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FEDERAL RESERVE

THIS

ISSUE

Some Aspects of
United States Foreign
Trade and the
Kennedy Round . . .

A Note on Bank Deposits
and Bank Credit
in 1 9 6 5 -1 9 6 7 . . .

B A N K OF C L E V E L A N D

Additional copies of the ECONOMIC REVIEW may
be obtained from the Research Department, Federal
Reserve Bank of Cleveland, P.O. Box 6387, Cleveland,
Ohio 44101. Permission is granted to reproduce any
material in this publication.

SEPTEMBER 1 9 6 7

SOME ASPECTS OF UNITED STATES
FOREIGN TRADE AND
THE KENNEDY ROUND
The recently completed Kennedy Round of
trade negotiations perhaps represents the
high mark in the overall trend toward liberal
ization of United States foreign trade policy
that began in the early 1930's. That trend, in
effect, involves a gradual but steady reduc
tion of artificial barriers to foreign trade,
which will be assisted importantly in 1972 by
the final stage of tariff cuts under the Ken
nedy Round. The purpose of this article is to
review briefly both United States foreign
trade policy and United States foreign trade
patterns, as well as to provide some perspec
tive on the Kennedy Round.

clause has become a fundamental principle
of United Slates trade policy, as well as a
cornerstone of international trade.

Trade Agreements Act of 1934. By that Act,

The express purpose of the Reciprocal
Trade Agreements Act of 1934 was to make
bilateral agreements that would increase
United States exports and hence employment,
as long as there would be no injury to domes
tic industry. Actually, there was little possi
bility of injury because of highly protective
tariff rates and an item-by-item approach to
negotiations, which allowed certain commod
ities to be excluded if a decrease in rates
would result in an increase in imports.
The Reciprocal Trade Agreements Act was
extended every three years and by 1945, the
United States had concluded agreements with
29 countries. The trade agreements and in
creased prices on imported commodities com
bined to reduce the average rale of tariffs on
dutiable imports into the United Stales from
47 percent in 1934 to 28 percent in 1945. (In

the Congress gave the President authority to
reduce then existing tariff duties by 50 per
cent. Perhaps the most significant aspect of

creased prices on imported commodities that
are covered by specific duties reduced the
ad valorem eguivalent.) In 1945, the President

the Act was the inclusion of the most-favored-

was again given authority to cut rates by an
additional 50 percent.
During the period from 1934 through 1947,
trade negotiations under the Reciprocal Trade

LIBERALIZATION OF UNITED STATES
FOREIGN TRADE POLICY
Reciprocal Trade Agreements Program. The
first phase of the trend toward liberalization
of United States foreign trade policy is identi
fied with the enactment of the Reciprocal

nalion clause, which limits discrimination in
trade by extending to third parties the same
terms provided to contracting parties. This

ECONOMIC REVIEW

TABLE I
Dim ensions of Agreem ents Under G ATT

Major Agreements
1947
1949
1951
1956
1962
1967

G e n e v a ...................................................................................
Annecy, F r a n c e ...................................................................
Torquay, E n g la n d ..................................................................
G e n e v a ...................................................................................
Geneva (Dillon R o u n d ) ..........................................................
Geneva (Kennedy R o u n d )......................................................

No. of
infracting
Parties
23
33
37
35
40
70

Value of
World Trade
Involved
(Bil. $)

Percent of
Average
Tariff
Reduction

$10.0
n.a.
n.a.
2.5
4.9
40.0

n.a.
n.a.
n.a.
4%
7
35

n.a. Not available.
Sources: U. S. Department of Commerce; General Agreement on
Trade and Tariffs; Gerard Curzon, Multilateral Com
mercial Diplomacy, (New York: Frederick A. Praeger,
1966), p. 81.

Agreemenls Acl were conducted on a bilat
eral basis (country-by-country) and item-byitem. The trade agreements helped to reverse
the world trend toward higher tariffs, but had
little effect in reducing other barriers to world
trade, such as guotas and internal taxes.
General Agreement on Tariffs and Trade. A
second phase of the trend toward liberaliza
tion of United States trade policy came early
in the post-World War II period. In 1947, the
United States and 22 other major trading
nations negotiated simultaneously for both
reduction of tariffs and removal of trade bar

out on a nondiscriminatory basis. GATT mem
bership now includes some 70 nations that
account for about 80 percent of total world
trade.
The dimensions of the major "rounds" of
negotiations held under the auspices of
GATT are presented in Table I. The first two
rounds, held at Geneva (1947) and Annecy,
France (1949), are regarded as significant,
both in terms of tariff reductions and in set
ting up the structure of GATT. The next two
rounds (1951 and 1956) are considered as less
fruitful, partly because of lack of agreement

riers. These multilateral negotiations were

over the issue of tariff disparities; that is,

conducted at Geneva and culminated in the
General Agreement on Tariffs and Trade

the difference between a high tariff of one
country and a low one of another country.
Failure to resolve this issue, in conjunction

(GATT). (At the fhne of the GATT negotia
tions, nations were also working toward set
ting up an international trade organization
(ITO), but the effort was abandoned due to
the inability to obtain ratification by partici
pating nations.) A major aim of GATT is to
reduce trade barriers. Its fundamental oper
ating principle is that trade should be carried

with the United States supported movement
toward integrated economic and military
policies, prompted six continental European
countries — Belgium, France, Italy, Luxem
bourg, the Netherlands, and West Germany
— to band together in 1957 to form the Euro
pean Economic Community (EEC), the well-

SEPTEMBER 1 9 6 7

known Common Market. Under Ihe Treaty of
Rome, these nations agreed to work among
themselves to eliminate trade barriers and
to establish a common external tariff. Two
years later, seven other European countries
— Austria, Denmark, Norway, Portugal,
Sweden, Switzerland, and the United King
dom — formed ihe European Free Trade
Association (EFTA).
Faced with the prospects of discrimination
against this country's exports, the United
States attempted further steps toward liber
alizing trade policies. The then Under Secre
tary of Slate, Douglas Dillon, proposed an
other general round of trade negotiations.
The Dillon Round in 1961-1962 resulted in
further reduction of average world tariff
rates, but fell short of ihe goal of a 20-percent
reduction in tariffs, and failed to resolve
some unsettled problems of the 1956 round,
especially those involving trade agreements
with less-developed nations.
The Trade Expansion Act of 1962. The next
major move in United States trade policy in
volved the Trade Expansion Act of 1962. By
that Act, the President was given authority
to reduce tariffs up to 50 percent of the rates
existing as of July 1, 1962, to eliminate tariffs
on products in which the United States and
the EEC together account for at least 80 per
cent of world trade, and to eliminate rates
that did not exceed five percent. Perhaps most

The Kennedy Administration viewed the
Trade Expansion Act of 1962 as an important
change in the underlying rationale and ob
jectives of United States foreign trade policy.
An important pragmatic objective of the 1962
Act was to assure United States access to
the Common Market. In the absence of broad
changes in United States commercial policy,
Common Market tariffs would be discrimina
tory and thus restrictive to United States trade.
The Trade Expansion Act represents an at
tempt to put into practice the theoretical basis
for freer trade; namely, the attempt to achieve
a more efficient allocation of world resources.1
1 The difference between ihe 1962 Act and ihe earlier
Reciprocal Trade Agreements Act lies mainly in the fact
that the specific aim of the latter w as to reduce tariffs to
promote United States exports. President Roosevelt staled
in his m essage to Congress reguesting p assage of the
Reciprocal Trade Agreements Act of 1934 that the aim
of the Act w as "to modify existing duties and import
restrictions in such a w ay as will benefit American agri
culture and industry"; but the President also cautioned
that "no sound and important American interest will be
injuriously disturbed." Presidents Truman and Eisenhower
made similar assurances that domestic goods would be
protected in the export expansion process. As tariff reduc
tions became more meaningful, legislation to safeguard
American industry w as included in various extensions of
the trade agreements. A "peril point" provision w as in
cluded in the Trade Agreements Act of 1948 in an attempt
to put a floor on tariff reductions. An "escap e clause" was
added to the Trade Agreements Act of 1951 to provide
the President with ihe ability to withdraw or increase
tariff rates in cases where imports m ay "cau se or threaten
serious injury to a domestic industry." Amendments in

significantly, the 1962 Act empowered the

1955 and 1958 strengthened the escape clause. While the

President to negotiate across-the-board tariff
reductions (rather than item-by-item) and
modified the safeguard provisions of the old
trade agreements program.

United States has made limited use of the escape clause,

existence of the clause narrowed the extent to which
tariffs could be reduced. During the 1950's there w as,
in effect, little progress toward actual liberalization of
United Stales foreign trade policy.

ECONOMIC REVIEW
The new Irade acl was geared io the idea of
stimulating not only United States exports,
but also world trade in general, with mutual
benefits expected to accrue io all nations as
a result of international specialization and
trade. The expectation of benefits reflects
the fact that liberalized trade policy should
result in more efficient use of resources, which
in turn fosters more rapid economic growth.
In short, free trade provides an opportunity
to maximize output and to obtain mutual
benefits.
The Kennedy Administration acknowledged
that further tariff reductions under the 1962
Act could lead to increased imports as well
as exports. However, rather than new restric
tions on trade, the President was provided
with authority to institute various types of
"trade adjustment assistance," such as re
adjustment allowances to unemployed work
ers, vocational training, and loans and tax
benefits to employers affected by increased
imports.
Under the authority of the Trade Expansion
Act of 1962, the United States entered negotia
tions for the sixth round of discussion under
GATT — the Kennedy Round.

RECENT TRENDS IN UNITED STATES
FOREIGN TRADE
Before discussing some of the details of the
Kennedy Round, it should be helpful to re
view United States foreign trade develop
ments, both over the longer term and during
the period when Kennedy Round negotiations
were being conducted.
General Patterns in Merchandise Trade.
United States merchandise trade (imports and
exports) has grown dramatically from the

relatively low levels of the 1930's. As shown
in Chart 1, excluding the World War II years,
a sizable portion of the expansion has oc
curred during the 1960's. Perhaps surprising
ly, the size of the favorable mechandise trade
surplus — the difference between exports
and imports — has generally been larger
during the 1960's than during any period ex
cept World War II and its immediate aftermath, and at the time of the Suez Crisis in
1956-1957 when United States exports of coal
and oil increased appreciably. As Chart 1
shows, after substantial increases in the early
years of the 1960's, the irade surplus nar
rowed in 1965 and then again in 1966.
The narrowing of the United States trade
surplus in recent years reflected supplydemand conditions in the domestic economy
that moderated export growth and stimulated
imports, as well as a weakening of major
markets abroad that adversely affected
United States exports. In the case of the
domestic economy, overheated activity dur
ing 1965-1966 helped keep potential exports
at home and simultaneously encouraged the
importation of some major items such as
industrial materials and machinery. Despite
the largely cyclical developments that nar
rowed the trade surplus in 1965 and 1966 —
overheating at home and sluggishness in
some places abroad — the fact that the
United States maintained a fairly sizable
trade surplus provides some support for the
argument that United States exports, in gen
eral terms, are competitive in world markets.
United States encouragement of the Kennedy
Round reflects the desire of the United States
(the world's largest trading nation) at least
to maintain that competitive position — if not

SEPTEMBER 1 9 6 7
Chart 1.

UNITED STATES M ERCHANDISE T R A D E *
1934-1966
B illio n s of d o lla r s

to improve ii. It also reflects the practical con
sideration of attempting to lessen the ability
of newly developed regional trade areas to
divert trade in directions unfavorable to the
United States.
As Chart 2 shows, after steady quarter-to-

of machinery and other capital equipment,
crude and processed materials (industrial
supplies), and consumer goods (including
autos) either declined or leveled off in the
first half of 1967. On the other hand, improved
supply conditions and shortened delivery

quarier deterioration since 1965, a turnaround
in the United States trade surplus occurred in
the first quarter of 1967 with further improve

schedules for domestic producers stimulated
a moderate expansion of exports. In partic

ment in the second quarter. Sluggish eco
nomic activity in the United States during
the first half of 1967, accompanied by reduced
rates of inventory accumulation and easing
in capital spending, helped to moderate
United States imports. In particular, imports

parts as well as agricultural and construction
machinery) and transportation equipment
(aircraft) showed some improvement.
Estimates of the trade balance for the sec
ond half of 1967 imply some gradual further
improvement in the trade balance, despite the

ular, exports of machinery (computers and

ECO N O M IC REVIEW
Chart 2.

UNITED STATES MERCHANDISE TRADE *
1960-1967
B illio n s of d o lla r s

modities responsible for an acceleration of
imports in 1965 and 1966. The upper half of
the table lists "surplus commodities” — cate
gories in which United States exports exceed
imports — and the lower half shows "deficit
commodities." As a general matter, the big
gest trade items — machinery, food and live
animals, and transportation equipment —
are commodities in which the United States
has a sizable trade surplus. Commodities
whose importation accelerated in 1965 and
1966 include machinery (nonelectrical and
electrical), motor vehicles and parts, crude
materials, iron and steel products, nonferrous
metals, and food and live animals. Except for
motor vehicles and parts, these commodities
were in short supply during at least part of
the 1965-1966 period.

facl lhal performance in ihe most recent
months is not encouraging. Continued slug
gish economic activity in most countries of
Western Europe is expected to restrain any
possible substantial gains in exports. Hope
fully, appropriate public policy in the United
States will help to guarantee that domestic
economic developments do not change to the
extent that another escalation of commodity
imports, such as occurred in 1965 and 1966,
would be generated.
Major Exports and Imports. Table II shows
ihe major commodities in United States ex
port and import trade, and indicates ihe com
Digitized for
8 FRASER

Several important developments in trade
patterns evolved during the 1960-1966 period
(see Table II). For example, food and live
animals moved from deficit to surplus posi
tion; crude materials moved from surplus bal
ance to deficit after 1961; and, finally, the
surplus balances of nonelectrical machinery
and chemical products increased appreciably
over the 1960-1966 period.
Although some ground was lost in mineral
fuels and textiles, perhaps the most publi
cized developments on the deficit side of the
merchandise trade balance during 1960-1966
are ihe widening of ihe deficit in nonferrous
metals and the shift from a surplus to deficit
in iron and steel products. In the case of iron
and steel products the swing amounted to
more than $800 million.
At least two conclusions emerge from the
cursory review of ihe data for 1960-1966 in
Table II. First, as a general matter, wherever

SEPTEMBER 1 9 67
TABLE II
Com position of United States Exports and Im ports
Selected Commodities
1960-1966
(billions of dollars)
Exports (Imports)
1960

1961

1962

1963

1964

1965

1966

Surplus Commodities*
Machinery*
Nonelectrical
Electrical
Chemicals
Transportation equipment!
Motor vehicles and parts
Aircraft
Food and live animals

$4.5
3.4
1.1
1.8
2.5
1.3
1.0
2.7

($0.7)
(0.4)
(0.3)
(0.8)
(0.7)
(0.7)
(0.1)
(3.0)

$5.0
3.7
1.2
1.8
2.3
1.2
0.9
3.0

($0.8)
(0.5)
(0.3)
(0.7)
(0.6)
(0.4)
(0.1)
(3.0)

$5.4
4.1
1.4
1.9
2.6
1.4
1.0
3.2

($1.0)
(0.5)
(0.4)
(0.8)
(0.7)
(0.6)
(0.1)
(3.2)

$5.7
4.2
1.5
2.0
2.5
1.5
0.8
3.7

($1.1)
(0.6)
(0.4)
(0.7)
(0.8)
(0.6)
(0.1)
(3.4)

$6.5
4.9
1.7
2.4
2.8
1.7
0.9
4.1

($1.3)
(0.9)
(0.4)
(0.7)
(0.9)
(0.8)
(0.1)
(3.5)

$6.9
5.3
1.7
2.4
3.2
1.7
1.1
4.0

($1.8)
(1.2)
(0.6)
(0.8)
(1.1)
(1.0)
(0.1)
(3.5)

$7.7
5.8
1.9
2.7
3.5
2.2
1.1
4.6

($2.7)
(1.7)
(1.0)
(1.0)
(2.1)
(1.8)
(0.3)
(3.9)

2.8
0.5
0.1
0.3
0.6
0.5
0.8

(2.7)
(0.6)
(0.3)
(0.8)
(0.4)
(0.8)
(1.6)

2.8
0.5
0.1
0.3
0.5
0.4
0.8

(2.5)
(0.5)
(0.3)
(0.8)
(0.3)
(0.8)
(1.7)

2.2
0.5
0.1
0.3
0.5
0.4
0.8

(2.7)
(0.7)
(0.4)
(0.8)
(0.5)
(0.9)
(1.9)

2.5
0.5
0.1
0.3
0.5
0.4
1.0

(2.7)
(0.7)
(0.4)
(0.8)
(0.6)
(0.9)
(1.9)

3.0
0.6
0.1
0.4
0.7
0.5
1.0

(2.8)
(0.7)
(0.5)
(0.8)
(0.7)
(1.0)
(2.0)

2.9
0.5
0.1
0.4
0.6
0.5
0.9

(3.0)
(0.8)
(0.5)
(0.9)
(1.1)
(1.2)
(2.2)

3.1
0.6
0.2
0.4
0.5
0.6
1.0

(3.3)
(0.9)
(0.6)
(1.0)
(1.2)
(1.5)
(2.3)

Deficit Commodities!
Crude materials
Textiles, other than clothing
Clothing
Paper and manufactures
Iron and steel products
Nonferrous metals
Mineral fuels

* Exports exceed imports according to recent performance,
f Imports exceed exports according to recent performance.
| Details may not add to totals because of rounding.
Source: U. S. Department of Commerce

the United States had a favorable trade bal
ance, the surplus was maintained even dur
ing the 1965-1966 period of excess demand;
in those areas where the export-import rela
tionship was unfavorable to the United
States, the situation tended to worsen. Sec
ond, the acceleration of imports in 1965 and
1966 (especially machinery, food and live
animals, crude materials, and nonferrous
metals) appears to have been in response to
peak demand conditions in the United States;
and thus, may reflect cyclical phenomena
rather than a deterioration in the United
States position in world trade. On the other
hand, the adverse developments in the case

of iron and steel products implies some loss
in the competitive position of the United
States in world markets. If this is actually the
case, the situation could represent a continu
ing drag on the merchandise trade'balance.
Composition and Geography. The composi
tion and geographic aspects of United States
merchandise trade during 1961-1966 are pre
sented in Table III, which shows imports of
selected commodities by origin and exports
by destination.
The United Slates trade balance in food
and live animals shifted to surplus in 1963,
reflecting an appreciable increase in exports
to Asia; the surplus in this category later

TABLE III
United States Exports and Imports by M ajor W orld A reas
Selected Commodities
1961-1966
(billions of dollars)
Exports (Imports)
1961

1962

1963

1964

1965

1966

Food and live a n im a ls * .................
Canada
......................................
Latin A m e r ic a .............................
Western E u r o p e .........................
A s i a ..............................................
A frica..............................................

.
.
.
.
.
.

. .
. .
. .
. .
. .
. .

$3.0
0. 4
0. 4
1.2
0. 6
0.2

($3.0)
(0.3)
(1.5)
(0.3)
(0.4)
(0.3)

$3.2
0.4
0.3
1.3
0.7
0.2

($3.2)
(0.3)
(1.7)
(0.4)
(0.4)
(0.3)

$3.7
0.4
0.3
1.3
1.2
0.1

($3.4)
(0.3)
(1.6)
(0.3)
(0.5)
(0.3)

$4.1
0.4
0.4
1.3
1.4
0.1

($3.5)
(0.3)
(1.6)
(0.3)
(0.5)
(0.4)

$4.0
0.4
0.3
1.5
1.4
0.2

($3.5)
(0.3)
(1.6)
(0.4)
(0.5)
(0.4)

$4.6
0.5
0.4
1.7
1.5
0.3

($3.9)
(0.4)
(1.8)
(0.5)
(0.5)
(0.4)

Crude m aterials*.............................
Canada
......................................
Latin A m e r ic a .............................
Western E u r o p e .........................
A s i a ..............................................
A frica..............................................

.
.
.
.
.
.

.
.
.
*.
.
.

. .
. .
. .
. .
. .
. .

2.8
0.3
0.1
1.1
1.1
t

(2.5)
(0.9)
(0.4)
(0.3)
(0.4)
(0.2)

2.2
0.3
0.1
0.9
0.7

(2.7)
(1.0)
(0.4)
(0.3)
(0.4)
(0.2)

2.5
0.4
0.1
0.9
0.9

(2.7)

3.0
0.4
0.2
1.2
1.0
x

(2.8)
(1.2)
(0.4)
(0.3)
(0.4)
(0.2)

2.9
0.4
0.2
1.2
0.9
0.1

(3.0)
(1.2)
(0.5)
(0.3)
(0.4)
(0.3)

3.1
0.4
0.2
1.2
1.1

(3.3)
(1.3)
(0.5)
(0.4)
(0.4)
(0.3)

M a ch in e ry * ......................................
Canada
......................................
Latin A m e r ic a .............................
Western E u r o p e .........................
Asia (Ja p a n ).................................

.
.
.
.
.

. .
. .
. .
. .
. .

4.5f
1.0
1.1
1.3
0. 8

(0.8)
(0.1)

4.9f
1.1
1.0
1.4
0.9

(1.0)
(0.2)

5.It
1.2
0.9
1.6
1.0

6.0f
1.4
1.0
1.8
1.1

(1.3)
(0.3)

6.9
1.8
1.2
2.1
1.1

(1.8)
(0.4)

7.7
2.2
1.2
2.3
1.2

Motor vehicles and parts*.................
Canada
......................................
Latin A m e r ic a .............................
Western E u r o p e .........................
Asia (Ja p a n )..................................

.
.
.
.
.

. .
. .
. .
. .
. .

1.5f
0.4
0.7
0.1
0.2

( t )
( t )
(0.4)

1.5|
0.6
0.4
0.2
0.2

(0.8)
(0.1)

Nonferrous m e t a ls * .........................
Canada
......................................
Latin A m e r ic a .............................
Western E u r o p e .........................
A s i a ..............................................

.
.
.
.
.

. .
.
.
.
.

.
.
.
.

0. 4
t
t
0.3
0.1

(0.8)
(0.3)
(0.2)
(0.2)
(0.1)

Iron and steel p ro d u cts* .................
Canada
......................................
Western E u r o p e .........................
Asia (Ja p a n ).................................

.
.
.
.

0.5
0.1
0.1
0.1

(0.3)

( t >
(0.5)
(0.2)
(0.4)

( t )

( t )
(0.3)
(0.1)

1.5f
0.5
0.6
t
0.2
0.4

( t )
(0.5)
(0.2)
(0.6)
( t )
( X >
(0.6)
( t )

i
t
0.2
0.1

(0.9)
(0.3)
(0.2)
(0.2)
(0.1)

0.5
0.1
0.1
0.2

(0.5)
(0.1)
(0.3)
(0.1)

1.3f
0.5
0.4
0.1
0.2
0.4
0.1

(1.1)
(0.4)
(0.3)
(0.4)
(0.2)
(1.1)
(0.3)
( t )
(0.5)
(0.2)
(0.6)
( t )
( t )
(0.6)
( t )

0.5
0.1

( X )
(0.6)
(0.3)

( X )
(0.8)
(0.5)

( 1 )
(0.7)
(0.1)

0.5
0.1
0.1
0.3
0.1

(1.2)
(0.4)
(0.2)
(0.3)
(0.2)

0.6
0.1
0.1
0.3
0.1

(1.5)
(0.5)
(0.4)
(0.4)
(0.2)

0.6
0.2
0.1
0.2

(1.1)
(0.1)
(0.6)
(0.5)

0.5
0.2
0.1
0.1

(1.2)
(0.1)
(0.5)
(0.5)

( t )

t
0.2
0.1

t
0.3
0.1

(1.0)
(0.4)
(0.3)
(0.2)
(0.1)

0.5
0.1
0.1
0.2

(0.6)
(0.1)
(0.3)
(0.2)

0.7
0.2
0.1
0.2

(0.7)
(0.1)
(0.3)
(0.3)

* Details may not add to totals because some areas are omitted,
t Data not comparable to 1965 and 1966 figures.
| Less than $500 million.
Source: U. S. Department of Commerce

widened further in line with expansion of
exports to Western Europe. On the other
hand, the United States deficit with Latin
America widened slightly over the 1961-1966

( t )
(1.2)
(0.7)
(1.8)
(0.7)

(1.0)
(0.2)

(0.9)
(0.3)
(0.2)
(0.2)
(0.1)

(2.7)
(0.7)

2.2
1.1
0.4
0.2
0.2

1.7
0.7
0.4
0.2
0.2

( t )
(0.7)

period. The United States trade position in
crude materials fluctuated within a narrow
plus and minus range during 1961-1966. A
major development in this category was the

( t )
(1.0)
(0.2)

SEPTEMBER 1 9 6 7
fact that United States imports from Canada
grew much faster than exports.
The m achinery grouping, the largest United
States trade surplus category, widened from
$3.7 billion in 1961 to $5.0 billion in 1966. The
widening occurred despite a sharp growth
in imports, particularly in 1965 and 1966.
Canada, as the major supplier of machinery
to the United States, also accounted for most
of the increase in imports during the period
under review. The bulk of increased United
States machinery exports went to Canada
and the United Kingdom — the largest United
States customers. While the United States
trade surplus in machinery widened with
both Canada and Western Europe during
1961-1966, the amount of surplus with Latin
America remained second to that of Canada.
A sharp increase in imports from Western
Europe coupled with a decline in exports to
Latin America drastically reduced the United
Stales trade surplus in motor vehicles and
parts during 1961-1966. The surplus with
Canada remained virtually unchanged de
spite expanded imports of autos in 1965 and
1966 (exports also jumped). Increased imports
from Japan in 1965 and 1966 eliminated the
small United States trade surplus with Asia
in this category.
The aforementioned sharp rise in United
States imports of iron and steel products in
1965, and the further slight increase in 1966,
caused a marked swing in the trade balance.
In 1962 and 1964, imports and exports of steel
products were in balance; by 1966, imports
were $0.7 billion in excess of exports. Imports
from Japan and Western Europe rose sharply
in 1965, whereas United States exports to
these areas were practically unchanged.

United States Share of World Exports of
Manufactured Goods. As mentioned earlier,
some of the narrowing of the overall trade
surplus in 1965 and 1966 can be attributed to
the influence of excess demand in the United
States, at least insofar as imports are con
cerned. Nevertheless, deterioration in the
trade balance is also due to other factors,
specifically, changes in the United States
share of world export markets. The relation
ship between United States exports of manu
factured goods and world exports is shown
in Chart 3. The chart shows the steady yearto-year advance during 1960-1966 in total
world exports of manufactured goods, as well
as in United States exports. United States ex
ports expanded nearly 53 percent during the
period under review; however, exports from
the world's 15 major suppliers rose 68 percent.
As a result, the United States share of world
exports of total manufactured goods declined
from 25.2 percent in 1960 to 22.7 percent in
1966, or about 10 percent. In dollar terms, the
net loss in market share during 1960-1966
amounted to about $2.0 billion. That is to say,
if the United States had achieved the same
share in 1966 as in 1960, United States exports
of manufactured goods would have been
$2.0 billion greater.
The slight improvement in the United States
share in 1966 partly reflected a strong expan
sion in United States imports of manufactured
goods which involved drawing off goods that
otherwise would have been sold in third
countries; in other words, goods that would
have been in competition with United States
exports. The improved United States share
in exports of manufactured goods in 1966 is
attributable primarily to a larger volume of
1 1

Chart

UNITED STATES SHARE of WORLD EXPO R TS of M ANUFACTURED G O O D S *
B illio n s of d o lla r s
T O T A L M A N U F A C T U R ES
25.2%

CHEMICALS

— Uni ted S t a l e s Per c ent of Total

1960
1961
24.3

1962
23.4

1963
1964
22.5

1965
22.7

1966
0

J____ I____ I____ I____L
10

N O N E L E C T R I C A L M A C H IN ERY

TR A N S P O R T A T I O N EQUIPMENT

17.2 %

1960
1961
1962
1963
1964
1965
1966
10

* Exports of m an uf ac tu re d g ood s from 15 major in d u s tria l countries that a c co u nte d for 7 8 % of world ex ports
in 1965.
Source of dat a: U.S. Department of Commerce

Digitized for12
FRASER

SEPTEMBER 1 9 6 7
shipments of transportation equipment to
Canada — especially automobiles and parts
— resulting from the Automotive Products
Trade Agreement of 1965. The United States
share of world markets for electrical machine
ry also rose in 1966, following three years
of decline (see Chart 3).
It is clear from Chart 3 that the United
States is losing ground in several categories
of manufactured goods, despite steady an
nual increases in export shipments. A part of
the reduction in the United States share of
manufactured goods is due to losses in broad
product markets (see Chart 3). However,
within the broad groupings, a number of in
dividual items have tended to account for
most of the reduction in market share — auto
mobiles (included in Transportation equip
ment), steel (included in All other), and
industrial machinery (included in Nonelec
trical machinery). Another reason for the
reduction in the United States market share
reflects shifts in world trade patterns, espe
cially among countries and regions in which
the United States accounts for a dispropor
tionately large share of trade.2 Continued
attrition in the United States share of world
2 See U.S. Department of Commerce, "United Slates Share
of World Markets for Manufactured Products," by Harry
Bodansky and Frances L. Hall (Washington, D.C.: U.S.

exports of manufactured goods would not
necessarily be undesirable, however, if it
involved sizable absolute increases in United
States exports within the context of a more
rapidly expanding world trade. Such expan
sion lies at the heart of tariff negotiations like
the Kennedy Round.

THE KENNEDY ROUND
The Kennedy Round was the most com
prehensive round of negotiations in terms of
the number of participating countries, the
value of world trade involved, and the size
of tariff reductions. By 1972, the final stage of
tariff reductions under the Kennedy Round,
tariffs will be reduced on some 60,000 com
modities valued at $40 billion in world trade.
The United States negotiated reductions on
about 6,300 commodities valued at about
$16 billion. Nevertheless, in terms of the ambi
tious aims originally established by GATT,
the results of the negotiations were somewhat
less spectacular."
Tariff Reductions. A major goal of the Ken
nedy Round was a 50-percent across-theboard reduction in tariffs on industrial prod
ucts. However, "exceptions" to such a reduc
tion were authorized by GATT for "reasons
of overriding national interest." The principal
"exceptions" involved chemicals, steel, alu

United Stales competitive position and its effects on the

minum, and pulp and paper. The question
of tariff disparities was also linked with the

merchandise Irade balance and Ihe balance of payments,

50-percent goal. The Common Market coun

see W aller S. Salanl et al.. The United States Balance of

tries took the position that a 50-percent
across-the-board tariff cut would represent

Government Printing Office, 1964). For discussion on the

Payments in 1968 (Washington, D.C.: The Brookings Insti
tution, 1963), pp 63-93, and Bela Balassa, "Recent Devel
opments in the Competitiveness of American Industry and
Prospects for the Future," in U.S. Congress, Joint Economic
Committee, Factors Affecting the United States Balance of

3 The major issues and results of the Kennedy Round are

Payments, 87lh Congress, 2nd Session, 1962, pp. 29-49.

shown in the Appendix.

ECONOMIC REVIEW
a greater concession than would the same cut
by the United States, because United States
duties on industrial products are higher than
those levied by the Common Market. The
United States position was that disparities in
tariffs are only important when they have
an adverse effect on trade. Because of the ''ex
ceptions” and trade disparity issues, Kennedy
Round negotiators agreed to tariff cuts on
industrial products that averaged about 35
percent.
NontarifF Barriers. Another major aim of
the Kennedy Round was to resolve the prob
lem of nontariff barriers. These barriers are
complex and usually prove more difficult to
eliminate than tariffs.4 Nontariff barriers in
clude quotas, import equalization taxes, road
taxes, laws giving preferential treatment to
domestic suppliers, administration of anti
dumping measures, exchange controls, and
a variety of "invisible" tariffs that impede
trade. Full benefits from tariff reductions can
not be realized unless nontariff barriers to
trade are removed or at least minimized.
Foreign nations sought elimination by the
United States of the American Selling Price5
system for evaluation of certain chemical
products, as well as revision of American
antidumping procedures. The objective of
United States negotiators involved reduction
or elimination of European road taxes, quotas

on United States coal, and discriminatory
buying practices of several foreign govern
ments.
With respect to nontariff barriers, results
of ihe Kennedy Round appear to be modest.
France, Italy, and Belgium agreed to elimi
nate road taxes on large-horsepower United
States automobiles; the United Kingdom mod
ified regulations on unmanufactured tobacco
and eliminated restrictions on fresh grape
fruit; and Canada withdrew certain restric
tions on imports of fresh fruits and vegetables.
The principal accomplishment of the Ken
nedy Round in the area of noniariff barriers
was adoption of an antidumping code. Dump
ing under the United States code occurs when
either the purchase price of imported mer
chandise or the exporter's selling price is less
than the foreign market value. The principal
foreign complaint against the United States
code concerned ihe withholding of appraisal
of shipments of imported goods until comple
tion of investigations, including the time in
volved in investigations. The new code
agreed upon in the Kennedy Round specifies
that dumping is a "principal" cause of injury
to a domestic industry, and such injury must
be done to an entire industry before remedial
action can be taken. Official spokesmen have
indicated that the United States code is
consistent with the new GATT code, but a
number of United States legislators have sug

4 See Mark S. Massel, Nontaritt Barriers as an Obstacle
to World Trade, (Washington, D.C.: The Brookings Insti
tution, 1965).

5 The United Slates practice is to base duties on imports
of chemical products on the American Selling Price rather
than on export prices, which is the normal method of
valuation for virtually all olher United Stales imports.

Digitized for14
FRASER

gested that amendments to the existing code
may be required.
Agricultural Concessions. Negotiations on
agricultural trade in the Kennedy Round were
complicated by the EEC's common agricul
tural policy (common prices and price sup
port programs) that imposes levies and non-

SEPTEMBER 1 9 67
lariff barriers on imports from outside the
EEC. The Common Market is ihe most im
portant market for United Slates farm prod
ucts, amounting to about $1.5 billion last year.
In the Kennedy Round, the United States posi
tion was that there could be no overall agree
ment unless the EEC made some concessions
in agricultural products. In fact, United States
negotiators attempted to obtain the same
across-the-board tariff reduction of 50 percent
on agricultural products as on industrial prod
ucts. As it turned out, the reduction in agri
cultural tariffs amounted to considerably less
than the average 35-percent reduction on
industrial goods. Moreover, no progress was
made in eliminating the levy system protect
ing EEC markets for local producers. How
ever, there was agreement on a minimum
world price for wheat, as well as a 25-percent
cut in EEC tariffs on fruits, vegetables, juices,
and tobacco. Perhaps most significantly, a
food-aid plan was approved that will pro
vide 4.5 million tons of grains to less-devel
oped nations, with the United Slates supply
ing about 2 million Ions. On the whole,
agricultural concessions gained from the
Kennedy Round appear to have fallen short
of United Stales objectives.
Concessions to Less-Developed Countries.
Growth prospects in more than 100 develop
ing countries depend largely on the speed
with which export earnings can be increased.
If recent history is any criterion, the fact that
the less-developed countries (LDC) have ex
perienced a steadily declining share of world
trade suggests that prospects for those na
tions are not bright.
Developing nations had hoped that the
Kennedy Round would provide preferential

treatment, reductions of trade barriers with
out reciprocity, and immediate application
of tariff cuts rather than the adopted five-year
span. While results were short of expecta
tions, there was agreement to reduce trade
barriers to LDC without reciprocity. About
one-third of tropical product exports and 19
percent of agricultural exports to the major
industrial nations will be duty free, com
pared with 13 percent and 11 percent, respec
tively, prior to the Kennedy Round. Duties of
less than 10 percent will apply to 62 percent
of all manufactured goods (32 percent before
the Kennedy Round).

CONCLUDING COMMENTS
The Kennedy Round of trade negotiations
represents a high point in ihe liberalization
of United States trade policy that began in
the early 1930's. At the lime of the Reciprocal
Trade Agreements Act of 1934, United Stales
tariffs on dutiable imports averaged about
47 percent; at the end of the Dillon Round in
1962, tariffs averaged 11 percent; by ihe final
stage of the Kennedy Round in 1972, tariffs
will average about 5 percent. While only a
part of ihe tariff reductions since 1934 were
accomplished by trade agreements, the latter
did contribute importantly to minimizing this
type of barrier to trade. Tariff reductions
resulting from the Kennedy Round are from a
relatively low level and actually will repre
sent a smaller absolute cut than those ex
perienced under the negotiations of the recip
rocal trade agreements program. With aver
age tariffs for ihe United States and other
major trading countries now at a low level,
particularly on industrial products, future
trade negotiations are likely to center on

ECONOMIC REVIEW
noniariff barriers, which are frequenily used
by countries to prevent imports that might
otherwise result from tariff reductions.
Because trade is obviously the product of
more factors than tariffs, the overall effects
of tariff reductions on world trade and espe
cially on American imports are difficult to
assess. Duties may only amount to a small
part of the total price of a commodity, particu
larly if subjected to successive rounds of tariff
reductions.
Results of previous rounds of negotiation
are inconclusive when an attempt is made
to isolate the effects of tariff cuts on trade.
For example, tariff cuts following the Torquay
Round in 1951 did not result in a significant
rise in the volume of United States imports,
whereas following the Geneva Round in 1956,
imports of goods subject to reduction ex
panded somewhat more rapidly than did the
imports of nonreduced goods. Tariff reduc
tions in the Dillon Round also apparently
resulted in some increase in trade.0
In any event, the ultimate objectives of
tariff reduction are clear: to allow each coun
try to specialize in those commodities or prod
ucts in which it has the greatest comparative
advantage, and to exchange output with
other countries enjoying a comparative ad
vantage in other goods. Ideally, such an

6 See Lawrence B. Krause, "United Slates Imports and the
Tariff," Am erican Economic Review, XLIX (May, 1959),
pp. 542-551; Mordechai E. Kreinin, "Effects of Tariff
Changes on the Prices and Volume of Imports," Am erican
Economic Review. LI (June, 1961), pp. 310-324; and Arthur
H. Small, "The Effect of Tariff Reductions on United Stales
Import Volume," MSU Business Topics, 15 (Spring 1967),
pp. 43-53.

Digitized for16
FRASER

interrelationship helps to maximize a coun
try's output and real income, as well as world
output and income. If tariffs are used to ob
struct trade, income of trading nations is
likely to be affected adversely.
Tariff reductions admittedly result in prob
lems and dislocations for affected domestic
producers. Recognition of this is clear in the
Kennedy Round agreements, which stretch
tariff reductions over a five-year span. The
actual impact on American industry as a
result of the agreements of the Kennedy
Round will depend on several factors — the
extent of individual tariff reductions, the eco
nomic status of the affected industries, and
individual industry responses to intensified
competition.
Nevertheless, some implications may be
suggested. The effects of tariff reductions are
likely to be greatest on industries in which
productivity is low. If such industries are pres
ently dependent upon a protective tariff, re
ductions in tariffs could be damaging. In
addition, products and industries that have
a high labor input relative to capital could
be seriously affected by tariff reductions. In
either case, however, the possible short-run
costs of dislocation in affected industries will
have to be evaluated in light of long-run gains
to consumers and business that result from an
improved allocation of productive resources.
It should be recognized that competitive ad
justments made necessary by the removal of
foreign trade barriers are not unlike the types
of adjustments needed to meet domestic
competition.

APPENDIX
KENNEDY ROUND: Issues and Results

TARIFF REDUCTIONS
Average reduction in tariff rates for industrial
products — 35 percent
EXCEPTIONS LIST
Steel, aluminum, chemicals
LIBERALIZATION OF NONTARIFF BARRIERS
Common antidumping code
Elimination of road use taxes in France, Italy,
Belgium, and Austria
Elimination of restrictions on fresh grapefruit and
reduction in restrictions on unmanufactured
tobacco in United Kingdom
Elimination of restrictions on fresh fruits and
vegetables in Canada
Elimination of United States System (American
Selling Price) for valuation of certain chemicals
(conditional)
AGRICULTURAL C O N C E SSIO N S
Food-aid plan for less-developed countries
Minimum world price for winter wheat
Tariff reductions on broad range of products,
including soybeans, tallow, tobacco, poultry,
horticultural products, juices, nuts, and raisins
TRADE C O N C E SSIO N S TO LESS-DEVELOPED
COUNTRIES
Reductions in tariff rates on tropical, agricultural,
and industrial products
Sources: General Agreement on Trade and Tariffs and
U.S. Department of Commerce

ECONOMIC REVIEW

A NOTE ON BANK DEPOSITS
AND BANK CREDIT IN 1965-1967
Monetary policy and financial conditions
changed markedly during the period from
mid-1965 to mid-1967, first tightening appreci
ably, and then, beginning in the late fall of
1966, easing considerably. The change in
monetary policy and financial conditions in
fluenced different types of financial institu
tions in different ways. Since the thrust of
changes in monetary policy and financial
conditions is transmitted initially through
commercial banks, it may be revealing to
examine some of the responses of selected
categories of banks during the period under
review. These categories are: (1) all com
mercial banks; (2) all member banks of the
Federal Reserve System; (3) country member
banks; and (4) nonmember banks.
The behavior of bank deposits and bank
credit of the entire commercial banking sys
tem, as well as of the banks directly subject
to the influence of the Federal Reserve Sys
tem, can be analyzed by use of these four
categories. Although a majority of commer
cial banks do not belong to the Federal Re
serve System, member banks account for over
four-fifths of commercial bank deposits and
bank credit. As a conseguence, the behavior
Digitized for18
FRASER

of deposits and credit at member banks is
largely responsible for changes in total de
posits and credit at all commercial banks.
Use of the above categories also permits
an analysis to be made of the behavior of
bank deposits and bank credit at nonmember
banks and country member banks. Because
both categories mainly include small banks,
this should provide some insight into the re
sponse of small banks to changes in monetary
policy and financial conditions, as well as
an indication of the performance of small
member banks of the Federal Reserve Sys
tem compared with nonmember banks.1
The data used in this article are estimates
of total deposits and loans and investments
as of the last Wednesday of each month.
Since deposit and bank credit estimates are
not available in seasonally adjusted form for

1 As of December 31, 1966, there were 13,770 commercial
banks in the United States. Nonmember banks numbered
7,620 or 55.3 percent of the total. Total deposits of all
commercial banks were $352.3 billion as of December 31,
1966, while total loans and investments (bank credit) were
$322.7 billion. Nonmember banks held 17.4 percent of all
commercial bank deposits, and 18.3 percent of all com
mercial bank loans and investments.

SEPTEMBER 1 9 6 7

some categories of banks, unadjusted data
are used for the four classes of banks. Yearto-year rates of increase (for example, depos
its in January 1965 as a percent of deposits in
January 1964) are used to represent changes
in deposits and bank credit. (See Charts 1
and 2.) Although the data are only one-day
figures, and fail to provide any indication
of the composition of deposits or bank credit,
they do portray the broad patterns of bank
deposit and credit behavior. And, in general
terms, it is clear from ihe charts that all cate
gories of banks showed generally similar
contours of behavior in the period under re
view. Nevertheless, there were some interest
ing individual variations.

DEPOSIT BEHAVIOR
One variation is that nonmember and
country member banks (the smaller banks)
showed somewhat larger increases in de
posits in the period under review than did
ihe all member bank and all commercial
bank categories. Since rates of increase for
all member banks and for all commercial
banks can be considered as weighted aver
ages of the increases of the component banks,
this indicates that the larger banks, which
are generally members of the Federal Re
serve System, did not grow as rapidly as
the smaller banks.
Nevertheless, similar patterns of deposit
behavior have by and large persisted since

Chart 1.

C hart 2.

DEPOSITS

LOANS and INVESTM ENTS

Percent C h a n g e from Y e a r Earlier

P e rce n t

ECONOMIC REVIEW
mid-1965 for all four categories of banks (see
Chart 1). Year-to-year rates of increase fluc
tuated in a range that, with minor exceptions,
remained relatively stable through most of
1965 and early 1966. As shown in Chart 1,
the effects of monetary restraint did not be
come apparent until the second quarter of
1966. As a general matter, year-to-year in
creases in deposits began to diminish after
April 1966, specifically for all commercial
banks, all member banks, and country mem
ber banks. Year-to-year growth at nonmem
ber banks, however, did not noticeably slow
down until after July 1966. Once the growth
rate of nonmember bank deposits did slacken,
the slowdown was greater than for the other
classes of banks. The magnitude of the over
all slowdown in year-to-year increases was
roughly similar at the other classes of banks.
From peak increases in April 1966, through
low increases in January 1967, year-to-year
deposit growth fell 4.0 percentage points at
both all commercial banks and all member
banks; at country member banks, the decline
was 3.9 percentage points. Nonmember
banks, on the other hand, experienced a de
cline of 4.4 percentage points from July to
January.2
2 The percentage point declines in year-to-year increases
in deposits are as follows:

Peak
Month

Trough
Month

Decline in
Percentage
Points

All commercial banks

Apr. 1966 Jan. 1967

All member banks

Apr. 1966 Jan. 1967

4.0

Country member banks Apr. 1966 Jan. 1967

3.9

Nonmember banks

4.4

July 1966

Jan. 1967

4.0

NOTE: Peak and trough months were determined by
inspection.

Year-to-year rates of increase in deposits,
after reaching lows in January 1967, accel
erated in February and reached a high in
May. This was followed by a sharp but tem
porary decline in June and a rebound in July.
Year-to-year increases thus far in 1967 have
generally been more moderate than those
that occurred in 1965 and early 1966.

BANK CREDIT
Year-to-year increases in bank credit (loans
and investments) followed a pattern roughly
similar to that of deposits. As expected on
the basis of deposit behavior, nonmember
banks experienced the largest year-to-year
increases in loans and investments through
out the entire period under review. All com
mercial banks exhibited the next highest
year-to-year rate of increase during late
1965, while country member banks assumed
second position during 1966. The all member
bank category exhibited the lowest growth
rale throughout the period under review. In
general, this pattern for the four categories
of banks persisted throughout the period
from mid-1965 to mid-1967, although the in
crease in bank credit at country member
banks fell below that at all commercial banks
at a number of intervals during the period
under review.
Similar to deposits, the year-to-year in
creases in bank credit at the various classes of
banks fluctuated in a relatively stable range
from mid-1965 to early 1966, although bank
credit growth reflected the effects of monetary
restraint somewhat more rapidly than did
deposit growth. Bank credit increases began
to recede in January 1966 at all member banks
and in February at all commercial banks.

SEPTEMBER 1 9 6 7
Country member banks did not begin to ex
perience a sustained reduction in year-to-year
increases in bank credit until April, while for
nonmember banks the slowdown did not oc
cur until August 1966. Once the smaller in
creases set in, ihe slowdown was much
sharper for nonmember banks. Year-to-year
increases at all classes of banks reached a
trough in December 1966.
The reductions in year-to-year increases in
bank credit were slightly greater than the
reductions in deposit in cre a s e s.A ll member
banks experienced the largest decline, fol
lowed by all commercial banks, and then by
country member banks. Nonmember banks
experienced the smallest decline in terms of
percentage points, but the decline occurred
over a much shorter time span.4
Following the change in monetary policy
in November, bank credit growth accelerated
from the December 1966 low; by midyear

3 This phenomenon reflects such factors as changes in
composition of deposits, changes in location of deposits
and the influence of different reserve

requirements,

changes in the level of excess reserves in the banking
system, among others.

4 The percentage point declines in year-to-year increases
in bank credit are as follows:

Peak
Month

Trough
Month

Decline in
Percentage
Points

All commercial banks

Dec. 1965 Dec. 1966

All member banks

Dec. 1965 Dec. 1966

5.3

Country member banks Jan. 1966 Dec. 1966

4.6

Nonmember banks

4.2

July 1966 Dec. 1966

4.9

NOTE: Peak and trough months were determined by
inspeclion.

1967, year-1 o-year rales of increase had not
regained the magnitudes achieved in 1965
and early 1966.

CONCLUDING COMMENTS
Because the aggregates considered here
are necessarily broad in coverage and may
conceal a number of important factors in the
behavior of deposits and bank credit, any
conclusions should be considered tentative.
Nevertheless, a number of general observa
tions seem plausible.
For one thing, monetary restraint in 1966,
as evidenced by lower rates of deposit and
credit growth, was transmitted to all four
categories of banks under consideration. Re
straint was reflected at different classes of
banks at different limes, particularly with
respect to bank credit. Smaller year-lo-year
increases in bank credit occurred first at the
larger member banks and then at country
member banks. The effects of restraint on
nonmember bank credit growth did not show
up until s o m e lim e a fte r th e im p a c t on m e m
ber banks (approximately six monlhs). In ad
dition, as implied by the data in footnote 4,
the larger banks showed a greater decline in
year-lo-year increases than smaller banks,
indicating that the effect of restraint was
greater for large banks.
In the case of deposits, the effects of re
straint were not readily apparent until several
months after the effects on bank credit, al
though the effects on deposit growth were
more uniform. Larger member banks and
smaller country member banks seemed to
experience similar patterns of deposit be
havior. Nonmember banks, however, did not
show the effect of restrainl until several
21

ECONOMIC REVIEW
months after ihe effects were apparent in
member bank and country member bank
deposit behavior.
The magnitude of ihe effect of restraint,
as measured by the reduction in growth rates
of deposits, was roughly similar for all four
classes of banks, with the exception of non
member banks. Thus, although nonmember
banks apparently responded less rapidly to
conditions of restraint, the reaction was of a

2
Digitized for 2
FRASER

somewhat larger magnitude once it did occur.
All four categories of banks responded
promptly to the change in monetary policy
that occurred in November 1966. In the early
months of 1967, however, the rate of bank
credit growth at all member banks, taken as
a group, lagged credit growth at the other
categories of banks,- nonmember banks con
tinued to set the pace with the largest rates
of increase in bank credit.

Fourth Federal Reserve District