Poland, the effect on their economies will be very serious, unless they can get the coal from somewhere else.

I had a representative of a European country call on me just the other day about their problem with respect to the negotiation of a trade agreement with Russia. They were very eager not to negotiate a new one. It had in it a small amount of aluminum, for instance, and they just didn't like to send that to Russia, although aluminum is not a particularly scarce item in Russia. But they are getting 75,000 tons of wheat from Russia in exchange for these things which thev send there. And he came in to me and said, "Now, how will we handle our wheat requirement?" And that is the heart of the problem that these countries face.

It is hard to figure what would be involved in replacing these things that come from Eastern Europe. They probably total in cost, that is, the ones I have been listing, about $500 million, if they were to be supplied from whatever other places they could be supplied from. Of course, the European countries themselves would have the benefit of what they are now shipping to Russia, and to the extent to which they could find markets for these things that would be a net against the $500 million. But the sources of items is a very real problem.

ITALY'S TRADE AGREEMENT WITH RUSSIA

I was going to throw in this Italian matter, because it is a perfect illustration of this. Maybe I will at this point.

There is a good deal of criticism about a shipment of some things to Italy, and without getting into too much detail on it at the moment but just giving it as something to illustrate the point I am making, Italy has a trade agreement with Russia, and in that trade agreement they did include 60 small locomotives of 35 tons each, some cranes, and an electric generating plant, all of which people have questioned.

Now, I might say that as far as these things are concerned, the tugs are small tugs and haven't been listed as an item that could not be shipped to Russia on any international list. The powerplant is a powerplant of 500 horsepower and has no similarity at all to the 200,000powerplant that ECA is financing in Italy. And, by the way, what they wanted from me about that when they came in was some steel beams which they are having trouble getting from Bethlehem Steel with respect to the construction of the boiler room part of the powerplantnothing to do with the generating capacity. As to the cranes we have in our listing, cranes over 30 ton capacity are embargoed, and 10 to 30 are on the list of control if in any considerable quantities. These particular cranes that are in the Italian trade agreement are 5 ton and 711⁄2 ton cranes.

This trade agreement was carefully discussed with ECA before it was agreed to, and ECA agreed to it for the simple reason that in that agreement Russia agrees to send to Italy 200,000 tons of iron

20,000 tons of manganese, 2,500 tons of asbestos, 100,000 tons of pig iron, 75,000 tons of steel ingots, 100,000 tons of petroleum, 300,000 tons of copper, 800 tons of nickel, and 300,000 tons of wheat. Now, this is really the problem that one faces with respect to the East-West trade in Europe.

Mr. BATTLE. Why can it not be told that very important strategic things are coming back in return?

Mr. THORP. I think that can be told, and one thing I hope this committee will do is take a look at this.

Mr. JUDD. And those figures are not secret, are they?
Mr. THORP. No; they are not secret.

IMPORTANCE OF JAPAN'S PRESENT TRADE WITH CHINA

Now let me give another case that is still more dramatic, I think, than this Italian one. Japan's policies are to a large extent being directed by Gen. Douglas MacArthur. General MacArthur has followed U.S. policy with respect to shipments to China. During the period in which we had a positive list of certain things that could not be shipped to certain countries, that applied to Japan. When we put the complete embargo on trade between Japan and China, so far as we know—and I think we have full information-that was not done by Japan, for a very simple and obvious reason. Japan gets soy beans and coal from China, and General MacArthur, in adding up the situation and I am sure he is right in his conclusion-felt that the rayon cloth, the cotton cloth, even the machinery, going to China from Japan and the various things received back from China, were such a net gain to Japan that trade should go on, and even though American soldiers are fighting with Chinese soldiers, General MacArthur did not put an embargo on the Japan-China trade. Now, he has cut out these items of military significance, the military potential items, but he has had to balance the overall situation, and trade is still going on between Japan and China.

Mr. HOLIFIELD. Is it not true that the greatest long-range problem we have in the rehabilitation of Japan is an outlet for its manufactured articles?

Mr. THORP. Two things. You are right on half of it. It is the outlet for her manufactured articles, but an inlet for raw materials and food.

Mr. BATTLE. The biggest problem for Japan is to keep from being taken over by the Communists.

Mr. HOLIFIELD. Of course; that rehabilitation of Japan is the greatest thing to keep it from going Communist.

Mr. BATTLE. Being overrun by Communist armies, I meant. Mr. THORP. But Japan's problem is to get sources of power. She has got to get fuel oil; she has got to get coal; and she has got to get food. These are essential requirements to keep Japan going.

PRESENT WESTERN EUROPEAN TRADE WITH SOVIET BLOC

Now, actually what has happened as far as the European countries are concerned is that their trade is somewhat less. The trade is about 40 percent of what it was prewar, the biggest shift being Germany, which was a very substantial contributor to it before. It reached a point last year and the year before last, 1949, where the Soviet bloc shipments to Western Europe were about $1 billion and the shipments from Western Europe back to the Soviet bloc were about $850 million. The figures for this last year may run perhaps $200 million or so less than those figures, both imports and exports. We haven't the final figures; figures are awfully difficult in this field anyhow, because you have to pull them out of each country's statistics and add

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them together, and it is a hard job to get the right figures. There are different currencies and all that sort of thing.

SIGNIFICANCE OF IMBALANCE OF TRADE

Mr. JUDD. How is the unbalance corrected, the $150 million difference, if I have the figures right?

Mr. THORP. Well, what is happening is that on that balance to some extent it is piling up credits. That is, these trade agreements allow a little leeway but, in part, it is a settlement that is made in dollars or gold or whatever may be the understanding.

Incidentally, that reminds me of a point that I think the committee also ought to have in mind, on which I think there is a lack of proportion at any rate.

A good many people in this country are very much concerned about the fact that we have been buying from Russia more than we could sell to Russia; therefore, Russia has been netting dollars in her trade with us; and they think those dollars are dangerous, because obviously dollars are useful for subversive purposes. That is perfectly true except for one thing, which it is important to realize; namely, that in her Western European trade, there is maybe $150 million or so net.

In back of that is the fact that Russia and several of her satellites are substantial gold producing countries. At the present time, Russia undoubtedly is second to us in her gold holdings in the world. It runs into several billions. We don't know how much, but maybe 4 billion or 3 billion. I could get an estimate, if you are interested in it, from people who know more about it than I do.

So that from the point of view of achieving anything by preventing them from having this $35 million that they get out of trade, it is irrelevant, or it is very small as compared with the availabilities.

MOVEMENT OF GOLD AND DOLLARS

Mr. HERTER. When Russian gold is offered, we have to accept it, do we not?

Mr. THORP. Well, at the present time we accept gold that comes in from anywhere.

Mr. HERTER. We do not try to identify the source?

Mr. THORP. We don't try to identify it.

May I go off the record, please?

[Discussion off the record.]

Mr. HOLIFIELD. Is it not true that the world price for gold is higher than our offering price?

Mr. THORP. Oh, yes, it is selling at a premium. It is around $44. Mr. HOLIFIELD. Where would there be any advantage to Russia in selling us the gold when she could go into the world market and sell it for more?

Mr. THORP. That is right.

Mr. JUDD. But can she sell it for more dollars?

Mr. THORP. Yes, almost anywhere except in the United States. Our price is around $37, and you can get $44 for gold almost anywhere around the world at the present time.

Mr. JUDD. Who has the dollars to give her?

Mr. THORP. A lot of those dollars are good American dollars that have gone out to be put in safekeeping in some other country where they think perhaps it is better to have them. Other dollars are dollars building up in foreign countries where they have surpluses because of their earnings on raw materials.

Mr. BATTLE. You mean by private citizens, Mr. Thorp? In the first instance you were talking about where American dollars were going out to foreign nationals?

Mr. THORP. Maybe a foreign national who has kept his money in the United States and now decides to put it in Uruguay and keep it there for a while. He pulls his dollars out and puts them in Uruguay, and in Uruguay he decides to keep them in the form of gold.

Mr. RIBICOFF. Is there any question of the advisability of blocking that, if the flight got too bad? Has any consideration been given to that, Mr. Thorp?

Mr. THORP. I think it is better to think of the cause of its flight, rather than to put a fence down.

Mr. HOLIFIELD. It would accelerate the flight if some restrictions were put on it?

Mr. THORP. In fact, even if people thought we were contemplating it, it would probably accelerate it. To come back to the trade

Mr. RIBICOFF. I just wanted to interrupt again. To what countries are these dollars going, as far as you can determine?

Mr. THORP. I don't know that I could give you a very good answer. I have heard the statement as of several months ago that quite a lot were going into Mexico. I have also heard that they are going into Uruguay.

Harold, do you know of other places?

STATEMENT OF HAROLD F. LINDER, DEPUTY ASSISTANT

SECRETARY OF STATE FOR ECONOMIC AFFAIRS

Mr. LINDER. NO; I don't. There has, of course, been a good deal of movement of dollars to Canada, a great deal of movement. For the most part, however that movement has represented genuine capital investment by Americans in Canada, maybe stimulated to some extent by the fact that they felt the money was a little bit safer. But for the most part it has been invested in productive enterprises in Canada and has not been the same kind of flight capital that the other has been.

Mr. HERTER. Is not gold going out at the rate of about $1 billion a year now?

Mr. THORP. It is going out at more than that. This last year we lost about $1,400 million. I think, and most of it in the last part of the year. I have heard estimates for the current year that may run as high as $3 billion. In fact, I have heard estimates higher than that, but the highest that I would regard as a responsible estimate puts it at about $3 billion. This is against a figure of our own gold holdings, which are in the neighborhood of $23 or $24 billion.

Mr. HERTER. At what point do our gold holdings go below the reserve that is actually required under the currency laws?

Mr. THORP. I would have to look that up. I used to know, but I don't remember.

Mr. HERTER. Did we not check that figure up a year or two ago? Was it not lowered at one point?

Mr. THORP. Yes; I think so. I have a feeling that the required amount now is perhaps in the neighborhood of $10 or $12 billion. Mr. HERTER. The total required?

Mr. THORP. The total required amount.

Mr. HERTER. By the Federal Reserve?

Mr. THORP. Yes, but I would like to check that. It is an interesting question, and I would like to know.

Mr. HERTER. The gold figure always used by the Treasury is the outflow of gold as against bank loans in this country, from the standpoint of measuring the inflationary or deflationary situation. But that has nothing to do with this.

Mr. LINDER. A good deal of that has been the transfer of earmarked gold held by foreign central banks. And actually a good deal of it does not leave the country. It is merely a general deposit where the Swiss suddenly say, "Earmark that for us and put it aside." I think it is also something which it might be interesting for the committee to realize, that over the years, that is the war years and the postwar years, there has been a substantial accumulation of dollar bills, I suppose, all over the world, because it has been the best thing that people in countries, where there has been violent inflation going on, have had to hoard. For a long time there was not a premium on gold as such. And as people traveled and as soldiers left money behind and armies of occupation left money behind, you do get an accumulation of dollars, actual currency, outside of the country.

LACK OF UNIFORMITY IN TRADE POLICIES

Mr. THORP. Now to come back to this general situation on trade. I have talked about it in general terms. and I would like now to come down to some of the more specific problems that are involved.

One is the fact that there is by no means uniformity among the different countries of Europe with respect to this.

NATO COUNTRIES

So far as the NATO countries are concerned, they have agreed that they will, in addition to the tests that have been applied up to now, also give priority to their own requirements to a degree that they have not done before; so that as to anything that is required as a material for military production in Western Europe, there will be no question about its moving out.

Mr. VORYS. I do not see what you mean by that.

Mr. THORP. What I mean by that is that a country, let us say Belgium, might have had in a trade agreement with Russia provision for a certain amount of copper going to Russia. Well, copper is clearly something that is required in connection with the whole military operation, and so that automatically now becomes an item, even though in the past they may have felt that it was necessary to have some small amount of copper in their overall negotiation with Russia. As a matter of fact, it means merely a tighter treatment and an extension further into the raw materials field than we went before.