of Packing on Freight and Tariff Charges. — 
Not only must overseas shipments be packed so as to with- 
stand the roughest handling, an equally important con- 
sideration is the effect of packing on freight and tariff 
charges. In some countries the duties are ad valorem, 
in others specific duties are charged, according to the classi- 
fication of the articles or according to weight. The duty 
may be on the gross weight, which includes that of the pack- 
ing; on the legal weight, which is the weight of the goods 
plus the container but not the outer wrappings; or on the 
net weight, which is the weight of the goods less that of 
containers and other packing. When the gross weight 
is the basis of duties, it is necessary to keep the weight of 
the packing materials as light as is consistent with strength 
and durabihty. The use of battens, of iron and steel hoops 
and straps, and of strong but light materials, for boxes and 
crates reduces the weight without decreasing the resistance. 
The number of crates or packages is of importance, as there 
are often fixed charges per package, regardless of weight. 
On the other hand, extremely large or heavy packages are 


impracticable in many cases on account of the difficulties 
of transportation. Since ocean freight is charged by vol- 
ume, unnecessary bulk means excess freight charges. 

Goods subject to tariff duties are usually classified, the 
duty for one class often being many times as great as for 
another and quite similar class. When articles of different 
classes are packed in the same case, the result is that the 
entire contents of the case are charged the highest rate of 
duty. It is sometimes necessary to pack two parts of one 
article separately. Sometimes the removal of nickel or 
brass or other parts will make an amazing difference in the 


The description of the article in the invoice or the speci- 
fying of the use to which it is to be put may affect the duty. 
For instance, tools for use in mining are admitted duty free 
in some Latin American republics, while tools for other 
purposes are assessed heavy duties. This phase of the 
packing question is well brought out by Chester Lloyd 
Jones in his monograph entitled The Consular Seroice oj 
the United States, as follows: 

The importance of filling orders with exactness has been re- 
peatedly pointed out, a slight deviation in width or failure to state 
the character of goods often subjecting the importer to fines, 
delays, and higher duties. The frequent diflEiculties which arise 
are typified by a dispute which arose in a Brazilian custom-house 
over a case of "stamped ware" (iron) which was listed as "prints" 
with customs charged by weight. Such difiiculties are not con- 
fined to the Latin American coimtries, however, as it is a caution 
constantly reiterated that in sending products with metal parts 
to Germany or Russia, for example, the different metals should be 
packed separately, as otherwise charge will be the rate for the 
highest-class article in the package. Under these rulings, heavy 
engines have been listed as "manufactured nickel ware" and 
lamps as "gilded brass fixtures." 

Importers of countries having such tariff regulations 
often furnish a detailed statement as to the packing and 
description of the articles. The exact wording to be used 


in the consular invoice is not infrequently furnished the 
exporter in the language to be used, thus safeguarding the 
importer against fines and excessive duties. While the 
precautions necessary seem burdensome, they become a 
matter of routine with investigation, study, and the col- 
lection of detailed information. 


Exporters^ Encyclopmdia. New York, 191 7. 

Hough, B. O. Ocean Traffi-c attd Trade. Chicago, 1914. 

Johnson, Emory R. Ocean and Inland Water Transportation. 

New York, 1906. 
Johnson, Emory R. Principles of Ocean Transportation. New 

York, 1918. 
Smith, Joseph Russell. The Ocean Carrier. New York, 1908. 
Smith, Joseph Russell. The Organization of Ocean Commerce. 

Philadelphia, 1905. 


Importance. — Marine insurance is an important factor in 
overseas commerce, for by relieving the shipper of the risk 
of loss at sea it has greatly encouraged the extension of 
trade beyond continental boundaries. Its importance in 
facilitating the financing of overseas shipments is para- 
mount. Without marine insurance to cover the ordinary 
losses that may occur, bankers would be unwilling to dis- 
count bills of exchange drawn against imports or exports. 
Without being able to realize on goods sold abroad before 
they reached their destination and were paid for, manu- 
facturers and others engaged in export trade would find 
it impossible to extend the credit their customers require 
and demand, and the result would be that the free inter- 
change of the surplus products of one country for those of 
others would be retarded, and the volume of international 
trade would be comparatively small. 

Lloyd^s Association. — Lloyd's Association of London has 
had the controlling influence in marine insurance for over 
two centuries. This association received its name from a 
London coffee-house conducted by Edward Lloyd in the 
middle of the seventeenth century, which was frequented 
by those interested in marine insurance. Here all the in- 
formation available as to the value, condition, and move- 
ments of vessels was collected, disseminated, and discussed, 
and those engaged in underwriting marine insurance had 
ample opportunity offered them to select the risks they 

The association as now organized is composed of some 
400 underwriters, each conducting business on an inde- 
pendent basis, but operating from the same place, the 



Royal Exchange, and following the same general plan of 
business. The following description of the methods fol- 
lowed by Lloyd's is taken from an article in the Quarterly 
Review for April, 19 14. 

The bulk of the business is brought to Lloyd's by brokers who 
have their representatives at different countries; the marine-in- 
surance companies, of which there are some ten or a dozen in the 
immediate neighborhood of the Royal Exchange, get their business, 
on the other hand, largely from their own agents at ports all over 
the world. . . . Let us follow the method of procedure. A broker 
receives an order to insure, say, 10 boats of values between £30,- 
000 and £50,000 apiece. That may mean a total amount of 
about £400,000 to be insured. He approaches a leading under- 
writer and gets him to quote a rate. If the terms are satisfactory 
to the owner, the broker will get this underwriter to lead off with 
a certain amount. Perhaps this underwriter will write the sum of 
£300 on each boat; then the broker goes to the other underwriters 
and offers them the insurance at that rate. These men may either 
write similar or smaller amounts, according to their judgment, 
fancy, or finance. If it is a big order, the broker may sometimes 
be hard pressed to complete it, and he may have to call in the aid 
of small men who will be prepared, perhaps, to write £100 each. 
. . . Years ago many men wrote for themselves alone; nowadays 
it is customary for one man, known as the underwriting agent, 
to act for a syndicate of from three to a dozen names. These 
''names" have a position analogous to sleeping partners in private 
firms. They rarely visit Lloyd's. . . . The underwriting agent 
may receive a certain fixed salary for acting for them, in addition 
very often to a percentage of the profits. In almost every case, 
too, he writes for himself. 

The association makes good any deficiencies in the settle- 
ments of its underwriting members. The association has 
agents located in practically every port in the world whose 
function it is to keep Lloyd's informed with regard to each 
and every fact in any way affecting shipping. The in- 
formation thus received is pubHshed for the benefit of the 
members of the association. 

Definition of Terms. — The terms used in marine in- 
surance are for the most part the same as those used in 


other insurance. The policy is the document expressing 
the contract entered into between the assured and the as- 
surer. The assured is usually a merchant making a ship- 
ment or a shipowner. The assurer is usually referred to 
as the underwriter. The premium is the money paid to 
the underwriter for covering the risk. The risk is the peril 
or danger insured against. It is also used to mean the 
liabihty of the underwriter under his contract. An in- 
surance broker is the agent who arranges with the insurer 
for the policy. These definitions are mostly taken from 
the work of William Gow on Marine Insurance, 

The Standard Policy. — The standard marine-insurance 
policy is expressed in practically the same v/ay to-day as 
it was over a century ago. Consequently, the language 
used is antiquated and difficult to understand. Every 
clause in the standard policy has been interpreted by the 
courts, but the ordinary reader does not know just what 
the correct construction is; he must depend upon a marine- 
insurance expert to explain the policy. It is said that not 
one marine-insurance broker in ten understands the exact 
conditions of the poHcies he writes. 

Until recent years only one form of marine-insurance 
pohcy was used. This was adapted to the special condi- 
tions of the contract by means of indorsements added to 
the printed form. There are now different forms printed, 
all following in general the standard form, but each de- 
signed to cover a particular kind of risk. The principal 
classes of poHcies are as follows: A time policy is one in 
which the property is insured for a certain period of time. 
A voyage policy is one in which the property is insured 
for transit from one point to another. A valued policy 
is one in which the amount at which the insured property 
is valued is stated. An open poHcy is one in which no 
value is stated; in case of loss or damage the value must be 
proved. A named policy states the name of the vessel 
and the limits of the voyage. A floating policy does not 


name the vessel carrying the risk, but does signify the limits 
of the voyage, and usually specifies the class of vessel to 
be used; when the goods are shipped, the name of the vessel 
is furnished the underwriter, so that it may be indorsed 
on the policy. 

The first part of the standard marine-insurance policy 
names the person insured, gives a general description of 
the objects insured, and states the duration of the risk. 
The second part of the policy describes the kind of risk 
covered, or the perils insured against. It is important to 
note that a marine-insurance policy does not guaranty the 
safe arrival of the goods insured at the point of destination. 
The policy covers only the perils specified and the under- 
writers ''are just as plainly exempt from liability to in- 
demnify the assured against loss arising from any peril 
not specified." This is of the greatest importance, as not 
infrequently it happens that a shipper supposes that his 
goods are insured against any possible loss that may occur, 
regardless of the cause, when the fact is that the insurance 
covers only certain contingencies. 

Losses Insured Against. — The losses covered by a marine- 
insurance policy are expressed in the following phraseology, 
which is the language used by Lloyd's: 

Touching the adventures and perils which we, the assurers, are 
contented to bear and do take upon us in this voyage, they are, 
of the seas, men-of-war, fire, enemies, pirates, rovers, thieves, 
jettisons, letters of mart and countermart, surprisals, takings at 
sea, arrests, restraints and detainments of all kings, princes, and 
people, of what nation, condition, or quality soever, barratry of 
the master and mariners, and of all other perils, losses, or misfor- 
tunes that have or shall come to the hurt, detriment, or damage of 
the said goods and merchandise and ship, etc., or any part thereof. 

This is a formidable list that would seem to cover every 
possible mishap that either ship or cargo might encounter. 
But by the process of interpretation and indorsement the 
risks against which the property have been insured have 


been reduced to comparatively few. In the first place the 
risks are designated as '^ adventures and perils," which in- 
dicates that the insurance is limited to fortuitous accidents 
or casualties of the sea. Consequently, ''loss or damage 
arising from wear and tear and from inherent defect" is 
not covered. The limitations of the meaning of the words 
*' perils of the seas" are indicated by the following quota- 
tion from a court decision cited in William Gow's work on 
Marine Insurance^ Chapter VI: ''It is well settled that 
it is not every loss or damage of which the sea is the im- 
mediate cause that is covered by these words. They do 
not protect, for example, against that natural and inevitable 
action, which results in what may be described as wear 
and tear. There must be some casualty, something which 
could not be foreseen as one of the necessary accidents of 
the adventure." 

If a vessel springs a leak that is not due to accident, but 
to unseaworthiness at the time of sailing, the insurance 
company is not liable for loss resulting. Proper protection 
can be secured by having a clause inserted in the policy 
admitting the seaworthiness of the vessel. Such a clause 
makes leaks and any other similar accidents the results of 
the perils of the sea. 

Partial Loss. — Since an insurance policy contracts to 
indemnify the insured against partial as well as total loss, 
it is necessary to consider just what damages are construed 
to result from perils of the sea. Partial loss includes a loss 
of part of the goods and a loss of value due to damages sus- 
tained. Such damage must not result from negligence of 
the assured or his agents nor from the essential character 
or natural quality of the object insured nor from ordinary 
wear and tear. If goods deteriorate or lose their value dur- 
ing transit, the underwriter is not liable for damages unless 
the damage is due to some outside and accidental influence. 
For instance, it has been decided that hides rotted as the 
result of being wet by sea-water in the hold incurred the 



loss through a peril of the sea, and that, furthermore, 
tobacco spoiled by the reek of the putrid hides likewise 
suffered from a peril of the sea. In the latter instance, it 
was held that a peril of the sea was the proximate or in- 
direct cause of the loss. On the other hand, it has been 
held that damage to a cargo of wheat caused by sweating, 
which was due to the wheat being imperfectly dried or 
cured before shipment was made, was the result of the in- 
herent nature of the grain. The fact that dampness in the 
hold was a contributing factor in causing the sweating did 
not make the damage the result of a peril of the sea. 

War Risk. — Though the perils specified in the policy 
would seem to include every possible war risk, these are 
all excepted or cancelled by a special indorsement. Sep- 
arate war-risk insurance is available when needed but is 
not included in the standard marine-insurance policy. 

Fire. — Fire is recognized as a peril insured against, 
though where fire is the result of spontaneous combustion 
it is held that the underwriters are responsible for loss or 
damages incurred by the ship or cargo, but not to that part 
of the cargo in which such fire originated. If the entire 
cargo consisted of one kind of goods, as coal, and fire 
spontaneously broke out in this, the underwriters would 
not be liable for the loss of the coal. 

General Average. — ^A peril insured against is jettison, 
which means the throwing of goods overboard in order to 
lighten a ship in case of storm or accident. The loss thus 
sustained is known as general average. It is prorated 
and charged against the cargo, each shipper being assessed 
with his proportionate share. A loss to be covered by 
general average must be from a sacrifice made to protect 
both the ship and the cargo for the benefit of all. In- 
cluded in general average is any other expense incurred to 
avert an imminent disaster or danger threatening the ship 
and cargo. General average has been legally defined as 
*'all loss which arises in consequence of extraordinary 


sacrifices made, or expenses incurred, for the preservation 
of the ship and cargo." Ordinary losses and damages sus- 
tained by the ship must be borne by the shipowner. A 
sacrifice to be classed as general average must be voluntary, 
extraordinary, for the benefit of both ship and cargo and 
incurred in an emergency. 

Barratry, Seizure, and Other Perils. — Barratry is de- 
fined as any species of cheating or fraud, in a shipmaster, 
by which the owners or insurers are injured; as, by running 
away with the ship, sinking or deserting her, by wilful de- 
viation, or by embezzHng the cargo. It is '' an act of wrong 
done by the master against the ship and goods." In in- 
suring a ship and cargo against this peril, the underwriters 
are taking upon themselves the risk of dishonesty on the 
part of the master of a ship and his crew. Under the 
present highly organized system of keeping in touch with 
ships, resulting from the use of the cable and of wireless 
telegraphy, the risk from this peril is minimized. 

The risks from capture, seizure, and detention are ex- 
cepted in policies by writing the letters F. C. & S. in the 
margin, which signify ''free of capture and seizure." These, 
like war risks, may be especially insured against. 

The enumeration of the perils insured against is fol- 
lowed, in the standard policy, by the general statement, 
beginning, ''And of all other perils, losses, or misfortunes." 
This does not mean that the underwriters assume HabiHty 
for every kind of peril or loss that may happen. The clause 
is construed to apply to perils of a very similar nature to 
those specified. Its effect is to slightly broaden the con- 
struction of the policy in law. It does not include any 
peril fundamentally different from those enumerated. 

Additional Clauses. — In order to make the insurance 
policy fit the particular conditions applying to the prop- 
erty insured, it is customary for the underwriters or their 
agents to add clauses as required. Clauses so added to 
a poHcy are interpreted as follows : The printed conditions 


are modified by first printed clauses pasted to the policy, 
these by the typewritten or written clauses, and then by 
clauses written on slips and pinned to the policy. These 
various additions are known as indorsements. 

An additional clause found in all standard policies is 
the one defining the conditions under which partial loss or 
damage to insured property is to be met. This is known 
as particular average. Such partial loss must be caused 
by the perils insured against. LiabiHty for particular 
average under 5 per cent of the value of the goods insured 
is excluded in most policies. This form of policy is referred 
to as an f. p. a. policy, or one free from particular average. 

Particular charges are expenses incurred for the protec- 
tion or preservation of the goods insured, other than gen- 
eral average and salvage charges. These are not included 
in general average or in particular average. They are 
covered in the poHcy by the clause granting permission to 
''sue, labor, and travel for, in and about the defense, safe- 
guard, and recovery of the goods." Such special charges 
are recoverable from the underwriters. 

While loss from thieves is one of the perils insured against, 
it is necessary to have an additional clause to cover pilfer- 
age by a member of the crew or by a passenger. Thieves 
as used in the policy refers to pirates and other depredators. 

Other hazards that may be covered by additional clauses 
include those arising from pilferage, breakage, damage re- 
sulting from water in the hold, and losses sustained while 
the goods are on piers or lighters, in warehouses, and on the 
dock at the port of shipment and at the port of entry. It 
is customary for shippers to take out insurance on valuable 
shipments covering all ordinary hazards from the time the 
consignment arrives at the port of departure until it reaches 
the consignee. 

Taking Out Marine Insurance. — Most of the large fire- 
insurance companies issue marine insurance. Shippers 
arrange for it either at the place of manufacture or at the 


port of shipment, as preferred. Large exporters usually 
take out what is known as an open policy, which is issued 
for a stipulated length of time. Each shipment is covered 
under such a policy as it is made. Notice is sent to the 
insurance company as soon as each shipment is made, and 
full particulars are given to enable the company to fix the 
premium. Thereupon a certificate of insurance is issued 
by the insurance company and forwarded to the shipper. 

Insurance certificates are made payable to the order of 
the shipper, who indorses them in blank when they are 
turned over to a bank as part of a documentary bill of ex- 
change, or when they are forwarded direct to the consignee. 
It is customary to take out marine insurance for a sum 
equal to the selling price of the goods, plus lo per cent, 
plus the cost of the freight; this is considered to be the 
value of the goods at the port of destination. 

Where shipments are financed through a bank, it is 
necessary for the insurance to be taken out by the shipper; 
otherwise the security for the draft would be inadequate. 
When the foreign customer pays cash for the merchandise, 
he sometimes prefers to arrange for the insurance through 
his own agent. Marine insurance is issued for goods sent 
by mail, by express, or by freight. 


Chubb, Hendon. Development of American Marine Insurance. 
In National Foreign Trade Convention. Official Report of 
the Fifth Meeting, April 18-20, 1918. 1918. 

CoNGDON, Ernest W. General Average. New York, 191 3. 

Duckworth, L. An EficyclopcBdia of Marine Law. New York, 

Duckworth, L. An Epitome of the Law Afecting Marine Insur- 
ance. 2d edition revised and enlarged. London, 1907. 

Fox, B. H. Principles of Marine Insurance Essential for the Ex- 
porter and Importer to Know. Economic World, n. s., vol. 15, 
pp. 457-8, March 30, 1918. 

Gow, William. Marine Insurance : a Handbook. London, 19 10. 


Gow, William. Sea Insurance According to British Statute. New 
York, 1914. 

HuEBNER, Solomon. Property Insurance, Fire aftd Marine In- 
surance, etc. New York, 1911. 

Johnson, Emory Richard, and Huebner, Grover G. Principles 
of Ocean Transportation. New York, 191 8. 

Keate, Henry. TIw Students^ Guide to Marine Insurance. 191 1. 

Leake, P. D. Marine Insura^ice Time Premium Tables. Chi- 

0\VEN, Douglas. Ocean Trade and Shipping. New York, 1914. 

ScRUTTON, Thomas Edward. Charter Parties and Bills oj Lading. 
Toronto, 19 14. 

Templeman, Frederick. Marine Insurance ; Its Principles and 
Practice. London, The London Chamber of Commerce, 1903. 


The Importance of Credit. — One of the most vital factors 
in foreign trade is the term of credit upon which business 
is conducted. The statement is persistently made that 
the average American manufacturer does not meet his 
European competitor in the matter of the extension of 
credit to his foreign customers. Investigation tends to 
show that this charge is not made without cause. While 
there are manufacturers in the United States who offer just 
as favorable credit terms to foreign customers as they can 
obtain from German, English, or other European houses, 
the average American manufacturer who *' dabbles" in 
foreign trade is still shy of the comparatively easy credit 
arrangements demanded by so many European and Latin 
American importers. 

It is an estabhshed fact that the bulk of export business 
of the world is transacted on a basis of 90 days sight or 
longer. European houses that have built up extensive and 
profitable business with foreign customers have established 
the custom of selling goods on these terms, or on even more 
liberal terms. The American manufacturer who is not 
prepared to finance his shipments on this basis cannot 
hope to carry on a successful direct export business. He 
must sell through an export house, which will pay cash at 
the seaport, and exact the usual middleman's profit. 

One reason for the failure or discouragement that has 
met the efforts of American manufacturers to estabKsh 
a profitable export business is that they have attempted 
to do business on a cash or practically cash basis. They 
have expected to receive cash with the order or when the 



order was shipped. Others have thought to extend credit 
only until the goods were received by the customer, drawing 
a draft to be accepted through a bank before the bill of 
lading was delivered, the draft to be paid at sight or at 
thirty days sight. This is only practicable when there is 
little or no competition from houses of other nationahty. 

Necessity for Credit. — The necessity of transacting for- 
eign business on a credit basis is evident. In the first 
place, that is the established custom in export trade and 
the firm that refuses to extend credit cannot get the busi- 
ness. The time required for the delivery of goods and for 
their passage through the custom-house is an important 
factor that makes the payment of cash in advance by the 
importer a hardship in many cases. The custom of some 
manufacturers of demanding ^'cash against documents" 
in New York is one that all exporting firms would like to 
follow, but it is not one calculated to build up an extensive 
and permanent foreign trade. 

Countries devoted principally to agriculture are es- 
pecially dependent on credit. When the crops are marketed 
the farmer pays his bills, with the result that the retailer 
who has extended credit to the farmer is enabled to meet 
his obKgations at this time. The importer is then in a 
position to pay for the foreign goods he has purchased 
throughout the year, and this is the system that he is de- 
termiined to follow. To be called upon to pay for imports 
at an earher date would seriously handicap many large 
firms of unquestioned standing in Latin America and other 
countries where the tide of business ebbs and flows with the 

Another factor of importance in credit arrangements 
is the seasonal fluctuations in exchange. This is especially 
true in regard to Latin America. Exchange is profitable 
there at the time the principal exports are being marketed ; 
consequently, this is the time when importers prefer to pay 
their bills. At this time there is an influx of bills of ex- 


change from foreign buyers, and exchange on other coun- 
tries may be purchased at a low rate. 

Wherever possible, business finns the world over desire 
to turn over the goods they purchase before paying for them; 
otherwise, too much capital is required to carry on business. 
Where there is a close business relation between importers 
and banks, and money can be borrowed at low rates of 
interest, the demand for a fairly long credit period is not 
so consistent, but where banks ask a high rate of interest, 
as in many parts of Latin America, where 12 per cent is 
not considered exorbitant, the term of credit is of the ut- 
most importance. Not infrequently the obtaining of a 
liberal credit term quite overbalances considerations of 
price and quality, and contracts are given on this basis. 

Credit Caution. — It must not be assumed that because 
the American manufacturers have been criticised for a 
narrow credit policy in foreign trade a looseness or care- 
lessness in credit arrangements is to be reconmiended. 
There are certain fundamental business principles that 
govern here just as in domestic transactions. For the 
American manufacturer to take undue risks, to extend 
credit to foreign customers without thorough investigation 
of their financial responsibility and business standing, to 
sell goods without having a definite agreement as to the 
time at which payment is to be made, or to encourage open 
accounts, except in special cases, are alike unwise, unbusi- 
nesslike, and undesirable methods. 

Whenever possible, personal investigation by a repre- 
sentative of the manufacturer is made of the financial 
standing and business reputation of prospective customers, 
and this information is checked up from time to time. 
This is one of the duties of travelling salesmen in foreign 
fields. The information thus gained is used as the basis 
for further and systematic investigation by the credit de- 
partment or whoever has this branch of the foreign busi- 
ness in charge. Inquiries are continually being received 


by United States consuls as to the responsibility of foreign 
firms. While consuls are instructed to send to exporters 
making inquiry the names of commercial houses in good 
repute who might be interested in their lines, they are 
forbidden to report upon the financial standing or commer- 
cial repute of business men or houses in their district. The 
various channels through which reliable credit information 
can be obtained will be discussed elsewhere. 

The different methods used in the extension of credit to 
foreign customers will now be considered. 

Methods of Extending Credit. — There are three distract 
ways in which credit may be extended to foreign customers. 
The first and most corrmion method is to make the ship- 
ment subject to the acceptance of drafts, which are for- 
warded along with the bill of lading and other documents 
to a bank in the foreign country for collection. The 
second method is to make the sale on open credit. The 
third and least common method is to sell on long-time 
credit. Each of these requires careful study. 

Credit Against Acceptances. — The basis on which the 
greater part of international trade is transacted is ninety 
days credit. Such credit is extended only against the ac- 
ceptance of a draft, which is attached to the bill of lading 
and forwarded through a bank. The insurance certificate 
and a copy of the invoice usually accompany the draft 
and bill of lading. Sometimes the invoice is omitted. 
The three documents first mentioned comprise a foreign 
commercial bill of exchange. The draft represents the 
amount due the manufacturer for the goods specified in the 
bill of lading plus whatever charges are rightfully added. 
The bUl of lading is the contract between the shipper and 
the transportation company for the carrying of the mer- 
chandise. The importer or consignee cannot obtain posses- 
sion of the goods without the bill of lading. 

When the documents are received at the foreign bank to 
which they are sent by the local bank, the consignee is 


notified. He may accept the draft and secure the bill of 
lading at once, or he may prefer to wait until he is certain 
that the shipment has arrived. Occasionally foreign con- 
signees insist upon taking their time before accepting the 
draft, leaving the goods on the docks or in the warehouse 
until they need them. By so doing they secure longer 
time in which to make payment, as drafts are usually 
drawn at a specified number of days after sight. 

In the case of a ninety-day draft, some firms allow 30 
days for the arrival of the goods and 30 days more for the 
receipt of the payment, making a total of one hundred and 
fifty days credit. It is customary in Latin America and in 
some other countries to charge interest at the rate of 6 
per cent per annum from the date of the draft until the date 
of payment. This is an important factor, as it makes the 
financing of shipments by discounting drafts much easier. 

While ninety days is the usual credit term, documentary 
drafts (those attached to bill of lading and forwarded 
through a bank) are sometimes drawn for a period of six, 
nine, or even twelve months from date or from sight, 
with interest at 6 per cent. 

Open Credit. — Foreign business is sometimes done on a 
basis of open credit. This means that goods are sold T^th 
the agreement that payment shall be made at the end of 
a certain fixed period, as sixty or ninety days. The bill 
of lading is sent direct to the customer, and the acceptance 
of a draft is not required. The customer is expected to 
remit at the expiration of the credit term. It is sometimes 
agreed that the manufacturer will draw on the customer 
when payment is due. It is to be noticed that such a 
draft, drawn on a customer after he has received the goods, 
is quite different from a documentary draft. It is called a 
clean draft, because no documents are attached, and its 
acceptance rests with the drawee, v/ho may refuse to accept 
without materially impairing his credit in banking circles. 
Refusal to accept a documentary draft results in the non- 


delivery of the documents. Refusal to honor such a draft 
after it is accepted seriously impairs the credit standing of 
the drawee. 

While many Enghsh firms allow open credit accounts, 
they are usually confined to old customers of known re- 
liability and highest financial standing. Exporters main- 
taining a branch office or resident agent in a foreign mar- 
ket can extend open credit without incurring undue risks. 
However, the use of the documentary draft or com.mercial 
bill of exchange is favored by the most successful exporters. 
It is a principle of all business, applying to foreign as well 
as to domestic transactions, that unnecessary risks, careless 
methods, and the haphazard extension of credit are bound 
to result in annoyance, misunderstandings, and loss. 

A consignee who receives goods with no obligation to 
pay may be tempted to delay, evade, trump up claims for 
shortages, or to ask for unwarranted rebates or discounts, 
all of which could have been avoided by close adherence 
to business principles on the part of the exporter. 

William E. Peck, a successful New York exporter, has 
this to say of open credits: *' There is a sufiicient risk in 
draft operations without even considering business on open 
account, and the shipper vrho is foolish enough to attempt 
the latter is doomed to failure. Most of the merchants 
south of the equator, especially in South America, know 
that American shippers do their export business against 
drafts instead of an open account and it is unnecessary, 
therefore, to incur this risk." 

Long-Time Credits. — Exporters are sometimes called 
upon to sell goods on long-time credits, extending from one 
to three years. Such accounts draw a fixed rate of inter- 
est. As a rule payments are required at stated intervals. 
In some cases security is given in the form of a mortgage. 
The occasion for such credits is the sale of expensive ma- 
chinery or equipment to large and responsible firms, or 
other equally important sales, seldom made except after 


personal investigation on the part of the manufacturer or 
his representative. As a rule the term of credit does not 
exceed six, nine, or twelve months, at the most, though in 
case of adverse business conditions that particularly afifect 
the importer, English and German firms have followed the 
custom of extending the time of payment to meet the neces- 
sities of the case. By so doing they have cemented the 
closest business relations with valuable customers, without 
incurring serious risks or losses. Interest is charged on the 
extension of time thus granted. 

Foreign Credit Department. — Just as a credit department 
is found to be essential in every large mercantile business 
engaged in domestic trade, so does foreign trade necessi- 
tate the placing of this important phase of the business in 
trained and competent hands. To accept the rec- 
ommendation of salesmen, anxious to increase the volume 
of their sales, as to the responsibility of foreign customers, 
when the recommendation of just as capable and trust- 
worthy salesmen in regard to the extension of credit to 
customers at home would have very little \veight, is a 
policy that is unsound. Manufacturers having salesmen 
in foreign markets expect them to carefully investigate 
and report on the financial standing and responsibility 
of prospective customers, but these reports are not in them- 
selves sufficient. The credit department is constantly on 
the alert securing all of the credit information possible, 
using to this end every available means. 

There are four distinct phases of the foreign credit man's 
work. He must know, first, how to assemble credit in- 
formation in regard to foreign customers; second, how to 
safeguard foreign accounts, once they are opened; third, 
how to keep in touch with his customer so as to ascertain 
the changes that may occur in his business standing; fourth, 
how to make collections abroad. Even in firms where 
there is no credit man who has charge of this branch of the 
business, there is some one who attends to this important 


work, and the good judgment and thoroughness here dis- 
played are an important factor in the success of the foreign 
trade developed by the firm. Each of the four di\dsions of 
the work of the credit department will now be considered 
in some detail. 

How to Assemble Credit Information.— Before extend- 
ing credit to foreign customers a thorough investigation 
as to their financial responsibility and business standing 
is necessary, just as in domestic business. Questions to 
be determined before the extension of credit include the 
nature and extent of the customer's business, his financial 
worth, business standing, reputation in the community, 
and the way in which he has met his obligations in the 


In domestic trade the first method taken to ascertain 
the facts required about a customer is to ask him to make 
out and forward a detailed statement as to his assets, 
liabiHties, net worth, the volume of his business, the amount 
of money he has in the bank, etc. This method is not 
familiar to all merchants in foreign countries, and unless 
they are approached with the utmost tact they take offense 
and break off all business relations \nth the firm asking 
for the statement. Pointed questions as to assets and Ha- 
bihties, which are answered as a matter of course by Ameri- 
can merchants, are particularly objected to by many for- 
eign business men in good standing. 

A custom followed by some successful credit men is to 
preface the request for credit information with a statement 
of the same character as to the financial standing and 
responsibility of the American firm sending out the request. 
The explanation is given that since the opening of a credit 
account is anticipated, it will be mutually advantageous 
for each party to the transaction to know something about 
the rehability and business standing of the other. The 
customer needs to know that the firm with which he is 
dealing is a responsible one; otherwise, it would be ill- 


advised for him to accept a draft before examining the con- 
tents of the shipment. The exporter must be assured that 
his customer is a business man accustomed to fulfilling his 
obligations; otherwise, the sale of goods on credit terms en- 
tails too great a risk to be undertaken. Some of the most 
successful credit men in America report that they seldom 
fail to receive satisfactory and courteous replies to such 
requests for credit information, which are invariably ex- 
pressed in such polite phrases that exception can hardly 
be taken to them. While answers may not be given to a 
long list of specific questions, other valuable information 
is given, including the names of American firms and local 
or American banks with whom they have transacted busi- 

Another method of obtaining foreign credit information 
is through application to a bank or banks doing business 
in the customer's home market. Such inquiries may be 
sent direct to the foreign bank or may be made through an 
American bank. American branch banks located in for- 
eign markets give much attention to the gathering of credit 
information for the benefit of clients of the home bank. 
They will usually furnish any information which they have 
in regard to a foreign firm's credit standing w^hen the rea- 
son for desiring the information is specifically stated. The 
branch banks of the National City Bank of New York, 
of the Guaranty Trust Company, the Mercantile Bank of 
the Americas, the Irving Trust Company, and of other 
banking corporations, are spending much time and effort 
in gathering reliable credit information about the business 
firms of the various centres in which the banks are 
located. This information is furnished free of charge to 
any established American firm which makes a specific 

The exchanging of credit information among American 
manufacturers is becoming common. Hence, the credit 
man has no hesitancy in applying to any American firm 


given as a reference as to the business standing of a foreign 
customer. Often valuable information as to the business 
methods of a prospective customer as weU as to liis financial 
standing is thus obtained. The free interchange of such 
information is bound to be of advantage to American manu- 

Foreign banks also answer inquiries as to the business 
standing of local firms, though the information thus ob- 
tained is often meagre and cannot always be implicitly de- 
pended upon. No bank is anxious to impeach the standing 
of its clients. Neither is a bank expected to answer ques- 
tions propounded by strangers with as much fulness as it 
gives to the inquiries of its own customers. There has 
been a decided tendency on the part of some foreign banks 
to withhold credit information from manufacturers with 
whom they have no business relations or sympathies, 
especially if they belong to a nation that is trying to break 
in on the trade of countries with which the banks are 

The mercantile agencies afford a reliable means of obtain- 
ing credit information. There are two such agencies in 
the United States having numerous branches in the foreign 
field. These are the agencies conducted by R. G. Dun and 
Company and Brads treet. They maintain branches in all 
of the large trade centres and have reporters and corre- 
spondents in practically every market. They can usually 
furnish, on short notice, valuable data as to the credit 
rating of any foreign firm. If they have not this data 
on file, they w^ill procure it upon request. Their charges 
for furnishing credit information are reasonable. 

The National Association of Manufacturers, which main- 
tains headquarters at New York City, has been for years 
assembhng credit information about foreign business houses. 
For this purpose the association has over 1,800 correspon- 
dents located in various markets in all quarters of the globe. 
These correspondents furnish valuable information as to 


the business rating and financial standing of merchants and 
firms in the foreign field. Membership in the association 
carries with it the right to a limited number of credit re- 
ports, and for a small additional fee other reports are 

The Philadelphia Commercial Museum maintains a 
credit information bureau for the benefit of its members. 
It assembles this information in practically the same way 
as does the National Association of Manufacturers. The 
services which the museum is prepared to render its mem- 
bers are so varied and so valuable that membership in it 
is sought by practically all large manufacturers. Among 
these services may be mentioned the translation, for a 
nominal fee, of foreign correspondence, the preparation of 
reports on business conditions and business opportunities 
in any foreign market which the member may be inter- 
ested in, the supplying of specific information as to customs 
regulations, or other laws affecting commerce, and the col- 
lection of deHnquent accounts in foreign countries. The 
fees charged in each instance are reasonable. 

The American Manufacturers Export Association fur- 
nishes credit information to its members. It also assists 
members in many other ways in developing and carrying 
on a profitable export trade. Headquarters are located 
in the Manhattan Life Building, New York City. 

The various chambers of commerce, manufacturers as- 
sociations, and credit men's organizations are prepared to 
give some assistance in the matter of collecting foreign 
credit information, and the capable and alert credit man 
is careful to keep in touch with all such organizations. 

From the brief review just given of the various channels 
through which credit information in regard to foreign cus- 
tomers may be secured, it is evident that the obtaining of 
such information is not so difficult as might appear at first 
thought. Hence, the manufacturer who hesitates in re- 
gard to extending credit to foreign customers on the grounds 


that it is difficult or impossible to obtain reliable credit 
data needs the assistance of an expert along that line. 

How to Safeguard Foreign Accounts. ^The first way in 
which the credit man safeguards his foreign accounts is by 
making every effort to secure reliable and complete credit 
information in regard to every foreign customer. This 
enables him to determine to just what extent credit may 
be extended to each customer. Unless the reports relative 
to a customer's credit standing are practically uniform in 
stating the risk to be a good one, the credit man will insist 
upon business being transacted on a cash basis. 

The credit man can further safeguard his foreign ac- 
counts by using his influence in making the policy of the 
firm one that invariably requires that every foreign order 
be filled, packed, and shipped exactly as directed. By so 
doing the number of legitimate claims for substitution, 
shortages, or damages sustained in transit resulting from 
improper packing are reduced to the minimum or entirely 

Co-operation between the credit department and the 
other departments also has the effect of insuring that exact 
attention to every detail, in making out shipping and other 
documents, which is so important a factor in every foreign 
shipment. The proper making out of every invoice, bill, 
statement, biU of lading, draft, etc., is an important ele- 
ment in safeguarding a foreign account, for delays, misun- 
derstandings, and dissatisfaction are thus avoided and no 
excuse given the consignee to delay payment while com- 
plaints are adjusted. 

There are certain legal requirements in regard to drafts 
that the vigilant credit man must know. In most Latin 
American countries the words ''Value received" or ''Value 
on account" are required; these words are added when the 
draft is indorsed, as well as the place and date of indorse- 
ment. In nearly all countries a draft must be- noted and 
protested in case it is dishonored by the non-acceptance or 


non-payment of the drawee. Otherwise it loses its status 
as a promise to pay and becomes, provided it has been 
accepted, a mere evidence of indebtedness. 

The first step in protesting is called noting. It is done 
by a notary, who, when a draft is dishonored, notes the fact 
on the back as the grounds of a protest. A protest is a 
formal declaration made by a notary public, at the request 
of the holder of a draft, for non-acceptance or non-pay- 
ment of the same, protesting against the drawer and others 
concerned for the exchange, charges, damages, and interest. 
In most European countries, after protest for non-accep- 
tance, the holder is required to present the draft again at 
maturity, and if it is not paid he must protest for such non- 
payment. In most countries the protest for non-payment 
of a draft must be made on the day it is due, though in 
France one day of grace is granted and in Germany two 
days are allowed. Not all banks taking drafts for collec- 
tion will protest in case of non-acceptance or non-payment 
unless they are so instructed when the draft is sent to them. 
Hence, such instructions should accompany every draft 
forwarded through a bank. 

A safeguard used in drawing a draft is the insertion in it 
of the name of a person, firm, or bank to whom the holder 
may refer in case the draft is dishonored. The name so 
inserted is preceded by the words "In case of need," or 
"In case of need notify." The person so specified is author- 
ized to either take up the draft (by paying it) or to use his 
good offices to induce the drawee to honor it. He is often 
called "the referee in case of need." 

How to Keep in Touch with Foreign Risks.— The neces- 
sity of keeping in close touch with every foreign customer 
to whom credit has been extended is apparent. Even 
though the firm may be one of the highest financial stand- 
ing and the credit may have been granted only after a 
thorough investigation, changed conditions may at any 
time seriously affect the credit standing of a foreign as 


well as of a domestic firm. Successful credit men confirm 
the credit reports they have on file at least once a year. 
They also make use of any new avenues of information 
which may be brought to their attention. A close scanning 
of the various trade bulletins and trade papers often re- 
sults in the acquisition of valuable information in regard 
to business conditions in foreign markets which materially 
affects the credit status of the firms located in those mar- 
kets. In case of panics, unfavorable conditions in regard 
to exchange, business depressions, and similar conditions, 
the credit man must guard his accounts in those countries 
with especial care and be prepared to act promptly in case 
of emergency. 

The Collection of Foreign Accounts. — Even when the 
greatest care is exercised in the extension of credit it oc- 
casionally happens that foreign customers become delin- 
quent in making payment. The first thing for the credit 
department to ascertain is the reason for this delay. It 
may be dissatisfaction with the goods and the consequent 
demand for discounts or deductions, or it may be the in- 
ability of the customer to meet his obhgations when due. 

If payment is not made because of dissatisfaction on the 
part of the customer, the wise credit man makes every 
eft'ort to come to some amicable settlement. In every case 
where a claim is made for shortages, for damages incurred 
during transit due to poor packing, or for other allowances, 
the most careful attention must be given to the complaint. 
If it seems at all probable that the claim is well founded, 
fair and even generous allowances are ad\dsable. In de- 
ciding as to the justice of the claim, the reputation of the 
customer, his record in dealing with other firms, and his 
standing in business circles have great weight. As a rule, 
when a reputable foreign firm of excellent business standing 
makes a claim there is good reason for it. If claims are 
to be allowed, this should be done promptly. Protracted 
correspondence and objections, with the final and seemingly 


unwilling capitulation of the creditor, only result in the 
loss of prestige and the loss of business. On the other 
hand, readiness to admit and rectify mistakes often re- 
sults in the obtaining of new and important business. 
All correspondence with foreign debtors should be con- 
ducted with tact and politeness; a brusque or too direct 
statement may be deeply resented by a Latin American or 
other foreign customer, even though no offense was in- 
tended. Courtesy is a valuable business asset. 

While the policy of adjusting claims made by foreign 
customers in a spirit of fairness and even of generosity 
is generally advisable, there are, nevertheless, instances 
wherein the foreign customer makes unwarranted and un- 
founded complaints and claims. These probably occur no 
oftener in foreign than in domestic business. When a 
claim is patently unwarranted, a full explanation of the 
facts, coupled with a firm though politely couched refusal 
to allow the claim, is necessary. If pa>Taent is still with- 
held, the mediation of a bank or other agency is sometimes 
sought with good results. If all efforts for amicable ad- 
justment fail, the services of a lawyer may be necessary. 
Only such foreign lawyers as have been recommended by 
a bank or mercantile agency are retained. Whenever 
possible, Htigation is avoided, as a non-resident trying to 
collect a debt in a foreign court labors under certain dis- 
abiHties and disadvantages which need not be enumerated 

When correspondence and the mediation of a bank or 
other third party alike fail to secure the payment of a 
foreign account, it is generally turned over to the collection 
department of one of the agencies mentioned in connec- 
tion with the assembling of credit information. The Na- 
tional Association of Manufacturers has an especially well- 
organized collection department conducted for the benefit 
of its members. The mercantile agencies have collection 
departments which handle foreign accounts. American 


banks having branches in the foreign market will usually 
give assistance in trying to force collection of a draft, and 
where litigation is necessary such banks will engage a 
reputable lawyer for the American manufacturer. 


Bartlett, Dudley. Facilities Necessary for Safe Clearance of For- 
eign Credit Risks. In Official Report of the Fifth National 
Foreign Trade Convention. 1918, pp. 403-422. 

Gonzales, V. Credit and the Future of American Foreign Trade. 
In Proceedings of the International Trade Congress. New 

York, 191 5. 

Matthews, James. Credit Conditions in South American Coun- 
tries. In Journal of Accountancy, vol. 22, pp. 443-450. De- 
cember, 1916. 

Tarlton, W. E. What Part Credit May or Should Play in the 
Development of Our Foreign Trade. In Official Report of the 
Fifth National Foreign Trade Convention, 191 8, pp. 390-403- 

U. S. Bureau of Foreign and Domestic Commerce. Banking 
and Credit in Argentina, Brazil, Chile, and Peru. Washing- 
ton, 1914. (Special agent series no. 90.) 

U. S. Bureau of Foreign and Domestic Commerce. Foreign 
Credits. A study of the foreign credit problem with a review of 
European methods of financing export shipments, by Archibald 
J. Wolfe. Washington, 1913. (Special agent series no. 62.) 

Von Seebeck, Georg. Credits Against Imports and Exports. 
In Proceedings of the International Trade Conference. New 
York, 191 5. 

Zimmerman, T. J. Credits and Collections ; the Work and Scope 
of the Credit Department . . . Foreign Credits. Chicago, 1907. 



Handicaps to Our Export Trade. — Superiority of prod- 
ucts, indomitable energy, and unflagging enterprise, com- 
bined with a great wealth of natural resources, have made 
the United States a leader among the nations of the earth 
in international trade. In competition with the exporters 
of other nations, our manufacturers and exporters have 
been handicapped in more than one respect. An inade- 
quate merchant marine and banking facilities for the ex- 
tension of foreign trade far inferior to those possessed by 
the other great commercial nations have been two handi- 
caps to our foreign trade development. Until recently the 
facilities for financing exports have been entirely inade- 
quate, and in no way comparable with those at the service 
of the English and German exporter. The comparatively 
long-term credits demanded in many markets make it 
essential for the manufacturer to have banking facilities 
that enable him to realize on his shipments before the cus- 
tomer pays for them. 

In the words of an officer of the Guaranty Trust Company 
of New York: "The basis for the successful commercial 
attainments of England and Germany is to be found in the 
underlying system of credits granted by bankers to im- 
porting and exporting houses. Similar and just as effec- 
tive results may be obtained for Americans by combined 
efforts along the same lines." 

Banking Facilities Needed. — The first consideration of 
the average manufacturer or exporter in developing trade 
with other countries is the willingness and ability of the 



domestic banks to discount or buy commercial paper based 
on legitimate business transactions with other nations. 
Only when a manufacturer can depend upon being able to 
sell his drafts on his foreign customers to an American 
bank, preferably to the one he does business with, is he 
able to extend the credit necessary to the successful carry- 
ing on of an extensive and profitable foreign trade. Of 
course there are exceptions to this in the case of very 
large and prosperous manufacturers, but the number of 
such concerns is comparatively few. 

While the direct financing of foreign shipments by buy- 
ing or discounting the drafts drawn against such shipments 
is the primary banking facility demanded by those engaged 
in foreign trade, there are other ways in which banks have 
a direct and highly important part in trade development. 
These include the assembling of rehable credit information 
in regard to foreign merchants and importers and the 
furnishing of such information to American exporters upon 
request, the guarding of our exporters against losses through 
fluctuations in exchange, and the arranging, either through 
correspondent or branch banks located in foreign countries, 
for the collection of payment for the goods when such pay- 
ment is due. In case the shipment is not accepted by the 
importer, the exporter must depend largely upon the corre- 
spondent or branch bank to make the best arrangements 
possible for the disposal of the goods to the best advantage. 

Benjamin Joy, Vice-President National Shawmiut Bank 
of Boston, says in regard to the functions of banks in fur- 
thering export trade: "The exporter must take the selHng 
risk and the bank must take the financial risk. The bank's 
responsibihty is the collection of up-to-date and accurate 
information, the offering of proper faciUties for financing 
the merchant in the most economical way, and for the 
proper handling of the shipment at the other end and the 
collection of the amount involved when due.'' 

The Federal Reserve Act of 191 5 made it possible for 


American banks to extend the needed facilities for the 
development of foreign trade, and the leading banks are 
taking advantage of this and showing a disposition to ex- 
tend to the exporter the facilities thus made possible. A 
brief consideration of the provisions of the Federal Reserve 
Act directly relating to foreign trade is necessary. 

Effect of the Federal Reserve Act. — There are three 
provisions of the Federal Reserve Act of the greatest im- 
portance to all engaged in foreign trade. The first is the 
provision authorizing the various Federal Reserve Banks 
to rediscount "notes, drafts, or bills of exchange arising 
out of commercial transactions; that is, notes, drafts, and 
bills of exchange issued or drawn for agricultural, industrial, 
or commercial purposes, of which the proceeds have been 
used or are to be used for such purposes. '' The second is 
the provision authorizing any member bank to accept 
"drafts or bills of exchange drawn upon it and growing out 
of transactions involving the importation or exportation of 
goods having not more than six months sight to run.'^ It 
is further provided in this connection that such acceptances 
may be rediscounted at any Federal Reserve Bank when 
they have a maturity at time of rediscount of not more 
than three months. The third provision having direct bear- 
ing on our foreign trade is the one authorizing American 
banks having a capital and surplus of $1,000,000 to estab- 
lish branch banks in foreign countries. 

The fiirst provision referred to makes the discounting or 
buying of bills of exchange based on commercial transac- 
tions especially desirable for banks, for it provides a ready 
market for the rediscount of such paper. The second pro- 
vision permitting bankers^ acceptances affords a convenient 
means of financing export shipments that was hitherto for- 
bidden by law, although it is a method long used in England 
and other countries. It will be more fully discussed later. 
The permission to establish branch banks in foreign coun- 
tries is looked upon as of the greatest importance. A 


promising beginning in that field has been made in Latin 
America, where the National City Bank of New York made 
the initial step in November, 1914, by establishing a branch 
bank in Buenos Aires, Argentina. This was followed by 
the establishment of other branches from time to time in 
Latin American and other countries. The International 
Banking Corporation has established branches in India, 
China, Japan, and elsewhere. The Mercantile Bank of 
America, the Asia Banking Corporation, and the Guaranty 
Trust Company of New York were early in the field with 
branch banks in important trade centres. Other banks 
are rapidly taking up the work, so that the banking facili- 
ties offered the American exporter are fast becoming the 
equal of those offered by the other leading commercial 

Methods of Financing Exports. — Drafts used in connec- 
tion with the financing of exports are of two classes: first, 
those drawn on banks or bankers; second, those drawn on 
individuals, usually upon foreign customers. 

Those of the first class are referred to as bankers' accep- 
tance or acceptances. In accepting such drafts banks are 
extending credit either to the American exporter, or to the 
foreign importer, who arranges for such acceptance through 
his local bank. 

Those drafts drawn on individuals are usually docu- 
mentary drafts, i. e., they are attached to the bills of lad- 
ing, insurance certificate, and other documents required in 
making export shipments. Bankers' acceptances and docu- 
mentary drafts are quite distinct, and their use must be 
carefully distinguished. 

Bankers' Acceptances. — Since the passage of the Federal 
Reserve Act the use of bankers' acceptances as a means of 
financing export shipments has become usual. The ex- 
porter draws a sight draft (usually for sLxty or ninety days) 
on the bank for the amount of the shipment. When this 
draft is accepted by the bank it is discounted by the ship- 


per, eitlier at the bank upon which it is drawn or elsewhere. 
He is thereby enabled to realize on his shipment before it 
leaves the United States. The bank charges a commission 
for its acceptance. A feature of this plan is that returns 
from the shipment, which is sold under the usual docu- 
mentary-draft arrangement, are received by the shipper 
by the time he is required to take up his draft on the bank. 
If there is delay, the bank will ordinarily renew its accep- 
tance for a reasonable period. 

Bank acceptances have been the standard credit instru- 
ment in Great Britain and other countries for years. By 
their use the element of risk is eliminated, so far as the 
purchaser of the draft is concerned. They command the 
best discount rates in the market; in fixing the discount 
rate, only the interest on the money paid for the bill until 
its maturity is considered. It is thus seen that the accep- 
tance of a draft by a bank of repute makes such a draft, 
known as an acceptance, easily marketable. The accep- 
tance brings the banker an interest return and m.akes the 
conversion of the draft into money by the exporter an easy 
matter. Since a draft drawn by an exporter against a 
foreign shipment is made large enough to cover the dis- 
count and other expenses, the exporter can extend the 
usual sixty or ninety days credit to his foreign customer 
without losing a day's interest on the amount of the bill. 
When he discounts the bill of exchange he receives the full 
amount of the invoice plus the cost of shipping, insurance, 

While the importer has these charges to pay, he is, never- 
theless, buying under favorable conditions, for he is not 
required to pay the bill until maturity. He thus has the 
goods in his possession before he has paid for them, and 
may dispose of them before the time of payment is at hand. 

The advantage to the bank which accepts a draft is thus 
expressed by John Clausen, vice-president of the Chemical 
National Bank of New York: 


The power of a bank to accept a draft or bill of exchange enables 
it to make use of and to sell for a consideration its credit, and so 
lend, for legitimate use in trade, vast sums without depleting its 
reserve or impairing its capability in making additional loans and 
advances to its clients. 

Bank acceptances based on credit established by the 
foreign customer through his local bank are also used to 
a limited extent. In this case, the foreign customer ar- 
ranges with his local bank to request its American corre- 
spondent bank to accept for its account a documentary 
draft drawn by the exporter. At the time agreed upon for 
the payment of the goods the American bank looks to its 
foreign correspondent for cover. The draft drawn by the 
exporter on the American bank is usually discounted by 
the bank accepting it. Thus, the exporter has his money 
for the shipment and the foreign buyer has the advantage 
of a term of credit. He pays his local bank a commission 
for arranging the acceptance. A foreign firm of the high- 
est standing may be able to arrange directly \^dth an Ameri- 
can bank for its acceptance of the draft drawn by the ex- 
porter, though the acceptance is usually arranged through 
the buyer's local bank. 

Discounting Documentary Drafts. — As the usual method 
of extending credit to a foreign importer is by means of 
the documentary draft, drawn on the foreign customer, 
payable either upon the delivery of the goods or at a later 
date, so the common method of financing export shipments 
is for the exporter to dispose of the documentary draft 
drawn on his foreign customer either to a bank or to a 
broker. Such drafts are said to be sold or discounted, 
the words being used interchangeably. Clean drafts are 
disposed of in the same way. The bank or broker has re- 
course to the drawer of the draft in both cases, that is, the 
drawer of the draft is responsible for its payment. In 
case of a documentary bill of exchange, which is another 
name for a documentary draft, the bank or broker retains 


a lien on the goods until the draft is satisfied. The usual 
period for which such drafts are drawn is either for sixty or 
for ninety days after sight. 

The documentary bill of exchange consists, as explained 
in the chapter devoted to The Extension of Credit, of the 
draft, the bill of lading, the insurance certificate, and the 
invoice. Each of these documents is issued in duplicate, 
in case one set may be lost. They are plainly marked 
'' original " and ** duplicate." Instead of marking one draft 
original and the other duplicate, the words ''first of ex- 
change" and "second of exchange" are often used. The 
set of original documents is sent by the steamer in which the 
merchandise is shipped or by a faster one; the duplicate 
set is sent by the next steamer. 

For many years the custom has prevailed of drawing 
foreign commercial drafts either in pounds sterling or in 
the money of the country to which the goods are shipped. 
It is estimated that three-fourths of the drafts drawn in 
international trade have been in pounds sterling. The 
establishment of ''dollar exchange" is desirable for many 
reasons, and a well-organized effort to bring this about has 
produced tangible results, especially in our trade with 
Latin America. This subject is more fully discussed in the 
chapter devoted to the subject of Foreign Exchange. 

When a foreign commercial bill of exchange is drawn in 
sterling or other foreign currency, the expenses, such as 
commission charged by the bank or exchange broker, in- 
terest, postage, and other incidental expenses, are indirectly 
charged to the drawee, by the simple method of fixing the 
rate of exchange so as to include these. 

In case the draft is drawn not in sterling or other foreign 
money, but in dollars, the total of these charges must be 
added to the cost of the shipment. When this course is 
pursued, a direct understanding to this effect is necessary; 
otherwise, the drawee may refuse to pay the charges. 
Likewise, objections may be made to including these in- 


cidental expenses in the amount of the draft when it is 
drawn in sterhng or other foreign money unless it has been 
agreed upon that the rate of exchange prevaiUng in the 
American market on the day of shipment is to be the rate 
by which the conversion from dollars is to be made. 
Such agreements are easily made in advance and they are 
important because they avoid misunderstandings, dissatis- 
faction, and loss of business. 

In disposing of a foreign commercial bill of exchange to 
a bank or in forwarding one for collection through a bank 
it is necessary to give definite and exact instructions in 
regard to the deHvery of the documents, the action to be 
taken in case of non-acceptance or non-payment of the 
draft, and of the disposition to be made of the shipment if 
for any reason it is not taken by the consignee. Included 
in the instructions are the exact conditions in regard to 
payment. If payment is to be made upon deHvery of the 
papers, the words ''documents for payment" are used, sig- 
nifying that the bill of lading and the consequent posses- 
sion of the goods are to be withheld until the draft is to be 
paid. The letters d. p. are used to express this condition. 
If the delivery of the documents, w^hich gives possession of 
the goods, is to be made upon acceptance of the draft by 
the drawee, the words ''documents for acceptance" are 
used. This may be expressed d. a. The use of such ab- 
breviations, however, is not favored by careful exporters. 
The writing out clearly and definitely of all instructions 
is preferred, as by so doing misunderstandings are often 

As has been said, a bank discounting a documentary 
draft for an exporter has recourse to the latter in case the 
draft is not satisfied by the importer. Thus, the financial 
responsibihty of the drawer of a draft is of paramount 
importance, though the nature of the merchandise and the 
country to which it is being shipped are also important 
considerations. If the goods are of a perishable nature the 


risk is greater; likewise, if they are of special design and 
are not of staple character the risk is increased, for the 
chances of disposing of them to advantage in case the con- 
signee does not accept them are less than in the case of 
standard machinery or of such staple products as wheat 
and other raw materials. The reputation of the drawee 
is also considered by the bank discounting a commercial 
bill of exchange, but this is of much less importance than 
that of the drawer of the draft, to whom the bank looks for 
reimbursement in case the draft is not covered at maturity. 

Del Credere Guaranty. — The negotiation of a documen- 
tary draft is sometimes facilitated by the use of the so- 
called del credere guaranty. This is a guaranty given by 
a foreign bank that the importer will pay for the goods 
according to his agreement. The guaranty is usually 
given through the American correspondent of the foreign 
bank giving the guaranty. The conditions specified vary 
according to the agreement entered into between the ex- 
porter and his customer; this may provide for payment 
upon the arrival of the goods in the foreign market or upon 
the maturity of the draft. In any case, though it does not 
insure immediate payment to the shipper, it makes the sell- 
ing of the draft on the customer thus guaranteed a com- 
paratively easy matter. If the customer fails to meet his 
obligation, the shipper has recourse to the bank which gave 
the guaranty. The customer pays the foreign bank a 
commission for making this guaranty. 

A Typical Transaction. — Since the discounting of docu- 
mentary drafts is the commonest method used in financing 
export shipments, a definite understanding of the entire 
transaction is of the utmost importance. This will be 
made clearer by tracing such a transaction from the be- 
ginning to the end. Let us say that the firm of Wheeler 
& Layton, manufacturers of agricultural machinery in 
Illinois, agrees to sell to Rodrigo Martinez, a Brazilian mer- 
chant, a consignment of ploughs, the invoice price of which 


is Si, 000. No c. i. f. quotation is made, but it is agreed 
that Wheeler & Layton are to pay the inland and ocean 
freight, the marine insurance, the cartage and other ship- 
ping expenses, and add these to the invoice price of the 
ploughs. It is also agreed that payment is to be made by 
means of a ninety-day documentary draft, drawn in dol- 
lars, and that the expense of negotiating this draft is to 
be borne by Rodrigo Martinez. 

When the ploughs are ready for shipment, they are sent 
by rail to the port decided upon, which we will say is New 
York City. The freight is prepaid. The railroad bill of 
lading and the invoice, with the certificate of insurance, if 
that has been secured, are immediately forwarded to the 
agent of Wheeler & Layton at New York. Both the bill 
of lading and the insurance certificate are drawn to the 
order of Wheeler & Layton. Their agent in New York 
is either given a power of attorney which gives him legal 
authority to indorse them, or they are indorsed in blank 
before they are forwarded to him. 

When the ploughs arrive in New York, the agent attends 
to all the details of shipment, as outHned elsewhere, and 
then presents the draft covering the full amount due 
Wheeler & Layton, with the other documents, to the bank 
or exchange-broker \\dth whom he has arranged to negoti- 
ate the bill of exchange. 

The draft is drawn in dollars, as agreed; it is drawn on 
Rodrigo Martinez, and reads *' Ninety days after sight of 
this first of exchange (second unpaid), pay to the order of 
ourselves $1,220.00, value received.'^ The name of the 
steamship on which the ploughs are shipped is inserted, 
as is a statement indicating the nature of the shipment. 
This draft is signed by Wheeler & Layton. It was either 
drawn by them and forwarded to their agent with the in- 
voice and bill of lading, or it was drawn later on telegraphic 
advice of the exact amount of the expenses to be included, 
indorsed in blank, and sent by registered mail to the agent 


or to the bank discounting it. For even an authorized 
agent to sign any of the documents forming part of a 
commercial bill of exchange is not good practice, and 
usually makes the negotiation of such a bill of exchange 
difficult. This difficulty is overcome, when time permits, 
by the agent sending all of the documents to the shippers 
for their signature. It is more satisfactorily overcome by 
Wheeler & Layton securing a through bill of lading from 
the railroad company, which included the steamship bill of 
lading, and by their negotiating the bill of exchange through 
their local bank. This is being done more and more in 
case of car-load shipments, but is not yet the prevailing 

The New York bank examines each document with great 
care, and if all are found to be correct and complete in 
every detail, discounts the draft at the rate agreed upon. 
As it is drawn for an amount to include the discount, 
Wheeler & Layton receive payment in full for the amount 
of the invoice plus all expenses. The New York bank in- 
dorses the draft and forwards it to its correspondent bank 
in the Brazilian city where Martinez lives. This bank 
notifies Martinez to call and accept the draft. He does so, 
and is then given possession of the bill of lading and other 
documents, which enable him to get the ploughs from the 
warehouse. Complete instructions as to the delivery of 
the documents accompanied the bill of exchange, so that 
no misunderstanding would occur. The directions on this 
draft read ^^ Documents upon acceptance." If they had 
read '' Documents upon payment," Martinez would have 
been obliged to pay the draft before maturity if he desired 
to get possession of the documents and so of the ploughs. 
In this case the local bank would have allowed him the 
prevailing rate of discount for the number of days the draft 
was paid before maturit}^ 

Two methods of financing exports, which do not, however, 
involve the extension of a term of credit to the customer, 


may be considered here. These are the commercial letter 
of credit and confirmed credit. 

Commercial Letters of Credit.— A large proportion of 
our import business has been transacted by the use of com- 
mercial letters of credit. A letter of credit is an authority 
from the banker who signs it to the banker to whom it is 
addressed, upon certain conditions to honor the draft of 
the person named in it. Occasionally letters of credit are 
addressed to the firm from whom the goods are purchased 
instead of to a bank in his country. 

The usual conditions set forth in a letter of credit are 
the presentation by the shipper of the documents showing 
that the goods have been shipped as directed and the com- 
pleting of the transaction within the time allotted. As a 
rule drafts drawn under the letter of credit are at sixty or 
ninety days sight, though shorter or longer periods are 
sometimes stipulated. 

Commercial letters of credit are being used in export 
business to a considerable extent. They make the sale 
of the drafts drawn under them a comparatively easy trans- 
action, as is the case with all prime bank acceptances. 
If the banker confirms the letter of credit, the transaction 
becomes one for the shipper of cash against documents, 
and the bank has no recourse on him, if the goods are not 
accepted and paid for by the consignee. Its recourse is to 
the bank signing the letter of credit. 

Confirmed Credit. — This is not strictly a form of credit, 
as it stipulates for the opening of a credit account by the 
foreign customer with an American bank, with instructions 
to the bank to accept the exporter's sight draft with bill 
of lading and other documents attached when the shipment 
is made. It is called a confirmed credit because the bank 
with which the foreign buyer opens the account is instructed 
to notify the manufacturer that such a credit has been es- 
tabhshed; the credit is thus confirmed by the bank. As 
the customer has the money in the bank before the ship- 


ment is made, he is really paying cash for the goods. He 
has this advantage, however, that his money is not paid 
until the goods are actually shipped. The American bank 
is given exact instructions as to the conditions that are 
agreed upon as to the shipment, and invariably takes the 
utmost precautions to ascertain that the goods are being 
shipped exactly according to the agreement entered in be- 
tween the foreign customer and the American manufacturer. 


American Exchange National Bank, New York. Acceptances, 
Their Importance as a Means oj Increasing and Simplifying 
Domestic and Foreign Trade. New York, 1913. 

Arnold, J. J. Financing Cotton. In the Annals of the American 
Academy of Political and Social Sciences, vol. 38, pp. 579-609, 
September, 191 1. 

Guaranty Trust Company, New York. Acceptances. New 
York, 191 7. 

Guaranty Trust Company, New York. How Business with 
Foreign Countries is Financed. New York. 

Kent, F. I. Financing Our Foreign Trade. Annals of the Ameri- 
can Academy of Political and Social Science, vol. 36, pp. 492- 

National City Bank, New York. Acceptances. New York, 

National City Bank, New York. American Banks in Foreign 
Trade. New York, 191 7. 

Rovensky, John E. The Development of the American Discount 
Market and Its Relation to Foreign Trade. (In Proceedings 
of the International Trade Conference. New York, 191 5.) 

Van Deusen, W. M. Acceptances. (In Official Report of the 
Fifth National Foreign Trade Convention. New York, 191 8.) 

Warburg, Paul M. The Discount System in Europe. U. S. 6ist 
Congress, 2d Session, Senate document 402. 


Domestic Exchange. — An understanding of the subject 
of Foreign Exchange will be made easier by prefacing that 
study with a brief review of the methods by which exchange 
between different places in the United States is carried on. 
Specific illustrations make the comprehension of these 
methods easy. 

Supposing that during the first week of November of 
last year there was shipped from Chicago to New York 
City $2,000,000 worth of merchandise, and during the same 
week Chicago merchants bought from New York firms 
goods valued at $1,500,000. These goods will be paid for, 
with few exceptions, by means of checks, bank drafts, and 
commercial drafts. The checks and bank drafts paid by 
the New York buyers of Chicago goods will be drawn on 
New York banks. The commercial drafts drawn on the 
New York firms by their Chicago creditors will be sent 
to New York for collection through the local banks. So, as 
the business stands between the banks of New York and 
the banks of Chicago, the former will be in debt to the latter 
for the sum of $2,000,000. But this is offset by the pur- 
chases, amounting to $1,500,000, which the Chicago mer- 
chants have made from New York houses. These Chicago 
buyers mil pay their debts by means of bank checks, bank 
drafts, and by the acceptance and honoring of commercial 
drafts drawn on them, through their local banks. Thus, 
Chicago banks, upon which these checks and drafts are 
drawn or through which the commercial drafts are col- 
lected, will be called upon to pay New York banks the sum 



of $1,500,000. Only the balance, amounting to $500,000, 
will be transferred from New York to Chicago. But this 
will not be done unless the balance is in favor of Chicago 
for some time; one week's balance may and often does 
quite cancel that of the preceding week, or cause the balance 
to stand on the other side. 

The rate of exchange is determined by the condition of 
this balance between trade centres. If, in a given week, the 
balance is in favor of Chicago, the banks of that city, hav- 
ing a goodly credit balance in New York, will be ready 
enough to sell drafts to merchants or others having pay- 
ments to make in New York, for this is the easiest and 
quickest method of getting into their own vaults some of 
the money due them. In this case, exchange on New York 
is at a discount in Chicago. But the condition in New York 
would be just the reverse. Chicago exchange is scarce in 
New York — there are not enough checks and drafts to can- 
cel New York's indebtedness to Chicago — hence, the New 
York banks are not anxious to sell any drafts on Chicago 
banks, for this would mean increasing their indebtedness 
to Chicago, so they charge a premium for such exchange. 

It is understood that in actual business such simplicity 
as is suggested in the above transactions is seldom found. 
As a matter of fact, before a balance is struck the entire 
indebtedness of Chicago, not only to New York banks, but 
also to all other banks in the country, is compared with the 
entire amount due Chicago banks from New York and all 
other points in the United States, and the difiference con- 
stitutes the balance. 

The one central clearing-house of the United States is 
located at New York. Bankers throughout the United 
States have correspondent banks in New York where 
they keep deposits at all times. They are, therefore, al- 
ways in a position to sell drafts on New York or New 
York exchange. Balances due from the banks of one city 
to another are usually paid in New York exchange. New 


York City is thus the financial centre of the United States, 
as it is one of the leading financial centres of the vrorld. 
Just as the bulk of exchange within the United States is 
that on New York, so the greater part of exchange in inter- 
national trade has been on London, though the World 
War has caused New York to gain in importance as a 
financial centre at the expense of London and continental 
centres. The important banks of the world have for years 
had deposits in London banks, which enabled them at 
any time to draw drafts on London. These deposits have, 
to a large extent, been transferred in international transac- 
tions to New York, and dollar exchange on New York is 
being used instead of sterling exchange on London. 

Preliminary Definitions. — Foreign exchange is the system 
by which commercial nations discharge their debts to each 
other. The e\ddences of such debts are bills of exchange, 
which are bought and sold the same as any commodity is 
bought and sold. \\Tien a bill of exchange is sold by a 
manufacturer to a banker the latter buys the debt; he 
pays a sum of money down in return for the payment to 
him of a larger sum at a later date. The difference in the 
amount paid and the amount called for in the bill of ex- 
change is the banker's charge for discounting the bill or 
advancing the money on it before m^aturity. 

As usually defined, a bill of exchange is an unconditional 
order in writing addressed by one person to another, re- 
quiring the latter to pay on demand or at a fixed time a 
sum of money to or to the order of a third party or to the 
bearer. A bill of exchange becomes an acceptance when 
the drawee has signed his name across it, with the date. 
It is a negotiable instrument transferable by indorsement. 

The term draft is used interchangeably with the term 
bill of exchange, although, strictly, all drafts are not bills 
of exchange. A draft is not necessarily a negotiable in- 
strument, as it may be drawn subject to certain conditions, 
as the arrival of goods at a stated place. Bills of exchange, 


then, are the most common form of draft, but every draft 
is not a bill of exchange. 

A check is a draft drawn on a banker payable on demand 
to the payee, or to his order, or to the bearer. Sight drafts 
and demand drafts may be drawn either on bankers or on 
other persons. A check can be drawn on a bank only when 
the drawer has funds in the bank; a draft may be drawn by 
agreement upon a bank when the drawer has no funds on 
deposit. Not until a draft is accepted does it become an 
obligation on the drawee. 

The drawer of a draft is the person who draws or signs it; 
the drawee is the person on whom it is drawn, and who is 
expected to pay it; the payee is the person to whom or to 
whose order it is to be paid. The payee may be the drawer, 
the drawee, or any third person. The indorser of a draft or 
bill of exchange is the person who signs his name on it 
other than as drawer or accepter. He does this in order 
to transfer title to it or in order to guaranty its payment. 
A bill is indorsed in blank when no person is specified to 
whom it is to be paid. It may be indorsed payable to 
some specified person or to his order; a person so speci- 
fied is the indorsee. 

Occasion for Exchange. — By means of foreign exchange 
a pa3rment of any indebtedness in one place is exchanged 
for a payment in another place. A merchant in New York 
owing a London exporter for a bill of goods may discharge 
his debt by buying a bill of exchange, in the form of a 
banker's check on London, which is forwarded to London 
and there paid to the exporter. The New York merchant 
pays his money in New York; the same amount of money 
but not the same money is paid to the exporter in London. 
The intermediaries are the New York and London banks 

The typical example of this buying and selling of debts 
involves four parties, two located in one country and two 
in another. We will say that A and B live in the United 


States and C and D live in England. A sells goods to 
C; D sells goods to B. A draws a draft or bill of exchange 
on C and sells it to B. B buys it because he wishes to 
cancel his indebtedness to D; B therefore remits this bill 
of exchange to his creditor D. The draft is drawn on C, 
so D presents it to C, who accepts it and pays the amount 
stipulated upon maturity. In this case, only one draft 
was required to cancel two debts between four people. 

In actual practice, commercial transactions do not thus 
offset each other, either in amount or in time. Hence, a 
bank is necessary as an intermediary. Therefore, A draws 
on C and sells this bill of exchange to his bank in New 
York. D draws on B and sells his biU of exchange to his 
London bank. A's bank forwards the bill of exchange on 
C to its London correspondent for collection; D's bank 
forwards the bill of exchange drawn on B to its New York 
correspondent for collection. The collections are made at 
the time of maturity. If the amounts specified in the two 
bills of exchange are equal, two transactions balance each 
other; if the amounts differ, there is a balance to be settled 
between the banks. 

While the importation and exportation of goods between 
countries give rise to the greater number of transactions in 
foreign exchange, there are many other factors to be con- 
sidered. The indebtedness of the United States to other 
countries may arise in the importation of goods, in the ex- 
penses of Americans travelling or residing in foreign coun- 
tries, in the cost for transportation of goods in ships owned 
abroad, and in the interest due on foreign capital invested 
here. All payments made on money loaned in the United 
States by foreign capitalists, all sales made by foreigners 
of American securities previously bought, all remittances 
of foreign-born residents of the United States to their rel- 
atives in foreign countries, all gifts and benefactions made 
by Americans to the people of other nations, and all loans 
and investments made by American capitalists in foreign 


countries arc transactions which involve the remitting of 
money or of commercial paper from the United States to 
other countries. 

To offset these are payments for our exports, loans made 
by foreign capitalists to Americans, investments made by 
foreigners in America, interest or dividends received by our 
capitalists on money loaned or invested in foreign countries, 
the proceeds of the sale by Americans of foreign securities 
previously bought, and all other transactions which involve 
the remitting of money or of commercial paper from other 
countries to the United States. 

The Buying and Selling of Exchange.— All large Ameri- 
can banks conducting a direct foreign exchange depart- 
ment have correspondent banks in the principal financial 
centres of foreign countries in which they maintain accounts. 
In this way such a bank is able at any time to sell a bill of 
exchange on any of the trade centres of the world. It 
sells to the customer, for cash or for his check, a bill of ex- 
change payable at a specified time in the foreign city. 
The term bill of exchange is used to signify checks, demand 
drafts, and drafts payable at a certain number of days after 
sight or after date. Telegraphic and cable orders are also 
sold in the same way as bills of exchange. 

In addition to selling exchange, banks also buy exchange. 
A merchant or other person having a commercial bill of 
exchange drawn on a debtor in a foreign country often de- 
sires to secure immediate payment. In that case he goes 
to a bank or exchange-broker and sells it at a fixed dis- 
count rate. The terms ''sale" and ''discount" are used 
synonymously to describe this transaction. When a bill 
of exchange is sold, it is said to be negotiated. Such a 
bill is indorsed when the transfer is made. The word ex- 
change is often used, as in the first line of this paragraph, 
to designate a bill of exchange. 

The Discount Rate.— The discount rate, referred to in 
the preceding paragraph, is the rate per cent at which banks 


and exchange-brokers discount the various classes of bills 
of exchange which they buy. In countries having govern- 
ment banks, this rate tends to be uniform throughout the 
country. In the United States the rate differs in various 
parts of the country. However, the official rate of the 
Bank of England has had a powerful influence upon the 
discount rate in every financial centre. This rate is es- 
tablished at the regular meeting of the board of directors 
on Thursday of each week. In normal times the official 
discount rate thus established may remain unchanged for 
weeks, depending upon the condition of the money market 
as indicated by the prevailing interest rate. 

Private banks in England usually have a private rate, 
which is lower than the official or bank rate, as it is often 

The rate quoted on prime bank acceptances, which are 
sixty or ninety day bills drawn on banks, fixes the level 
of the market. Bank-bills are always discounted at the 
best rates. The rate for commercial bills of exchange is 
about yi per cent higher than for bank-bills of exchange 
having the same time to run. 

Monetary Systems. — The failure of the commercial na- 
tions of the world to adopt a uniform monetary system 
greatly complicates exchange transactions. A knowledge 
of the monetary systems of the different commercial na- 
tions is essential to an understanding of foreign exchange. 
We will consider the money of the leading commercial 
nations other than the United States. 

The monetary system of Great Britain is the most im- 
portant of all, because the great bulk of foreign exchange 
has long been drawn in sterling. The pound sterling is 
equal to 20 shillings, i shilling is equal to 12 pence, and each 
penny is equal to 4 farthings. The Enghsh pound is often 
called the sovereign. It is the largest unit of money with 
the exception of the Peruvian libra and the Egyptian pound. 
The pound sterling has been for over a century the basis 


of international exchange. The efiFect of the World War 
has been to promote the use of dollar exchange. This 
will be discussed later. 

The mark or reichsmark is the principal German coin. 

France has for its principal coin the franc, which is di- 
vided into loo centimes. Belgium and Switzerland have 
the same monetary system as France. Italy has prac- 
tically the same system, but uses different names, the coin 
corresponding to the franc being called the lira. It is di- 
vided into loo centesimi. Greece, Spain, Bulgaria, Ru- 
mania, Serbia, Austria-Hungary, and Finland all have 
monetary systems similar to that of France, the unit being 
a coin of the value of the franc. 

The Mint Par of Exchange. — These monetary systems 
are better understood by comparing the unit of one coun- 
try with that of another. This is done by comparing the 
amount of gold contained in the currency unit of the two 
countries. This is called the mint par of exchange. It is 
the fixed, intrinsic value of the standard coin of one coun- 
try expressed in terms of another. The mint par of ex- 
change between the United States and England is the 
actual value in dollars and cents of the pound sterling, ac- 
cording to the weight and fineness of the gold in the two 

The mint par of exchange between any two countries 
may be readily determined by dividing the weight of the 
pure gold, as fixed by law, contained in the gold unit of 
one country by the weight of the pure gold, as fixed by law, 
in the gold unit of the other country. In case of silver 
monetary units, the exact value of each may be ascertained 
in gold and then the comparison made. Gold is the gen- 
erally accepted standard of value. It is the only metal 
of which the value is fixed by law. The price of silver 
fluctuates according to market conditions. 

The mint par of exchange of the pound sterling or sover- 
eign in United States money is $4.8665; of the franc and 


lira, 19.3 cents each; of the reichsmark or mark, 2;^, 8 

The Rate of Exchange. — While the mint par of exchange 
is stationary, the commercial par of exchange, or the price 
paid for a bill of exchange in one country on another, is 
subject to fluctuations. The commercial par of exchange 
is the same as the mint par of exchange when a demand 
draft on one country sells in the other for the exact equiva- 
lent in coin of its face value. Theoretically, this is the 
case when the debits and credits between two countries 
are exactly equal. For example, if the United States owed 
England precisely the same amount as England owed the 
United States, the price of exchange would be at par. If 
England owed the United States more than we owed Eng- 
land, the demand for exchange on England would not equal 
the supply, with the result that sterHng exchange here 
would be at a discount. The reverse would be the case in 
England, where there would be an active demand for ex- 
change on the United States, with the result that it would 
be at a premium. 

The Gold Points. — The fluctuation in exchange is limited 
to the cost of transporting the coin or bullion between the 
two countries involved. This cost of transportation in- 
cludes the cost of packing, shipping, insurance, and the 
slight loss in weight caused by wear in transit. Interest 
on the money for the period required to transport it from 
one country to another is also to be added. In normal 
times, the premium paid for exchange on one country in 
another will not exceed this cost of transportation; if it 
does, gold will be shipped in preference to paying th^e high 
premium. The cost of foreign exchange thus fluctuates 
between tv,T) points, the gold-exporting and the gold-im- 
porting points. Gold is exported when the premium on 
exchange exceeds the cost of transportation; gold is im- 
ported when the discount on exchange exceeds the cost of 


The rate at which gold leaves a country and the rate at 
which it enters a country are the two extremes in the rate 
of exchange known as the Gold Points. What has been 
said applies only when conditions are normal. An em- 
bargo on gold, abnormal trade balances, and other unusual 
conditions making it impossible to pay balances in gold 
result in extreme fluctuations in exchange. 

Fixing the Rate of Exchange. — The rate of exchange has 
been defined as the price paid for a bill of exchange in one 
country on another. It is also referred to as the commer- 
cial par of exchange. The term exchange is often used to 
signify the rate of exchange. The rate of exchange is 
quite distinct from the discount rate, though when a bill 
drawn in a foreign currency is purchased, the discount 
is charged in the rate of exchange. 

The method by which the rate of exchange is arrived at 
is of interest. The prevailing rate of exchange for various 
countries is estabUshed in the financial centres or centre 
of each country. For example, the rates on London, 
Paris, Antwerp, etc., that is, the rates at which bills of ex- 
change payable in those cities are sold in New York, are 
established by New York bankers daily. This rate largely 
determines the rate for other cities in the United States. 
The determining factor in fixing the rate of exchange is 
the relation between the demand for bills of exchange 
and the supply of the same. In the United States at the 
outbreak of the World War in the fall of 1914 the de- 
mand for exchange on England greatly exceeded the sup- 
ply, because it happened that just at that time there was 
a balance of indebtedness estimated at about $250,000,000 
of America to European countries. In the natural order 
of commerce, this indebtedness would have been largely 
offset by the exportation of great quantities of grain, cotton, 
and other products usually shipped in the fall. As com- 
merce was practically suspended for the time being, these 
exports could not be shipped. The balance, therefore, had 


to be settled by the use of money or bills of exchange. Gold 
shipments could not be made, for fear they would be cap- 
tured by one of the belligerent nations. The Kronprin- 
zessin Cecilie attempted to sail for Europe from New York 
on July 28, 1 9 14, with a consigmnent of gold aggregating 
nearly $10,000,000, but was recalled. 

Fluctuations in Exchange. — Such a situation created an 
unparalleled demand for bills of exchange, with the result 
that the rate for exchange on London rose far above the 
usually accepted gold-shipping point of $4.88^ or S4.89. 
The rate of $5.00 was first quoted, and then, under the 
general disorganization, quotations of $6.00 and even $7.00 
were made. In order to restore the rates to something like 
normal, the New York bankers joined in an arrangement 
wdth the Bank of England to ship gold in great quantities 
to the Canadian Government at Ottawa, at the rate of 
$4.90. This had the desired effect of stabilizing exchange 
until shipments of commodities could be resumed. The 
excessive rates just referred to, if they had continued, 
would have meant the financial ruin of many importers 
and others having obligations to pay in England or else- 
where in Europe. 

Hardly had the excessive rates for pounds sterling and 
for other foreign bills been reduced to about normal before 
a change in the other direction occurred. This was occa- 
sioned by the immense sales Americans made to England 
and to other foreign countries, which, before the close of 
191 5, placed the United States in the position of a creditor 
nation, the indebtedness of other countries to us far ex- 
ceeding our liabilities. Such a situation created an un- 
precedented condition — that of an excess of bills on Lon- 
don, and the problem that confronted the exporter was 
how to obtain cash for such bills. The result was that the 
rate of exchange on London fell as low as $4,483^ in August, 
1915. Conversely, the unprecedented demand in London 
for bills on New York caused the dollar to be quoted at a 


premium. Our trade balance had become so enormous 
that the idea of shipping gold to cancel it could not be en- 
tertained. It was cancelled in three ways: First, by the 
sale of American securities held abroad, the return of these 
securities taking the place of gold shipments. Second, by 
the sale in America of British and other foreign securities, 
which created a great credit here in favor of the foreign 
nation selling the securities. Third, by the actual ship- 
ment of great quantities of gold. Our excessive sales could 
not have been continued without the transfer of securities. 

The depreciation of the pound sterling was checked in 
the period between 191 6 and 1919 by government loans 
made by the United States to Great Britain, supplemented 
by private loans. These loans created a demand in New 
York for exchange on London, offsetting the demand for 
exchange on New York to pay the enormous merchandise 
balance due the United States. In other words, our ex- 
ports to Great Britain were offset by our imports from 
Great Britain plus the loans made to that country. Thus 
sterling exchange was m.aintained at not far below par. 

In 1 91 9 and 1920, after the artificial props that upheld 
exchange during the war were removed, sterling exchange 
fell to the lowest point ever reached, the pound being 
quoted on August 20, 191 9, at $4. 12^2. It seemed that 
the downward trend could go no further, but this proved 
to be only the beginning. By February, 1920, the pound 
had fallen to $3.20. The franc, the lira, and other foreign 
money units suffered even greater depreciation, while the 
German mark fell almost to the vanishing-point. At the 
same time the American dollar stood at a premium in Great 
Britain, France, Italy, and in all but a few other nations. 
Wherever the dollar stood at a premium, the trade balance 
was in favor of the United States; in Japan and certain 
South American and other countries from which we pur- 
chased more than we sold, the demand for dollar exchange 
was not equal to the supply, with the result that the dollar 


stood at a discount in these countries. After the embargo 
on the exportation of gold was Hfted, large shipments of 
this metal were made to the countries in which the balance 
was against us, thus offsetting in a measure the tendency 
for the dollar to be depreciated there. 

The following from Moody's Investors^ Service^ New 
York, sums up the situation in the early months of 1920: 

For us this foreign exchange situation points to smaller net mer- 
chandise exports, increased competition with foreign goods both at 
home and abroad, a further decline in ocean freight rates, special 
competition in such international products as dyes, chemicals, and 
textiles, and lower prices for the majority of products which are 
subject to foreign competition. 

For Great Britain the monetary and foreign exchange outlook 
is good; but for France it is filled with great difficulties; while 
the monetary position of Germany and Italy is very uncertain in- 
deed. The European neutrals and Canada, AustraHa, Japan, and 
the South American countries are in good shape. 

The depreciation of the bills of Great Britain, the European small 
neutral nations, and of South American countries may be attributed 
mostly to trade balances, and to their heavy purchases of foreign 
goods; but the depreciation of francs, marks, lira, and kronen 
seems to be due almost wholly to the paper-money inflation. 

Exchange Quotations. — Quotations of foreign exchange 
rates are pubhshed each day in leading city papers. Quo- 
tations are for checks or demand drafts, cable transfers, 
and time drafts. Exchange on each country is quoted 
differently. For instance, the quotation for sterUng is 
given by stating the rate in United States money per pound. 
On the other hand, the rate for French francs is stated as 
the number of francs and centimes allowed for a dollar; 
it is expressed thus: 5.15, meaning that 5 francs 15 centimes 
are allowed for one dollar. The quotation on Germany is 
made by stating the price allowed in United States money 
for 4 marks; it is expressed thus: 95 A, indicating that 
this is the number of cents allowed for 4 marks. 


The method used in making quotations will be made 
clearer by considering the following, as published in New 
York papers on the dates indicated. It is interesting to 
note the fluctuations, due to abnormal conditions brought 
about by the war. The depreciation of the foreign cur- 
rency unit is apparent. 

Demand or check 

July I, 1914 

July I, 191 5 

December 9. 1916 



$4 7^H 







Advantages of Dollar Exchange. — The larger part of 
our imports and exports has been bought and sold in terms 
of foreign currency. When we buy from England, the 
price is quoted in pounds sterling; when we buy from Ger- 
many, the price is quoted in marks; when we buy from 
France, the price is quoted in francs. Again, when we sell 
to Germany, we find it necessary to quote prices in marks; 
when we sell to France, we must quote prices in francs, etc. 
In trading with smaller countries prices are quoted in pounds 
sterling; the result is that the pound sterHng has for a 
century been the basis of international exchange. Two 
conversions have thus resulted in many transactions; 
from the money of the first country into sterling and then 
into the money of the second country involved. This 
has been a great advantage to English banks and com- 
mercial houses, which charge a commission for every con- 
version or exchange made. The disadvantage the United 
States has suffered in having to buy and sell in other cur- 
rency than our own is this: in the first place, we have had 
to pay tribute to England or to other foreign bankers in 
the form of commission for conversion; in the second 
place, in credit transactions involving time drafts there 


are often serious losses due to fluctuations in the commer- 
cial par of exchange. The establishment of dollar exchange 
will, in the words of an officer of the National Shawmut 
Bank of Boston, ''do much to help our foreign trade. 
In its essence it will guaranty to the exporter that he 
will receive the actual amount which he has reckoned 
on as his seUing price, and that the importer will pay 
to the foreign seller the exact amount in terms which he 
has reckoned on as his cost, both of these being accom- 
plished by eliminating the necessity on the part of our mer- 
chants of converting into dollars through the varying media 
of sterHng, marks, or francs." 

An excellent illustrarion of this was given by John E. 
Rovensky, vice-president of the National Bank of Com- 
merce of New York, in a speech made at the International 
Trade Conference held in New York City in December, 
191 5. Mr. Rovensky said: 

Let us take as an instance the importation of coffee from 
Brazil, as the business was conducted prior to the outbreak of the 
war. The American importer desiring to purchase the coffee was 
compelled by custom to make his bid in sterHng and pay the coffee 
merchant by means of a sterling commercial letter of credit on a 
London bank. Under the terms of this letter of credit, the Brazil- 
ian coffee merchant drew his drafts in pounds sterling for the value 
of his shipments at ninety days sight on a London bank. He was 
willing to accept reimbursement in this form because the ninety- 
days London draft was readily taken by BraziUan banks as cash, and 
he could calculate at the time he sold his coffee the value of a 
sterling draft so drawn within a very narrow margin. The Brazilian 
banks were willing to cash such drafts for their customers because 
by discounting them immediately in the London open discount 
market they could quickly convert them into cash and consequently 
the transaction involved no tie-up of funds or risk of loss on ex- 

The Brazilian merchant, however, was not wilHng prior to the 
passage of the Federal Reserve Act to accept a payment in the 
form of a three-months draft drawn in dollars. Why? Because 
there being no open discount market in the United States, either the 
Brazihan merchant or his banker would have been compelled to 


carry the bill in his portfolio until maturity, and this, involving the 
risk of exchange fluctuations and a lock-up of cash, was of course 

Now let us see what effect this had on the American importer's 

When cabling his bid for coffee to the Brazilian merchant, the 
American merchant was compelled to estimate what sterling ex- 
change would cost him, approximately four months from the date 
of his cablegram. This period was consumed by the time required 
for the Brazilian draft to reach London and the three-months tenor 
of the bill. Therefore, if the American importer sent a quotation 
to Brazil for a consignment of coffee valued at £10,000, he did not 
know whether at the maturity of the 90 days draft drawn against 
such shipment he would be called upon to pay $48,500 or $48,900. 
He was thus compelled to gamble on the course of the exchange 
market, and if he overestimated the danger of exchange fluctuations, 
his bid was not as good as that of his foreign competitor, and he 
frequently lost the business, while if he underestimated the ex- 
change fluctuation he lost money. Our exports and imports to 
numerous other countries suffered under the same disadvantage. 
Importers of hides from India, silk from Spain, wool from Australia, 
etc., did not know what their consignments would finally cost 
them when the time for payment arrived. 

Need of Reciprocal Trade Relations. — Unless we buy 
from as well as sell to other countries, it will be difficult to 
carry on transactions in dollar exchange. For instance, if 
we sell goods to Latin America and demand payment in 
dollar exchange, this will create a demand in Latin America 
for New York (dollar) exchange. If we fail to buy Latin 
American exports, these must and will be sold to other 
countries. Supposing England takes the bulk of these ex- 
ports. Then this condition is created in Latin America. 
There is a demand there for dollar exchange to pay for goods 
imported from the United States; there is a supply of ster- 
ling exchange received in payment of goods sold to Great 
Britain and other countries using sterling exchange. The 
result is that dollar exchange, which is scarce, is at a pre- 
mium, and sterling exchange, which is plentiful, is at a dis- 


The Latin American merchant will, therefore, prefer 
to pay for his imports in sterling, and in placing his next 
orders he wall naturally buy in England or stipulate that 
goods bought from the United States are to be paid for 
in sterHng and not in dollar exchange. If dollar exchange 
is to prevail, there must be a supply of it in Latin America. 
This can be created in several ways, of which the follow- 
ing are the most obvious: 

1. By bu>ing Latin American exports, and paying for 
them in dollar exchange. 

2. By American capitalists making loans to Latin Ameri- 
can financiers. 

3. By American capitalists investing in Latin American 
securities or in Latin American plantations or other prop- 

Each one of the transactions indicated involves the 
sending of money in the form of dollar exchange from the 
United States to Latin America. Dollar exchange, then, 
Vidll be offered for sale there, and the Latin American im- 
porter will find it to his advantage to buy this to remit 
to the United States in payment of goods purchased here. 
Exactly the same principles apply in regard to our trade 
with other countries. 

Arbitrated Exchange. — Arbitrated exchange is often 
used in business and financial transactions. This is ex- 
change between any two countries through the medium of 
a third country. By its use money may be remitted from 
one country to another by means of a bill of exchange 
drawn on a third country. For instance, a St. Louis im- 
porter of goods from Japan, instead of paying in dollar or 
Japanese exchange, may remit sterHng exchange. The 
use of sterling exchange in arbitrage transactions has been 
one of the chief factors in making London the financial 
centre of the world. The importance of such transactions 
is clearly set forth by David H. G. Penny, vice-president of 
the Irving National Bank of New York, as follows: 


London is the financial centre of the world only because she has 
been financing so much more trade between other countries and 
England. New York can only acquire that distinction when this 
country actually finances trade between other countries and when 
Americans participate in foreign enterprises and buy foreign se- 
curities to create a demand for bills of exchange on New York to 
liquidate indebtedness and pay interest on those foreign invest- 


Brooks, H. R. Textbook on Foreign Exchange. Chicago, 1908. 

Brown, Harry Gunnison. Foreign Exchange ; a Study of the Ex- 
change Mechanism of Commerce. New York, 1915. 

Brown, Harry Gunnison. International Trade and Exchange ; 
a Study of the Mechanism and Advantages of Commerce. New 
York, 1914. 

Brown, Harry Gunnison. Principles of Commerce : a Study of 
the Mechanism, the Advantages, and the Transportation Costs 
of Foreign and Domestic Trade. New York, 191 7. 

Clare, George. The A B C of the Foreign Exchanges : a Practical 
Guide. London, New York, 1893. 

E ASTON, Harry Tucker. Tate^s Modern Cambist : a Manual of 
Foreign Exchanges and Bullion, with the Monetary Systems of 
the World and Foreign Weights and Measures ; with Chapters 
on Exchange and Bullion Operations. 25th edition. 191 2. 

Easton, Harry Tucker. Money, Exchange, and Banking in Their 
Practical, Theoretical, and Legal Aspects, a Complete Manual 
for Bank Officials, Business Men, and Students of Commerce. 
London, 1907. 

EscHER, Franklin. Elements of Foreign Exchange, a Foreign Ex- 
change Primer. New York, 191 6. 

Escher, Franklin. Foreign Exchange Explained. New York, 

Gardin, J. E. Finances of Nations as Reflected in International 
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Gardin, J. E. Foreign Exchange Problems. National City Bank 
of New York. 1913. 

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the Foreign Moneys Current Throughout the World, with the 
Average Rate at Which Such Moneys May Be Exchanged in New 
York City. New York, 1909. 


Gonzales, V. Modern Foreign Exchange. Monetary Systems, In- 
trinsic Equivalents, and Commercial Rates of Exchange of All 
Foreign Countries and Their Relation to United States Money. 

Hepburn, Alonzo Barton. History of Currency in the Umted 

States, with a Brief Description of the Currency Systems of All 

Commercial Nations, with Bibliography. New York, 191 7. 
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Association of Credit Men. Bulletin 17, pp. 997-iooi» October, 

South American View of Credit Exchange Arrangements. In Ameri- 
cas, vol. 4, PP- 8-10, July, 1918- 

Spalding, William Frederick. Eastern Exchange, Currency, and 
Finance. London, 191 7. 

Spalding, William Frederick. Foreign Exchange and Foreign 
Bills in Theory and in Practice. London, New York, 191 5. 

Study of the Trade Balance and Foreign Exchange Situation. In 
Economic World, n. s., vol. 15, PP- 115-118, July 27, 1918. 

Tate, William. Tate's Modern Cambist : a Manual of Foreign Ex- 
changes and Bullion, with the Monetary Systems of the World 
and Foreign Weights and Measures. 25th edition. London, 

Taussig, F. W. I jiter national Trade Voider Depreciated Paper ; 
a Contribution to Theory. In Quarterly Journal of Economics, 

vol. 31, pp. 380-403, May, 1917- 

U. S. Bureau of Foreign and Domestic Commerce. Factors tn 
Foreign Trade. In Miscellaneous series no. 7, 191 2. 

U. S. Federal Reserve Board. Foreign Exchange and Other Re- 
lated Transactions, Executive Order of the President Dated Jan- 
uary 26, 1918 . . . With Certain Forms Approved hy the 
Federal Reserve Board. 191 8. 

Withers, Hartley. International Finance. New York, 1916. 

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of the American Academy, vol. 68, pp. 1 51-160, November, 1916. 



The Mercantile Theory. — The difference between the 
value of the exports and the imports of a country is re- 
ferred to as ^'the balance of trade." By long-estabhshed 
usage, such a balance is said to be ^'favorable'' when the 
value of the exports exceeds the value of the imports, and 
''unfavorable" when the value of the imports exceeds the 
value of the exports. This use of the words favorable and 
unfavorable arose during the period when the economic 
theory known as the mercantile theory prevailed. The 
fundamental tenet of mercantihsm was that the principal 
benefit to be derived by a nation through foreign trade 
was the possible addition to its stock of precious metals. 
Therefore, it was considered that the one aim of govern- 
ments in regard to foreign trade should be to restrict im- 
ports and stimulate exports, for by so doing it was thought 
the '^ favorable" balance thus estabHshed must result in 
the importation of gold and silver. Thomas Mun, an 
early English writer, thus elucidates the mercantile theory: 

The ordinary means to increase our wealth and treasure is by 
Foreign Trade, wherein we must ever observe this rule: to sell 
more to strangers yearly than we consume of theirs in value. By 
such a course the balance must be paid in coin, and the country 
enriched, while a contrary course would deplete its stock of the 
precious metals. 

It has long been established that the theory propounded 
by the mercantile school of economists is at variance with 
the facts. Examples innumerable may be cited wherein 
an excess of exports has not resulted in the importation of 



the precious metals, and where an excess of imports has 
not drawn gold or silver out of the country. As explained 
in the chapter on Foreign Exchange, there are factors af- 
fecting the balance between nations other than the exchange 
of commodities. One country puts others into its debt 
not only by the exportation of commodities, but also by 
loaning or investing money, by rendering services of vari- 
ous kinds, and by attracting foreign visitors, who may be 
passing tourists or more or less permanent residents, draw- 
ing their income in either case from their native land. 
Thus the international flow of the precious metals is de- 
termined by many conditions, and does not follow either 
an excess of exports nor an excess of imports. 

Barter in International Trade. — It is clear that a foreign 
trade of tremendous volume can be carried on with little 
or no exchange of gold between the nations involved. In- 
ternational trade thus partakes of the nature of barter, 
commodities being exchanged for commodities, and not for 
money. The commodities need not be equal in value, be- 
cause services may be given or received in exchange for 
commodities, but this does not alter the fact that a con- 
dition of barter largely maintains. As between individ- 
ual merchants and manufacturers this does not seem to 
be the case. An American exporter sells manufactured 
goods to a Brazilian importer and receives in payment 
cash against dociunents in New York; he, therefore, may 
insist that he has sold his products for gold and has not 
exchanged them for other products. But, as the study 
of the methods employed in foreign exchange has made 
clear, the gold he received may have been paid by an 
American importer of BraziHan coffee, who purchased with 
it a bill of exchange or a commercial letter of credit from his 
New York bank, which was duly forwarded to the Brazilian 
coffee merchant. In essence, then, American manufac- 
tures were exchanged for BraziHan coffee. Or a cotton ex- 
porter may ship a cargo from Galveston to a French cotton 


merchant, and receive in payment a commercial letter of 
credit on a New York bank. He cashes this and receives 
money for his shipment, but there is not one chance in a 
million that this money or an equivalent sum of money 
was actually shipped from France. That very sum may 
have been deposited in the New York bank by a merchant 
in payment of a letter of credit in favor of a Parisian ex- 
porter of millinery and laces. The money received by the 
American cotton exporter did not come from France, and 
the money paid by the New York importing merchant did 
not go to France. 

If exports are not thus balanced by commodities or by 
services, the final balance of a nation's credits over its 
debits, as between other nations, is settled by the transfer 
of securities, and only in times of temporary stress or under 
abnormal conditions created by war or panic is gold shipped 
in great quantities. Since international trade is thus car- 
ried on by a species of barter, it is often stated that, in the 
long run, the imports of a country must balance its exports. 
A more exact statement of the law is that exports and ser- 
vices rendered eventually balance imports and services 

The Transfer of Gold and the Balance of Trade. — It has 
been shown that an enormous favorable balance of trade 
may be piled up by a nation without causing an influx of 
gold. It may now be of interest to consider the position 
of a country that maintains a favorable balance of trade 
throughout a long period of years, without incurring other 
Uabihties than those resulting from the importation of 
commodities. Supposing the United States continues to 
export each year merchandise greatly exceeding in value the 
commodities imported, and that our citizens cease to travel 
or live abroad, that our merchant marine is so increased as 
to carry all of our imports and possibly a goodly share of 
those of other nations, that our foreign investments exceed 
the sum total of American securities held abroad, and that 


our foreign-born citizens no longer send millions of dollars 
abroad. We would then be in every sense a creditor na- 
tion, and would thus fulfil the ideal consciously or un- 
consciously cherished by many patriotic citizens. Other 
nations would then be obliged to settle the balance due us 
by the shipment of gold, unless our capitalists elected to 
accept foreign securities. If we insisted upon payment in 
gold, and the other nations acquiesced, it would not take 
us long to drain all the gold from all the world, while our 
vaults and coffers fairly bulged with the precious metals. 
Even if other nations did not take governmental action to 
keep out, through tariff and other discriminations, our ex- 
ports, such a result would be brought about automatically 
in this way. The excess of gold would result in higher 
prices — the relative value of dollars and commodities 
would undergo a change whereby it would require mxore 
dollars to buy a given quantity of merchandise. The home 
market, then, would be superior to the foreign, and domestic 
rather than foreign trade would be sought by merchants 
and manufacturers, resulting in a decrease of exports. At 
the same time, the higher prices would prove an attraction 
to foreign traders, w^ho would flood our markets with im- 
ports. On the one hand, then, exports would be decreased; 
on the other, imports would be increased. This would 
continue until the unfavorable balance of trade created had 
caused a sufficient outflow of the precious metals to reduce 
their supply to normal and likewise to restore prices to 

It has been shown that a continuous favorable balance 
of trade of any magnitude, which is not offset by other lia- 
bilities, cannot be paid by the transfer of gold— that such 
a transfer would inevitably result in creating such a change 
in prices as to cause the imported gold to leave the country. 
There is another proof that brooks no argument, and that 
is that there is not a sufficient quantity of gold in circula- 
tion in the world to offset great trade balances. Such bal- 


ances are never paid in silver. The stock of gold in circu- 
lation in all countries in 1896 was authoritatively estimated 
at $4,144,000,000; in 1 91 6 it had risen, owing to the un- 
precedented increase in the production of gold, to $8,000,- 
000,000. Now, the excess of exports over imports of the 
United States alone for the thirteen years between 1904 and 
1 91 6, inclusive, exceeded this amount. There was not 
enough gold in circulation in the entire world to pay 
this entire balance. If such payment had been attempted, 
the United States would now possess all the gold money in 
the world. 

It is interesting to note the total stocks of gold money 
in the leading countries of the world for two dates for which 
careful estimates have been made by financiers and statis- 
ticians: 1896 and 191 6. The amounts are as follows: 



United States 






United Kingdom 


Austria- Hungary 

The United Kingdom's unfavorable balance of trade — 
the excess of her imports over exports — in the single year of 
1916 amounted to $1,679,000,000. Even after her credits 
for services were deducted her balance of indebtedness w^as 
enormous. But even this abnormal balance was not liqui- 
dated in gold; it is evident that such liquidation could not 
be accomplished. While the gold shipments of that year 
were unprecedented, the greater part of the debt was offset 
by the transfer of securities. The part securities play in 
international trade is touched upon in Henry Parker 
Willis's work on the Federal Reserve in the following pas- 


International trade is not carried on upon a money basis, but in 
many countries payment for large quantities of staple purchases 
is made in the form of securities based on the enterprises in which 
the goods thus bought are employed. For example, shipments of 
steel rails to China for the construction of the railways of that 
country have been paid for in bonds which have been taken by 
banking concerns in the coimtry which sold the rails, and then have 
been transferred to the investors, who, in the last analysis, supply 
the money. Similar methods of financing have been adopted in 
dealing with Brazil, and with other South American countries 
where trade grew up on a basis of borrowed capital. While trade 
between older nations, as, for example, France and Germany, is 
not necessarily founded upon international loans of this kind, they 
nevertheless figure to a considerable extent. 

Analysis of Otir Trade Balance. — That an excess of ex- 
ports does not necessarily result in an influx of the precious 
metals is clearly demonstrated by a brief review of the for- 
eign trade of the United States for the decade from 1900 
to 1909, inclusive. In each year of that decade our ex- 
ports of merchandise exceeded our unports, and yet in 
the ten years we parted with more of the precious metals 
than we received, as is shown by the following summary: 

Excess of exports of merchandise over imports. . 
Excess of exports of precious metals over imports 

Total excess 



In the ten years under consideration, then, our exports 
exceeded our imports by nearly $5,000,000,000, and yet, 
instead of this resulting in an inflow of the precious metals, 
we find that our net exports of the latter exceeded the im- 
ports by some $44,000,000. We thus parted with merchan- 
dise and precious metals to the value of nearly $5,000,- 
000,000 for which we received no compensating imports. 
That this huge sum was not a gift made by Americans to 
foreigners is clear. As a matter of fact it was necessitated 


by our obligations to other nations. It has been shown 
that even this enormous balance fell short of the liabilities 
incurred abroad, and that American securities valued at 
many millions of dollars were transferred to foreigners to 
liquidate the balance still due. 

The eminent statistician Sir George Paish made in 
1909 an exhaustive analysis of the trade balance of the 
United States, in which he estimated the obligations for 
interest, tourist expenditures, remittances by foreigners 
to relatives and friends, and freight charges paid foreign 
carriers for the fiscal year 1909, as follows: 

Interest on American securities held abroad 

Tourist expenditures 





Remittances to relatives, etc 

Freight on imports 

Total obligations other than for imports . . . 


The excess of our exports of merchandise over our im- 
ports in that year was $410,347,000. This fell $184,000,000 
short of meeting the obligations set forth above. It was 
taken up by the transfer of American securities. 

Let us consider now a decade belonging to the period 
when our imports uniformly exceeded our exports in value. 
Our imports showed a surplus over our exports in the period 
between 1831 and 1840 of nearly $160,000,000, but this was 
not accompanied by an outflow of specie. On the contrary, 
the imports of the precious metals likewise exceeded the 
exports, so that an addition to our stock of specie aggre- 
gating over $50,600,000 resulted. This inflow of specie 
was directly due to the sale of state securities in foreign 
countries; that the inflow did not result from our trade 
balance is evident, for that was decidedly against us. If 
an excess of imports inevitably caused an outflow of gold 
and silver, it can be readily seen that our stock of specie 


would have been decreased in the period instead of being 

Equilibrium in Foreign Trade. — The fact becomes clear, 
then, that imports may or may not balance exports, de- 
pending entirely upon other factors entering into interna- 
tional transactions, and that an excess of either imports 
or of exports does not necessarily cause any change in the 
supply of specie. When the precious metals possessed by 
a country, or that portion of them used as money, remains 
practically stationary, the foreign trade is said to be in a 
state of equilibrium. The economist Cairnes thus explains 
the conditions necessary to the maintenance of interna- 
tional equilibrium : 

The state of international demand which results in commercial 
equilibrium is realized when the reciprocal demand of trading 
countries produces such a relation of imports and exports among 
them as enables each country by means of her exports to discharge 
all her foreign liabiHties— a position from which the following corol- 
lary may be deduced, that all payments, due from one country to 
another or to other countries on other accounts than that of im- 
ports, of a permanent character — for example, an annual tribute, 
interest on borrowed capital, dividends on stock, and so forth — 
and in excess of similar payments due from these latter to the former, 
will be represented in the foreign trade of that country by an ex- 
cess of exports over imports; while, conversely, an excess of pay- 
ments to be received over payments due will find its commercial 
expression in an excess of imports over exports. ... If a country 
has been a large borrower of foreign capital, and so is indebted to 
foreign nations in annual interest, or if, again, her people are much 
given to travelling in foreign countries, and so have occasion to 
remit annually large sums abroad for which no return is required, 
under such circumstances her exports will tend to exceed her im- 
ports; while, under an opposite state of things, that is to say, if a 
country has been a large foreign lender, or if it be the scene of travel 
for the inhabitants of other countries— the imports will tend to 
exceed the exports. 

Two Classes of Nations in International Trade. — It is 
clear that there are two distinct classes of nations in rela- 


tion to the balance of trade. The first includes those na- 
tions whose imports, throughout long periods, exceed their 
exports; the second is made up of nations whose exports 
regularly exceed their imports in value. Countries whose 
imports are in excess of their exports fall into two divisions : 
(i) creditor or capitalistic countries, and (2) borrowing or 
developing countries. It happens that creditor countries 
usually have great merchant marines and so have large 
sums to their credit earned in the carrying trade, and that, 
being old countries rich in historic associations, they almost 
invariably attract many tourists, which fact adds to their 
ability to discharge their debts without parting with an 
excess of commodities. Thus, the interest on foreign in- 
vestments, combined with services of various kinds, serve 
in lieu of exported commodities for the payment of a share 
of their imports. Consequently, such nations can each 
year obtain imports exceeding in value their total exports. 
Surely such a condition is far from unfavorable, though 
the balance of trade is so designated. 

Borrowing or developing countries resemble creditor or 
capitalistic countries in having an excess of imports dur- 
ing the period in which the borrowing is in progress. A 
large part of the capital borrowed by such countries is for 
the purpose of making internal improvements, such as 
railroads, harbors, power-plants; another large share of 
it goes to developing farms, mines, and other natural re- 
sources. Material needed for such work is imported, a 
large part of it from the lending country, and it is the im- 
portation of this material that causes the excess of im- 
ports. It is to be noted that while the loans are being made 
and the material purchased thereby is being forwarded, the 
exports of the lending countries are enhanced, but just as 
soon as interest is collected the opposite is the case. 

Countries v/hose exports exceed their imports likewise 
fall into two divisions: (i) lending countries that are en- 
gaged in financing the operations of other countries, and (2) 


debtor countries that are repaying loans previously se- 
cured. Countries possessing such an abundance of wealth 
that their exports consistently exceed not only their im- 
ports, but also their total Habilities of all kinds to other 
nations, customarily receive for the net balance due them 
either foreign securities or the title to foreign properties. 
Such lending countries loan their capital not in the form 
of money, but in the form of commodities; only rarely do 
foreign loans actually leave a country in the form of specie. 
Our surplus exports to the United Kingdom during the 
World War enabled us to obtain valuable securities, 
which may be considered as promises of future payment. 
WTiile many of these were our own securities which had 
been owned by EngHshmen, those of other nations were 
also obtained. The period during which a country's ex- 
ports exceeds its imports because of its activity in financing 
foreign enterprises is usually brief. Unless the resources 
of such a country are practically unlimited, the time will 
soon come when the interest on foreign investments ex- 
ceeds the amount of outside loans made each year. As 
soon as this condition maintains, the lending country be- 
comes a creditor or capitaHstic country, w^hich obtains a 
surplus of imports annually from the countries paying inter- 
est or refunding loans. Thus we see that there is a process 
of evolution continually going on among nations, whereby 
each "country passes through four stages, as follows: 

1. The borrowing period, with imports exceeding 

2. The interest-paying period, with excess of exports. 

3. The loaning period, with excess of exports. 

4. The interest-drawing period, with imports exceeding 

Present Position of the United States.— The United 
States remained in the borrowing stage until the late 
seventies, the amount of capital imported annually exceed- 


ing the interest on capital previously borrowed, thus caus- 
ing an excess of imports. Then our productivity became 
so great that we were enabled to send out such vast quanti- 
ties of foodstuffs and raw materials, as well as of manu- 
factures, as to create an excess of exports so large as to 
pay all interest charges and other obligations, and even, in 
some years, to cancel a part of our debtsr abroad. At the 
outbreak of the World War in 19 14, it is estimated that 
our securities to the value of $4,000,000,000 were held in the 
United Kingdom, Germany, France, and i«n other European 
countries. Our position was such that we were enabled 
to so increase our exports as to purchase back all of our 
securities held abroad that we could obtain, and also to 
invest heavily in foreign securities. The stoppage of our 
tourists' expenditures and of a large part of the commis- 
sions we had formerly been in the habit of paying to Lon- 
don and other bankers for financing our foreign trade were 
other factors that combined to convert us in a few months 
from a debtor to a creditor nation. Our interest and debt- 
paying period was thus of much shorter duration than it 
w^ould have been under normal conditions. 

The tremendous volume of exports in 191 5 and 1916, 
coupled with the unprecedented rise in prices, affecting 
practically every commodity entering international trade, 
created such an astounding balance in our favor — our total 
credits enormously exceeding our liabilities — that the im- 
portation of gold in great quantities followed. The condi- 
tions prevailing in 191 6 were thus summarized in a publica- 
tion of the National City Bank in February, 1917: 

The balance in favor of the United States in foreign trade, in- 
cluding exports and imports of silver, for the calendar year 1916, 
was $3,127,516,344. Merchandise imports increased $620,000,- 
000 and merchandise exports $1,939,000,000 over the calendar 
year 191 5, when the balance was $1,795,189,082. . . . Foreign 
loans excluding renewals were placed in this country during the 
year to the amount of $1,217,464,764. The net importation of 


gold was $529,951,671. According to the definite records, there 
remained about $1,380,099,909 to be settled otherwise. The in- 
terest and dividend payments upon American securities held 
abroad are a smaller factor than formerly, and offset more or less 
completely by similar items coming to us on account of foreign se- 
curities now held in this country. The earnings of foreign shipping 
have been very large during the past year, and we have had to 
settle for the freights on imports. Remittances to friends have 
probably amounted to an important sum, but there is Httle available 
basis for an estimate, American banks have probably increased 
their balances or loans in London during the year, but the chief 
element in balancing the account has undoubtedly been the sale in 
this market of American securities for foreign owners. 

The United States, then, in 1916 became a loaning nation. 
For the first time in our history our excess of exports more 
than offset our HabiHties, and created for us a credit which 
v/as embodied in foreign securities. The still larger credit 
balances of 191 7 and 1918 and 191 9 definitely established 
the United States as a creditor nation. An article pub- 
lished in November, 1918, thus sums up the situation: 

The war has turned the United States from a debtor to a creditor 
nation. Formerly we owed abroad something Hke $4,000,000,000, 
about three-fourths of which sum we have bought back. Moreover, 
Europe now owes us about $9,000,000,000 — on private account 
about $2,000,000,000 in securities, in United States Government 
obligations over $7,000,000,000. The world is under obligations 
to us in interest alone of between $400,000,000 and $500,000,000 
a year. We must add to this not only our usual credit balance in 
world trade, but the fact that for several years our manufacturers 
and exports will be stimulated by the demand for goods in the re- 
habilitation of Europe. For years to come we will be able to count 
on an annual credit balance of from $1,500,000,000 to $2,000,000,000. 
That annual indebtedness Europe cannot possibly settle, so that 
we shall have to leave our money abroad, invested in foreign se- 
curities or otherwise participating in foreign industries, all of which 
will continue to build up our credit position in world finance. The 
war has placed us in the same position England was in, an excep- 
tional credit position which gave her control of world finance."^ 

* Literary Digest, November 23, 1918. Summary of article in Wall 
Street Journal. 


It is thus clear why bankers and others interested in the 
financing of foreign trade are recommending foreign invest- 
ments to the American public. It is upon the response to 
this appeal that the continued excess of our exports over 
imports depends. The only alternative is for the United 
States to cease to reach out for foreign trade, being content 
to sell abroad those raw materials and foodstuffs the world 
must obtain from us, and only such manufactures as find a 
ready market with little competition. 


Atwood, a. W. Paying Of the Mortgage on the United States ; 
How We Got Five Billions Deep into Europe's Debt. World's 
Work, vol. 33, pp. 243-250, June, 1917. 

Berglund, a. Our Trade Balance and Our Foreign Loans. Jour- 
nal of Political Economy, vol. 26, pp. 732-743^ July, 1918. 

Brooks, S. What the War Has Done for America. Fortnightly 
Review, vol. no, pp. 700-714, November, 1918. 

Clausen, John. New Era of American International Trade and 
Finance. Bulletin Pan-American Union, vol. 46, pp. 74-78, 
January, 1918. 

GiBBiNS, H. DE B. The Economics of Commerce. London, 1894. 

Gilchrist, C. A. 75 a Balance of Trade in Favor of Exports Favor- 
able? Scientific Monthly, vol. 3, pp. 66-76, July, 1916. 

HoBSON, C. K. The Export of Capital. Chap. 7. London, 1914. 

NoTZ, William. Export Trade Problems and an American For- 
eign Trade Policy. Journal Political Economy, vol. 26, pp. 
105-124, February, 191 8. 

Paish, George. The Trade Balance of the United States. In U. S. 
Congress, 6ist Congress, 2d session, Senate document no. 579. 

Peddie, J. T. On the Relation of Imports to Exports. New York, 


Natiire of Assistance. — Every nation that has built up 
an extensive foreign trade has developed a more or less 
thoroughgoing system of government assistance for its 
merchants and manufacturers who are engaged either in 
exporting or importing. In the United States, two depart- 
ments of the federal government co-operate in foreign trade 
promotion. These are the Department of State and the 
Department of Commerce. 

The Department of State works through its diplomatic 
representatives and through its consular officers, who are 
stationed in every country of the world. It also makes 
every effort to secure advantageous commercial treaties 
with other countries, which enable Americans to trade 
on favorable terms with other nations. 

The Department of Conamerce, through the Bureau of 
Foreign and Domestic Commerce, and in co-operation with 
the Department of State, gathers information in regard 
to trade conditions, trade opportunities, and kindred sub- 
jects. This trade information is collected and forwarded 
by United States consuls, commercial agents, and commer- 
cial attaches. It is then edited and pubHshed by the 
Bureau of Foreign and Domestic Commerce, and dis- 
seminated to those interested. 

The Consular Service of the United States.— Prior to 
1906 the appointments to the consular service were governed 
largely by the political influence of the candidates, the fit- 
ness and training of the applicant being secondary con- 
siderations. The result was that very little effort was made 



by members of the semce to gather trade data or otherwise 
promote the foreign trade of the nation in any systematic 
way. As our foreign trade increased in volume and im- 
portance, the business organizations of the country began 
to demand improvements in the consular service which 
would place it on an equaUty with that of other progressive 
commercial nations. An act passed in 1906, followed by 
an executive order of the President, provided that con- 
suls-general and consuls of the first seven classes were to 
be drawn from persons already in the consular service or 
already in the employment of the State Departlment, 
and that appointments to the two lower grades (eight and 
nine) were to be made from those appHcants who had passed 
an examination to be provided, preference being given to 
consular assistants and others already in the service. This 
at once placed the corps of consular officers on a merit 
basis and made the tenure of office no longer dependent 
upon the poUtical affiliation or influence of the occupant. 

The consular examination provided for the two lower 
classes of the consular service consists of two parts, the 
oral and the written. There is also a physical examination. 
The oral examination has for its purpose the determining 
of the personal qualifications of the candidate. The writ- 
ten examination includes one modern language other than 
EngHsh; international, maritime, and commercial law; 
political and commercial geography; arithmetic; natural, 
industrial, and commercial resources and commerce of the 
United States; American history, government, and insti- 
tutions; modern European, South American, and Far 
Eastern history; and political economy. Candidates 
who pass this examination creditably are entitled to have 
their names certified by the board of examiners to the 
secretary of state as eUgible for appointment. The names 
of candidates remain on the eligible Hst for two years, 
unless they are withdrawn or appointment to the service 
is made before the expiration of that period. These ex- 


aminations, it is to be noted, are open only to such can- 
didates as the President shall have designated for ex- 

The consular service in 191 9 included 4 consuls-general 
at large, 57 consuls-general, and 241 consuls. The ser- 
vice is divided into 9 classes, with salaries ranging from 
$2,000 to $8,000 per year. The general super\ision of the 
consular service is under a director, who acts subject to 
the secretary of state. Assistant consuls and interpreters 
are also provided. Consuls-general have supervisory pow- 
ers over the other consuls located in their districts. 

Consuls are business or commercial agents of the govern- 
ment, and not political agents as are diplomatic representa- 
tives. While their most important function has come to 
be the promotion of trade, this is not their only duty. They 
must certify to the correctness of invoices of goods exported 
to the United States, and are expected to make themselves 
so famiHar with prices and products that they can detect 
any undervaluation that may be attempted; they are re- 
quired to attend to the issuance of bills of health, stating 
that vessels leaving for United States ports have compUed 
with the quarantine and other health regulations and that 
there is no plague or epidemic at the port of departure. 
Inspection of vessels and other investigations are some- 
times necessary on the part of the consul before he can as- 
certain the facts that he must know before he can issue such 
a bill of health. Consuls are also charged wdth numerous 
special duties in regard to American vessels and American 
seamen that may come within their jurisdiction; they like- 
wise are intrusted with the task of aiding in the enforcement 
of the immigration laws of the United States by endeavor- 
ing to prevent the departure for the United States of im- 
migrants classed as undesirable and of those excluded by 
law. They also have many duties to perform in regard to 
the registration and protection of American citizens resid- 
ing or travelling in their districts, and are required to 


administer the estates, under certain conditions, of Ameri- 
can citizens dying abroad. 

Despite the multiplicity of duties devolving upon con- 
suls, they, nevertheless, are able to perform a vast amount 
of valuable services for the commercial interests of the 
country. Van Dyne, in his work entitled Our Consular 
Service, says: "By far the most important function of 
our consuls at the present time is the promotion of our for- 
eign trade. This branch of the work has been so greatly 
developed that our consular service to-day constitutes a 
vast reporting system covering the entire world, with a 
central bureau of information at Washington. The con- 
suls are the news-gatherers and reporters, ever on the look- 
out for information of interest to the American business 
public. The editors and publishers are the Departments 
of State and Commerce. . . ." 

That the principal business of American consuls is to 
take care of the commercial interests of their countr3anen 
is well understood, but the exact nature of their work is 
not so easily grasped. In the words of Foreign Trade 
Adviser William B. Fleming of the Department of State, 
"they make careful studies and critical analyses of our im- 
port and export trade in their several districts. They 
search out the resources, industries, and commerce in their 
several fields. They report the possibilities of business and 
trade opportunities and obstacles in the way of the expan- 
sion of American trade, and suggest the means of over- 
coming these obstacles. They make a study of the cus- 
toms tariffs and customs regulations of the country in 
which they are stationed and the effect of these on American 
trade, and transmit copies of these laws and regulations and 
the amendments thereto. They report all cases of dis- 
crimination against American interests, how tliis discrimina- 
tion is effected and the policies upon which the discrimina- 
tion is based. They also study and report on freight rates, 
of railways, canals, and oceans, also on the bounties given 


by foreign nations. They also report on wages of labor 
and other items of the cost of manufacture of products, 
and the prices at which manufactured products are sold for 
domestic use. They work in co-operation with the American 
ministers and ambassadors and assist these officers of the 
government in commercial matters and in the effort to cor- 
rect erroneous customs charges and to prevent imdue de- 
tention of goods and ships. Tradition has long given to 
the consuls a certain prestige which affords them an open 
door to the sources of information — doors which are not 
accessible to purely commercial agents." 

This service ''affords information, offers advice, broadens 
opportunity, secures equality of treatment, suggests in- 
itiative, and inspires confidence in multifarious enterprises 
in foreign countries that would not and could not be 
undertaken by our citizens if such governmental service 
did not exist. It points the way of opportunity, but leaves 
the detail of execution to the ability and willingness of the 
beneficiary private interests." The efficiency of our con- 
sular service is now recognized as being equal or superior 
to that of any other nation. 

Consular Reports. — The trade information obtained by 
consuls is forwarded to Washington, where it is edited and 
published under the direction of the Bureau of Foreign and 
Domestic Commerce. The consular reports thus pub- 
lished are the following: 

1. Commercial Relations. Annual. 

2. Monthly Consular Reports. 

3. Daily Consular Reports. 

4. Confidential Trade Opportunities Reports, 

5. Reports on Foreign Trade Restrictions. 

6. Special Consular Reports. 

I. The annual publication known as Commercial Rela- 
tions contains a somewhat detailed description of the im- 
ports and exports, improvements in transportation facili- 


tics, development of new industries and growth in old ones 
in the country in which the consul is stationed, with def- 
inite suggestions for the extension of the trade of United 
States exporters in specific lines. 

2. Monthly Consular Reports. — The nature of these 
reports is indicated in the directions issued to consuls 
when the pubHcation was begun in 1880. They were in- 
structed ''to prepare reports on all subjects which may be 
calculated to advance the commercial and industrial in- 
terest of the United States" and to make the information 
given ''expHcit and comprehensive, so that our merchants, 
manufacturers, agriculturalists, exporters, and importers 
shall fully understand the pecuHarities, wants, and require- 
ments of the several markets, as well as the best methods of 
reaching the same." 

3. Daily Consular Reports. — Since 1898 those portions 
of the reports of consuls containing information that re- 
quires quick action has been issued daily. Whenever some 
important trade development is to be reported, the consuls 
are instructed to make use of the cable to inform the State 
Department. If this is of interest to a large body of those 
engaged in foreign trade, it is published in the Daily Re- 
ports. If it concerns only a few interests, it is privately 
transmitted to them. Daily Reports are distributed free 
to firms and associations interested. 

4. Confidential Trade Opportunities Reports. — These, as 
just explained, contain information in regard to trade oppor- 
tunities that are of interest only to a few firms or to a re- 
stricted number of firms; hence, they are conveyed directly 
to them, instead of being published in the Daily Reports. 

5. Reports on Foreign Trade Restrictions. — These are 
issued as the information is obtained from time to time. 
They contain specific information on foreign customs reg- 
ulations and tariff laws, foreign laws in regard to the im- 
portation of foods affected by pure food laws, etc., and for- 
eign patent and trademark laws. 


6. Special Consular Reports. — These embrace a wide 
range of subjects. ''Some present a survey of the entire 
world's markets for certain lines of goods; others contain an 
intensive study of particular fields and particular lines; 
still others furnish a general study of some country or 
groups of countries." They are usually made up of re- 
ports on the subject in hand from many consuls, though this 
is not always the case. An excellent example is the book- 
let entitled Export Trade Suggestions, which contains ex- 
tracts from the reports of various consuls and data from 
other sources. 

Other Consular Aid to Exporters. — While the aid af- 
forded American exporters by the comprehensive reports 
concerning foreign markets and foreign business conditions 
is of the greatest importance, it is not the only assistance 
consuls furnish. They are always ready to answer per- 
sonal letters in regard to the best methods of introducing 
an article into their district, to give specific information as 
to the tastes, buying power, customs, and usages of the peo- 
ple where they are living, to make suggestions as to pack- 
ing of goods, the extension of credit, the collection of ac- 
counts, and scores of other subjects, though it is urged that 
those seeking specific information upon any such subject 
for a particular district first write to the Bureau of Foreign 
and Domestic Commerce to ascertain if it is already on 
file, thus avoiding unnecessary duplication of reports on the 
part of consuls. American commercial travellers invaria- 
bly receive valuable assistance from the consular officers. 
They are, when properly accredited, given introductions 
to leading business men and firms, informed as to trade 
conditions in their particular lines, and given pointers as 
to local idiosyncrasies that often result in success where 
otherwise no headway could have been made. 

The information that consuls make it their business to 
obtain and pass on, either in the reports mentioned or to 
indi\ddual exporters making inquiry, includes such details 


as local customs as to the widths of fabrics demanded or 
preferred by the buying public, the colors and patterns 
most in favor, the popular grades and brands of various 
articles, the wrappings that please, the trade-marks that 
have the strongest appeal, the trend of styles in clothing, 
fabrics, house furnishings, and many other articles, the 
climatic eflfect on certain foodstuffs and on colors and 
materials, and a thousand other details. The exporter 
entering a new field thus finds available a vast fund of 
information that he could obtain otherwise only by long 
and costly investigation and experience. 

Consular Aid to Importers. — While the assistance given 
by the consular service is more varied in the case of ex- 
porters than of importers, there are certain ways in which 
consular aid is extended to importers. In the first place, 
the consular reports keep the American importer in con- 
stant touch with conditions in foreign markets, so that he is 
enabled to buy in the most favorable market, and to take 
advantage of every fluctuation in exchange or other con- 
dition that may work to his advantage. Secondly, con- 
suls co-operate with buyers for American importing houses 
sent to purchase goods in foreign markets. The consul's 
intimate knowledge of the market conditions of his dis- 
trict often results in the American buyer securing goods on 
a more favorable basis than would otherwise be the case. 
Third, consuls endeavor to prevent customs frauds through 
undervaluations placed on goods shipped to America. 
At first, this seems to be a disadvantage to the importer, 
but it often works to his advantage. This is because great 
quantities of merchandise are exported to the United States 
by foreign firms, who either send it to their branch estabhsh- 
ments in America or consign it to a commission house. In 
either case, by undervaluing the goods and thus reducing 
the tariff charges, such firms would be enabled to place their 
wares on the American market at a lower price than those 
imported direct by an American firm. In the past this has 


been done quite extensively, but consuls are now exercising 
great care to see that all goods destined for the United 
States are correctly valued. The requirement as to the tak- 
ing out of a consular invoice for all goods exceeding $100 
in value to be imported into the United States is an effec- 
tive means for preventing undervaluations and other cus- 
toms frauds, though these have not as yet been entirely 
stamped out. 

Publications of the Bureau of Foreign and Domestic 
Commerce. — In addition to the editing and publishing of 
the consular reports, the Bureau of Foreign and Domestic 
Commerce publishes a Statistical Abstract of the United 
States, which contains valuable statistics of the commerce, 
production, industries, population, finance, currency, and 
wealth of the nation, as well as a summary of the commerce 
of principal foreign countries. Another pubhcation is 
known as Commerce and Navigation, which gives a de- 
tailed statement of the quantity and value of the exports 
and imports with the countries to which each article or 
class of articles was exported and the countries from which 
each article or class of articles was imported during a five- 
year period. Trade directories are also pubHshed from 
time to time. The World Trade Directory issued in 191 1 
gave a complete list of importers in all parts of the world; 
it is now out of print, but may be consulted at the district 
ofl&ces of the bureau. Other trade directories are now in 
course of preparation. The district offices of the bureau 
referred to are at present located in New York, Boston, 
Chicago, St. Louis, Atlanta, New Orleans, San Francisco, 
and Seattle. They distribute the pubHcations of the 
bureau and co-operate with it in the promotion of foreign 

Special Agents of the Department of Commerce. — The 
Bureau of Foreign and Domestic Commerce maintains a 
staff of commercial attaches, now ten in nmnber, who are 
stationed in the principal commercial countries, and de- 


vote their entire time to tlie study of commercial and in- 
dustrial conditions as they affect the trade relations of the 
United States. These attaches observe the organization 
of commerce and industry in the respective countries in 
which they are stationed, and make suggestions and 
recommendations looking to the adoption of improved 
methods by American finns that will enable them to com- 
pete more successfully with foreign firms. They devote 
their entire time to the promotion of commerce, having no 
other duties to perform. 

There is also a corps of commercial agents, referred to as 
"travelling field agents," attached to the bureau. The 
commercial agent visits certain foreign markets and makes 
an intensive study of certain conditions along specific lines, 
such as the requirements of the shoe and leather trade of 
Brazil or of the cotton-goods market of Latin America. 
The commercial agent is an expert in some one line, and, 
confining his investigation to the marketing of that line, 
he is able to giVe valuable help to American manufacturers 
and exporters interested. The ''Special Agents" reports 
form an important series in the publications of the bureau. 

Foreign Trade Advisers. — That branch of the work of the 
State Department concerned with the promotion of for- 
eign trade is carried on through a bureau known as the 
Foreign Trade Advisers' Bureau or Office. Concessions 
that are desired from foreign governments by business men 
or corporations, complaints in regard to tariff discrimina- 
tions or overcharges, and other matters concerning the in- 
terests of Americans in foreign fields, are considered here. 
The effect of our laws, especially our tariff laws, on the at- 
titude and policy of other governments is studied by the 
officers of this bureau, which aims to assemble and organize 
all material available on this and other subjects affecting 
our foreign trade relations. 

Diplomatic Aids to Foreign Trade. — Our ambassadors 
and ministers to foreign countries frequently, under instruc- 


tions from the State Department, make representations, 
complaints, or protests to foreign governments in regard to 
the rights and privileges of Americans carrying on business 
with foreigners, and often obtain valuable concessions or 
modifications of obnoxious regulations that are of the utmost 
benefit to our exporters or importers. 

The negotiation of commercial treaties with other na- 
tions, carried on through diplomatic representatives, has 
become of the greatest importance to modern commerce. 
While these may apply to a wide variety of subjects, the 
effort to obtain mutual tariff concessions bet\yeen the coun- 
tries concerned is the sphere of widest appHcation. Such 
treaties are usually entered into for a period of years, there- 
by stabilizing conditions, to the benefit of commerce. As 
an example of trade benefits secured through commercial 
treaties the preferential tariff agreement now in force be- 
tween the United States and Brazil may be cited. Through 
this a 30 per cent reduction from the regular duties is 
granted by Brazil on flour imported from the United States, 
and a 20 per cent reduction on pianos, condensed milk, 
clocks and watches, paints and inks, refrigerators, rubber 
manufactures, scales, typewriters, varnishes, windmills, 
corsets, cement, dried fruit, and school and office furni- 
ture. These reductions were granted in consideration of 
the fact that the two principal exports of Brazil, rubber and 
coffee, found their readiest market in the United States, 
where they are admitted duty free. As has been pointed 
out, Germany has made a wide use of such commercial 
treaties. The next few years will without doubt be marked 
by a great extension of this principle between trading na- 
tions having reciprocal commercial relations. 



American Consular Service. Bookman, vol. 44 : 186-197, Oc- 
tober, 1916. 

Business Proposition: the American Consular Service. Indepen- 
dent, vol. 75 : 737-740, September 25, 1913. 

Cutler, B. S. American and Foreign Government Trade En- 
couragement Agencies. National Foreign Trade Convention, 
Official Report of the Fifth Foreign Trade Convention, 191 8, 

pp. 67-75- 

Donaldson, C. S. Government Assistance to Export Trade. Phila- 
delphia, 1909. 

Fairlie, J. A. The Department of State. (In his National Ad- 
ministration of the United States.) New York, Macmillan, 

Hunt, Gaillard. The Diplomatic and Consular Service. (In his 
The Department of State of the United States: Its History and 
Functions) New Haven. Yale University Press, 1914. 

Jones, C. L. The Consular Service of the United States : Its His- 
tory and Activities. Philadelphia, University of Pennsylvania, 

More Businesslike Consular Service. Outlook, vol. 109 : 250-1. 
February 3, 191 5. 

National Foreign Trade Council. Urgent Needs of the Dip- 
lomatic and Constdar Services. New York, National Foreign 
Trade Council, 1916. 

Totten, R. J. The American Consular Service. (In National For- 
eign Trade Council. Official Report of the Fifth National For- 
eign Trade Convention, 191 8, pp. 75-82.) 

U. S. Bureau of Education. Conference on Training for Foreign 
Service. Bulletin 37. Washington, 191 7. 

U. S. Bureau of Foreign and Domestic Commerce. Are 
You Interested in Latin American Trade ? How the Bureau 
. . . Can Help You to Establish or Expand Your Trade with 
Latin America. Washington, 1918. 

U. S. Bureau of Foreign and Domestic Commerce. Export 
Trade Suggestions. Washington, Government Printing-Office, 
1916. (Miscellaneous series no. 35.) 

U. S. Bureau of Foreign and Domestic Commerce. Govern- 
ment Assistance to American Exporters. Washington, 1916. 

U. S. Bureau of Foreign a»nd Domestic Commerce. Imports 
and Exports. Services to Exporters Rendered by the Bureau. . . . 


U. S. Bureau of Foreign and Domestic Commerce. Promotion 
of Commerce. Outline of the Service Maintained by the Bureau 
of Foreign and Domestic Commerce and Other Bureaus and Offices 
of the Governme7it of the United States. Washington, Govern- 
ment Printing-Ofl&ce, 1914. (Miscellaneous series no. 6E.) 

U. S. Bureau of Foreign and Domestic Commerce. Trade In- 
formation on Far East Available in Bureau of Foreign and 
Domestic Commerce. 191 8. 

U. S. Congress. Senate. American Consular Service. 63d Con- 
gress, 2d session, Senate document no. 541, serial no. 6595. 
Washington, 1914. 

U. S. Department of State. Digest of Circular Instructions to 
Consuls, 1897-1915. Washington, 191 5. 

U. S. Department of State. Bureau of Appointments. Informa- 
tion Regarding Appointments and Promotions in the Consular 
Service of the United States. Washington, 191 7. 

U. S. Federal Trade Commission. Report on Co-operation in 
American Export Trade. Washington, Government Printing- 
Office. 1916. 

Van Dyne, Frederick. Our Foreign Service : the 'M B C" oj 
American Diplomacy. Rochester, N. Y., 1909. 



Position of the United Kingdom in International Trade. — 
For over a century the United Kingdom, popularly referred 
to as England, has stood head and shoulders above all other 
nations in the volume and value of her international trade. 
In the last normal year before the World War, 19 13, her 
total trade with other nations exceeded $6,800,000,000. 
This was nearly one-sixth of the entire trade of the world 
for that year. It exceeded the trade of her nearest com- 
petitor, Germany, by nearly $2,000,000,000. 

It is only since the rise of Germany and the United States 
to eminence in world trade that the position of England 
has been seriously threatened. The beHef is now somewhat 
prevalent that the United Kingdom cannot hope to retain 
much longer the position she has held so successfully for so 
many decades. The facts upon which this belief is based 
are that her trade is not increasing proportionally as fast 
as that of her great commercial rivals, that her imports 
are increasing faster than her exports, that her pre-eminence 
in the manufacturing industry is gradually slipping away, 
and that her dependence upon other countries for the raw 
materials essential to her manufactures and for the food- 
stuffs requisite for her population is becoming greater year 
by year. 

While there is food for thought in this view of England's 
condition, the fact remains that in 1914 England claimed 
one-sixth of the world's commerce, owned about one-half 
of the ocean tonnage of the world, was second only to the 



United States in the output of her manufacturing industry, 
underwrote about two-thirds of the marine insurance taken 
out on ships and cargoes, led all other nations in the ship- 
building industry, had the largest investment of capital in 
foreign enterprises, supplied nearly one-fourth of the coal 
production of the world, and was the undisputed leader in 
banking and finance. 

Causes of Commercial Supremacy. — In seeking an ex- 
planation of the supremacy of the United Kingdom in 
international trade, four great fundamental factors are 
readily recognized. These are the early development of 
her merchant marine, which, coupled with her navy, won 
her a great colonial empire; her leadership in the indus- 
try of manufacturing, won in the industrial revolution of 
the early nineteenth century and retained until nearly the 
end of that century; her adoption of the free-trade policy 
at a time when that policy unquestionably fostered the 
upbuilding of her manufactures and of her commerce; 
and, lastly, her policy of developing new countries and new 
markets through the investment of capital in public and 
private overseas enterprises. Of these, the naval and 
tariff policy are poHtical, while the building up of a great 
manufacturing industry and the securing of the capitalistic 
leadership of the world have been largely the result of in- 
dividual effort. 

We find in England no such organization of industry 
and commerce as exists in Germany; British trade is free, 
not only in regard to tariffs, but also in regard to govern- 
ment direction or control. Outside the kingdom the 
government zealously guards the rights and interests of 
her citizens, using diplomacy or force, as may be necessary, 
to secure every protection and every advantage for her 
traders and her capitalists the world over. Within the 
kingdom the policy of laissez-faire prevails to such an ex- 
tent that the EngHsh system has been characterized as 
''individuahsm gone mad." In late years, however, under 


the leadership of David Lloyd George, there has been a 
movement to bring industry under close government su- 
pervision, with the object of improving the conditions 
of labor and of remedying some of the evils resulting from 
the industrial system. 

The Merchant Marine. — The first factor in England's 
commercial success is her merchant marine. Her early 
leadership in the carrying trade of the world, which she 
won from the Dutch in the second half of the seventeenth 
century, gave her a tremendous advantage in the quest 
for world markets that has played such an important part 
in the history of every modern nation. The methods used 
in fostering the growth of her merchant marine and the 
commerce depending upon that marine are thus summarized 
by Adams in his European History: 

It is from the time of Cromwell's rule that we may date the be- 
ginning of a continuous commercial and colonial policy on the part 
of the English Government. . . . With him began the measures 
which long characterized English policy, to defend and develop 
commerce and the colonies, not as colonies mainly but as feeders 
of commerce, by acts of Parliament and whenever necessary by 
war. In 1651 was passed the first Navigation Act, which forbade 
the importation of goods into any English possession except in 
English vessels or in the vessels of the country producing the goods. 
This was aimed directly at the great carrying trade of the Dutch, 
and was intended to transfer this to English ships. Laws of this 
kind, successively passed, remained in force until into the nineteenth 

Such a policy undoubtedly had its effect, but a far more 
potent influence was the love of the English for the sea. 
From earhest times they had been a seafaring people, 
ready enough to follow any enterprise holding out the 
promise of reward or adventure. Hardly had the discov- 
ery of the New World opened up new vistas for commer- 
cial conquest before the daring British sea-captains went 
boldly adventuring into uncharted seas in quest of trade, 


and so established regular trade routes and trading-sta- 
tions before other nations had fully awakened to the possi- 
bilities of establishing a permanent and profitable overseas 
commerce. No seaport was too far distant to be reached 
by British merchant vessels, no passage was too hazardous 
to be undertaken by her mariners, who were equalled in 
modern times only by those of the American colonies, them- 
selves British subjects. 

Every advantage that can come to a nation from the 
possession of a great merchant marine has been England's 
for over three centuries. These in brief are as follows: 

The maintaining of direct trade routes and direct trade 
relations '\;\'ith all parts of the world, with the consequent 
stimulation of foreign trade and foreign financing; the 
earning of great sums of money for performing the carrying 
ser\ice for other nations, and the strengthening of the 
naval power of the nation by the control of a powerful fleet 
that may be converted into a naval auxiliary as required. 

In the case of England, her merchant marine has been a 
necessary adjunct in securing and maintaining her great 
colonial empire. While the attempts made by the mother 
country to control the commerce of her colonies proved 
ineft'ective, and threatened to break up the empire, the 
possession of colonies did, nevertheless, both directly and 
indirectly help to build up a great overseas commerce. 
The promotion of trade betw^een people speaking the same 
language, having the same traditions, tastes, and customs 
is easier than between people of great differences in lan- 
guage, tastes, characteristics, and customs. Other things 
being equal, English emigrants prefer English wares to 
those of other countries. Then, too, the colonies found it 
to their advantage to trade with England, because that 
country offered the best market for the raw materials and 
foodstuffs they produced in superabundance and supplied 
those finished manufactures that every new country must 


The British merchant marine was at all times ready to 
serve the colonies and all other nations in this exchange of 
wares. Regular and rapid service has long been maintained 
between English ports and those of every other nation. 
England first adopted steam navigation in overseas com- 
merce and established a network of steamship lines that 
bound the world to her with invisible threads. She thus 
was able to carry not only her own exports and imports 
but also a large part of those of other nations. The direct 
exchange of the surplus products of England for those of 
other nations has thus been supplemented by a trade of 
immense volume in the products of other countries. Eng- 
land thus became the great distributing centre for the 
wares of the nations, which found it convenient to send 
their surplus products in British ships to London and to 
take in exchange those other products, be they British or 
Continental, African or Asiatic, American or Oceanic, 
which were offered in this great world mart in quantity 
and variety almost unlimited. It is this that made Lon- 
don for over a century the commercial and financial centre 
of the world. 

Manufacturing. — English commerce has developed side 
by side with the industry of manufacturing. For over a 
century England led the world in that industry, finally 
being overtaken and passed by the United States in the 
last quarter of the nineteenth century. The tremendous 
manufacturing industry of the United Kingdom owes its 
success largely to the fact that this nation was the first 
to develop the factory system, which resulted from the use 
of machinery driven by the power of steam. An abundance 
of coal and iron conveniently placed near the sea greatly 
aided England in taking the leadership in the industrial 
revolution resulting from the introduction of steam-power 
in the early nineteenth century. The position as the great- 
est manufacturing nation in the world won at that time 
was retained unchallenged until the greater efficiency of 


electric power, combined with new and improved methods 
of production, worked another industrial revolution. That 
England has not lost her skill in manufacturing is shown 
by the fact that in 19 14 the output of her manufacturing 
plants was equalled by that of only two nations, the United 
States and Germany, and surpassed only by that of the 
United States. English exports of manufactures exceeded 
those of any other nation. This has greater significance 
when it is remembered that the population of the United 
Kingdom in 1914 was only 45,000,000, w^hile that of Ger- 
many was 66,000,000 and that of the United States 98,- 
000,000. It is estimated that the per capita production of 
manufactures in the United Kingdom was S200 in that year, 
that of Germany $138, and of the Urn* ted States $210. 

The manufactures in which England has excelled are 
textiles, especially those of cotton; machinery, including 
that used in the textile industry; locomotives, iron and 
steel rails; cutlery; pottery; and leather manufactures. 
The building of ships has been an industry of prime im- 
portance in England from earKest times; since the in- 
troduction of ships built of iron and sted England has been 
able to turn them out more cheaply than they can be built 
in the United States, though this is probably no longer 
the case. 

The value of English manufactures exported in 191 2 was 
about $2,000,000,000; that of all other nations was about 
$6,000,000,000. That England had not lost all claim to 
the title of ''the workshop of the world" is evidenced by 
these figures. It is generally agreed, however, that Eng- 
lish manufacturing methods have not kept pace with the 
latest improvements and that there has been greater efii- 
ciency, in large-scale production, in both Germany and the 
United States. Since this is recognized in England itself, 
and measures are being taken to introduce the improve- 
ments necessary, a great decline in English industrial pres- 
tige is not probable. 


England^s Free-Trade Policy. — In analyzing the causes 
of England's commercial supremacy, due consideration 
must be given to the effect of her free-trade policy. The 
repeal of the corn laws, which was the name applied to the 
tariff laws of the time, was accomplished in 1849. ^ 
writer on the subject says: *'It was a momentous act in 
English history. It marks the formal and final recogni- 
tion that England had grown from an agricultural to an 
industrial and commercial state. It threw England, as 
an English economist said, frorn corn to coal as the staple 
product of the country. Manufactures and trade thence- 
forth developed freely. Even the agricultural interest 
gained in ways which it had not foreseen: the consuming 
population increased rapidly both in numbers and in pur- 
chasing power, and demanded increasing quantities of meat, 
dairy produce, vegetables, and fruit." 

Under free trade the manufacturer has been able to 
secure the raw materials needed, such as cotton, wool, 
iron, hides, and lumber, at the lowest possible prices. At 
the same time foodstuffs to supply the needs of the com- 
munity have been imported duty free. Since England's 
home supply of foodstuffs is entirely inadequate, the im- 
position of duties would impose a burden on the consuming 
population. The effect of free trade on the English farmer 
is a mooted question. 

The adoption of the free-trade policy had a wonderful 
influence upon the re-export trade of England. Professor 
Webster thus describes the effect of free trade upon Eng- 
land's commerce: 

By this step also she became the great dock, as it were, where 
were unloaded, free of charge, the products of all countries, thus 
leaving her a share of the profits of the world's trade. Not only did 
foreign merchandise come there for redistribution, but foreign mer- 
chants, after unloading there, replenished their cargoes in her 
markets. She profited also from the sojourn of foreign ships in 
her ports by supplying them with coal and provisions and by 


charges for their repairs. Her banks profited enormously by con- 
ducting the financial operations of these foreign merchants. 

Wliile there is general agreement as to tlie beneficial 
effects of free trade on English commerce and industry in 
the past, there has been for a number of years a strong 
feeling in England that changed conditions make a reversal 
or modification of that policy advisable. While the United 
Kingdom, pre-eminent in manufacturing, could disregard 
the competition of the newer manufacturing nations, she 
had Kttle need of a tariff wall to shut out the manufactures 
of other nations from competing in her home market. 
But now that other nations have become active and ag- 
gressive competitors of England in the sale of manufac- 
tured products and have even invaded England itself with 
their wares, which they not infrequently sell for less than 
the cost of production, in order to secure the market, it is 
argued that England must resort to a protective policy. 
The practice just referred to of one country ''dumping" 
its surplus products into another country at prices below 
cost is made possible by the protective system, which main- 
tains prices at home and makes it possible for the manu- 
facturer to sell his surplus product abroad at an absurdly 
low fiigure, while his domestic customers make up the 
deficit. He argues that by so doing he is enabled to carry 
on production on a large scale and at the same tune to 
get a foothold in the foreign market. 

Those who favor the abandonment of the free-trade 
policy in England have another argument besides the one 
that a protective tariff is necessary to prevent the ruin of 
the home market by the practice of dumping. They main- 
tain that since England's great commercial rivals, the 
United States, Germany, and France, all have protective 
tariffs, which mxake it difficult or impossible for English 
manufacturers to compete in the markets of those nations, 
the only way in which she can retahate against discrimina- 


tion is to herself adopt that system. Such a trading tariff 
as Germany has had is the one most favored. Under that 
tariff, reciprocal trade concessions may be made between 
nations to the advantage of both. An extension of this 
idea is the advocacy of an imperial customs' union similar 
to the German Zollverein, with free trade existing only 
within the empire, a trading tariff being erected against 
other countries. Such a system might aid in strengthen- 
ing English industry, but the effect upon her commercial 
supremacy would be unfavorable. Economists agree that 
a nation that counts its international trade as of paramount 
importance jeopardizes that trade when it deviates from 
the principle of free trade. 

Foreign Investments. — A factor of incalculable influence 
in England's prestige in international trade has been the 
readiness of her people, from the capitaHst with millions 
at his command to the humble citizen with the merest mite 
for investment, to loan their money in foreign lands. It 
is the newer countries possessing great undeveloped re- 
sources that have always been most in need of foreign 
capital to enable the pioneers of industry to wrest from 
nature the v/ealth she has stored up in forest and jungle, 
mine and plain. This capital England has supplied with 
lavish hand, and it has seldom failed to yield good returns 
as an investment. But the direct stimulation to English 
commerce has been of far greater value than the dividend 
or interest return. 

The first need of such undeveloped regions as now exist 
in Argentina and other Latin American countries; in Can- 
ada, Australia, and South Africa; in Russia and in China, is 
railroads, which afford the necessary transportation facili- 
ties to carry in the machinery and supplies essential to the 
development of the country and to carry out the products 
resulting from that development, whether they be the prod- 
ucts of the mine, the forest, or the farm. Those invest- 
ments which have greatly stimulated the sale of English 


products have been concerned with the promotion of great 
public and private development enterprises, such as rail- 
roads, power-plants, street-car lines, irrigation systems, 
harbor improvements, and mining and agricultural activi- 
ties. In each instance the work of development has 
created an enormous demand for the construction material 
essential to the carrying out of the project. In placing 
the orders it has been quite natural to give preference 
to English firms. This has in many instances been pro- 
vided for in the negotiations preceding the loan or invest- 
ment. A prominent American banker analyzes the situation 
thus: ''English investments in South American railroads 
means that English-made cars, pulled by EngHsh-built 
locomotives, \\dll run over English- rolled rails; that all 
purchases of supplies will be made in London; that the 
roads will be managed by EngHshmen, and that the in- 
fluence of the roads in the country through which they run 
will be exerted in favor of the advancement of EngHsh 
interests. A permanent market is thus made for English 
goods which is quite safe from attack." 

It is clear that such investments do not take English 
money out of the country. EngHsh capitaHsts loan for- 
eign industrial leaders the money with which they purchase 
EngHsh goods from EngHsh manufacturers. The money 
remains in the country and the goods go out. It is not the 
manufacturer but the capitaHst who extends the credit 
to the promoter of new enterprises in foreign lands. The 
advantage to EngHsh industry of such loans is therefore 
apparent. It must be borne in mind, however, that all 
loans are not made under such favorable conditions. In- 
stances are not rare in which capital secured in England 
to promote industry in another countr>^ ultimately found 
its way to a third nation in pa\'ment for suppHes purchased 
in the latter country. 

The total overseas investments of EngHshmen in 1913, 
according to estimates made by Sir George Paish, the emi- 


nent statistician, aggregated £3,715,000,000, or approxi- 
mately $18,000,000,000. The investments in the British 
possessions were estimated at £1,780,000,000, while those 
in foreign countries approximated £ i ,93 5 ,000,000. English 
investments in the United States in that year were esti- 
mated at £755,000,000 and those in Latin America at 

It is estimated that the investments made by English- 
men in overseas enterprises in the decade between 1900 and 
1910 totalled £901,000,000, or about $4,500,000,000. In 
the single year of 1913 over £196,000,000 went overseas 
from England for investment purposes. It is interesting 
to note the distribution of investments in securities in the 
United Kingdom in that year. 

The following tabulation shows the amount of capital, 
expressed in million pounds, invested by Englishmen in 
securities in 19 13: 

United Kingdom 


British possessions 

Foreign countries 


245 -9 

This table reveals the fact that only 20 per cent of the 
total was retained in the United Kingdom; 80 per cent 
went overseas, where 5 and 6 per cent could be realized 
instead of the 3 and 4 per cent prevaiHng in England. 

The income the English people derived from overseas 
investments each year, before the war brought about the 
liquidation of a large part of these investments, approxi- 
mated $900,000,000, which paid for over one-fourth of the 
imports of the United Kingdom. This is one of the reasons 
why the annual imports of the United Kingdom have 
exceeded the exports. British overseas investments yielded 
annually enough to more than pay for surplus imports; 
English ships engaged in the carrying trade piled up im- 


mense earnings, which greatly added to England's position 
as a creditor nation. The chapter devoted to the subject of 
the balance of trade goes further into this subject. 

Professor WilHam Clarence Webster thus graphically 
describes the effect of British overseas investments as they 
existed prior to the World War: 

While England has been losing her position as the world's work- 
shop, she has been building up her capitalistic supremacy. Her 
capital has flowed into her colonies and nearly every country in 
the world. Consequently, she has become the world's creditor, and 
wields the power that accompanies capitalistic supremacy. Her 
capitalists own vast tracts of land and work farms in nearly every 
country of the world; they also control railroads, manufacturing 
plants, and mines in many of the most strategic places on every 
continent. In this way England keeps her cows in Australia, 
Canada, and Argentina; cultivates her wheat in Manitoba, the 
United States, and India; grows her cotton in the United States, 
India, and Egypt; spins it not only at home, but even in India, 
China, Egypt, and Mexico; makes her machinery in Germany and 
the United States. Thus, not only her many colonies, but the whole 
world, has become a part of her domain through the power of her 

This is a striking description of England's capitahstic 
supremacy, but it suggests the other side — the unfavorable 
side — of foreign investments. The EngHsh dairyman nat- 
urally objects to England ''keeping her cows in Australia, 
Canada, and Argentina"; he would prefer to have her make 
it possible for him to keep a larger number at home. The 
Enghsh farmer, while recognizing that part of England's 
wheat must be cultivated in Manitoba, the United States, 
and India, knows that much more of it could be cultivated 
in England if the large estates were broken up and more 
favorable terms and conditions given the rural worker; the 
British textile worker who has found employment increas- 
ingly scarce in England and wages shamefully low feels 
that he will soon have to follow British capital to the new 
countries if much more of England's cotton is to be spun 


in other countries; and the worker in iron and steel objects 
to being thrown out of work because British capitalists 
prefer to invest their money in industrial plants in other 
countries rather than in England. 

It is generally agreed that England's high position in 
manufacturing can be retained only by an extensive and 
thorough reorganization of that industry, beginning with 
tlie installation of new machinery and equipment that will 
enable her plants to compete with those of Germany and 
the United States. Such a programme involves the invest- 
ment of vast amounts of capital. The Enghsh capitaHst 
must cease to send 80 per cent of his yearly investment out 
of the kingdom, even if by so doing his income is diminished. 
England without a great manufacturing industry would lose 
a large part of its population, of its productive power, of 
its foreign trade, of its capitalistic and commerical su- 

This does not signify that foreign investments are either 
unwise or unpatriotic; they are, on the contrary, essential 
to an ordered world development; it simply means that 
the policy of preferring foreign to home investments, when 
the latter are sadly needed, is bound to have more or less 
disastrous effects. The feeling of a portion of the British 
public is well expressed in this passage, taken from an article 
pubHshed in the Fortnightly Review for July, 19 14— the 
month before the war put a sudden quietus on the exodus 
of English capital: ''Overseas in South America and else- 
where magnificent cities are being built up with British 
capital, even while many of our towns remain a disgrace to 
civilization. ... It is a pregnant thought that one year's 
foreign investing, applied to the power resources of this 
country, could transfer the whole of our industrial and social 
life and give such a stimulus to British industry as it has 
never before received." 

Progress in Foreign Trade.— The progress made by the 
United Kingdom in foreign trade since 1880 is shown in the 


follo^ving table, which gives the imports and exports in 
millions of pounds sterling, with approximate equivalents 
in millions of dollars. The figures are for the general 
trade, which includes the transit or re-export trade. 





1880. . . 
1900. . . 
I9IO. . . 
1913. • 


$2,001 .2 








£ 697.6 





Between 1880 and 1913 the total trade more than doubled, 
by far the greatest gain occurring after 1900. The im- 
ports were uniformly greater than the exports, though the 
difference between them tended to become less. This dif- 
ference, as has been explained, was more than offset by the 
earnings of British ships engaged in the carrying trade 
and by the interest on foreign investments. The imports 
show an increase during the entire period of 87 per cent, 
but it is to be noted that the increase between 1900 and 191 3 
was only 47 per cent. The exports during this period in- 
creased faster than the imports; the percentage increase 
in exports is nearly 122 per cent. The exports nearly 
doubled between 1900 and 1913; as a matter of fact they 
quite doubled between 1899 and 1913. 

It is thus clear that the progress of England in her gen- 
eral foreign trade has been tremendous. Let us now con- 
sider her special trade, which includes only imports for 
English consumption and exports of English merchandise. 
In the following table the imports and exports are given 
in milHons of dollars. 

In noting the growth of this trade, we will not consider, 
for the present, the year 19 14, as the commerce for the 
latter half of that year was thrown out of normal by the 
outbreak of the World War; neither will we consider 
the commerce of the war years following. Throughout 











2,096. I 




5,763 -9 

6,026 . 7 

7,559 o 

the period the changes are striking; between 1880 and 19 13 
imports nearly doubled in value, while exports increased 
even greater proportionally, those of 19 13 having a value 
nearly two and one-half times as great as those of 1880. 
The development on the export side was greater than on 
the import side. The growth for the period, then, shows 
that England's sales were increasing faster than her pur- 
chases, a condition considered an indication of industrial 
progress. The period between 1890 and 1900 was marked 
by a relative decline of exports; as this was the period in 
which the United Kingdom was using her resources in carry- 
ing on the Boer War, the decline is easily accounted for. 
The condition just noted was reversed in the next decade, 
when the expansion in imports approximated 25 per cent, 
while that in exports reached nearly 50 per cent. Again, 
we see the exports increasing at a more rapid rate than the 
imports in the years between 1910 and 19 13. The fact 
that England's capitalistic and shipping supremacy has 
enabled her to buy more than she sells has created the 
erroneous impression that her imports are increasing faster 
than her exports, while just the opposite is the case. 
Finally, it is unportant to note that the value of British ex- 
ports in 1 9 13 exceeded the value of commodities exported 
in 1900 by over $1,139,000,000, and that the increase in the 
value of her special trade in that period was $2,108,000,000, 
a sum nearly equalling the value of the exports of Germany 
for the year 191 2. While her relative progress has not been 


so rapid since 1880 as that of the United States and Ger- 
many, her progress has been steady and normal. The 
United Kingdom had a well-developed and strongly in- 
trenched foreign trade of enormous proportions before 
either of her pre-war great commercial rivals had secured 
a foothold in the world's trade, and she has not only held 
that immense trade, but has steadily increased it as the 
volume of the world's commerce increased, despite the 
keenest commercial rivalry on the part of the newer and 
more aggressive countries. 

Imports. — Over one- third of the articles imported by the 
United Kingdom is foodstuffs; nearly one- third is raw ma- 
terials for her factories and workshops; the balance in- 
cludes manufactured articles, notably silks, leather manu- 
factures, woollens, hardware, utensils, machinery, and even 
cutlery, for which Sheffield has long been noted as lead- 
ing the world, though that city no longer monopolizes the 
home market. The leading foodstuffs imported are grain, 
dairy products, meat, tropical fruits and nuts, sugar, tea, 
coffee, canned goods, and cocoa. The raw materials im- 
ported include raw cotton, iron ore, wool, hides and skins, 
and lumber. 

Exports. — Five items comprise nearly three-quarters 
of the exports. These are, in the order of their importance, 
manufactures of cotton, iron and steel manufactures, wool- 
lens, coal, and chemicals. The one raw material exported 
in great quantities is coal, which serves admirably as a 
return cargo for the many ships bringing raw materials to 
England. As English imports are much greater in bulk 
and volume than the exports, coal is an important factor 
in balancing her carrying trade. In the manufactured 
articles exported there is a wonderful variety: all kinds 
of cutlery, hardware, utensils, machinery, crockery, textiles, 
embroideries, laces, thread, needles, pins, thimbles, and a 
great multiplicity of other articles for which there is use 
or desire in any part of the globe. 


Direction of Trade. — As the United Kingdom blazed the 
trail to the most remote regions of the earth in the period 
of trade expansion following that of exploration and dis- 
covery, so she has retained those trade connections es- 
tablished by her merchant pioneers. There are mercan- 
tile houses in England that have been for generation after 
generation controlled and managed by the same family 
and have carried on a business of great volume with other 
old-established firms in all parts of the world. Such trade 
rests on the solid foundation of business integrity, mutual 
confidence and understanding, and a basic knowledge of 
the requirements and conditions of foreign markets difficult 
for a firm fresh in the field to acquire. It is this impregnable 
position of the British export merchant that has proved the 
despair of rival merchants of other nations, who are not in- 
frequently astonished to find that even the most convinc- 
ing of all sales arguments — superior quality at lower price 
— has failed to budge a customer from his allegiance to the 
old firm. Undoubtedly, the credit arrangements that have 
become established between merchant and customer are a 
factor in the maintenance of business relations. Open 
accounts are not infrequent, and the extension of credit 
over a bad season or in case of temporary depression is 
taken ahnost as a matter of course. So it is that British 
trade extends to all nations, even to those of remotest re- 
gions where the volume of trade is necessarily limited. 

About one-third of the trade of the United Kingdom is 
with Europe, one-fourth with the colonies, and one-fifth 
with the United States. The imports and exports of the 
colonies about balance; from Europe and America England 
buys in excess of her sales. She was Germany's best cus- 
tomer before the war, just as Germany afforded the best 
market for England's wares. The value of goods imported 
into Germany from the United Kingdom in 19 12 and also 
in 19 1 3 was about $200,000,000; conversely, the value of 
German goods sold in the United Kingdom. 

Germany's sales to the British Isles in 1913 practically 


equalled her total sales to all the countries of both North 
and South America in that year. The United States was 
second only to Germany in the imports from the United 
Kingdom; France was the next best customer for British 
wares. In 19 13 merchandise valued at over $634,300,000 
was imported from the United States; in 191 5 the value of 
such imports was $914,100,000, and this was more than 
doubled in 19 16. Calendar years are here considered, and 
not our fiscal year ending June 30. The amazing sales 
made by the United States to England in 191 5 and later 
are of interest, but cannot be used as a basis of comparison 
because they were so greatly augmented by the war. Eng- 
land normally takes about 20 per cent of her imports from 
the United States, which constitutes a trade in itself of no 
mean proportions. Less than 10 per cent of her exports 
find a market in the United States. In 1913 the value of 
such exports was $289,000,000. There was thus a balance 
in favor of the United States of $344,700,000. Normally, 
one-fourth of the exports of the United States are sent to the 
United Kingdom. The best customers of the United King- 
dom have been, in the order named, Germany, the United 
States, France, British India, Australia, Canada, Argen- 
tina, the Netherlands, Russia, Belgium, and New Zealand. 
The countries from which she buys in greatest quantity 
have been the United States, Germany, France, British 
India, Argentina, Russia, Canada, AustraHa, Belgium, the 
Netherlands, Denmark, and New Zealand. She buys wheat 
and raw cotton from the United States, beet-sugar from 
Germany, tea and wheat and jute from British India, 
wheat and lumber from Canada, gold from British South 
Africa and from India, wine and silk from France. Of 
course these are only the principal foodstuffs and raw ma- 
terials that have found a market in the United Kingdom 
from the countries mentioned. 

Trade from 1915 to 1920.— While the outbreak of the 
war occasioned a shock to industry and commerce through- 
out the world, and caused England and the other nations 


engaged to divert their energy and productive power to the 
one all-important task of perfecting and maintaining the 
machinery of destruction, even in 191 5 and 19 16 the com- 
merce of the United Kingdom was not far from normal in 
volume, though its character was changed, especially in 
regard to the articles imported. The importation of food- 
stuffs and war supplies was so enormous as to dwarf that 
of raw materials for the manufacture of the commodities 
of peace and also of staple manufactures. Home manu- 
factures did not languish greatly during those years. Eng- 
land had the coal to furnish the power, the ships to bring 
the raw material from overseas, and the navy to keep open 
the channels of trade. Even the supply of labor was not 
inadequate. In 191 5 the exports were valued at $700,- 
000,000 less than those of 191 3, notwithstanding the in- 
crease in prices, which averaged fully 20 per cent, but in 
the year 191 6 both sales and purchases abroad were in- 
creased, the volume of exports being surprisingly near 

In the next three years enormous totals were rolled up. 
The figures for that trade are given herewith, expressed 
in millions of pounds sterling. The exports include both 
foreign and domestic products. 






£ 768 








The outstanding fact in the recent trade is the over- 
whelming excess of imports. It was this excess that caused 
the pound sterling to decline until it was worth at times 
between $3 and $3.50 in American money, instead of its 
par value of $4.86. 

Before the war English imports exceeded exports each 


year by about £150,000,000. Interest on foreign invest- 
ments, shipping credits, and bank commissions more than 
offset this. But the United Kingdom came out of the war 
in an entirely different position from that held in 1914. 
David Lloyd George stated in 1919 that foreign invest- 
ments aggregating £1,000,000,000 had been sold by Eng- 
lishmen during the war, while government securities ex- 
ceeding that sum in value had been placed in foreign hands. 
While the last item was more than offset by loans made 
to allied nations, including Russia, neither the principal 
nor interest on such loans were available. Consequently, 
the United Kingdom could no longer depend upon invisible 
exports to balance a huge excess of imports. Reduction 
of imports and increase of exports became an imperative 
necessity, just as in the case of Germany. Hence, there 
has arisen a new interest in the promotion of British ex- 
ports, an interest manifested by the government as well 
as by private indi\'iduals. Various government commis- 
sions are working on the problem, while such associations 
as the Federation of British Industries, organized in 19 16, 
with a membership of 15,000 manufacturers and exporters 
representing a capital of $2,000,000 or more, have entered 
upon a new and determined campaign to promote the sale 
of British products abroad. 

Another effect of the war has been a drawing together 
of the British Empire. As an indication of this the Finance 
Act of 19 19 is of the highest importance. This act adopted 
a preferential reduction of duties in favor of certain em- 
pire products, including tea, coffee, sugar, dried fruits, 
cinema films, clocks, watches, motor-cars, and cycles. It 
is to be noted that duties placed on many of these articles 
during the war were retained. 



BowLEY, Arthur L. A Short Account of England's Foreign Trade 

in the Nineteenth Century ; Its Economic and Social Results. 

New York, 1905. 
Byers, Norman R. World Commerce in Its Relation to the British 

Empire. London, 191 6. 
Cox, Harold. The United Kingdom and Its Trade. London, 

Cress, Edward. A71 Outline of Industrial History. London, 1915. 
Cunningham, W. The Growth of English Industry and Commerce 

in Modern Times, 2 vols. Cambridge, England, 1907. 
Great Britain. Board of Trade. British and Foreign Trade 

and Industry. London, 1903. 
Great Britain. Statistical Abstract. Annual. London. 
Perris, G. H. Industrial History of Modern England. New York, 

Porter, G. R. The Progress of the Nation. A new edition edited 

by F. W. Hirst. London, 191 2. 
Pulsford, Edward. Commerce and the Empire : 1914 and After. 

London, 191 7. 



Foreign Trade Essential to Germany. — The pressure of 
population has long been felt in Germany. With an area 
considerably less than that of Texas, the population in 19 14 
was about 70,000,000. The land is not particularly pro- 
ductive, and the major part of it has been held in large 
estates and worked by agricultural laborers, thus furnish- 
ing subsistence to many less people than would be the case 
under a system of small indi\idual holdings. In normal 
times the production of foodstuffs falls far short of the con- 
sumption, necessitating a large importation of grain, flour, 
meat, and other food products. 

Under these conditions foreign trade became a vital 
necessity for the people of Germany. It was only by sell- 
ing the products of their labor in foreign markets that the 
requisite foodstuffs could be obtained. It is estimated 
that less than 25 per cent of the population is engaged in 
agriculture, and the movement from the rural districts to 
the urban industrial centres has been increasing year by 
year. Over two-thirds of the exports of Germany have 
consisted of manufactured articles, many of them highly 
wrought, in which the labor involved constituted a large 
part of their value. Fully one-half of the imports has 
consisted of raw materials for use in manufacturing, while 
about one- third of the commodities imported has been food 

It is the facts just set forth that explain why Germany 
made such a supreme effort to develop foreign markets. 
Stubborn persistence, indefatigable energy, stern deter- 
mination, and concentrated effort marked every step of the 



progress Germany made in developing her foreign trade. 
Her unwavering policy of trade extension at all costs re- 
sulted from the conviction that the very existence of Ger- 
many as a world power depended upon creating an outlet 
for her labor through the sale of manufactured goods in 
the markets of other countries. The only alternative 
was the division of her large estates into small holdings 
intensively cultivated, or in a great emigration to other 
countries offering better opportunities. 

Both of these were opposed to the imperial poHcy, 
which, on the one hand, catered to the agrarian and capi- 
talistic classes, and, on the other, desired to maintain Ger- 
many's position and prestige by means of a rapidly growing 
population of high efficiency. 

Hence the abounding energy of the nation, its genius 
for organization, its devotion to scientific research, and its 
willingness to subordinate the individual to the general 
welfare were used to so co-ordinate and unify industry 
that it might support the largest possible population by 
means of manufacturing, and extend its foreign trade to the 
uttermost limits. 

The German System. — The system by which Germany 
succeeded in building up her foreign trade was as thor- 
oughgoing as it was unique. It was the result of a far- 
seeing, carefully worked out national plan, in which the 
strong arm of the government was ever ready to give the 
needed aid and direction. There was co-operation and co- 
ordination in German industry and in German foreign 
trade that existed in no other nation. The government- 
owned railways and waterways, the government banks, the 
syndicates or organizations of merchants and manufacturers 
under government supervision, the thoroughly correlated 
educational system extending from the elementary grades 
through the universities — these all worked together to 
achieve one end, the pre-eminence of Germany in power, 
position, industry, commerce, and wealth. 


The German Government was called paternalistic, be- 
cause it aimed to influence or control, directly or indirectly, 
many activities that in this and other nations are left 
wholly or partly to the individual. This paternalistic 
character was clearly indicated in the aid the government 
gave industry and conmierce. Vast internal improvements ; 
a great system of state-owned railways and waterways; the 
best harbor and terminal faciHties in the world; a close 
supervision over manufacturing, commerce, and banking; 
a government poHcy of zealously guarding the interests of 
its manufacturers, merchants, and ship-owners who were 
competing with those of other nations; a well-defined 
policy of negotiating commercial treaties with other na- 
tions to foster German trade; the maintenance of a great 
staff of government workers whose function it was to keep 
in close touch with every foreign market in the world and 
with every development influencing trade, and to give valu- 
able and specific trade information to business men and 
corporations; the closest co-operation between government 
bureaus and chambers of commerce — these are only a few 
of the methods taken by the imperial government to ad- 
vance German industry and commerce. 

Five Factors in German Organization. — The unification 
of Germany as it affected the foreign trade of the nation 
may be understood by considering in some detail the forces 
that were co-ordinated to produce the results achieved. 
These may be grouped under the following heads: 

1. Education. 

2. Government control of railways and waterways. 

3. The work of syndicates. 

4. The co-operation of banks in industry. 

5. The tariff poHcy. 

I. Education. — Education in Germany was compul- 
sory, every child being required to attend the elementary 


schools for at least eight years. The schools gave practical 
training, the aim being to educate the child to j6l11 the niche 
he was designed for, so that he might do his part in serving 
the state to which he belonged. Obedience, patriotism, and 
industry were inculcated. Continuation schools were pro- 
vided for boys and girls who graduated from the elementary 
schools and went to work. In most of the cities of Germany 
attendance at these schools was compulsory for boys be- 
tween fourteen and seventeen. 

The effect upon industry of the training given in the con- 
tinuation schools was unquestionably very great. Greater 
skill, intelligence, and efficiency in the performance of 
their daily tasks and a better understanding of the work 
Germany required of her citizens are directly traceable to 
the instruction given in these trade schools. 

Students intending to study in the universities received 
their preparation in the gymnasiums. The German uni- 
versities are state institutions, and under the old regime 
they took a very definite and important part in the de- 
velopment of the empire. Their influence upon industry 
and commerce was great. They planned to train for the 
professions and for the higher class of commercial positions 
as well as for the civil service; they emphasized the natural 
sciences and encouraged the application of the knowledge 
gained through study and research to industry; thus 
scientific study was adapted to the economic needs of the 
nation and the universities served as laboratories in which 
scientific methods were worked out for the benefit of in- 

2. Government Control of Railways and Waterways. — 
Fully 90 per cent of the railways of Germany were owned 
and controlled by the state. The one paramount idea in 
railroad administration in Germany was the promotion of 
industry and trade through service. The earning of divi- 
dends was entirely secondary, though the net income de- 
rived by the government from this source in 19 11 was $178,- 


000,000. This sum would have been greatly increased had 
not vast sums been spent in making improvements and ex- 
tensions. Wherever investigation showed that industry 
might be stimulated to an appreciable degree by railroad 
extension, by improved service, or by discrimination in 
rates, the required action was taken. There w^as no con- 
flict between the interests of the railroads and those of the 
shipper, for the very simple reason that the interests were 
identical. In the management of the railways every effort 
was made to provide adequate terminal facilities, that 
kept pace with the industrial needs of each comimunity; 
sectional favoritism was not apparent, for it w^as generally 
recognized that the railways must serve impartially and 
fairly the whole nation, if the nation was to prosper. The 
railways were operated in connection wath the splendid 
system of inland waterways that were well developed in 
Germany. The more bulky raw materials, such as coal, 
iron ore, lumber, and grain, were transported at very low 
rates over the inland waterways. 

Some of the definite ways in which the transportation 
facilities were used to aid the exporter were as follows: 

(a) Export shipments were accorded lower rates than 
domestic freight. These rates applied to both small and 
large shipments. Often an exporter who would otherwise 
have been unable to compete in foreign markets with the 
exporters of other nations w^as thus assisted to build up an 
extensive and profitable export trade. The authorities 
did not hesitate to reduce the rates on imported raw ma- 
terials as well as on manufactures for export when it ap- 
peared that the nation's trade could be so extended. 

(b) The railways were administered as one system, 
though they wxre owned by different states. Shipments 
were sent over the most direct route and were given ad- 
vantage of the cheapest rate. When there was congestion 
at one port, exports were diverted from it and thus delays 
were avoided. 


(c) Railway and waterway tariffs were published which 
gave the exact rate for transportation of every class of 
goods from German points to foreign cities. These rate 
books were made clear and simple so that the exporter had 
no difficulty in ascertaining the freight on any proposed 

(d) Arrangements were made whereby export shipments 
might be made from an inland point on a through bill of 
lading, which relieved the shipper of further trouble. 
Trans-shipments were made wherever necessary, and all 
details atteaided to by the railway officials. It mattered 
not to what far distant point in Asia or Africa or South 
America the shipment was destined, if it was sent from a 
German point by a German carrier, it would be delivered 
without further trouble to the shipper. 

3. The Work of Syndicates. — Competing firms in the 
various manufacturing lines were organized in Germany 
into syndicates, which practically control production and 
distribution in their respective lines. Production was ap- 
portioned among the member firms by the syndicate; sales 
arrangements were made by the syndicate, which also fixed 
the scale of foreign and domestic prices, the rate of interest, 
the terms of credit, and the wage scale. Member firms 
were penalized severely for non-observance of the arrange- 
ments entered into with the syndicate, and failure to live 
up to the syndicate contracts would eventually mean the 
financial ruin of the firm following such a course. The 
syndicate was organized as an independent company, the 
members entering into agreements or contracts with it 
that were binding under the laws. 

The advantages claimed for the syndicates in the pro- 
motion of foreign trade are that they so organize and reg- 
ulate industry as to cheapen production, by the preven- 
tion of waste, undue competition in foreign fields, and the 
overlapping of industrial enterprises. 


4. The Co-Gperation of Banks in Industry. — The banks 
of Germany have been highly centralized. Elmer Roberts, 
in an article entitled " German Good- Will Towards Trusts," 
published in Scribner^s Magazine for March, 191 1, says in 
speaking of the German industrial system: 

Seven Bedin banks form the core of the system. They have 
shares usually amounting to a paramount interest in about fifty 
of the large provincial banks, and these in turn are part owners 
of the smaller institutions of their provinces, so that agreements 
among the larger banks in Berlin have the effect of decrees upon 
the twigs, as it were, of the financial tree, and upon the detached 
undergrowth. . . . The resources of the Berlin group and their 
dependencies exceed M. 8,000,000,000, or $2,000,000,000. These 
details appear necessary to an understanding of the economic uni- 
fication in Germany, for it is through the fibres of the banking 
network that the centralization is accomplished. German, unlike 
American, banks have direct participation in industrial enterprise. 
The bank that gives credit to a manufacturing company has shares 
in the company and is represented on the board. 

German banks were in the closest relation with the 
government; the foreign policy of the nation was assisted 
in every way possible by the banks, which made foreign 
loans to facilitate German diplomacy, established branch 
banks in countries with which the government was negotiat- 
ing commercial treaties designed to foster foreign trade, 
and in general regulated their policy in accordance with the 
plans of the government. They were always ready to 
assist in financing any project for internal improvements 
that promised to promote German trade, and to extend 
their aid in the development of colonies and of countries 
in which German traders were trying to get a foothold. 
The trade and credit information which they were able to 
supply their customers, the Kberal extension of credit 
which they made to exporters, the activity of their branches 
maintained in foreign countries, all had most beneficent in- 
fluence on the industrial and commercial growth of the na- 


5. Germany's Bargaining Tariff. — Germany adopted 
the protective tariff system in 1879 in response to the de- 
mand of her newly established manufacturing plants, 
which were unable to compete in the home market with the 
products of those nations, especially the United Kingdom, 
in which the industry of manufacturing was highly de- 
veloped. Raw materials for manufactures alone were 
exempted from the high duties imposed; foodstuffs were 
subjected to heavy import duties in order to protect the 
powerful agrarian interests, which included the members of 
the leading aristocratic families of the nation. In 1901 
the duties on foodstuffs and manufactures were increased, 
so that meat, cereals, flour, machinery, petroleum, and to- 
bacco were all subjected to very high import duties. This 
increase in duties affected the United Kingdom and the 
United States more than it did other nations. Since the 
United States had previously imposed heavy duties on 
many of the manufactured articles imported from Germany, 
the retaliation was quite natural. 

Germany modified her high protective tariff by a system 
of commercial treaties with other nations, in which mutual 
concessions were made, Germany reducing the tariff on 
specified articles in exchange for reductions or trade con- 
cessions she desired. Germany's tariff laws have thus been 
framed so as to give every advantage possible under a pro- 
tective system to the industry of the nation. This is 
especially true of the tariff concessions made in commercial 
treaties with other nations; each concession has been made 
only after thorough investigation, and each has invariably 
resulted in gain to Germany. This trading feature of her 
tariff policy enabled Germany to secure valuable conces- 
sions in Russia and other countries that greatly increased 
her trade opportunities. Germany imported and must 
import enormous quantities of such raw materials as raw 
cotton, hides and skins, copper, iron ore, wool, and textile 
fibres; she exported millions of dollars worth of manu- 



factures. This trade was greatly facilitated by the system 
of granting reductions of the tariff on raw materials in re- 
turn for concessions in the duties placed on German manu- 
factures by other nations. It is this system that has con- 
vinced many EngHsh economists of the wisdom of England's 
abandoning her free-trade policy for a protective tariff under 
which reciprocal trade concessions between the United 
Kingdom and other nations maintaining a protective tariff 
could be made. 

The Growth of Germany's Foreign Trade. — Let us now 
see what the system, the general features of which have 
just been outlined, accomplished in the development of 
Gennany's trade with other nations. The value of the 
imports and exports at different periods is given in the fol- 
lowing table, which is based upon statistics compiled by the 
Bureau of Foreign and Domestic Commerce of the United 
States. The table is for the special trade, which includes 
only the imports for consumption and the exports of do- 
mestic products. The values are expressed in millions of 






















Between 1880 and 19 13 the foreign trade of Germany 
increased nearly 266 per cent. As in the case of England, 
the imports exceeded the exports each year. This differ- 
ence was offset by the interest on German foreign invest- 
ments, which were estimated at $8,000,000,000 in 19 13, 
and by the earnings of her great merchant marine, second 
in 1 9 14 only to that of the United Kingdom. Changes in 
the methods of compiling statistics of commerce make an 


exact comparison impossible, but in general imports doubled 
between 1880 and 1900, while the increase in exports was 
only 60 per cent; between 1900 and 19 14 exports increased 
faster than imports, more than doubling in value. 

Imports. — Nearly one-half of the imports of Germany 
consisted of raw materials, the largest single item imported 
being raw cotton. Copper, certain grades of iron ore, wool, 
hides and skins, and textile fibres are other raw materials 
imported in great quantity. About one-third of the im- 
ports have been foodstuffs. Though Germany produces 
large quantities of wheat, rye, and barley, the production 
of cereals falls far short of the consumption, with the ex- 
ception of rye. In normal times one-third of the wheat 
consumed is imported. Barley, meats, dairy products, 
eggs, coffee, tea, cocoa, lard, and oleomargarine are other 
foodstuffs for which Germany has afforded a good market. 

Exports. — The greatest manufacturing plants in Germany 
have been those devoted to the output of iron and steel 
and their manufactures. Consequently, such products 
have held first place in her exports. Germany had an 
abundance of coal and iron ore, which are the basis of this 
industry. Her coal, however, is of a low grade, and its 
cost per ton at the mine is considerably greater than in 
England and about twice as great as in the United States, 
where the coal lies at or near the surface of the ground. 
Some of the German coal-mines are over 3,000 feet deep. 
Cheaper labor costs, cheaper transportation, and the ap- 
plication of scientific methods enabled her to compete in 
the iron and steel industry with England and the United 
States. In 1890 the output of pig iron in Germany was 
4,500,000 tons; in 1913 it was 19,000,000 tons. This 
made Germany second of all the nations in the production 
of pig iron. This explains why her exportation of machin- 
ery increased from about $13,200,000 in 1887 to over $157,- 
000,000 in 191 2. 

The manufacture of textiles was next in importance in 


Germany. Consequently, the importation of cotton, wool, 
and raw silk has been very large, and the exportation of the 
finished fabrics second only to that of the United King- 
dom. The value of the cotton, wool, and silk fabrics ex- 
ported increased from $65,000,000 in 1887 to $241,000,000 
in 1912. 

Other exports of importance are aniline dyes, beet-sugar, 
copper wire, leather and leather manufactures, surgical 
instruments, paper manufactures, porcelain, pottery, glass- 
ware, hardware, chemical and pharmaceutical products, 
electrical appHances, coal-tar derivitives (dyes, perfumes, 
explosives, etc.), and clothing. These were the principal 
manufactures exported. Coal and coke were the raw ma- 
terials exported in greatest quantity. In addition to beet- 
sugar, in the production of which Germany leads the world, 
rye and potatoes are food products exported prior to 19 14. 

Direction of Trade. — In 191 2 and 1913 the United States 
was the largest exporter to Germany, while the United 
Kingdom was Germany's best customer. The British col- 
onies, Russia, Austria-Hungary, France, and Latin America 
are other countries that have had most extensive trade with 
Germany. The principal commodities Germany has drawn 
upon the United States for are such staple food products as 
wheat, meat, dried fruits, corn, lard, and oleomargarine, and 
such raw materials as cotton, copper, lumber, tobacco, and 
mineral oils. Machinery and other manufactures have 
also been imported from the United States. In exchange 
for these Germany has sent us aniline dyes, toys, earthen- 
ware, pottery, caoutchouc and gutta-percha, gloves and 
other articles of wearing apparel, wooden manufactures, 
pictures and picture postal cards. Germany exported 
over $100,000,000 worth of toys annually and over $60,- 
000,000 worth of picture postal cards. We have bought 
from Germany for the most part highly wrought manu- 
factures in which the labor cost is the highest item, and have 
given in return raw materials and foodstuffs. In 19 13 Ger- 


man imports from the United States were valued at $331,- 
684,000, while her exports to the United States were valued 
at only $188,963,000. Germany's trade has not been con- 
fined to a few countries. Her salesmen have invaded every 
market in the world; they invariably spoke the language 
of the country, were quick to adapt themselves to the con- 
ditions of each market, have had authority to grant liberal 
credit terms, were alw^ays prepared to quote c. i. f. prices 
(which include insurance and freight), and often were able 
to quote lower prices than those offered by their rivals 
from other countries. In many lines their manufactures 
have been of a lower and cheaper grade than those pro- 
duced by either the United Kingdom or the United States, 
which accounts for the lower prices quoted. They have 
taken an infinite amount of pains to supply the market 
with the land and quahty of goods in demand, have filled 
small orders with the same care given to large ones, and 
given expert attention to the packing of the goods. German 
salesmen and German mercantile establishments success- 
fully estabhshed themselves in Chile, Brazil, Argentina, 
and other Latin American countries, in Asia Minor, Tur- 
key, China, Japan, India, Syria, and in every one of the 
British colonies. 

Success of the German System. — So far as it affected the 
position of Germany in foreign trade, the commercial sys- 
tem outlined was a success. Its effect upon the political 
and industrial freedom of the masses, upon the distribution 
of wealth and privileges among its citizens, and upon the 
character and ideals of the nation is another question, which 
need not be considered here. It is generally agreed that 
such a centralized system is not practicable in the United 
States or in any country that seeks to develop the individual 
through democracy. There are, however, certain lessons 
we can learn from Germany. These, in brief, are as follows: 

I. Our educational system could be developed so as 


to provide practical and thorough vocational training 
for every student. 

2. Better transportation and terminal facilities could 
be provided. While our railway mileage exceeds that 
of any other nation and our equipment is unequalled, 
the service rendered is still far from satisfactory, and co- 
operation between the railway and the shipper is little 
developed. Our inland waterways, with the exception 
of the Great Lakes, are sadly neglected, with the result 
that railroad traffic is often so badly congested as to 
cause long and expensive delays. 

3. Our tariff might be so framed as to make the trading 
feature a powerful influence in trade promotion. 

Effects of the Reparation Payments. — The future of 
Germany's foreign trade is bound to be largely determined 
by the terms of the peace settlement. Heavy remittances 
to other countries as reparation payments are provided 
for in the treaty of peace. The provision requiring the 
payment of 20,000,000,000 marks by May, 1921, made 
it possible for Germany to count ships, railroad equip- 
ment, machinery, coal, securities, and other commodities 
on this payment. The balance is to be paid by means of 
bonds. Other bonds amounting to $10,000,000,000 figure 
in the reparation payment, these bonds to draw interest 
of 2]/i per cent up to 1926, the rate to be increased after 
that date. The interest on the total amount of bonds will 
exceed $300,000,000 annually for the years 1921 to 1926. 
With the increased rate of interest after 1926 and the other 
reparation payments provided for, the total payments re- 
quired of Germany each year will greatly exceed $500,- 
000,000. Some estimates make the sum approach a billion 
dollars a year. The amount will depend upon the decision 
of the Reparation Commission. 

The method of payment is of highest importance. Pay- 
ment in gold is impossible. To attempt this would mean 


to drain all the gold out of the country long before the 
reparation claims were paid. Again we are faced with 
the fact that balances between nations are paid in goods, 
in services, or in securities, rather than in gold. In this 
particular case, it is goods that will settle the debts. No 
longer is Germany a leading nation in the carrying trade. 
Tourists there may and probably will be, but their ex- 
penditures will be insufficient to cover the amount payable 
each year to other nations. Securities will hardly prove 
attractive until such time as the great bonded debt is par- 
tially paid ofT. Even stocks and bonds of German busi- 
ness firms will not find any wide market for some time. 
Goods alone will pay the bill. 

This can be done only if German exports exceed Ger- 
man imports regularly throughout the period of reparation. 
As we have seen, German imports exceeded exports in 
value in the period preceding the war. A fundamental 
change is necessary if Germany is to pay the Allies the 
claims agreed upon. German exports must expand; Ger- 
man imports must contract. In other words, Germany 
must give to the rest of the world more goods than are 
received from the rest of the world. 

This means extended markets for German goods, with 
a restricted market in Germany for the goods of other na- 
tions. Nothing but a huge annual excess of exports over 
imports will enable the reparation claims to be met. In 
order that this may be accomplished, governmental ac- 
tion will be necessary. This action may take the form 
of a high tariff for the purpose of restricting certain classes 
of imports, of a system of bounties on exports, of preferen- 
tial railroad rates on exports more far-reaching than any- 
thing ever before attempted, and of a reduction of taxa- 
tion in the case of firms manufacturing for export. 

The restriction of imports can be only along certain 
lines. Raw materials for use in the manufacturing indus- 
tries of the nation and essential foodstuffs will be urgently 


required. Luxuries are the most obvious articles to be 
subjected either to a total prohibition or to a duty so high 
as to practically amount to that. The stimulation of greater 
food production will be an economic necessity. 

The effect upon the trade of the world of the necessity 
of Germany's exports exceeding her imports is a question 
of the greatest importance. If the reparation claims are 
paid, as they must be, in goods, this means a great exten- 
sion of German markets and of German export trade. Un- 
less the nations of the world are wilUng to see such a situa- 
tion develop, they may as well give up a' 'bought of 
reparation from Germany. 


Dawson, William H. Industrial Germany. London, 1913. 
Dawson, William H. The Evolution of Modern Germany. New 

York, 1909. 
Graham, James. German Commercial Practice with the Export 

and Import Trade. London and New York, 1904-6. 
Herzog, Siegfried. The Future of German Industrial Exports. 

New York, 191 8. 
Howard, Earl D. The Cause atid Extent of the Recent Industrial 

Progress of Germany. Boston, 1907. 
Howe, Frederick C. Socialized Germany. New York, 191 5. 
MiLLiOND, Maurice. The Ruling Caste and Frenzied Trade in 

Germany. Boston, 1916. 
PoGSON, G. Ambrose. Germany and Its Trade. New York, 1903. 
Shadwell, Arthur. Industrial Efficiency ; a Comparative Study 

of the Industrial Life of England, Germany, and America. 

^ew York, 1918. 
U. S. Bureau of Foreign and Domestic Commerce. German 

Trade and the War. Commercial and Industrial Condition in 

War Tune and the Future Outlook. (Miscellaneous series no. 

65.) 1918. 
U. S. Bureau of Foreign and Domestic Commerce. Statistics 
of German Trade, 1909-1913. (Miscellaneous series no. 75.) 


France. — A brief review of the foreign trade of other na- 
tions, with special reference to their trade with the United 
States, is now in order. Next to the United Kingdom, the 
United States, and Germany, the nation having the largest 
foreign trade is France. Normally, France is our fourth 
best customer, ranking next to Canada in the value of the 
commodities obtained from us. In 191 5 and 191 6 the war 
imports of this nation rose so far above normal as to place 
her second only to the United Kingdom in our list of cus- 
tomers. Ordinarily, France buys about 11 per cent of her 
imports from us and sells 6.5 per cent of her exports to us. 
Our sales to France exceed our purchases by some $20,- 
000,000 annually. 

The fact that France has been passed in recent times in 
foreign trade by both Germany and the United States does 
not mean that that nation is becoming either impoverished 
or decadent. France, keenly appraising the situation, finds 
it undesirable to make the strenuous efforts to promote 
foreign commerce that have placed Germany in the front 
rank in the trade of the world. France enjoys the position 
of being more nearly self-sufficient than any other European 
nation; consequently, foreign trade is of secondary and 
not primary importance to her. With an area considerably 
smaller than Texas, France produces nearly half as much 
wheat each year as the whole United States — enough to 
just about supply her needs. The land is held in small in- 
dividual holdings, and is cultivated with care by the owner 
and his family. The average farm comprises twenty 
acres. There is no firmly intrenched agrarian class, con- 



trolling a large part of the agricultural area, as in Germany, 
and so agriculture is encouraged. Sugar-beets, potatoes, 
vegetables, olives, nuts, and fruits are other food products, 
in addition to the cereals, produced on the well-tilled acres 
of France. Sheep and cattle are also raised in large enough 
quantities to satisfy the home market. 

France ranks fourth in manufacturing as she does in 
commerce. But in the manufactures which predominate 
in the foreign trade of the era — those resulting from the 
large-scale production of enormous quantities of standard- 
ized goods — France is not a leader. 

Coal and iron, which are the basis of manufacture de- 
pendent upon high-power machinery, are found in northern 
and central France, but not in sufficient quantity to pre- 
vent the importation of both of these basic manufacturing 
commodities. With the reacquisition of Alsace-Lorraine, 
the coal and iron supply of France was greatly augmented. 
A great impetus was thus given to the manufacturer of 
iron and steel products. The two leading manufacturing 
industries are wine-making and silk manufacture, both of 
which depend upon home agriculture for their raw product. 
Excellent clay for the making of porcelain is available, and 
French porcelains form an important export item. French 
silks and velvets are the best in the world. French laces 
and embroideries, ribbons and veilings, gowns and milli- 
nery, lingerie and trimmings find a market in the fashion 
centres of the world. France not only manufactures the 
most beautiful materials for wearing apparel, but her artis- 
tic designers and dressmakers make these up into garments 
that sell at unbelievably high prices to the fashionable world 
that is captivated by their style and originality. Her 
skilled workers thus use the taste and artistic touch for 
which they have long been famous to create a commerce 
that is highly profitable and that is peculiarly their own. 
This is true in regard to works of art, porcelain, bric-a-brac, 
perfumery, and fine wines, as well as to wearing apparel. 


France thus supplies the luxuries rather than the utilities 
of commerce, and stands somewhat aloof from the indus- 
trial and commercial tendencies of the age. 

The United States imports from France all of the typical 
manufactures just enumerated. Our exports to her con- 
sist of raw cotton, copper, petroleum, machinery, tools, 
and hardware. While our sales exceed our purchases by 
about $20,000,000 annually, this is much more than ofifset 
by the expenditures in France of American tourists, art 
students, and others living there and dramng their income 
from the United States. It is estimated that in normal 
times over $100,000,000, in the form of letters of credit, 
checks, and other negotiable paper, passes from the United 
States each year in payment of these expenses. Again 
we see how France, by catering to the artistic side of hu- 
manity, adds to her wealth and prosperity. By fostering 
art and the refinements of Hfe she has made Paris the 
mecca of the lover of the beautiful; since Mahomet comes 
to the mountain, the mountain does not need to go to 

Italy. — Our imports from Italy amount to about $56,- 
000,000 annually, our exports to $75,000,000. Raw cotton 
constitutes about one-half of our ItaKan exports. Grain, 
tobacco, lumber, naval stores, mineral and vegetable oils, 
copper, and machinery are other articles we send to Italy. 
Italy has sent us silks, tropical fruits, olives and olive-oil, 
perfumery and art works. Our exports to Italy were 
greatly augmented by the World War, amounting in 191 5 
to $185,000,000, which made that nation our fifth best cus- 
tomer. It is thought that our permanent trade with that 
country will be of greater volume in the future, because 
trade connections have been estabUshed and American goods 
introduced to merchants and consmners who will demand 
them hereafter. Italy requires more of our raw materials 
than of our manufactures, for, though all of her coal and 
most of her iron have been imported (mostly from Eng- 


land), she has developed a manufacturing industry of im- 
portance. As this industry expands, it will create a greater 
demand for machinery and equipment and raw materials 
from the United States. Italy, like France, acquired by 
the terms of the peace settlement territory containing 
valuable coal and iron deposits. 

The Netherlands. — The Netherlands usually rank as 
our fifth best customer, which shows that this tiny nation 
has maintained in a high, degree the commercial importance 
it won in the seventeenth century. Without coal, iron, or 
water-power, large-scale manufacturing has been handi- 
capped; with a population of 466 persons to the square 
mile, commerce has been necessary. Therefore, it has de- 
veloped a transit trade of immense proportions, the value 
of the merchandise bought and re-exported approximating 
$1,000,000,000 each year. Its position combined with its 
splendid waterways affording cheap transportation facili- 
ties are factors of the greatest importance in the vast trade 
handled. Though it is a commercial rather than an indus- 
trial nation, its agricultural and manufacturing output is 
large. The exports are bulbs, nursery stock, seeds, dairy 
products, and linen and cotton manufactures. From the 
colonies in the East and West Indies and in South America, 
the Netherlands obtain great quantities of valuable com- 
modities, which are sent there to be marketed. These 
re-exports include spices, coffee, chocolate, and other 
tropical products. Our imports from the Netherlands 
amount to about $35,000,000 annually, while our exports 
are from three to four times as large as the imports. They 
include raw cotton, cereals, iron and steel manufactures, 
and petroleum, which are our staple articles finding a 
ready market in every European country. 

Belgium. — Before she was devastated by the hosts of war, 
Belgium held a high rank as an industrial and commercial 
nation. In the per capita output of her great manufactur- 
ing plants she ranked second only to the United Kingdom; 


in the value and volume of her commerce she stood sixth 
among the nations of the world. Added to the imports for 
consumption and the domestic exports was a tremendous 
transit trade, approximating $1,000,000,000 each year. 
This small country has the extensive coal and iron deposits 
essential to large-scale manufacturing; her capitalists are 
progressive, her workmen skilled and industrious, and her 
merchants clear-sighted and aggressive. These factors 
all combined to make Belgium successful in the markets of 
the w^orld, thus insuring her prosperity at home. Her man- 
ufactures that have entered international trade are iron 
and steel products, including machinery, hardware, struc- 
tural iron and steel; woollen and cotton textiles, yarns, car- 
pets, lace, and glass manufactures. 

In the low and fertile plains of the north and west the 
intensively cultivated farms produce wheat, rye, sugar- 
beets, beans, potatoes, flax, and hops. But over 40 per 
cent of the food comes from other countries. From the 
United States Belgium has imported grain, meat, and manu- 
factures. To us she has exported textiles, carpets and rugs, 
lace, and other manufactures. We have also purchased 
most of our diamonds from this Httle hive of industry, as 
her diamond merchants have long practically controlled 
that trade, and her diamond-cutters are the most skilled 
in the world. The skill, energy, industry, thrift, and cour- 
age of this nation alike insure her future in the markets of 
the world. 

Spain and Portugal. — The nations of the Iberian Penin- 
sula are unlike the other European countries considered, 
in that manufacturing is Httle developed, despite the fact 
that there is an abundance of coal and iron available. Their 
commerce is likewise small, though there are signs of a 
general industrial development for the future. The prod- 
ucts Spain sends us are cork, wines, raisins, nuts, and 
fruits. Our products finding a market are raw cotton for 
the factories of Barcelona, cereals, and manufactures. 


Russia.— This nation with its heterogeneous population 
and vast area stands next to Spain as a buyer of our goods, 
her direct purchases amounting ordinarily to about $30,- 
000,000. Other of our products reach Russia through 
intermediaries, but it is impossible to estimate the amount 
of such re-export trade. Russia has rich undeveloped re- 
sources of incalculable value; she possesses all the minerals 
and basic materials necessary for the building up of an im- 
mense manufacturing industry, but as yet these lie dormant. 
Her trade has been dominated by Germany in the past, 
with the United Kingdom and France in active competition. 
She has imported many commodities from other countries 
that we may well supply in increasing quantities in the 
future. Some of these are pig-iron manufactures, metal- 
working machinery, dynamos and electric motors, electrical 
appliances, motor cars and trucks, musical instruments, 
paper manufactures and chemicals. The commodities 
we have sold to her have included raw cotton, agricultural 
machinery, sewing-machines, and paper manufactures. 
Russia exports many of the products that we seek in foreign 
markets, such as flax, hemp, hides, skins, and bristles. 
Other of her exports are wheat, petroleum, timber, and dairy 

Other European Countries. — We have considered in 
brief our trade with the principal European nations having 
extensive commercial relations with us. Of those remain- 
ing, the Scandina\aan peninsula may be briefly considered. 
Norway has large shipping interests and a profitable carry- 
ing trade. The trade of the peninsula is mostly with the 
United Kingdom and Germany. Both countries export 
wood-pulp, dairy products, and meats and fish. Denmark 
is similar to these countries in many respects. Dairy prod- 
ucts are exported in astonishing quantities, when the size 
of the country is considered. Our exports to these coun- 
tries are grain and grain products and manufactures. 

The trade of Austria-Hungary has been mostly with 


Gemiany and the Balkan states. Austrian manufactures 
are important, while Hungary is almost entirely given over 
to agriculture. Grain, meat, dairy products, and wine 
are exported to other European countries, while Bohemian 
glass, porcelains, and metal wares come to the United 
States. Our exports are raw cotton, machinery, hardware, 
and tools. 

Canada. — Our trade with both North and South America 
is developing rapidly, and is looked upon as holding won- 
derful possibilities for the future. Of all the countries of 
these two great continents, Canada has by far the largest 
foreign trade. Next to the United Kingdom, our northern 
neighbor has been our best customer, buying about as ex- 
tensively from us as has Germany. There are several dis- 
tinct advantages in our trade with Canada. In the first 
place, proximity simplifies the trade between the two coun- 
tries; it is not at all difficult for our exporters to ascertain 
the needs of the Canadian market and to cater to those 
needs; on the other hand, we can obtain from Canada 
without trouble or delay those commodities of which that 
country produces a surplus and of which we stand in need. 
Besides having the advantage of proximity, there is an- 
other that arises out of the difference in the industrial con- 
ditions of the two countries. In the United States manu- 
facturing is a highly developed industry; in Canada it is 
only in its infancy. Consequently, Canada imports the 
very articles that we are seeking a market for. These in- 
clude iron and steel products, such as machinery, tools, hard- 
ware, and structural iron and steel; textiles of cotton, 
wool, and silk; wearing apparel, such as clothing, hats, 
gloves, and knit goods; and house furnishings. The 
coarser textiles, much farm machinery, leather and w^ooden 
manufactures, are manufactured there, but it will be some 
years before Canada ceases to be an importer of great 
quantities of manufactured articles. Her exports are food 
products, such as grain, cattle, fish, and dairy products; 


raw materials, notably timber, wood-pulp, copper, nickel, 
asbestos, silver, and gold; and some manufactured articles. 
We take large quantities of timber, wood-pulp, and metals 
from Canada, and supply her with anthracite coal, cotton, 
and with the products of our semitropical States, including 
oranges, lemons, and walnuts. In the immense quantity 
of manufactured articles which we send to Canada are 
included all the manufactures mentioned among her im- 
ports. We are Canada's best customer, and she is one of 
our best markets. With reciprocity estabhshed between 
the two countries, the trade would increase to their mutual 

Mexico. — A country possessing both temperate and 
tropical regions of great productive possibilities, the richest 
silver-mines of any country in the world, with vast 
wealth in other minerals, wonderful forests of rare woods 
such as mahogany and rosewood, and broad plains pe- 
culiarly well adapted to stock-raising, holds great promise 
of future development, awaiting only the time when the 
people may become united in the establishment of a govern- 
ment founded on principles that mil insure its permanency 
and stability. Mexico's exports have greatly exceeded 
her imports in value, amounting in 19 13 to nearly $130,- 
000,000. The amount of foreign capital invested there is 
very large, and in normal times the interest on this is so 
great as to draw freely on the products of the country in 
payment. Mexico needs more railways and more capital 
to develop its immense resources, but these cannot be sup- 
pHed until internal dissensions are finally and permanently 
settled. Very little machine manufacturing is carried on; 
hence, the market for such goods has possibilities. The 
purchasing power of most of the population is low, and 
can be increased only by the development of the country. 
At present, the greater part of the trade of the country is 
with the United States, which affords a market for nearly 
all of the exports and supplies over half of the imports. 


The exports are silver, gold, copper, lead, henequin fibres, 
hides, petroleum, cattle, tropical woods, coffee, vanilla 
beans, and tobacco. The imports are machinery, iron 
and steel, coal, cotton and woollen textiles, and some raw 
cotton. Mexico uses large quantities of cotton manu- 
factures, but has purchased most of these from the United 
Kingdom, because, it is claimed, the English manufac- 
turers take special pains to cater to the taste of their Mex- 
ican customers, supplying the gaudy colors and fantastic 
patterns desired. 

Central America. — Included in Central America are the 
repubHcs of Guatemala, Costa Rica, Nicaragua, Honduras, 
Salvador, and Panama, and the British possession known as 
British Honduras. The inhabited portion consists for 
the most part of a narrow strip of plain bordering the 
Pacific. All of these countries are rich in such tropical 
products as coffee, rubber, tobacco, indigo, sugar, rice, 
bananas, cocoa, mahogany and other cabinet woods. 
Many large banana plantations have been developed by 
American capital, and regular steamship service is afforded 
to Atlantic and Gulf ports, as well as to Pacific ports. The 
Panama Canal is being used to some extent for shipments 
from the west coast. As these countries develop they are 
bound to afford better and better markets for American 
manufactures. The greater papi. of their foreign trade is 
now with the United States. 

The West Indies.— Cuba and Porto Rico are the most 
important of these islands, and both trade extensively with 
the United States. Cuba produces more cane-sugar than 
any other country in the world, and most of it comes to 
the United States. Tqbacco, tropical fruits, and iron ore 
are also exported. Cuba impQrts iiieats, cereals, and manu- 

Porto Rico belongs to the United States, and most of its 
trade is with the United States. It resembles Cuba in 
both imports and exports. 


South America. — More interest is being displayed in 
our trade with the South American republics than with 
any other countries in the world. This despite the fact 
that only about 12 per cent of our imports come from those 
republics and that less than 6 per cent of our exports find 
a market there. But our trade with these countries is 
peculiarly important, because they supply us with a large 
part of those tropical products that we must import, and 
because they afford a market for those manufactures that 
we are desirous of placing in increasing quantity in foreign 
countries. It is said that north and south trade, rather 
tlian east and west trade, is bound to prevail in the future, 
because countries differing greatly in latitude are naturally 
complementary in products — such trade is, therefore, based 
on natural laws. The United States Government and the 
Pan-American Union are constantly issuing valuable book- 
lets and other literature setting forth in detail the resources, 
industries, and trade possibilities of the different countries 
of South America. Consequently only a brief review of our 
trade with the more important republics will be given here. 

Argentina has the largest foreign trade of any of the 
republics. Its products include those of both temperate 
and tropical regions, though its exports are mostly from 
the temperate plains. It is first of all countries in the ex- 
portation of frozen meats and second in exports of wool. 
It also produces a surplus of wheat, corn, hides and skins, 
and sugar. The United Kingdom has taken about two- 
thirds of Argentina's exports, and has supplied nearly one- 
third of the imports. Germany, the United States, and 
France have also developed large trade with Argentina. 
Our trade has not been reciprocal, our exports greatly ex- 
ceeding our imports in value. This is due to the nature 
of Argentina's exports, which, with the exception of hides 
and skins and sugar, are similar to our own. Buenos Aires 
is the chief port. The imports are machinery and other 


Brazil is the largest country of South America, but it has 
not developed as rapidly as Argentina. One-third of 
Brazil's exports consist of coffee; another third of rubber; 
tobacco, cotton, and sugar are also exported. The United 
States affords by far the best market for Brazilian products, 
but our exports to that country have been exceeded by the 
United Kingdom and Germany. Wheat, flour, machinery, 
textiles, petroleum, and a wide variety of manufactured 
articles are imported. Rio de Janeiro is the great seaport, 
though coffee is exported from Santos and rubber from Para. 

Chile owes a large share of its commercial importance to 
its seemingly inexhaustible supply of nitrate of soda, used 
as a fertilizer. Most of the nitrates are shipped from 
Iquique, though Valparaiso is the most important port. 
Copper, hides and skins, wool, and wheat are also exported. 
The imports are machinery, tools, structural iron and steel, 
textiles, and other manufactures — all articles that might 
be supplied in greater quantity by the United States. 

Venezuela exports coffee, cocoa, hides and skins, and 
cabinet woods, which find an excellent market in the 
United States. We find in her imports the same list re- 
peated as in the case of the other undeveloped countries — 
machinery, tools, textiles, and other manufactures. 

Colombia's exports resemble those of Venezuela. Pan- 
ama hats are also manufactured for foreign markets in 
great quantities. Gold is mined in great quantities and 
is sent to the United States and England. There is a 
good market for mining machinery, for silver, lead, and 
copper are also produced. Hides, bananas, coffee, vege- 
table ivory, and rubber are exported to the United States, 
and machinery, drugs, and medicines, textiles, various 
metals, and food products are imported. Over one-half 
of the entire trade is with the United States. 

Peru exports silver, copper, sugar, coffee, wool, hides, 
and cocoa. Wheat, petroleum, and manufactures are im- 
ports from the United States. 


Australia. — This great continent with an area nearly 
as large as that of continental United States and a popula- 
tion of less than 5,000^000, is in the first stages of what 
promises to be a rapid development. Its isolation has held 
it back, for it has been out of the stream of unmigration 
that usually pours into new countries offering opportunities 
for the laborer and small farmer. With improved ocean 
transportation, which it is now eagerly seeking, this richly 
endowed country may be expected to forge ahead at a 
wonderful rate. Its foreign trade at present aggregates 
about $750,000,000, with imports in excess of exports, 
due to the importation of machinery and equipment for 
development projects. Australia leads the world in the 
production of wool, which is its leading export. Other 
commodities produced there which we ffnd it profitable to 
import are hides and skins, tin ingots, pearl-shell, and gold 
and silver. Meats and dairy products, cocoanuts, and co- 
pra, which is the dried meat of the cocoanut >delding a 
vegetable oil, are other exports. Only about 3 per cent of 
Australia's exports have come to the United States, the 
United Kingdom and Gennany being her best markets. 
On the other hand, Austraha has been a good customer for 
our wares, fuUy 14 per cent of her imports ha\'ing been 
purchased here, at a total cost of between $40,000,000 and 
$50,000,000 annually. The nature of the goods purchased 
by Australia adds materially to the value of the trade with 
that country, as they consist almost entirely of the manu- 
factures which we, in common with other manufacturing 
nations, are seeking to market. The leading articles ex- 
ported to Australia are machinery, electrical appliances, 
surgical instruments, drugs, chemicals and medicines, 
cameras, magic lanterns, musical instruments, motor 
vehicles, rubber and leather manufactures, paints and 
varnishes, glassware, chinaware, clocks, jewelry-, clothing, 
textiles, and firearms. 

A hindrance to the development of reciprocal trade rela- 


tions with Australia has been that the ships leaving our 
Atlantic ports for that continent have not returned directly 
to the United States, but to Europe and then here. Con- 
sequently, we have not purchased as large a proportion of 
Australian products as we might if they were brought here 
directly. With direct lines plying to and from AustraHa 
and the Atlantic ports, by way of the Panama Canal, a 
permanent trade advantageous to both countries could be 
developed. The direct steamship service from the Pacific 
coast to Sydney has greatly stimulated our trade with 

New Zealand. — This country, with a population of only 
a million, has a foreign trade of $96 per capita, about equally 
divided between imports and exports. The products are 
similar to those of Australia, and her imports likewise con- 
sist largely of manufactures. Her imports from the 
United States amount to about $9,000,000 annually. As 
in the case of other new countries, this trade may be ex- 
pected to increase greatly as the country develops. 

Philippine Islands. — There are in all about 2,000 islands 
in the PhiHppine group. They are mostly undeveloped 
tropical forest regions, with promise for future develop- 
ment. At present the principal exports are manila hemp, 
copra and cocoanuts, tobacco, sugar, and coffee. We take 
about 37 per cent of the exports and supply 45 per cent of 
the imports of the islands. The latter consist of manu- 
factures in a wide variety. Our exports to the Philippines 
in 19 1 6 were nearly as valuable as those we sent to Japan; 
they were valued at about $50,000,000, or double those of 
the previous calendar year. Our trade with the islands 
has increased tenfold since 1900. 

Hawaiian Islands. — This small island group, with an 
area of only 6,449 miles, produces on its great plantations 
half a billion tons of cane-sugar each year, practically all 
of which is brought to the United States, duty free, and 
refined here. Rice, coffee, pineapples, and bananas are 


other products we obtain from Hawaii. In return we send 
lumber and manufactured articles of every description. 

Japan. — The rapid development of this country has been 
one of the marvels of the last fifty years. Without iron, 
coal, wool, leather, rubber, or cotton in any considerable 
quantity, Japan has succeeded in developing a great 
manufacturing industry and an extensive commerce. We 
obtain from Japan tea, camphor, silk, porcelain, lacquer- 
ware, earthenware, and various ornamental manufactures 
of brass and other metals. Japan takes from us considera- 
ble quantities of raw cotton, electric machinery and other 
equipment for her factories, tools, manufactured articles 
of various kinds, petroleum, and flour. We are Japan's 
best customer, but we supply her with only about one- 
sixth of her imports. Japan has developed in recent years 
a great ship-building industry and has built up a merchant 
marine as well as a na\y of importance. Over half of the 
foreign trade of the country passes through the port of 
Yokohama, which is on the direct route of all steamship- 
lines pl>ing from the west coast of North America to the 
Orient. The total foreign trade of Japan was in 19 13 about 
$678,000,000. In 1918 the exports alone exceeded $881,- 
000,000. Of these, 30 per cent went to the United States 
and only 6 per cent to Europe. 

China. — China, with its enormous population of low- 
purchasing power, its meagre transportation facilities, its 
distinctive ci\ilization, and its great area stretching from 
the cold interior plateaus to the southern subtropical 
coastal regions, presents problems to the Western commer- 
cial world that only time can solve. The country is gradu- 
ally assimilating Western civilization and introducing mod- 
ern customs that may result in a complete industrial revolu- 
tion there. It has vast agricultural and mineral resources, 
possesses the coal and iron essential to modern industry, 
and its people have proved their abihty to imitate the 
methods of the newer nations. Manufacturing in a modern 


sense has gained a foothold in China recently, and it now 
seems probable that the people will gradually abandon their 
hard attempt to wrest a living from the soil and turn to 
manufacturing for other nations as a means of livelihood. 
If this should happen, the result of such competition from 
the low-paid labor of the Orient might prove disastrous to 
other nations maintaining a higher standard of living. At 
present the dense population is mostly engaged in agricul- 
ture, and silk, tea, beans and bean-cake, raw cotton, hides 
and skins (mostly of goats), straw braids and matting are 
exported, along with unique carvings and other distinctive 
manufactures. The imports are cotton goods, rice, sugar, 
petroleum, vegetable oils, machinery, and manufactured 
articles of different kinds. Japan is rapidly extending her 
trade and her influence in China, but as the country de- 
velops it will afford an excellent market for structural iron 
and steel, electrical machinery and appliances, and other 
development equipment. Blast-furnaces, cotton-mills, and 
silk-manufacturing plants have recently been established 
in China with the aid of American and British capital. 


American Industrial Commission to France. Report to the 
American Manufacturers^ Export Association, September, Octo- 
ber, 1916. New York, 191 7. 

Chambers, F. A. Holland and Its Trade. New York, 1902. 

CoLQUHOUN, Archibald R. China in Transformation. New 
York and London, 191 2. 

Commercial Relations Between the United States and Japan ; Ad- 
dresses by the Commissioners Representing the Chambers of Com- 
m^erce of Japan. Philadelphia, 19 10. 

Ensor, Robert C. K. Belgium. New York, 191 5. 

France in South America. Literary Digest, vol. 54, pp. 1052-3. 
April 14, 1 91 7. 

George, W. L. France in the Twentieth Century. New York, 1909. 

Graham, James, and Oliver, George A. S. French Commercial 
Practice Connected with the Export and Import Trade. New 
York and London, 1904-7. 


Griffis, William E. Belgium; the Land of Art; Its History, 

Legends, Industry, and Modern Expansion. Boston, 191 2. 
Japan. Department of Finance. Annual Return of the Foreign 

Trade of the Empire. Tokyo. Annual since 1882. 
Jernigan, Thomas R. China in Law and Commerce. New York, 

Morse, Hosea Ballou. The Trade and Administration of China. 

New York, 19 13. 
U. S. Bureau of Foreign and Domestic Commerce. Commercial 

Organizations in France. 191 5. 
U. S. Bureau of Manufactures. Trade with China. American 

Methods and Trade Opportunities in the Markets of the Orient. 

(Special agent series no. 7.) 1906. 
Whelpley. The Trade of the World. New York, 191 2. 

Latin America 

Cooper, Clayton S. Understanding South America. New York, 

Hale, A. The South Americans. New York, 1907. 
Kahler, H. M. Current Misconceptions of Trade with Latin 

America. Philadelphia, 1911. 
Koebel, W. H. South America : An Industrial and Commercial 

Field. London. 
Mechanics and Metals National Bank, New York. Export 

Trade to Central America. New York, 191 7. 
Porter, Robert P. The Ten Republics. Chicago, 1911. 
U. S. Bureau of Foreign and Domestic Commerce. Invest- 
ments in Latin America and British West Indies. (Special 

agent series no. 169.) 1918. 
Verrill, H. H. Getting Together with Latin America. New 

York, 1918. 
Wells, W. C. Soms Considerations Respecting Latin American 

Trade. Pan-American Union. Washington, 19x5. 



1. What is meant by the statement, "Commerce is the hand- 
maiden of civiHzation " ? 

2. What are some of the methods used to control and direct 
commerce ? 

3. What great manufacturing nations are largely dependent 
upon imported raw materials? 

4. What has been the effect of cheap transportation upon the 
character of the world's commerce? 

5. What has steam done for the inland farmers of the United 
States ? 

6. What are some of the causes of the stupendous expansion 
of international trade since the opening of the twentieth century? 

7. What four countries led in foreign trade in 1913? Why is 
that date designated instead of a later one? 

8. To what extent is it true that a large foreign trade is an in- 
dication of national prosperity? 

9. Discuss the statement: "It may easily be shown that the 
gain to a country is in its imports." 

10. Who was Adam Smith? What does he say of the value 
of foreign trade to a nation? 

11. How is a territorial division of labor made possible by for- 
eign trade? 

12. What is meant by the self-sufficiency of France in regard 
to foreign trade ? 


1. What were the principal products of the South during the 
colonial period and for what class of products were they traded ? 

2. What Atlantic port developed an early commerce with Eng- 
land and the West Indies? 

3. What part did New England take in colonial commerce? 

4. To what influence is the revival of commerce after the Revo- 
lution attributed? 



5. What was the effect of the development of the Middle West 
on our foreign trade between 1850 and i860? 

6. What was the outstanding economic characteristic of the 
development that followed the Civil War? 

7. What two striking changes in our foreign trade took place 
between 1876 and 1900? 

8. Why does the change to a favorable balance of trade mark a 
new era? 

9. What class of products showed the most striking increase in 
our export trade in the first fourteen years of the twentieth century ? 

10. What is meant by looking upon foreign markets as pri- 
mary markets? 

11. What was the most significant change in our import trade 
in the period of 1 900-1 914? 

12. What has been the comparative ratio of increase of our 
foreign trade to our population? 

13. What great change has the increase of our export trade in 
manufactures brought about in our whole attitude toward foreign 
trade ? 


1. How did the foreign trade of the United States for the years 
1917-1918 compare with that for the years 1913 and 1914? 

2. What two factors are to be considered in estimating our war 

trade ? 

3. Tabulate the value of our exports ini9i4 and 191 7 to Europe, 
to North American countries, to South America, and to Asia. 

4. What were the principal articles of export and of import 
during the war period? 

5. What countries are included under the general name of Latin 
America ? 

6. Why is our interest in trade with Latin America much 
keener than the total value of that trade might seem to warrant? 

7. What is meant by our re-export trade, and why is it im- 
portant ? 

8. Discuss the ability of the manufacturers of the United States 
to compete under normal conditions with those of other nations. 

9. What is meant by the balance of trade in our favor? Is a 
"favorable" balance of trade always of advantage to a country? 

10. What is the condition of exchange between England and 
the United States at the present time? What are the quotations 
to be found? When the pound sterling is at a discount in New 
York how are our exports to England affected? 


11. What four ways are there by which nations buying of us 
may pay for their purchases ? What is the most important way ? 

12. Discuss fully the four suggestions given on page 41 for 
maintaining our export trade with European countries. 

13. Why is it highly important to keep in mind the fact that 
foreign trade means exchange of goods betwedn the nations par- 
ticipating? How does the total gold in circulation in the world 
compare with the international trade for a single year? 


1. Name in the order of their importance our eight leading 

2. What four countries produce the bulk of the world's cotton? 
Name in the order of importance. 

3. What relation to our balance of trade did cotton bear prior 
to the war? What imports may cotton be said to have paid for? 

4. What tendency is noted in regard to cotton manufactures? 
How are raw cotton exports affected by this? 

5. What relation to our expanding export trade does iron and 
steel manufactures bear ? Name some of these. 

6. What change has taken place in the export of meat products ? 

7. Discuss the subject of wheat production and exportation in 
the United States. 

8. What influence has the improvement of the internal-com- 
bustion engine had upon our export trade in petroleum? 

9. Name the five grand divisions in the order of importance as 
to the value of exports taken from the United States in 1914. 

10. What is the value of our South American trade as com- 
pared to our trade with our North American customers, Canada 
and Mexico? 

11. Name our twenty best customers in the order of their im- 

12. Name ten leading commodities of which the United States 
produces 20 per cent or more of the world supply. 


1. Name four classes of products imported by the United States. 

2. What explanation can you give of the fact that certain articles 
appear in our lists of both exports and imports? 

3. From what continent did we regularly buy about one-half 
of our imports between 1900 and 19 14? 


4. Name the principal products usually supplied by Canada, 
Cuba, and Mexico. 

5. Give sources of coffee, sugar, and rubber. 

6. What are the principal products received from Asia and 
Oceania, including Australia? 

7. How do our sales to South America compare with our pur- 
chases ? 

8. Give three reasons for the condition of our South American 

9. Mention four steps that may be taken to increase our trade 
with Latin America. 

10. Explain how Latin American trade was diverted to England 
before the war. 

11. Explain fully why we are desirous of developing our trade 
with Latin-American countries. 


1. Distinguish fully between direct and indirect exporting. 

2. Outline in detail the sales organization of a typical large 

3. Give steps in the conducting of a preliminary investigation 
of foreign markets. 

4. What are some of the facts disclosed by a trade report? 

5. Give the steps in developing an export sales organization. 

6. Describe the export sales organization of the Standard Oil 

7. Show to what extent the United States Steel Corporation 
influenced the development of our foreign trade. 

8. What five sales methods are employed in direct exporting? 

9. Describe in detail the advantages of a branch office in a for- 
eign country as compared with a foreign agency. 

10. What advertising methods have been found most effective 
in foreign trade? 

11. Discuss the place occupied by International Parcel Post in 
foreign commerce. 

12. What is the Webb-Pomerene Act, and how does it benefit 
American exporters? 


1. What five classes of commission merchants in international 
trade were distinguished in the seventeenth century? 

2. What are the functions of a commission house in foreign 
trade at the present time? 


3. Distinguish three types of commission houses now in opera- 
tion. Which one is not strictly a commission house? 

4. What are the advantages and disadvantages of selling through 
an export house? 

5. What are some of the ways in which a manufacturer may 
co-operate with a commission house in the promotion of sales? 

6. What part have commission houses taken in the marketing 
abroad of staple products such as cotton and wheat? 

7. Describe in detail the operation of the commission house in 
Latin American trade. Mention some of the methods used by 
commission houses to promote trade. 


1. In what ways do the methods used in exporting raw ma- 
terials and foodstuffs differ from those employed in the exporta- 
tion of manufactures? 

2. Outline in detail the sale of cotton by each of the following 

(a) By the small farmer who depends upon credit; 

(b) By the independent farmer; 

(c) By the corporations owning large plantations. 

3. What two tendencies in the marketing of cotton promise 
better returns for the grower? 

4. How does the actual business of a cotton exchange differ 
from the functions of such an exchange as outHned in its charter? 
Discuss the good and evil results of such exchanges. 

5. Explain the meaning of "hedging" and its advantages to 
men actually engaged in the cotton trade. 

6. Mention three methods by which the Western farmer may 
dispose of his wheat. 

7. Through what three channels does export wheat flow? How 
does the handling of Pacific coast wheat differ from that used in 
connection with other wheat? 

8. Describe in detail the methods of marketing cattle that pre- 
vail in the United States. In what form do we export most of our 
cattle ? 

9. What three agencies are concerned in the exportation of our 
surplus tobacco? How large is this surplus? 

10. Describe the sale of tobacco at a tobacco auction. What 
other farm products are largely sold through similar auctions? 



1. What six documents are generally required in making an 
export shipment? Where may information be had as to the exact 
rules governing shipments to each foreign country? 

2. Follow in exact detail the filling and shipment of an export 
order from the time it is received until it is on board ship. 

3. What information is given on the heading of an export in- 
voice? in the body of the invoice? Why is it necessary to give 
specific information as to the exact nature of each article or pack- 

4. Why is a knowledge of the customs regulations of the coun- 
try of destination a necessary equipment of an expert shipping- 
clerk ? 

5. What is a shipping permit? How is it obtained? What 
information does it give in regard to the shipment? 

6. What is a dock receipt? 

7. What countries require a consular invoice? What informa- 
tion does such an invoice give? In what language is such an in- 
voice written ? 

8. Where can specific information as to the exact requirements 
for a consular invoice to any specified country be obtained ? 

9. What information is given on the shipper's export declara- 
tion? Why is it necessary to make such a declaration? Who 
certifies it? 

10. What is a railroad bill of lading? What three distinct 
uses has a bill of lading? What information is given on it? 

11. How does a steamship bill of lading differ from a railroad 
bill of lading? Explain precisely what steamship freight covers. 
What extra charges must be provided for ? 

12. What provision is taken in order that the title to an export 
shipment may rest with the holder of the bill of lading? Why? 
Note exceptions. 

13. How many indorsed copies of the bill of lading^ are made? 
Why is the number of such copies that have been made stated on 
the face of the document? 

14. What shipping documents must be in the hands of the con- 
signee before he can gain possession of the goods ? Why is it highly 
important for the documents to arrive as early as the goods ? 

15. What are the duties of the shipper's agent at the port of 
shipment ? 

16. What services do freight-forwarding agencies render? 


17. Mention the three ways in which a bank may handle the 
documents of an export shipment. 

18. What is the function of manufacturers' export agents? 
What other similar agencies can you mention? 


1 . What are the most important import regulations of the United 
States Government ? What is the purpose of these laws and regu- 
lations ? 

2. What advantages are afforded importers by the government- 
bonded warehouses? What is a ''drawback "? 

3. What are the three import documents? Describe each. 

4. How may an American manufacturer convert his factory 
into a bonded warehouse? What is the advantage of this? 

5. How are imports appraised? What method is used to facili- 
tate the removal of a large import order in case the importer has 
immediate need of the goods? 

6. What percentage of our imports consists of wholly or partly 
manufactured articles? Name some of these. 

7. Outline the commercial channels through which manufac- 
tured goods come into possession of the American importer. 

8. What part do commission houses play in the importation 
of manufactured goods into the United States? 

9. What great merchandise fairs held in other countries draw 
buyers from the United States? 


1. What are the staple raw materials and food products that 
we import in large quantities ? 

2. What proportion of wool consumed in the United States is 
imported? Explain how insufficient production is not the sole 
factor in this import. 

3. What has long been the great wooi market of the world? 
What are the special advantages of such a world market for wool ? 
How is wool sold in all great markets? 

4. What great wool markets are mentioned? Where is most 
of the wool imported into the United States purchased? 

5. Describe an Australian wool auction. 

6. Outline the methods by which wool merchants come into 
possession of this commodity, with special reference to Austraha. 
What is the function of the wool-buyer in international trade? 


7. What part of our supply of hides and skins do we regularly 
import? What arc the principal hides and skins so imported? 

8. What are some of the leading world markets for hides and 
skins ? 

9. What proportion of the rubber of commerce is produced on 
plantations? Where are these plantations and who owns them? 

10. Describe an importation of wild rubber from Brazil. 

11. What are the sources of the sugar consumed in the United 
States? Who imports most of it? 

12. What kind of tea is sold at auction in London? Who im- 
ports the Chinese and Japanese tea consumed here? 

13. What proportion of raw silk that enters commerce does the 
United States import ? How is silk from China and Japan handled 

14. Where do we obtain most of our coffee? How does the 
Brazilian broker dispose of his coffee? 


1. What is meant by the statement: "Inland transportation 
facilities are quite as important a factor in our foreign trade as 
are ocean carriers"? 

2. What is the mileage of the railroads of the United States? 
What body has the power of general regulation of the railroads ? 

3. How may the railroads of the United States be grouped as 
to territory served? 

4. What suggestions are made as to a greater utilization of our 
inland waterways? What leading commodities largely make up 
the trafl&c on the Great Lakes? 

5. What terminal facilities are found at most important ports? 
Who provides these? In what way are they important in foreign 
trade ? 

6. What proportion of our foreign trade passes through the port 
of New York? What are the other important ports? 

7. Review the position of the American merchant marine up 
to the period of the Civil War. 

8. What factors combined to prevent our regaining the mari- 
time supremacy lost during the Civil War? 

9. What measures have been taken since 1914 looking to the 
upbuilding of a merchant marine? With what results? 

10. What is meant by a free port? What are its advantages? 


11. What is meant by the North Atlantic trade route? What 
ports does it serve on the western end? On the European end? 
What route takes up the threads of the North Atlantic route at 
European ports and extends to southwestern Asia? 

12. What are the two main-travelled routes across the North 
Pacific? What trade is most affected by the Panama Canal? 

13. What are some of the uses of aircraft in international 
trade ? 


1. What is the great international highway? What part of 
our foreign trade is carried over this highway? 

2. How are the two types of ocean traffic distinguished ? What 
class of commodities does each embrace? 

3. Why is water transportation cheaper than that by land? 

4. What effect do the frequent fluctuations in ocean freight 
have upon c. i. f. quotations? 

5. What two ways are used by ocean carriers in computing 
freight? What is meant by berth cargo? 

6. What is a parcels receipt? When is it used to advantage? 

7. What ocean freight agents are mentioned, and what are 
their functions? 

8. What are fast freight lines? What is their purpose? 

9. What is a c. i. f. quotation? What does it include and what 
does it not include? 

10. What two distinct considerations are to be kept in mind 
when packing an export shipment? 

11. Follow a shipment of household utensils from New York 
to an inland point in Chile. 

12. How may freight and tariff charges be affected by packing? 
Give illustrations. 


1. In what way does marine insurance facilitate the financing 
of foreign shipments? 

2. What is Lloyd's? How was it organized? How is marine 
insurance secured and placed through Lloyd's? 

3. Define the following marine-insurance terms: policy, the as- 
sured, premium, the risk, broker. 

4. Mention six classes of marine-insurance policies. What 
should a shipper ascertain in regard to every policy taken out by 


5. What is meant by "perils of the sea"? In what way has 
the meaning of the various clauses in the standard marine-insurance 
policy been interpreted? 

6. Discuss the meaning of partial loss. How may insurance 
be obtained against war risk ? To what extent is loss by fire cov- 

7. What is meant by general average? What is the scope of 
the statement: ''And all other perils, losses, or misfortunes"? 

8. What are additional clauses? Why are they attached to a 
policy ? 

9. What is an open policy ? What is meant by a certificate of 

insurance ? 

10. To whom is the insurance policy made payable? What is 
covered in the amount of the policy? 


1. On what credit terms has the bulk of the world's export 
business been carried on? 

2. What countries are especially dependent upon credit? 
How do the seasonal fluctuations in exchange affect the demand 
for credit? 

3. What precautions should be taken by an exporter before ex- 
tending credit? 

4. What are the three usual methods of extending credit? 

5. What is the basis on which the greater part of the world's 
trade is transacted ? Of what documents does a foreign commercial 
bill of exchange consist? 

6. When a foreign bank receives a documentary draft drawn 
on a customer, how does it proceed ? What two courses are open 
to the customer? 

7. How does a draft drawn on a customer at the expiration of 
a credit term differ from a documentary draft? What is such a 
draft called? 

8. What is the concensus of opinion in regard to open credit? 

9. What is the occasion for long-time credits? What is the 
usual term? 

10. What four distinct phases of the credit manager's work may 
be mentioned? 

11. Mention all the different methods of obtaining credit in- 

12. Give some suggestions for safeguarding foreign accounts. 


13. Suggest ways in which the credit department can keep 
in touch with foreign risks, 

14. How may the collection of foreign accounts be facilitated 
by the credit department ? When payment is refused, what agen- 
cies may be resorted to? 


1. What handicaps have American merchants overcome in the 
conduct of our foreign trade? 

2. How has the extension of our banking system through the 
establishing of branch banks in foreign countries aided our foreign 
commerce ? 

3. Explain in detail how the Federal Reserve Act has materially 
assisted the development of our foreign trade. 

4. Describe in detail a draft drawn by an exporter on a cus- 
tomer in a foreign country. 

5. What is a banker's acceptance, and how does it differ from 
the usual form of draft ? 

_ 6. What is a documentary draft and what documents in addi- 
tion to the draft itself comprise this form of commercial paper ? 

7. What is the method employed by the exporter in securing 
cash where goods are shipped on condition of ''cash against docu- 

8. What is a Del Credere guaranty, and how does it affect the 
marketability of the exporter's draft? 

9. Give the steps in a typical transaction involving the dis- 
counting of a documentary draft. 

10. What is a commercial letter of credit? 

11. What is meant by confirmed credit and how does it differ 
from credit arising under a letter of credit? 


1. Explain the working of domestic exchange, using an example 
similar to that given in the text. 

2. How is the rate of exchange between two financial centres 
determined ? 

3. Why is New York said to be the financial centre of the United 
States ? 

4. What is foreign exchange? What is a bill of exchange? 
When does a bill of exchange become an acceptance? Are all 
bills of exchange drafts ? Is the converse true ? 


5. What is the occasion for foreign exchange? What is the 
typical example of the working of foreign exchange? 

6. What other factors besides the importation and exportation 
of goods give rise to transactions in foreign exchange? 

7. Why are banks able to sell foreign exchange? 

8. What is meant by the discount rate? 

9. What is the mint par of exchange? How is it determined 
between any two countries? 

10. What is the commercial par of exchange? Why does it 
fluctuate ? 

11. What are the gold points? 

12. What is the determining factor in fixing the rate of ex- 
change between two countries? 

13. Outline the causes of the extreme fluctuations in exchange 
between England and the United States during the period of the 
World War. 

14. What are some of the advantages of dollar exchange? 

15. Explain the need of reciprocal trade relations if dollar ex- 
change is to take the place of sterling. 

16. What is arbitrated exchange? 


1. What is meant by the balance of trade, and when is such a 
balance said to be favorable? 

2. What is the best proof of the unsoundness of the mercantile 
theory ? 

3. Explain the statement: "Exports and services rendered 
eventually balance imports and services received." 

4. Show the impossibility of paying great international balances 
in gold. How does an excess of gold in a country tend to decrease 
exports and stimulate imports? 

5. What was the relation between the excess of exports over im- 
ports of the United States in the thirteen years between 1904 and 
1 91 6 and the total supply of gold in circulation throughout the 
world ? 

6. What is the part that securities play in international trade? 

7. What was the total of our excess of exports over imports for 
the decade 1 900-1 909, inclusive? What did we receive for this 
immense sum ? 

8. Mention a period in our history in which we had an unfa- 
vorable balance of trade, and at the same time added to our stock 
of the precious metals. What does this illustrate? 


9. When is the foreign trade of a country said to be in equilib- 

10. Into what two divisions do countries having an excess of 
imports throughout many years fall ? In what case is such a bal- 
ance of trade improperly designated as unfavorable ? 

11. Into what two divisions do countries having an excess of 
exports throughout many years fall ? When does a lending nation 
become an creditor or capitalistic nation ? 

12. Trace the process of evolution of a typical nation through 
the four trade periods. Which period is the most desirable one ? 

13. What two alternatives now face the United States in regard 
to export trade? 


1. What government departments directly co-operate in the de- 
velopment of our foreign trade? 

2. Give a brief history of the consular service of the United 

3. Describe the consular service as organized in 1919. 

4. What are some of the various duties of consuls of the United 
States ? 

5. Name six publications classed under the general term of. con- 
sular reports. 

6. State specifically just what aid American consuls give ex- 
porters and importers. 

7. What are the two most important publications of the Bureau 
of Foreign and Domestic Commerce, and what information does 
each contain? 

8. What is a special agent? Outline his duties. 

9. What specific services are rendered by foreign-trade advisers ? 

10. To what extent does the diplomatic service aid foreign 
' trade ? 

11. Discuss the value of commercial treaties. 


1. What was the position of the United Kingdom in foreign 
trade in 1913? 

2. What were the economic poHcies that contributed to the 
commercial supremacy of the United Kingdom? 

3. What influence has the merchant marine exercised in the de- 
velopment of England's commercial life? 


4. How did the rapid development of manufacturing influence 
the foreign trade of the United Kingdom? 

5. What effect has England's free- trade policy had on her com- 
mercial position? 

6. What arguments are now used in favor of a protective policy ? 

7. How did her foreign investments help develop her foreign 
trade? Give examples, one or more. 

8. What is notable about the foreign trade of the United King- 
dom between the years 1880 and 1913? During this period was 
the balance of trade favorable in fact or in name? 

9. What part has the re-export trade played in the developing 
of British trade? 

10. What percentage of British imports is made up of food- 
stuffs ? 

11. What five items comprise three-fourths of the exports of 
the United Kingdom? 

12. What policy, consistently followed, has made British mer- 
chants impregnable in their own field? 

13. Discuss the direction of British trade. 

14. How was the foreign-trade policy of the United Kingdom 
affected by the war? 


1. What peculiar conditions made foreign trade vitally essen- 
tial to Germany? 

2. Describe in detail the system which Germany organized for 
the building up of her foreign commerce? 

3. Name the five principal factors in this system. 

4. How did government control of railways and waterv/ays con- 
tribute to the development of foreign trade in Germany? 

5. Explain the operation of the syndicates. 

6. To what extent did Germany's banking system co-operate 
for the general good? 

7. What was the chief factor in Germany's bargaining tariff 
and how did this operate? 

8. In what respect did Germany's foreign trade resemble that 
of England's? 

9. What was the character of the bulk of Germany's imports? 

10. What factor was influential in the development of German 
manufactures ? 


11. What nation was Germany's best customer, and from what 
nation did she purchase the bulk of her imports? 

12. What effect will the reparation payments assessed against 
Germany have on her future in foreign trade ? How will she meet 
these payments? 


1. How does France differ from England and Germany in her 
attitude toward foreign trade? In what class of exports does she 
excel ? 

2. What products do the United States and Italy interchange? 

3. What is peculiar in regard to the foreign trade of the Nether- 
lands ? 

4. What factors conspired to give Belgium an important posi- 
tion in foreign trade? 

5. What products do we obtain from the Italian peninsula? 

6. What trade probabilities does Russia offer? 

7. What are some of the advantages of our close relations with 
Canada ? 

8. What latent resources in Mexico await development? 

9. Why is the development of trade with the South American 
countries important to the United States? 

10. What are the leading exports and imports of Australia? 

11. Speak of the commercial development of Japan. 

12. What change in China's industrial life seems imminent? 
How may this affect the trade of nations? 



Chu, Chin. The Tariff Problem in China. New York, 1916. 

(Studies in history, economics, and public law, ed. by the 

faculty of political science of Columbia University, vol. 72, 

no. 2.) 
CosTiGAN, E. P. Economic Alliances, Commercial Treaties, and 

Tariff AdjusUnents. In American Economic Review, vol. 8, 

March, 1918, sup., pp. 281-296. 
Emerson, G. Tariff in Relation to Foreign Trade. Academy of 

Political Science. Proceedings, vol. 6, pp. 168-173. October, 

FiSK, G. M. Internatioftal Commercial Policies, with Special Ref~ 

ereftce to the United States. New York, 191 1. 
Keliys Customs Tariffs of the World. 191 8. London, Kelly ^s 

Directories, Ltd. 
Reinoso, J. J. Is It Desirable and Possible to Establish Uniform 

Rates, Methods, and Classification in Port Changes, Custom 

Regulations, and Classifications Between the North, Central, and 

South American Countries? Pan-American Scientific Congress, 

Proceedings, 1915. Vol. II, pp. 36-56. 1917. 
U. S. Bureau of Foreign and Domestic Commerce. Consular 

Regulations of Foreign Countries. (Canada and Latin America.) 

(Revised ed., July, 191 5.) (Tariff series 24.) 
Supplements, May, 1916; April, 191 7. (Tariff series 24A, 

U. S. Bureau of Foreign and Domestic Commerce. Customs 

Tariff of Australia. June, 1918, 104 pp. (Tariff series 37.) 
U. S. Bureau of Foreign and Domestic Commerce. Customs 

Tariff of Chile, October, 191 7. (Tariff series no. 36.) 
U. S. Bureau of Foreign and Domestic Commerce. Customs 

Tariff of Cuba. 1911. (Tariff series 27.) 

Supplement. (Tariff series 27B.) 

U. S. Bureau of Foreign and Domestic Commerce. Customs 

Tariff of France. (Law of January 11, 1892, revised to August, 

1910, with supplement) (Tariff series no. 25, 25A.) 



U. S. Bureau of Foreign and Domestic Commerce. Customs 
Tarif oj Venezuela. (Tariff series no. 33.) 191 6. 

U. S. Bureau of Foreign and Domestic Commerce. Foreign 
Tarif Notes from February, igii, to December, igiy. (Re- 
printed from Daily Consular and Trade Reports (later Commerce 

U. S. Bureau of Foreign and Domestic Commerce. Tarif 
Systems of South American Countries. 1916. (Tariff series 34.) 

U. S. Department of Commerce and Labor. Bureau of Manu- 
factures. Customs Tarif of Italy. (Law of November 24, 1895, 
revised to July, 1908.) (Tariff series no. 15.) 

Italy. Changes in the Customs Tarif. 1909. (Tariff series 

no. isA.) 
-Italy. Tarif Changes in 1910. (Tarifif series no. 15B.) 

U. S. Department of Commerce and Labor. Bureau of Manu- 
factures. Customs Tarif of J'apan. (Revised to June, 191 2.) 
(Tariff series no. 28.) 

Supplement . . . Tarif Changes to July, 1913. (Tarifif 

series no. 28A.) 
-Suppkinent. October, 1914. (Tariff series No. 28B.) 

U. S. Department of Commerce and Labor. Bureau of Manu- 
factures. Customs Tarif of New Zealand. (Law of September 
25, 1907.) (Tariff series no. 8.) 

U. S. Department of Commerce and Labor. Bureau of Manu- 
factures. Export Tarif s of Foreign Countries. 1909. (Tarifif 
series no. 20.) 

U. S. Federal Trade Commission. Report on Trade and Tarif s in 
Brazil, Uruguay, Argentina, Chile , Bolivia, and Peru, June 
30, 1916. 




(Compiled by the Bureau of Foreign and Domestic Commerce, Department of 
Commerce, from the oflScial records of the various countries) 

(Years ending December 31, imless stated otherwise; imports for consumption 
and exports of domestic merchandise, gold and silver bullion and coin not included, 
unless stated otherwise.) 



Australia, Commonwealth 

oi f a 



Brazil h 


Canada e 


China a 

Cuba h 


Egypt a 




India, British i a e 


Japan k 

Mexico/ J 





Spain / 

Sweden / 


Union S. Africa d 

United Kingdom 

United States a g 

Uruguay he 

Venezuela g 






























t2, 131, 718,000 





a Includes domestic produce, b Final data, c Postal figures are for 1912. 
d Including bullion and specie and articles for Governments, e Years ending 
March 31. / Includes bullion and specie, g Year ending June 30. h Not including 
specie, i Government stores not included, j Imports through post-ofi5ce not in- 
cluded, k Excluding Formosa and Sakhalin. 










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Fiscal year 
ended June 30 

Exports from the United States to — 


Porto Rico 






























Fiscal year 
ended June 30 

Imports into the United States from — 

Cuba Porto Rico 




















The shipments of merchandise from the United States to Alaska ia 1916 were 
$26,502,311; to the United States from Alaska, $47,619,894. 


(Showing the great increase in plantation rubber, in tons) 












Other wild rubber 





(Bales of 500 lbs.) 






United States 



















Brazil and all others. 


(Bales of 500 lbs.) 






United States 

Great Britain 

Continental Europe. 

1 ,660,000 




All others 


(In bushels) 





United States 






















British India 




































(In thousands of pounds) 

Country producing 

Country consuming 

Brazil 1,490,715 

Central America 231,315 

Venezuela 121,350 

Colombia 136,500 

Dutch East Indies.. . . 63,799 
Haiti 57,594 

United States 1,055,089 

Germany 362,084 

France 304,813 

Austria-Hungary. . . 130,952 

Netherlands 85,955 

Beleium 93,250 

Sweden 63,744 

United States (Insular) 48,179 
British India 39,973 

Italy 88,102 

United Kingdom 32,723 

Denmark 31,967 

All others 343,000 


The following table, prepared by the Bureau of Foreign and Domestic Com- 
merce, Department of Commerce, shows the relative rank in tonnage movement of 
the principal ports of the world. Figures of coastwise trade are not included. 


New York a 

London g 

Hamburg b 


Hongkong- Victoria c 

Shanghai d.^ 

Rio de Janeiro 


Liverpool h 

Singapore e 







Entered tons 



Cleared tons 





a Fiscal year, b Includes only oversea navigation, c Exclusive of Chinese 
junks d Tonnage of vessels entered and cleared at the Maritime Customs, e Ex- 
clusive of native craft, warships, transports, yachts, and vessels under 50 tons. 
/ Excluding the tonnage of vessels that called for the purpose of coahng and or 
orders only, g Includes Queensborough. h Includes Birkenhead. 


Aden, foreign trade of, 8 

Africa, American war trade with, 

31. 34 

American Academy of Political 
and Social Science, 154 

American Manufacturers* Export 
Association, 194 

American Merchant Marine, need 
of, 66; early position of, 149 jf.; 
eflFect of steamships on, 150^.; 
effect of Civil War on, 151 ; de- 
cline of, 151 ffr, revival of, 

Amsterdam, wool marketed in, 

130; an Atlantic port, 156 
Antwerp, wool marketed in, 130; 

an Atlantic port, 156 
Argentina, wool imported from, 3 ; 

products of, 303; British trade 

with, 303; German trade with, 

303; French trade with, 303; 

American trade with, 303 
Asia, American war trade with, 

31. 34 

Asia Banking Corporation, 203 

Atchison, Topeka & Santa Fe 
Railroad, 145 

Australia, wool imported from, 3; 
wool produced in, 128, 130; size 
of, 305; population of, 305; de- 
velopment of, 305; products of, 
305; English trade with, 305; 
German trade with, 305; Amer- 
ican trade with, 30$ ff. 

Austria-Hungary, parcel-post in, 
80; trade of, 299 Jf. 

Balance of trade, definition of, 
232, 234; settlement of, 234/. 
Baltimore, an Atlantic port, 155 
Belfast, an Atlantic port, 156 

Belgium, re-export trade of, 50, 
298; manufacturing In, 297; 
American trade with, 298; prod- 
ucts of, 298 

Blessing of the Bay, 149 

Borneo, gutta-percha produced in, 

Boston, wool marketed in, 130; 
leather marketed in, 134; rail- 
road terminus, 144; value of 
trade of, 149; early trade of, 
150; an Atlantic port, 155 

Bradstreet, mercantile agency, 193 

Brazil, commission houses in, 91; 
rubber yield of, 135 #.; coffee 
produced in, 139; American 
tariff agreement with, 255 ; prod- 
ucts of, 304; German trade 
with, 304; American trade with, 
304; English trade with, 304 

Bremen, cotton marketed in, 98; 
wool marketed in, 130; an 
Atlantic port, 156 

Buffalo, commercial centre, 144, 

Bureau of Foreign and Domestic 
Commerce, 6, 78, 108 

Cairnes, 239 

California, ports controlled by, 

Central America, coffee produced 
in, 139; products of, 302; 
American trade with, 302 

Ceylon, tea produced in, 137 ff. 

Charleston, a railroad terminus, 

Chicago, wheat elevators in, 102; 
wheat marketed in, 103; a dis- 
tributing centre, 142, 144 ff.; 
a railroad centre, 147 




Chicago, Milwaukee & St. Paul 
Railroad, 145 

Chile, products of, 304 

China, American cotton used In, 
45; tea produced in, 137 jf-; 
silk produced in, 139; condi- 
tions in, 307; resources of, 307; 
products of, 308 

Christiania, an Atlantic port, 156 

Cincinnati, a commercial centre, 

Civil War, commerce afifected by, 

17, 151 

Clausen, John, 204 

Cleveland, a commercial centre, 

Coffee, American use of, 139; 
production of, 139; methods of 
growing, 139; methods of sell- 
ing, 140 

Collins Line, founding of, 250 

Colombia, coffee produced in, 139; 
products of, 304; English trade 
with, 304; American trade with, 

Colon, an Atlantic port, 155 
Commerce, origin of, i; control 
of, 2; transportation and, 4; 
effect of steam on, 5; growth of, 
6; use of aircraft in, 158 
See also United States, United 
Kingdom, etc. 
Consular service, requirements for, 
246 ; duties of, 247 ff. ; reports 
of, 249; foreign trade aided by, 

247 #• 
Copenhagen, an Atlantic port, 156 

Copper, 32 ; export of, 50 
Cotton, value of, 20, 29; Impor- 
tance of, 43 ff. ; methods of sell- 
ing, 94 Jf.; speculation in, 98^.; 
"future trading" In, 100 
Cuba, sugar produced in, 137 
Cunard Line, founding of, 250 

Day, Prof. Clive, 84 

Delaware, colonial industry in, 13 

Denmark, trade of, 299 

Department of Agriculture, 96 ff. 

Department of Commerce, for- 
eign trade aided by, 245, 254 Jf.; 
publications of, 253; agents of, 

Department of State, foreign trade 

aided by, 245 
Detroit, a commercial centre, 144 
"Dollar exchange," desirability 

of, 206; establishment of, 206; 

advantages of, 226 ff. 
Duluth, a distributing centre, 142, 


Dun, R. G., & Co., mercantile 
agency, 193 

Dutch East Indies, rubber pro- 
duced in, 136 

England, foreign trade built by, 
3; American colonial trade 
with, 13; parcel-post in, 80; 
tobacco tariff in, 106; tea im- 
ported by, 138; shipbuilding 
in, 151; credit system of, 200. 
See also United Kingdom 

Federal Reserve Act, need for, 
201 ; foreign trade provisions of, 
202 ; result of, 203 

Federation of British Industries, 

Finance Act of 1919, 277 

Fleming, William B., 248 

Food-stuffs, exportation of, 20 ff. ; 
importation of, 22 ff. ; value of, 
30 #. 

Fortnightly Review, 270 

France, foreign trade of, 6; In- 
dustrial balance in, 10; Ameri- 
can war trade with, 32; use of 
cotton In, 43, 98; parcel post 
in, 80; silk produced in, 139; 
monetary system of, 220; Amer- 
ican securities in, 242; tariff 
policy of, 265; British trade 
with, 275; American trade with. 



294, 296; trade situation in, 
294; self-sufficiency of, 294; 
manufacturing in, 295; prod- 
ucts of, 295; Argentine trade 
with, 303 
Frankfort, merchandise fair at, 

Galveston, cotton shipped from, 
98; export trade of, 149; an 
Atlantic port, 155 

Germany, foreign trade built by, 
3, 6, 279^., 287; cotton used in, 
43, 98; re-export trade of, 50; 
parcel-post of, 80; commission 
houses in, 92; tobacco used in, 
105; credit system of, 200; 
monetary system of, 220 ; Amer- 
ican securities in, 242; British 
trade relations with, 258, 274, 
289; manufacturing output of, 
263; population of, 263, 279; 
tariff policy of, 265 ff., 286 ff.\ 
organization of industry in, 280 
f.', banks of, 285; imports of, 
288; exports of, 288; American 
trade with, 298 ff.\ results of 
war in, 291 ff.\ Argentine trade 
with, 303; Brazilian trade with, 

Glasgow, merchandise fair at, 126; 

an Atlantic port, 155 

Gold, standard of value, 220; 
points, 221; shipment of, 224, 
236; trade balance settled by, 
234 ff.; amount of in circula- 
tion, 236; American importa- 
tion of, 242 

Gow, William, 176, 178. 

Granger railroads, 144 #. 

Great Lakes, 145 #. 

Great Northern Railroad, 145 

Great Western, 150 

Guaranty Trust Company, 82, 
192, 200; foreign branch of, 203 

Gutta percha, production of, 136; 
use of, 137 

Halifax, an Atlantic port, 155 
Hamburg, cotton marketed in, 

98; wool marketed in, 130; an 

Atlantic port, 156 
Havana, an Atlantic port, 155 
Havre, cotton marketed in, 98; 

an Atlantic port, 156 
Hawaii, sugar produced in, 137; 

cofifee produced in, 139; size 

of, 306; products of, 306; 

American trade with, 306 ff. 
Hides, 18, 33; importation of, 133 
Hong Kong, a Pacific port, 158 
Honolulu, 156 jf. 

India, rubber produced in, 136; 

tea produced in, 137 ff.\ silk 

produced in, 139 
Indianapolis, a commercial centre, 

Inland waterways, neglect of, 

145 #•; improvements of, 146; 

traffic on, 146^. 
International Banking Corpora- 
tion, branches of, 203 
International Trade Conference, 

Interstate Commerce Commission, 

Iron, 20, 30; importance of, 45#.; 

French manufacture of, 295 
Irving Trust Company, 192 
Italy, American trade with, 32, 
296; silk produced in, 139; 
monetary system of, 220; prod- 
ucts of, 296 

Jacksonville, a railroad terminus, 

Japan, American trade with, 31 
ff., 307; cotton used in, 45; tea 
produced in, I37 #•; silk pro- 
duced In, 139; rate of exchange 
in, 224; development of, 307; 
products of, 307 

Johnson, Prof. Emory R., 163 

Jones, Chester Lloyd, 172 

Joy, Benjamin, 201 



Kansas City, meat-packing cen- 
tre, 104; a central distributing 
point, 142, 145 
Kentucky, tobacco grown in, 105 
Kr on Prinzes sin Cecilie, 223 

Latin America, trade of United 
States with, 32, 34 ff., 52, 61, 
63 J?".; European trade with, 63 
jf.; commission houses in, 91; 
consular invoices in, 1 1 1 ; ex- 
change in, 185; interest charges 
in, 188; dollar exchange in, 228 

Leather, export of, 50; manu- 
facture of, 133/-; sources of, 
134 #•; control of, 134 

Leipzig, merchandise fairs at, 126 

Liverpool, cotton exchange in, 99; 
an Atlantic port, 156 

Lloyd's Association, I74#. 

Lloyd, Edward, 174 

Lloyd George, David, 277 

London, merchandise fairs at, 126; 
wool marketed in, 129; hides 
marketed in, 135; tea marketed 
in, 137; an Atlantic port, finan- 
cial centre, 215, 230 

Los Angeles, a Pacific port, 149, 


Los Angeles and Salt Lake Rail- 
road, 145 

Louisville, tobacco marketed in, 

Lyons, merchandise fairs at, 126 

Manaos, rubber industry in, 135 
Manila, a Pacific port, 156 
Marseilles, leather marketed in, 

Maryland, colonial commerce of, 


Massachusetts Bay Colony, 150 
Meat products, importance of, 46; 
war trade in, 47; methods of 
selling, 104; methods of ship- 
ping, 105 
Melbourne, wool marketed in, 130 

Mercantile Bank of the Americas, 

192; branch of, 203 
Mexico, coffee produced in, 139; 

resources of, 301; exports of, 

301 ; American trade with, 301^. 
Middle West, development of, 16; 

wool grown in, 132 
Milwaukee, Great Lakes shipping 

centre, 146 
Minneapolis, wheat elevators in, 

102 ff.] meat-packing in, 104 
Mississippi Valley, development 

of, 16 
Mobile, an Atlantic port, 155 
Montreal, an Atlantic port, 155 
Moody's Investors' Service, 225 

National Association of Manu- 
facturers, 193 #., 198 
National City Bank, 192, 203, 242 
National Shawmut Bank, 227 
Netherlands, re-export trade of, 
50, 297: American trade with, 
297; products of, 297 
New England, colonial commerce 

of, 14/. 
New Jersey, colonial commerce of, 

New Orleans, commission houses 
in, 91 ; cotton shipped from, 98; 
cotton exchange in, 99; coflfee 
marketed in, 140; a railroad 
terminus, 144; trade of, 149; 
an Atlantic port, 155 

New York, colonial industry in, 
13, 15; commission houses in, 
91; cotton exchange in, 99; 
wool exchange in, 130; belt- 
ing industry in, 134; silk mar- 
ket, 139; coffee market, 140; 
piers in, 148; foreign trade of, 
149; an Atlantic port, 155; 
clearing house in, 214 

New York Barge Canal, 146 

New Zealand, population of, 306; 
wealth of, 306 

Nizhi Novgorod, merchandise fairs 
at, 126 



Norfolk, a railroad terminus, 144 
Northern Pacific Railroad, 145 
Norway, trade of, 299 

Ocean freight, types of, 160; 
tramp steamers, 161; cost of, 
162/.; packing of, 168/. 

Oceania, American trade with, 31, 

Omaha, meat packing centre, 104; 

central distributing point, 142 
Oregon Short Line Railroad, 145 

Palsh, Sir George, 238, 267 

Panama Canal, 149, 156 ff. 

Pan-American Union, 303 

Paterson, N. J., silk manufac- 
tured in, 139 

Peck, William E., 189 

Pennsylvania, colonial industry 
in, 13, 15 

Penny, David H. G., 229 

Pensacola, railroad terminus, 144; 
an Atlantic port, 155 

Peru, products of, 304; American 
trade with, 304 

Petrograd, an Atlantic port, 156 

Petroleum, export of, 50; control 
of, 93 

Philadelphia, colonial commerce 
of, 13; wool market in, 130; 
leather trade in, 134; ownership 
of wharves in, 148; an Atlantic 
port, 155 

Philadelphia Commercial Mu- 
seum, 194 

Philippines, gutta percha pro- 
duced in, 136; sugar produced 
in, 137; products of, 306; 
American trade with, 306 

Pittsburg, a commercial centre, 

Portland, a Pacific port, 156 

Porto Rico, sugar produced in, 
137; coffee produced in, 139 

Portugal, commerce of N. E. 
colonies with, 14 

Quebec, an iVtlantic port, 155 

Railroads of the United States, 

mileage of, 143; growth of, 143; 

control of, 143; grouping of, 

144 Jf. 
Rate of exchange, determination 

of, 214; fluctuations of, 221, 

223; fixing of, 222^. 
Riga, an Atlantic port, 156 
Roberts, Elmer, 285 
Rotterdam, an Atlantic port, 156 
Rovensky, John E., 227 
Rubber, 18; source of, 135; 

American use of, 135; methods 

of selling, 136 
Russia, American trade with, 32, 

299; German domination of, 

299; products of, 299 

St. Louis, central shipping point, 

142, 145; commercial centre, 

Salem, early trade of, 150 
Samoa, a Pacific port, 157 
San Diego, a Pacific port, 144, 156 
San Francisco, silk market in, 139; 

a Pacific port, 149, 156 
Savannah, cotton shipped from, 

98; a railroad terminus, 144 
Seattle, a Pacific port, 156 
Shanghai, silk market in, 139; 

Pacific port, 156 
Silk, 32, 34; American production 

of, 138; importation of, 139; 

methods of handling, 139 
Smith, Adam, 9 
Smith, Henry B., 130 
Smith, J. Russell, 161 
Soo Canal, 146 
South America, North American 

trade with, 31, 303 
Southern Pacific Railroad, 145 
Spain, American trade with, 14, 

298; silk produced in, 139; prod- 
ucts of, 298 
Standard Oil Company, 19; sell- 



ing organization of, 71 Jf.; for- 
eign trade of, 72 

Stockholm, an Atlantic port, 156 

Suez Canal, I56jf. 

Sugar, 33, 35: American consump- 
tion of, 137; American importa- 
tion of, 137; control of, 137 

Sumatra, gutta percha produced 
in, 136 

Sydney, wool market in, 130 

Tacoma, a Pacific port, 156 
Tahiti, 157 

Tampa, a railroad terminus, 144 
Tea, production of, 137; methods 

of selling, 137 ff.\ methods of 

growing, 138 
Tobacco, 17; amount grown, 105; 

exportation of, 105; methods of 

selling, 106 
Toledo, a commercial centre, 144 
Treaty of Ghent, 16 

Union Pacific Railroad, 145 
United Kingdom, foreign trade of, 
6, 160, 258/., 270/.; American 
war trade with, 31 ff.\ cotton 
used in, 43 ff., 98; re-export 
trade of, 50 ff.\ commission 
houses in, 92 ; tobacco imported 
by, 105; monetary system of, 
219; rate of exchange in, 223 
Jf.; unfavorable balance of 
trade in, 236; American securi- 
ties in, 242; effect of war on, 
241 Jf., 275 /.; free trade in, 
259, 264; merchant marine of, 
260 ff.; manufactures of, 262 
ff.\ population of, 263; foreign 
investments of, 266 ff. ; imports 
of, 273; exports of, 273; dis- 
tribution of trade of, 274; Ar- 
gentine trade with, 303; Brazil- 
ian trade with, 304; Colombian 
trade with, 304 
United States, growth of manu- 
factures in, 6, 8, 16, 19 ff., 

263; products of, 8, 13 #., i9 
ff., 42 ff.; commerce of: co" 
lonial, 13, 150; effect of Consti- 
tution on, 15; effect of Na- 
poleonic wars on, is ff-', effect 
of War of 1812 on, 16; effect of 
Western development on, 16; 
effect of Civil War on, 16 ff.; 
growth of, I9#., 25, 51 /.; ef- 
fect of World War on, 28^.; re- 
export trade in, 36 ff.; 1919 
trade of, 38; favorable balance 
of trade in, 39 ff., 237 /. ; Euro- 
pean trade relations with, 51 ^., 
275, 289 ff.; Canadian trade 
relations with, 52, 300 if.; 
Mexican trade relations with, 
52, 301 ff.; South American 
trade relations with, 52, 303^.; 
Asiatic trade relations with, 53 
ff.; Australian trade relations 
with, 54; African trade relations 
with, 54 ff. ; imports of, 58 ff. ; 
parcel post in, 80; commission 
houses in, 85, 89; customs regu- 
lations in, 120 ff.; wool pro- 
duced in, 128; wool sold in, 132 
ff.; hides imported by, 133; 
leather industry in, 134; rub- 
ber imported by, 135 #.; rub- 
ber manufactured in, 135; sugar 
in, 137; tea imported by, 137 
ff.; silk Imported by, 139; con- 
sumption of coffee in, 140; sale 
of coffee in, 140; railroads in, 
143 ff.; inland waterways in, 
145 #•; ports of, 147/.; mer- 
chant marine of, 149 Jf.; over- 
seas commerce of, 160; freight 
packing in, iSgff.; rates of ex- 
change in, 221 jf.; consular ser- 
vice of, 245 ff. ; population of, 
263; tariff policy in, 255, 265; 
Central American trade with, 
302; West Indian trade with, 
United States Shipping Board, 



United States Steel Corporation, 
19; selling organization of, 73 


Vancouver, a Pacific port, 156 

Van Dyne, 248 

Venezuela, coffee produced in, 
139; products of, 304; Ameri- 
can trade with, 304 

Vera Cruz, an Atlantic port, 155 

Webb-Pomerene Act, 81 ^. 
Webster, Prof. William Clarence, 

264, 269 
West Indies, American trade with, 

i3#M 16; products of, 302 
Westerfield, 85 
Western Pacific Railroad, 145 

Wheat, export of, 48; methods of 
selling, loi ff. 

Winthrop, Governor John, 149 Jf. 

Wilmington, a railroad terminus, 

Wool, 18, 32; American production 
of, 128; markets of, 129 ff.\ 
methods of selling, 130 ff. 

World War, 6; internationalism 
affected by, 10; foreign trade 
stimulated by, 23, 28; prices 
affected by, 29; shipbuilding 
affected by, 102; rate of ex- 
change affected by, 222 ff.; 
financial position of United 
States affected by, 242; finan- 
cial position of England affected 
by, 276; financial position of 
Germany affected by, 291 ff. 

^^ 14 DAY USE 



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