NEW ZEALAND. The United Kingdom's trade with New Zealand is shown in the following table, items of over £1,000,000 being separately listed: THE UNITED KKINGDOM'S PRINCIPAL IMPORTS FROM AND EXPORTS TO NEW ZEALAND, 1913-1917.1 1Annual (and Monthly) Statements of Trade of the United Kingdom. It is noticeable that the five items specified make up nearly the entire amount of the total imports from New Zealand. All of the items have increased in value during the war, although mutton and wool show considerable declines in quantity in 1917. The United Kingdom's export trade with New Zealand comprises a long list of manufactured articles, only two of which amount to £1,000,000 or better, however. t a ( VIII. FINANCE. INTRODUCTION AND SUMMARY. During the war the goods imports of the United Kingdom have greatly increased in value, and in 1918 the total was more than double that of 1911; on the other hand, the total value of the exports during the war has scarcely been maintained at the pre-war level. This situation has meant that the balance of merchandise trade against the United Kingdom during the period 1914-1918 has been approximately 2 billions sterling. It has been generally supposed that this condition of affairs has seriously disturbed the United Kingdom's position as the great creditor nation of the world; but an analysis of the situation does not support this impression. The war has indeed been a serious strain upon the British financial structure, but this strain appears to have been weathered without impairing to any marked degree the international position of the nation. It is true that Great Britain has borrowed vast sums abroad during the war. Security flotations in foreign countries have yielded over £200,000,000, and credits extended to the United Kingdom by foreign Governments now total approximately a billion pounds sterling. But the fact is not generally realized that during this same period the British Government loaned to its less favorably situated Allies-Russia, France, Belgium, Italy, Serbia, and others the huge sum of £1,700,000,000, an amount greater than the foreign borrowings by over 30 per cent. At the same time, however, the United Kingdom has been obliged to collect and sell a considerable part of the foreign securities privately owned before the war; and certainly the claims against Russia and some of the other nations involved can hardly be said to be the equivalent, dollar for dollar, of the securities disposed of. Still it should be emphasized that the United Kingdom in large measure has been able to pay for imported goods currently by means of interest payments due and the earnings of the British fleet. In other words, the position of the United Kingdom as it stood before the war has not been fundamentally altered. The United States during the war has, of course, strengthened its international financial position, in that our Government has extended enormous loans to Great Britain and the other Allies. We have been exporting capital, while the United Kingdom has not quite held its own in this respect. Relative to the United States, then, the position of the United Kingdom as a creditor nation has been weakened during the war. That this condition is not a permanent one, however, can easily be seen; and a renewed flow of capital from Great Britain to America, Africa, and elsewhere seems very likely after a few years. Conceivably the United States may have become permanently a net exporter of capital, but this country, with its relatively sparse population and tremendous natural resources, still appears to be one of the most promising fields for investment in the world. The expenditures of the British Government for the years 19141918 total the enormous sum of about £10,000,000,000, an amount equal to around 75 per cent of the entire national income or "dividend" for the five years before the war (as estimated by some authorities) and equal to more than ten times the amount the public expenditure would have been at the pre-war rate (£197,492,969 in 1913-14). Of this amount £2,389,000,000 has been raised by taxation, the balance by borrowing. The interest charge on the present debt is in the neighborhood of £300,000,000 per year. It is difficult to see how this debt could be much further expanded without the introduction of schemes of taxation verging upon virtual repudiation. The gold monetary standard has been maintained during the war only formally. Actually the interference with redemptions, the arbitrary control of gold movements, and other measures virtually amounted to the suspension of the gold standard of payments in either foreign or domestic transactions and the substitution of a fiat standard. A removal of unusual restrictions is contemplated as soon as conditions with respect to foreign trade and credit deflation will warrant it. The maintenance of an adequate gold reserve is insisted upon by financial circles, however, and measures are being advocated to insure such a reserve. THE TRADE BALANCE OF THE UNITED KINGDOM. The balance of merchandise trade has for many years been unfavorable to the United Kingdom. The United Kingdom has been an importer of foodstuffs and industrial raw materials on a tremendous scale, and the exports of cottons, machinery, coal, etc., have not been equivalent in value to these imports. The average net excess of imports of merchandise for the years 1911-1913 (see the following table) was £134,291,000. There was some increase in 1914, and for the years 1915-1917 the average was £393,343,000. In 1918 net imports totaled the huge sum of £789,909,497, nearly 600 per cent of the pre-war average. The following table shows the United Kingdom's merchandise trade balance for the period 1911-1918: THE UNITED KINGDOM'S IMPORTS, EXPORTS, AND NET IMPORTS, 1911-1918.1 1 Annual (and Monthly) Statements of Trade of the United Kingdom. 123,279,095 145,679, 501 133,914, 413 170, 439, 590 367,962, 721 344, 660, 607 467, 407, 471 789, 909, 497 It appears from the foregoing table that the United Kingdom has had an unfavorable merchandise trade balance for the entire period under consideration, but it should not be concluded therefrom that Great Britain, either before or during the war, has occupied a weak financial position. In fact, just the reverse is the case. In normal times an excess of goods imports over goods exports indicates a strong financial position internationally, or, in other words, a creditor nation. Since trade in the broadest sense must be reciprocal, a country buying more goods than it sells pays with services ("invisible" exports), and the use of capital is one of the more important of such services. The United Kingdom, as a matter of fact, is the great creditor nation of the world. The holdings of foreign securities and other properties by nationals of the United Kingdom before the war totaled about 4 billion pounds sterling, and the interest or income on this foreign investment amounted to £195,000,000 per year. Another invisible export of great importance is the transportation service furnished to foreign countries by the British merchant marine. The payments made for the carriage of foreign goods (and passengers) in British bottoms in 1913 amounted to £135,000,000.3 This last item alone would cancel the normal unfavorable merchandise balance. To prepare an even approximately accurate account of the United Kingdom's international financial position in a given year would be impossible; too many items are involved for which no reliable statistics are available. There are other invisible items in favor of the United Kingdom, such, for example, as the services furnished foreign travelers and the remittances sent to the United Kingdom by her nationals or others abroad. Further, all of the items mentioned appear to some extent on the other side of the account-that is, various services are furnished to the United Kingdom by nationals of foreign countries and there are no reliable estimates available of the amount of these services. It can be said, however, that their amount is very small in comparison to the like sums due the United Kingdom. Making arbitrary deductions for contra items from the amount of interest payments and carriage charges as given above, the following account may be said to represent approximately the United Kingdom's foreign trade position in a normal pre-war year: Merchandise imports...... £725, 000, 000 | 175, 000, 000 900, 000, 000 Merchandise exports..... £595, 000, 000 175, 000, 000 130, 000, 000 900, 000, 000 It may be concluded, then, that before the war the United King a transaction very favorable financial position with respect to foreign transactions, and that the credits in her favor were sufficient not only to liquidate all purchases but to leave available for new investment abroad about £175,000,000 per year as well. During the war the situation has been much less favorable. Imports have increased nearly 100 per cent (comparing 1918 figures with those for 1911), while exports have remained just about constant (with respect to quantities, exports have, of course, been cut down and imports have been considerably increased). Further, although freight rates have been high, it is doubtful if the average See an article written by Hartley Manners in the London Observer under date of Dec. 15, and quoted in Financial America, issue of Jan. 16, 1919. Based on data furnished by Chase National Bank, of New York City. A financial review recently issued by Barclays Bank, of London, gives the actual favorable trade balance (or the amount available for foreign investment) in 1913 as £226,000,000. amount due for carrying foreign goods during the last five years has been maintained at the pre-war level. Great Britain has had to commandeer a considerable part of her merchant marine for carrying her troops, munitions, and for other strictly military purposes; and it must be remembered that the losses of British shipping during the war have totaled over a third of the entire pre-war tonnage. Accordingly, while other nations, such as Japan, have been in a position to profit by the shipping situation, the position of the United Kingdom has been less favorable than before the war. Due to these facts (and other considerations, some of which will be discussed later in this chapter) the pound sterling has been somewhat depreciated in the United States, Japan, and other countries from which large imports have been received, and the maintenance of satisfactory trade relations has been made correspondingly difficult. Various measures have been required to meet the situation. Securities and other foreign property holdings to a considerable extent have been either liquidated outright or used as collateral for credits abroad. British securities have been floated in foreign countries and loans have been secured from foreign Governments, particularly the United States. There has been some small outward movement of gold. By means of these various expedients it has been possible to maintain imports at a satisfactory level, although the merchandise trade position has been continually growing less favorable; and at the same time Great Britain has been able to extend a very large volume of credits to her less favorably situated Allies and smaller amounts to the colonies. In the following section the situation during the war will be considered in more detail. FOREIGN FINANCE, 1914-1918. An examination of the table presented in the preceding section shows that the total merchandise balance against the United Kingdom for the five years 1914-1918 is approximately 2 billion pounds sterling. This sum must have been covered by shipments of gold, services furnished, sales of foreign properties, or credits secured abroad. These topics will be discussed in the order named. A country which produces gold is in a position to exchange gold for commodities. Gold in such a case is virtually merchandise, whether shipped in the form of bullion or coin. Great Britain produces insignificant quantities of the yellow metal, the annual output averaging less than £1,000 in recent years, although her commercial and political control of the Rand gold-producing district of South Africa (and other factors) has made London a great gold market. Shipments of gold from the United Kingdom to liquidate bills of exchange arising from foreign purchases, accordingly, must be reexports or must be made at the expense of the domestic holdings in coin, bullion, or other forms. 1 No data are available to show the earnings of the British fleet during the war. Barclays Bank, of London, in reviewing the British exchange and trade situation, estimates that higher freight rates have offset the reduction in tonnage available for foreign account. |