New-York tribune., 1919-03-23
AE

AE Al
This looks as if we were abort
to become technical, but BI stands
merely for British importer, BE for
British exporter, AE for American
exporter and Al for American i'm
porter. The line is nothing less
than the Atlantic Ocean. Now, it
becomes clear that if BI buys a
bill of goods from AE, either one
of two things happens: Either AE
draws a bill upon BI for the
amount, or BI makes remittance
to AE. In the first case the Ameri
can exporter loses, for his claim
on London can be sold only at a
discount. In the second case the
British importer loses, for he has
to pay a premium to make the re-
mittance-
1t is not so simple as that, for. of
course, the question of who bears
the loss cannot be dependent upon
how the bill happens to be paid, for
the British importer, knowing he
Will have to pay premium to make
remittance, will want the premium
taken off in a lower price for the
goods, and the American exporter.
1T he has to pay the premium, will
want to make up his loss by adding
1T to the price of his goods. There
Will be an effort on both sides to
shift the burden on to the other side.
This shifting will not always be pos
sible. 1t will depend a great deal on
the nature of the goods and the COM
petition they will or will not have to
meet in the foreign market. There
is an Incidence" to be traced here
just as there is an incidence in tax
alton. But in any case your Ameri
can exporter will have to decide
whether he wants to make the Brit
ish buyer pay the whole premium on
the dollar, in which case the British
buyer will purchase good deal less
from him, or he must decide
whether he will shoulder a little bit
of the exchange burden itself-that
is to say, whether he will accept a
cut in the margin of his profit for
the sake Of maintaining his sales.
But if both sides lose, the problem
of who gains the premium seems to
become more elusive than ever. The
banker does not gain it. He sells the
remittance to the British importer,
but in order to be able to sell it he
has to buy bills from British ex
porters and pay them the premium.
The banker is merely go-between.
But at last we have traced who gets
the premium that the British i'm
porter loses. 1t is the British ex-
porter. And the same is true in
America. That is, the British ex-
porter gains at the expense of the
British importer and the American
importer gains at the expense of the
American exporter. Foreign ex-
change is in essence and purpose a
process Of settling claims, or can
ceiling claims against each other, on
your own side of the water.
We are now prepared to see the
result of this. The exchange rate
tends to bring trade back to normal
that is, it tends to make the value
OF imports, visible and invisible, be-
tween two countries equal the value
OF visible and invisible exports. But
as the countries Of Europe have been
industrially disorganized by war
they are not in a position greatly to
increase their exports in the near
future. Therefore, the tendency of
the adjustment" will be, not to
bring our imports up to our ex-
ports, but to bring our exports down
to our imports. This can be pre-
vented IN only one way--by extend
ing credit to these countries until
they can get their industries into
shape to repay us ultimately in
goods. This credit can be extended
in number Of forms government
loans, private loans, short.tima &C.