Karl Pribram, Rearmament and a More Flexible Tariff Structure for the United States (1952)

Karl Pribram’s policy essay examines whether temporary American tariff reductions could relieve civilian shortages, restrain inflation, and improve allied countries’ dollar earnings during rearmament. He assesses the proposal through its legal requirements, the composition of imports, foreign productive capacity, and the consequences of discretionary trade policy. His alternative is selective, durable liberalization coordinated with the Atlantic allies’ continuing defense requirements.

In connection with the discussion of the Rearmament Program it has been suggested that a certain flexibility be introduced into the structure of our import tariff.

The issue is not simply whether tariffs should fall, but whether duties should change with economic conditions. Pribram considers prolonged rearmament without world war, in which military expenditure diverts resources from civilian uses. Imports might compensate for curtailed domestic production while absorbing purchasing power.

The outlook for the immediate years ahead is one of labor and material shortages, cut-backs in non-military production, and a persistent upward pressure on prices.

Yet the usefulness of additional imports does not establish the effectiveness of temporary concessions. Pribram first identifies a problem of authority: rapid adjustment requires administrative discretion, whereas existing emergency powers provide an uncertain basis for sustained reductions.

It is obvious that a system of flexible tariffs can be administered only by the Executive; the mills of the legislative bodies are grinding far too slowly to adjust tariffs to changing situations.

Congressional authorization would therefore be necessary, probably accompanied by safeguards for domestic producers. Such restrictions would narrow the program’s economic reach while exposing its operation to competing political pressures.

The empirical argument further limits the commodities for which tariff changes could matter. Duty-free goods already account for more than half of import value, and many dutiable imports face relatively low rates. American manufacturers’ competitive strength makes broad displacement by foreign finished goods unlikely. Strategic materials must often be imported regardless of duty, while foreign export restrictions and political decisions constrain other supplies. Where demand is strong and supply restricted, a duty reduction need not lower consumer prices. Agricultural supports and quantitative restrictions present additional obstacles.

Pribram consequently shifts attention from American demand to foreign capacity. Allied rearmament also absorbs labor, materials, and factories; unemployment alone does not guarantee an export response where investment capital is scarce. Temporary market access offers weak encouragement for investment in expanded production. Additional American purchases might merely divert exports from other destinations, while producers of scarce goods could retain tariff savings as profits. Better prospects lie in widely consumed goods requiring little additional investment or scarce material, and in products whose foreign cost advantages protection has neutralized. Domestic injury safeguards, however, would constrain precisely those concessions most capable of increasing competition.

These limitations qualify both the anti-inflationary argument and expectations of improved allied dollar earnings. Imports could improve civilian consumption, but Pribram doubts that the affected commodities would be numerous or important enough to restrain prices substantially. Restoring protection would introduce further uncertainty: uneven reconversion and domestic industrial pressure could produce selective increases, disturbing foreign relations and discriminating among trading partners.

The historical discussion situates this difficulty within a contrast between stable economic rules and continual administrative adaptation. Pribram traces the weakening of confidence in automatic adjustment through war, depression, bilateral bargaining, exchange controls, and Keynesian reasoning. His concern is that discretionary intervention privileges immediate pressures over uncertain long-term consequences. Alternating concessions and restorations could unsettle trade and conflict with the Trade Agreements Program’s orientation toward negotiated commitments, multilateralism, and nondiscrimination.

The conclusion separates the case for lower barriers from the case for reversible emergency measures. Assuming prolonged conflict with the Soviet Union and a continuing American role in supplying allied defense, Pribram favors negotiated reductions for indefinite periods on selected civilian goods. Domestic producers would have time to adjust, and foreign manufacturers could invest for dependable markets. Durable specialization within the Atlantic alliance thus offers a stronger foundation for civilian consumption, allied dollar earnings, and defense cooperation than repeated discretionary tariff changes.