Our task will be all the easier if world trade itself expands. Since the meeting of Prime Ministers on economic policy at the end of 1952, the Commonwealth as a whole has been working steadily to enlarge the volume of international trade and commerce. We have sought to do this in company both with the U.S.A. and with Europe.
My right hon. Friend the Foreign Secretary and I explained our policies both in Washington and in Paris early in 1953. We now have good reason to be glad that we took this initiative, because since then, we can look back on steady progress and on a general move towards more liberal trade and financial policies in the major trading countries of the world. Moreover, the Committee will, no doubt, have read the Randall Commission Report in the United States and the Message which President Eisenhower has recently sent to Congress.
It is not for me to prejudge or predict the action which the Congress may see fit to take. But I am encouraged, and I think that the Committee will be encouraged by the spirit of the President's message, and by his clear recognition that the United States has a vital interest in working towards the removal of restrictions on trade and towards the convertibility of currencies. This declaration of the Administration's attitude towards its long-term external economic policy is particularly heartening at a time when the current state of the United States economy is one of temporary decline— a decline on which the Committee will expect me to comment for a moment if we are to have a clear idea of what weather we are moving into this year.
So far production in the U.S.A. has fallen about as far as it did during the recession of 19487ndash;49; and we do not know whether it will fall further before it recovers. The sterling area could be affected in two ways. It might suffer some direct loss of dollar income; or, if a fall in activity in the United States were to lead to a reduction in commodity prices, a decline in prices and in comes might result in a general fall in trade and activity.
At Sydney, in January, the Commonwealth Finance Ministers were unanimous that we should try to ride the inevitable fluctuations of world trade without a return to restrictions on trade and payments. We also agreed that if all played their part in endeavouring to maintain a high level of trade, activity and employment—and it seemed reasonable to assume that they would—a moderate decline of activity in the United States could be prevented from having serious repercussions elsewhere. The implications of the present decline in United States activity for the rest of the world must, however, be closely watched. A Chancellor of the Exchequer is liable to have held against him any views which he may voice, however carefully he may qualify them. But I think it my duty to the Committee to give my impressions on this subject.
My own opinion, then, is that business confidence, both in the United States and elsewhere, has been remarkably robust, and that the decline which has taken place has been so orderly and gradual as to support the view that the recession is predominantly due to stock—or as the Americans call them, "inventory "— adjustments. A decline so caused should be self-correcting if there are no secondary effects, of which as yet there is little sign. If, however, secondary effects should begin to show themselves, then I believe that the United States Government would take steps to check any serious decline, just as I would expect any Government in this country, faced with similar internal developments, to take such steps. In short, while I believe that we should be prepared for any changes, I think that neither the facts up to now, nor the balance of probabilities, should lead us to expect the worst.
The world-wide damage caused by some previous recessions has been due mainly to the cumulative effects which a contraction of economic activity in any one sector exerts, with multiplying force, as its centre of infection spreads. But the effects of the current decline on the rest of the world have so far been much less severe than previous experience would have led us to expect. There are two reasons for this. The effects have undoubtedly been softened by the continued flow of U.S. military and other expenditure, and by the remarkable stability of commodity prices generally. But a good share of the credit is due to the policies adopted by the Sterling Area as a whole, following our various Finance Ministers' meetings, to check inflation and to promote sound development. In the event, progress in the sterling area has so far been slowed down rather than halted or reversed. Exports to the dollar area have shown some reduction; but our central reserves, along with those of many other countries, are still rising.
The Committee will no doubt have been heartened, as I was, by the increase in the gold and dollar reserves in March, the largest increase that we have had for a year. But this does not justify our discounting the various forces which, as I have explained to the Committee, may develop to the damage of our external account. It may be only in the second half of the calendar year that their effect will be felt; and it is then, in any event, that we normally have to face seasonal pressure against the balance of payments, of both the United Kingdom and the whole sterling area, with the rest of the world. Our best insurance against any such risk is to be prepared to take action, if necessary, both internationally and at home. Overseas, we must act, together with our friends and the great organs of international economic co-operation, to maintain our mutual credit and trade. At home we accept the responsibilities, defined in the White Paper of 1944, to keep up employment and, with due regard to the needs of our balance of payments, to use our resources to the full. Nor should I hesitate to reconsider my budgetary policies if I thought that this was required. We should therefore view the future with resolution rather than despondency.