Free World Trade with the Soviet Bloc
But there is still another reason why the new Soviet trade arrangements will not necessarily mean a historic upsweep in East-West trade: The satellite countries have not been behaving in quite the same way.
The U.S.S.R. is only one part of the Soviet bloc, albeit the center of power. The U.S.S.R. accounts for about 30 percent of the trade which the European Soviet bloc carries on with the free world. (The percentage would be still less if Communist China were included, but Communist China will be discussed in another chapter.) In other words, Czechoslovakia, Poland, Hungary, the Soviet zone of Germany, Rumania, Bulgaria, and Albania, despite the long, steady decline of their trade with the free world ever since “sovietization” took hold in about 1948, still exchange about twice as much merchandise with free-world countries as does the U.S.S.R. These satellites, or some of them, have long had trade agreements with countries in Western Europe. During the last year or so they have renewed about 45 of those. In addition they renewed about a dozen agreements with non-European countries.
The brand-new agreements which the satellites concluded in Europe were mainly with France and Greece, thus conforming to the Soviet pattern of increased attention to those two countries. But in other respects the satellite trade pattern was different from that of the U.S.S.R., for while recent U.S.S.R. commitments, if fulfilled, seem to indicate increased trade, there was no evidence of a reversal in the long slide of the East-West trade of the satellites. Therefore one could not ignore the possibility that the U.S.S.R., with a flourishing of fountain pens and a blare of trumpets, was merely shifting to itself a bigger percentage of all bloc trade with the rest of the world.
Now let’s see what kinds of goods are involved in the new trade agreements and other commitments that the U.S.S.R. has been making.
Consumer goods, the items about which Malenkov, Khrushchev, and Mikoyan made such a fanfare in announcing the new course for the Soviet domestic economy, make up one class of commodities, though not the most important, that the U.S.S.R. has been ordering from the Western world. It appears that the U.S.S.R. has committed itself to buy consumer goods at a somewhat brisker rate than in recent years.
Most of these consumer goods were food items. During the last 6 months of 1953 and the first month of 1954, the known Soviet arrangements to buy food from the free world amounted to about $90 million. Some of the deliveries were scheduled in 1953, some in 1954.
Butter was the biggest item. In trade agreements and contracts, butter quotas amounted to 37,500 tons, with an estimated value of $40 million. Denmark was to provide about $18.6 million of this. The second most important source of butter was to be the Netherlands, with $13.7 million. Lesser amounts were to come from New Zealand, Australia, Sweden, and Uruguay.
Meat quotas came to about $22 million, with Denmark and Argentina the leading suppliers. Smaller amounts were to come from the Netherlands, Uruguay, and other countries.
Fish quotas amounted to $15 million. Nearly all of this was herring. The leading suppliers were to be Iceland and Norway, and others were the United Kingdom, the Netherlands, and Denmark.
The U.S.S.R. during the 7-month period also arranged to buy $7 million worth of citrus fruits from Italy, Japan, and Israel (and apparently made a whopping profit selling oranges to the Russian people); $4 million worth of cheese from Argentina and the Netherlands; $2.4 million worth of lard from Denmark and Argentina; and $1.4 million worth of sugar from the United Kingdom and Cuba.
Besides food, the most important consumer item ordered from the West was textiles. The amount is harder to estimate, but it was somewhat larger than the Soviet textile imports of any recent year. The principal suppliers were to be Belgium, France, the Netherlands, Italy, and the United Kingdom.
In addition to contracts already made, the Soviet officials were still putting out feelers for consumer goods. Some of them reached across the Atlantic. In January much publicity was given to the efforts of an American firm to buy a large quantity of Government-owned surplus butter and sell it abroad—ultimate destination Russia.
Secretary of Commerce Sinclair Weeks announced on January 15 that he would not approve any application “which would permit an exporter to buy butter at considerably lower prices than those paid by the American housewife and then send that butter into Russia.” On February 10 he announced that it had been “decided as a matter of policy to deny commercial export license applications for the export for cash of United States Government-owned surplus agricultural or vegetable fiber products to Russia or her satellites.” He pointed out, however, that this ban “does not preclude study of export license applications for these nonstrategic products to the Soviet bloc if acquired by exporters in the open market and not from the Commodity Credit Corporation surplus stocks.”
It is difficult at this writing to compare the Soviet Union’s new commitments to buy consumer goods with the actual imports of previous years.Totalfree-world exports to the U.S.S.R. in 1953 are estimated at $410 million (compared with $481 million in 1952) but how much of this $410 million was consumer goods is not yet determined. The 1954 figure can only be speculated upon. But certain generalizations about consumer goods are possible.
As evident in chapter 1, the U.S.S.R. was never very much interested in importing consumer goods from the West. The items it did import for the consumer were not the household appliances and luxury items we sometimes think of as consumer goods—but were usually food. These imports have been higher at times than others: for example they were relatively high in the late 1930’s and again in 1948. Since 1950 they have been rising again, but by 1953 they were still breaking no records. They have always represented a relatively small percentage of total Soviet imports. At the same time, during the postwar years Soviet policies were forcing the consumer-goods imports of the European satellites steadily downward.
These contrasting trends of rising Soviet imports and sinking satellite imports seemed likely to continue in 1954. This probability, plus Mikoyan’s statement in his October speech that “we are helping the People’s Democracies with certain commodities,” made one wonder how much of the new Soviet imports of butter and other food were being reshipped to Eastern Germany and other satellites to alleviate the unrest there.
The U.S.S.R., while ordering more consumer goods, seemed even more anxious to buy ships.
Every trade agreement which the U.S.S.R. has signed with a shipbuilding nation of Western Europe since mid-1953—that is, with Finland, Italy, Belgium, the Netherlands, Denmark, France and Sweden—has included a sizeable quota for ship purchases, particularly fishing vessels and refrigerator ships. Contracts for fishing vessels were also made with firms in the United Kingdom and Western Germany.
It was safe to say that Soviet activity with respect to Western European shipyards since mid-1953 surpassed the biggest previous shopping expedition for ships, which came around 1949. And it was clear that by early 1954 the U.S.S.R. had greater commitments on the books to buy ships from the West than at any other time in its history. This was true in tonnage, value, and number of vessels.
Probably not all the trade agreement commitments will result inactual deliveries; on the other hand, the shopping spree is still going on and further commitments are likely.
Because of Western restrictions on the export of certain types of ships, the new vessels destined for the Soviet Union were mainly of smaller types. A large number were fishing vessels, such as trawlers, fish processing craft, and refrigerator ships. Others were cargo ships, tugs and barges.
The buying of fishing vessels accords with the shortage of food in the Soviet bloc. Mikoyan in his October speech admitted there had been many complaints about the fish supply and that the Soviet fishing goals had not been met. But the Soviet search for ships could not be viewed entirely in the light of a desire to produce more consumer goods. The U.S.S.R. was seeking cargo ships in addition to fishing boats, ordering other marine equipment such as component parts and floating cranes and trying to arrange for more ship repairs in free-world ports. Western shipbuilders were inclined to be receptive to orders for vessels at a time when ship orders from Western countries were declining. At the same time it was impossible to ignore the fact that Soviet-bloc orders in the West can have the effect of freeing Soviet-bloc shipyards for the building of naval vessels. The campaign to buy ships thus presented the free world not only with more orders but also with a security problem.
The development of a Soviet merchant fleet is relatively recent. In 1939 the U.S.S.R. had seagoing merchant vessels totaling only 1,135,000 gross tons. It emerged from World War II with more than twice this tonnage. The main sources of the increase were lend-lease ships from the United States and war reparations. The United States in its lend-lease program leased to the U.S.S.R. 121 merchant vessels with gross tonnage of some 750,000 tons. Of these, 30 were returned to the United States and 4 were lost. The U.S.S.R. kept the others, and long exhaustive negotiations since 1946 have failed to settle this and other lend-lease claims. Through war reparations the U.S.S.R. acquired 170 more ships with gross tonnage just over one-half million tons. By 1953 the Soviet bloc—the U.S.S.R. and Poland for the most part—had a seagoing merchant fleet with a gross tonnage of 2-1/2 million tons, compared with free-world fleets totaling about 21 million tons.
The new Soviet purchases of butter, meat, and other consumer items have sometimes obscured the continuing heavy demand for equipment and raw materials needed for industrialization. There has been no appreciable decline in the Soviet interest in buying industrial commodities.Such goods still dominate Soviet imports and new agreements to import—and that goes for the European satellites, too.
The Soviet bloc has shifted some of its priorities. The Soviet eagerness to buy ships is an example of a raised priority. The sharp drop in Soviet buying of Malayan rubber from the United Kingdom in 1953 was an example of a lowered priority. There are some other changes, but no change in the emphasis on industrial goods in general.
All the trade agreements concluded between countries of Eastern and Western Europe since mid-1953 have included quantities of such items—limited, of course, by the West’s security controls which provide for the embargo of some items and quantitative restrictions on others. In the trade agreements of Czechoslovakia and Poland, we find quotas for deliveries from the free world of electrical equipment, ball bearings, steel products, pyrites, lead, zinc, aluminum, and many others. Bulgaria also has shopped for capital equipment. In exchange for their grain, vegetables, fruits, tobacco, and a small amount of manganese and chrome, the Bulgarians made trade-agreement commitments to get important amounts of cables, rods, bars, plate steel, railroad equipment, floating cranes, electrical machines and installations, mining equipment, and miscellaneous machinery. The U.S.S.R., besides its procurement program for ships, has written into its trade agreements certain kinds of machine tools, various kinds of steel, equipment for electric power plants, construction equipment, chemical products, textile machinery and machinery for the timber and food-processing industries. An analysis of one recent trade agreement showed that three-quarters of the value of the Soviet imports consisted of products of the metal working industries. Businessmen in the United Kingdom, which has concluded no recent trade agreement with the U.S.S.R., have reported that the Soviet bloc’s real interest in buying British goods was confined mainly to items for production.
The attempts to purchase items like those named in the foregoing paragraph are nothing new. The point is, these efforts are continuing.
Many of these items have been under quantitative controls by the major free-world countries—that is, exported to the bloc in limited quantities only. Some of the most highly strategic items, such as the types of machine tools and bearings that are essential to war production, have been under embargo, and when that was true, the free countries that participate in the international control program have generally shipped them only to fulfill commitments made before controls went into effect, or in special cases where the countries felt strongly that the shipment was justified in view of the benefits to the free world that resulted from the two-way trade made possible by the shipment. In 1952 and 1953, for example, all nations receiving aid from the United States permitted the shipment to the Soviet blocof roughly $15 million in items that were listed for embargo under the Battle Act (Mutual Defense Assistance Control Act of 1951), as compared with total free-world shipments to the bloc of about $2.7billionin the same 2 years.
These highly strategic items, of course, are the ones which the countries of the Soviet empire have wanted most of all. And when not able to get them legally, they have continued their efforts to get them illegally. The third semiannual Battle Act report,World-Wide Enforcement of Strategic Trade Controls, contained a detailed account of the underground trade that violates Western regulations. Since all foreign trade of a Soviet-bloc country is a state monopoly, it follows that the state is an active participant in this underground traffic. With the bloc, circumvention is an official policy.
The Soviet Union, despite its publicized buying of consumer goods—which have never been restricted by the free world—has definitely not slackened its efforts to obtain industrial goods whether strategic or nonstrategic in nature.
As told in chapter I of this report, the economic planners of the Soviet empire first figure out their import requirements and then decide what they want to export in order to pay for the imports. They look upon exports primarily as a means of obtaining goods which are more advantageous to import than to produce, or which they cannot produce.
In the present chapter, we have seen what sort of items they are currently interested in importing. Now we turn the coin over and look at the export side.
The most noticeable feature is that the U.S.S.R. in the last half of 1953 and the early part of 1954 introduced into free-world markets a number of mineral products which they had not sold in such quantities for some years.
These commodities included manganese, petroleum, and gold. All of them at one time or another have been among the major Soviet exports. Together with grain, timber, and furs, they make up the principal means that the U.S.S.R. possesses to procure the imports they want.
Why have the mineral exports been revived at this time? This leads us to the grain situation.
Grain has long been the Soviet Union’s No. 1 export commodity, and still is. But Soviet grain shipments declined precipitately in 1953. The United Kingdom, usually the main Western customer for this commodity, stopped buying grain on a government-to-government basis and turned the purchasing over to private firms. At thesame time the U.S.S.R. apparently decided to keep more of its grain stores at home. The efforts to furnish more fodder to livestock, together with below-average crops and collective-farm headaches in the U.S.S.R. and satellites, suggest the motivation for this. At any rate the private British firms were unenthusiastic about signing large contracts at the high prices set by the U.S.S.R., and grain shipments to the United Kingdom skidded from $101 million in 1952 to only $10.1 million in 1953.
Although grain was far from disappearing as a Soviet export to the West, it became less potent—for the time being, at least—as a means of acquiring foreign exchange to pay for imports. This loss was only partially offset by a moderate increase in sales of Soviet timber to Britain and a big drop in the amount of Malayan rubber that the U.S.S.R. bought from the British. Meanwhile war reparations from Finland had ended in 1952, and deliveries of Swedish goods under a long-term credit agreement ended the same year. The Finnish and Swedish developments meant that about $80 million worth of goods which the U.S.S.R. had received from those countries in 1952 could not be duplicated in 1953 unless some other means of payment were created. All these events contributed to the reviving of some other export commodities.
How far the shift is going and how long it will continue cannot be predicted. Abrupt alteration in Soviet exports is hardly a novel development. For a time, around 1930, when forced collectivization of agriculture and forced exports of grain had induced famine in some areas of the U.S.S.R., the Kremlin opened the pressure valves a mite, heavily slashed the exportation of grain, and evenboughtsome grain on the Baltimore exchange. That was a breathing spell in the midst of the first big Soviet push toward rapid industrialization. During the same general period, the U.S.S.R. found it expedient to force more production and more exports of furs, coal, and some of the same commodities now receiving special attention—petroleum and metallic ores—in order to get imports of capital goods needed in the ambitious industrial program.
Manganese is a silvery-white metal used in the making of hard steels. The U.S.S.R. is one of the world’s major sources of manganese. It can produce a large amount each year, depending on how much manpower it decides to throw into the effort. It consumes a lot in its own steel industry, even using manganese as a substitute for scarcer alloys like nickel and molybdenum. In addition, its plans usually provide for certain quantities of manganese ore to sell abroad.
These exports have continually fluctuated. Before the war theyranged from about 400,000 metric tons a year to about 1 million. The United States, which produces very little manganese, was a major customer. In the 1930’s we got about 40 percent of our manganese imports from the U.S.S.R. Other important customers were France, Germany, Belgium, and Japan.
During the war, Soviet manganese vanished from world markets. The United States and other customers turned to sources in Africa, Latin America, and India.
In March 1945, Soviet manganese ore reemerged. The United States was the principal buyer, receiving 1,168,000 tons in about 4 years. In February 1947 the Soviet Foreign Trade Journal pointed out the importance of the United States to future Soviet plans for the export of manganese. But late in 1948 the Kremlin suddenly reduced its shipments to the United States almost to the point of embargo. A few shipments trickled in during the next 2 years and stopped entirely in 1951. Meanwhile deliveries to Western Europe did not undergo a compensating rise; they were little more than 100,000 tons a year.
Came the season of the last half of 1953 and the early part of 1954. The Kremlin’s zeal for exporting manganese bloomed again. Commitments to ship over 300,000 tons of the ore were written into trade agreements with Western European countries. Offers of manganese reached the United States through various channels.
Chrome is usually part of the package when manganese is sold. As could be expected, Soviet chrome commitments also climbed in late 1953.
There was also a revival of activity in the export of silver, platinum, and palladium.
But a more interesting commodity which the U.S.S.R. has begun to put on the market in bigger quantities was oil.
In approximately the last half of 1953 the U.S.S.R. made agreements to ship to free-world countries about 3.5 million metric tons of crude petroleum, kerosene, diesel fuel, and other petroleum products. The countries due to receive the largest amounts—if delivered—were Finland, France, and Argentina. Other customers were Greece, Italy, Iceland, Denmark, Sweden, Israel, and the Netherlands. Some deliveries were made in 1953; more would be made in 1954; there was no certainty that all the commitments would be fulfilled. But even a two-thirds fulfillment apparently would be enough to hoist petroleum ahead of lumber and furs and place it second only to grain among Soviet exports to the free world.
What would this mean to the free world? What problems wouldit raise? Again we can find clues in the past. The present situation is not the first time that the U.S.S.R. has created a stir by abruptly entering oil markets. This also happened in the late 1920’s, when the U.S.S.R. began exporting large amounts of oil as a means of obtaining industrial imports. These exports grew each year and were 6.1 million metric tons in 1932. This was around 10 percent of the world’s oil exports, and was almost 30 percent of Soviet oil production at the time. The United Kingdom and Italy were the major customers for this oil, but there were many others. The marketing was done through various channels. The Soviet monopoly that controlled all oil exports set up a network of sales offices abroad. Long-term contracts were made in Spain, Italy, France, Belgium, and the Netherlands.
The expansion of Soviet oil sales gave rise to bitter price wars with established oil groups. The bitterness was made more intense by the fact that the Bolsheviks had neglected to settle for the foreign oil properties that they had seized after the revolution. As in all exports, the U.S.S.R. was more interested in total receipts of foreign exchange than in making high per-unit profits; so it could and did use price cutting as a means of achieving a foothold. Subsidiaries of some of the world oil trusts then tried to drive the Soviet oil back home by underselling the Soviet monopoly. But the attempts failed, and Soviet oil won an important place in world markets.
In the late 1930’s, the oil was withdrawn. Soviet exports dropped back to 1.4 million tons in 1938, and kept fading. After the war, they came back only in a trickle—for example, 100,000 metric tons in 1951 and 250,000 in 1952, then rising to 450,000 in 1953 as some of the new commitments of 3.5 million tons began to be fulfilled.
Meanwhile the war had swept additional oil into the Kremlin’s hands, including the oil wells of Rumania and those which were taken over as “German assets” in the Soviet zone of Austria. And the oil exported to the West from these new Eastern European acquisitions greatly exceeded the exports of the U.S.S.R. itself, amounting to 1.2 million metric tons in 1951, 1.7 million in 1952, and 2.3 million in 1953. In recent months, while the U.S.S.R. was making agreements to ship 3.5 million tons, the new export commitments of these other properties in Eastern Europe became known only in part, at least at this writing.
The Soviet bloc, though still short of certain specialized refined products, probably has the oil capacity to make considerable exports for at least some years, if the Kremlin so decides. Whether the bloc will indeed step into the world markets in an important way, as the U.S.S.R. did in the twenties, is of course not known. The West is watching closely to see whether the Kremlin will again use itsmonopoly control to undertake a major campaign of underselling other suppliers in world markets.
It was natural for oil-importing countries in the free world to be interested in new supplies from the Soviet bloc, especially if the price was attractive or if the transaction also enabled a free country to market its own products in the East. But the West could not forget past patterns, nor ignore the problems brought by new Soviet sales.
When the Russians abruptly disappear from markets, free-world importers turn to free-world sources to make up the difference. And if the importers later jump whenever the Soviet Government decides to stage another of their dramatic entrances, the free-world sources whose production has been stimulated will be the losers. And who can predict when the dictates of the Kremlin—economic or political—will override the dictates of the market place, and the oil, manganese, chrome, or whatever it may be, will suddenly be whisked out of reach?
Down through the centuries, the wordgoldhas exerted a powerful effect upon the imaginations of mankind. And last December, when the news came out that airplanes laden with gold bullion were flying from Moscow to London, there was a great buzz of interest. What were the Russians up to now?
The export of Russian gold was not new. The Soviet Union had been selling a sizeable amount each year in the free world. But in the last few months of 1953 a larger amount of Russian gold came out into the free world than had emerged in any recent year. Most of it, instead of entering the free market, went to the Bank of England. The total amount exported to England, Switzerland, and other countries during 1953 was not announced, but it was somewhere between $100 and $200 million.
There has been much speculation on the reasons for an increase in gold sales. The best explanation seemed to be that the Kremlin, hard pressed for adequate exports, decided—as in the case of manganese and oil—to use a fraction of its gold hoard so that it could continue to import the things it wanted from the free world. It has done the same thing on past occasions. For example, in 1928 the U.S.S.R. exported $167 million worth of gold and in 1937, $212 million worth.
Whether still larger amounts of Russian gold would be exported in the future was of course unknown. Concerning the size of the Soviet gold stock many guesses have been made, most of them ranging from $3 billion to $6 billion. The Soviet Union attaches great importance to its gold reserve. It has been willing to part with gold only in limited amounts or for special purposes. In any event, the goldhoard would not be big enough to use as a base for a large-scale, long-term trade relationship. Nevertheless, over the short run, and for limited purposes, the U.S.S.R. could, if it desired, export a lot more gold than it has to date. Gold therefore is an intriguing question mark of East-West trade.
Moscow, while shopping for more ships, peddling more gold, and making other moves in the industrial countries of Western Europe, also reached outside Europe and tried to fasten closer economic ties with Asia and Latin America. The trade of the Soviet Union with the non-Communist areas of Asia, and with Latin America, has never amounted to more than driblets. That of Czechoslovakia and Poland has been a little bigger. The U.S.S.R. entered this field in 1953 with a good deal of propaganda effect. The effect in delivery of goods was still to be seen.
The Soviet trade bosses used a number of devices.
One device was to offer loans and technical assistance. Some of the loans were connected with trade. Others, related to construction activities within free-world countries, were more suggestive of investments and provided opportunity for increased Soviet or Communist Party economic penetration. There was a marked interest in assisting in the establishment of storage and supply facilities. So far, few Soviet offers have been accepted. Possibly this is because they are disturbingly reminiscent of the penetration techniques that were used to gain economic leverage inside the Eastern European countries and China prior to Soviet political domination of these regions. Or it may be that skepticism has been aroused by the experience with Communist Party use of commercial enterprises in some Western European countries to finance the local party and the Kremlin’s activities.
Another device has been to build lavish exhibits at “trade fairs.” This activity, though carried on in Western Europe too, was especially marked in South Asia. On an increasing scale, since 1951, the Soviet Union and its satellites have been using trade fairs for a double purpose—to promote the kind of trade the bloc desires and to propagate Communist ideas.
By elaborate and costly displays the Soviet-bloc governments seek to dominate the fairs; to overshadow the exhibits of the United States and other free-world countries; and to create the illusion of an industrial and commercial superiority over the Western nations, especially the United States. The U.S.S.R. makes a concerted and determined effort to discredit and minimize the industrial and technological achievements of the United States by contrasting the great size of the Communist nations’ participation with the usually modestrepresentation by United States firms. An important distinction between Soviet and U.S. exhibits is that the former are developed as a state trade promotion and propaganda undertaking, and involve the building of special pavilions, whereas U.S. participation amounts to the sum total of exhibits of individual U.S. industrial and commercial companies assembled for the single purpose of promoting the sale of individual products.
The importance which the bloc attaches to these undertakings is found not only in the mountains of propaganda it issues on the subject, but in the sizeable expenditures it makes. For example, in 1952 the U.S.S.R. and its satellites dominated the Bombay International Industries Fair with four big exhibits. The Soviet exhibit was the largest; it cost more than $200,000 and was manned by a staff of 40. Communist China’s exhibit was the second most pretentious, with Czechoslovakia and Hungary also participating in an impressive way. At the Thailand Constitution Fair at Bangkok in December 1953, the Soviet exhibit was again the most elaborate. The Soviet Government established a special pavilion that cost an estimated $500,000 and housed 5,000 items, including trucks, automobiles, precision equipment, glassware, rugs, and preserved foods.
Yet another device was to join hands with a key nation of each continent in a brand-new impressive trade agreement which seemed to offer attractive benefits to that nation and which might stimulate neighboring countries to hanker after similar opportunities. The Kremlin chose India and Argentina. The U.S.S.R. concluded trade agreements with those two countries for the first time. So did some of the European satellites, and other satellites renewed existing agreements. The U.S.S.R. and the satellites also renewed existing agreements with certain other countries in Asia and Latin America.
The two-year Russian trade agreement with Argentina, signed in August 1953, was one of the most interesting of the year. For one thing it came at a time when trading missions of the U.S.S.R. and its satellites were becoming more active throughout Latin America—and the Soviet-Argentina agreement helped those missions to gain a somewhat more receptive audience for their overtures. Latin American governments have cooperated with other Western nations in withholding highly strategic commodities from the Soviet bloc; for example, bloc proposals to buy Chilean copper and Bolivian antimony and lead were not accepted. Obviously the Kremlin hoped to bring about more resistance to the control of strategic materials and to create Western disunity over that issue.
This trade agreement between the U.S.S.R. and Argentina was also interesting for its size and composition, at least on paper. It called for deliveries of $60 million in each direction, presumably during the first year, with an additional Soviet credit of $30 million.Argentine shipments were to include wool, hides, linseed oil, meat, and other goods that the Soviet Union could undoubtedly use. But the list of Soviet exports included some items for which the Soviet bloc seemed to have equal or greater need. The U.S.S.R. promised to deliver a large quantity of machinery and transportation equipment on credit, as well as petroleum, coal, and other items. Proposals to deliver certain kinds of machinery also cropped up in Soviet agreements with India and Iran.
Machinery, as we know, is what the Soviet rulers go to extreme pains toimport. If they were serious now about exporting it, and if they really intended to deliver large quantities and not mere tokens, it would be something new, although even then they would probably not be exporting the advanced types which they usually seek to obtain in the West. It remained to be seen whether the U.S.S.R. would come anywhere near to complete fulfillment of the trade agreement with Argentina, for example. But one could only suspect that the promises of big and attractive deliveries—whether fulfilled or not—were made in large part for the purpose of weakening the ties of those countries with the rest of the free world.
In this chapter we have traced various threads of the Soviet trading activities, and have suggested reasons why they engaged in each kind of activity.
Now it is necessary to look more deeply into the whole complex of Soviet foreign trade policy and sum up what’s behind it all.
What’s Behind It All
From the Kremlin comes a continual flow of propaganda, spread to the ends of the earth by the international Communist movement, to the effect that the Union of Soviet Socialist Republics is the Champion of Peace.
Stalin’s death afforded the Communists a convenient opportunity to portray a new regime zealous for a peaceful, normal world. They did not say out loud that Stalin had beenlesszealous, but they were not reluctant to play upon the world’s fervent wish that the new management would turn over a bright new leaf. And they were willing, even eager, for the world to believe that one part of the pursuit of peace was the promotion of East-West trade.
Can the so-called Soviet “trade offensive” of 1953-54 really be explained as an effort to establish a just and lasting peace, as the West understands the word? If we could believe that, the world might suddenly seem a more comfortable place to live in. We must always keep the door ajar for any genuine steps to abandon the Soviet brand of imperialism, to abandon the basic unfriendliness of purpose toward everything not under Moscow’s control. The free world was looking for such a movement at the Berlin Conference in the early part of 1954, but it did not show up.
The only way peace could be accepted as a Soviet trading motive would be to define peace as the Soviet leaders themselves have defined it in the past, not in their propaganda but in their party teachings.
“The peace policy of the proletarian state,” according to a Comintern Congress resolution of 1928, “certainly does not imply that the Soviet state has become reconciled with capitalism ... It is merely ... a more advantageous form of fighting capitalism, a form which the U.S.S.R. has consistently employed since the October Revolution.”
Lenin, in a statement which was reprinted in 1943, said that “every ’peace program’ is a deception of the people and piece of hypocrisy unless its principal object is to explain to the masses the need for arevolution, and to support, aid, and develop the revolutionary struggle of the masses that is starting everywhere. ...”
There is no evidence that the new Soviet regime has overnight embraced free-world ideas about peace and warfare. To the disciples of Marx, Lenin, and Stalin, the world is always in a state of warfare. The warfare waged by them is three-fold: psychological, economic, and military. Military action is a last resort, but psychological and economic action never ceases. Stalin did not invent this concept, though he put it into action on a large scale. Nor was it exclusively Russian. The German military philosopher, Clausewitz, whose mid-19th century writings were carefully noted by Lenin and Stalin, wrote: “Disarm your enemy in peace by diplomacy and trade, if you would conquer him more readily on the field of battle.”
Hence the question arises: Can the Soviet trade offensive be explained as a campaign of “economic warfare”?
That depends on what is meant by economic warfare.
Paradoxically, many people think of economic warfare as meaning economic action in which economic considerations are relatively unimportant, and the gaining of political or psychological advantage is dominant.
If economic warfare is taken in this sense, the answer to our question is “no”. The explanation of the Soviet trade offensive is not that simple. The Soviet Union and its satellites have economic needs. They use foreign trade to serve those needs. We have noted in this report how they determine what imports they want from the free world, and then develop a program of exports to pay for the imports. They are not in the Olympian position of being able to pick and choose these imports and exports solely on the basis of whether the choice will help them deceive, confuse, embarrass, or divide the capitalistic West. Therefore it is a grave oversimplification to assume, as some people do, that the Soviet Communist’s every action in the market places of the world inevitably brings him advantages in international politics.
On the other hand it would be an even greater mistake to assume that economic considerations always govern; that because the Soviet-bloc governments often use normal trading channels and devices they must be looking upon trade through the same eyes as the businessman of Indianapolis, Manchester, or Stockholm; and that politeness at the bargaining table is the undoubted mark of innocently “economic” commerce, free of ulterior motives.
The truth is: Soviet-bloc trading actions are neither purely economic nor purely noneconomic.
The Soviet trade offensive can be explained in terms of economic warfare, if we define economic warfare as economic action by the state that is designed to serve basic hostile objectives directed at another nation or group of nations—whether or not the immediate gains are economic.
In Chapter I, the Soviet bloc’s long-term objectives in its economic relations with the free world were outlined. It was pointed out that these objectives have a dual character: strengthening the bloc and weakening the free-world powers. The objectives were summarized this way:
Within this broad framework the Kremlin pursues more immediate and specific goals, such as:
The foregoing can be recognized, as among the things being attempted in the Soviet “trade offensive” of 1953-54. They did not fall in separate compartments, but were woven together in a central plan and they contributed to one another. They were not so new as some of them might look at first glance. The long-term objectives which they served were not new at all.
Some new tactics have been adopted, as we have seen. But even many tactics have more of an old look than a new. Soviet-bloc business practices still clash with Western concepts of normal, peaceful trade relations.
Soviet-bloc representatives have access to many free-world factories, visit docks and inspect merchandise destined for the bloc, maintain offices in commercial centers, receive technical materials from libraries and business firms, and pick up voluminous statistics on free-world resources, production, exports, and imports.
The governments of Soviet-bloc countries do not reciprocate. Although they entertain delegations of diplomats and businessmen and occasionally allow individuals to visit certain places when it serves their purposes, the Western business community in general is barricaded out of their cities, factories, and countrysides, and the peoples of the bloc firmly locked in. Disclosures of even the simplest facts and figures about their economies is a serious crime. They do not enter into the customary international agreements for the protection of patents. Though they claim to have invented almost everything, much of their industrial progress is based on piracy of Western inventions and technology, from the tiny Moskvich automobile to the jet engine. They have failed to settle promptly and adequately claims for confiscation of Western properties and for lend-lease assistance. Furthermore the terms on which they often seek to trade omit customary guarantees of fair dealing. For example, the U.S.S.R is still trying to insert clauses in its East-West contracts requiring that any dispute between the Soviet Government and the free-world businessman be arbitrated by the Chamber of Commerce of the Ministry of Foreign Trade—an organ of the Soviet Government. And as we have already seen, they make every effort to circumvent the exportcontrols of other nations; they pay citizens of those nations to violate the laws of their governments.
The best way to characterize the Soviet “trade offensive” is that the Soviet rulers have improvised for their trade structure a new facade of papier mache but have not reconstructed the interior. In changing circumstances the Kremlin was seeking effective ways of accomplishing the same traditional objectives of feeding its industrial-military machine and weakening the free world.
In the absence of Soviet-bloc policies conducive to furnishing a long-term steady supply of exports desired by free-world countries, the West could hardly expect East-West trade to return to the prewar volume, though a short-term boost would not be surprising. The combined value of the trade in both directions between the free world and the Soviet bloc in Europe was $2.6 billion in 1951 ... $2.4 billion in 1952 ... and about $2.2 billion in 1953. By contrast, total foreign trade within the free world in 1953 was about $148 billion.
It is not only the amount of trade that must be considered, however, and that is why we have devoted attention in this report to what goods were involved and what the new Soviet regime was trying to accomplish.
What are the implications of all this for the free world?
In the face of the Soviet objectives, methods, and recent trade activities, one can recognize the inadequacy of two extreme policies that are often urged upon Western governments. Those extremes are:
1. Complete embargo on trade with the bloc.
2. Completely unrestricted commercial relations with the bloc.
Complete embargo would be the conventional answer in military conflict. But to urge complete embargo in the present situation is to ignore the fact that the present trade situation offers opportunities to the free world. The free world, with its enormous production, can benefit from trade; the test is what goods are traded and on what terms. The free nations are stronger economically than they have ever been. Collectively they are far stronger than the Soviet bloc. They possess tremendous resources. On the whole they have solid and healthy competitive systems. Their businessmen have behind them centuries of experience in bargaining, merchandising, and servicing. With these factors creating for the free world a currently strong trading position, the free-world nations should be able to take advantage of the needs of the Soviet bloc and by hard bargaining gain benefits from East-West trade.
Completely normal and unrestricted commercial relations with the bloc seem to be equally unsuitable as a course of action.
If the free world should abandon the controls it has imposed in the interest of national security, drop its guard and permit unrestricted trade inallits raw materials, industrial goods, and advanced technology—the free world would be the loser. In view of the Communist objectives and methods, unrestricted trade would permit the bloc to increase its war potential—and specifically the all-important economic base of its war potential—faster than it otherwise could. The goods received by the free world would bring no commensurate return.
If such trade encouraged a general relaxation of the free world military defense, it would be that much more damaging to the free world. In any event, unrestricted trade would permit the Soviet traders to compete freely in Western markets for important strategic goods needed for Western military defense, thus making that defense more costly and difficult for many free-world nations.
Employing the monopoly power of the Soviet states, individually or collectively, the bloc would be able to extract economic advantages and unwarranted concessions from the weaker individual traders and nations to the net detriment of the free world.
Finally, unrestricted commercial relations, in which commercial gain is the overriding criterion, would weaken the free world insofar as they increased the economic reliance of certain free areas upon the bloc. This could be harmful by increasing the vulnerability of these areas to Soviet pressure. It could also have the effect of diverting the attention of the free world from its compelling general economic tasks such as developing bigger, better, and more accessible markets and making international financial and trade arrangements that will diminish the difficulties of sharing the free world’s vast resources and production among the nations.
Thus, the problem and the challenge is to find and to steer a course midstream—to trade with the Soviet bloc on terms which bring to the free world a net advantage. This is no simple matter.
There are two sharp dangers for the free-world nations.
One is the danger of being divided in purpose, split apart on policies requiring concerted action, and forced into competing among themselves in circumstances which call for unified action.
The other is the danger of being deceived about what is going on in East-West trade and what’s behind it. This danger grows partly out of the complexity of economic relations and the fact that the Soviet system and approaches to economic relations and peace in general are so different from ours. It grows partly out of the fact that deception is intentionally practiced by the Soviet Communists.
On the other hand, the Soviet-bloc governments have limitations in trying to accomplish their purposes. The free world, aware of its own strengths, can meet a great part of the challenge by working together not only to understand the Soviet bloc’s general objectives and goals, but also to identify the specific actions which the bloc chooses at any given time to accomplish them. In this way the free world has the opportunity of segregating the harmful from the helpful.
We of the free world will neither be deceived nor divided if we keep ourselves armed with facts and work as a team.
U. S. Policy on Strategic Trade Controls
The economic and trading activities of the Soviet empire require close and continual study by free governments, but Soviet actions alone do not determine free-world policies.
Let us be perfectly clear on this point. The theme of the early chapters of this report has been the Soviet “trade offensive” and its background, just as the theme of the third semiannual Battle Act report was the enforcement of free-world strategic trade controls. The selection of the theme, however, should not be taken to mean that Soviet trading activities are the only factor that free-world nations must take into account when they consider what economic defense policies to maintain in the interest of their security.
In 1953 certain other considerations were demanding the careful attention of the agencies of the United States Government that are responsible for economic defense.
One of these considerations was the probability that the world faced a long period of tension short of general war, though with the ever-present risk of war. In such a period, no matter how long it might last, it would be essential for the free nations to remain strong and alert, to move together in whatever steps were necessary for military or economic defense, and at the same time to keep open the paths that might lead to a sounder basis for peace.
Another factor of historic significance was the massive upswing in the strength of the free world. Western Europe, especially, had moved into a far stronger position, both militarily and economically, than it had occupied a few years earlier. This gave the West greater bargaining power and it reduced the dangers of undue economic dependence on Soviet-bloc trading partners.
As Western Europe grew stronger the need for economic assistance from the United States declined. Although military aid continued in a big way, economic aid began to taper off.
Accompanying the increase in Western economic strength was a general shift in the free world from a “seller’s market,” in whichgoods were scarce and sellers had a relatively easy time finding buyers, to a “buyer’s market,” in which buyers generally could pick and choose. Some of the free countries had produced themselves into surpluses of some commodities—or had built up surplus capacity and needed additional markets in order to keep their industries prosperous.
This change brought more and more pressure from people in free countries to carry on increased trade with the Soviet bloc. Some groups had been clamoring for this all along, and had helped spread the time-worn Communist propaganda that a friendly and peace-loving “big brother” in Moscow was ready and waiting with an unlimited paradise of peaceful trade and that the only obstacle to its attainment was the strategic trade controls of the West. But now large numbers ofanti-Communist businessmen, even though many of them were aware that the Communist propaganda was false and that Soviet policies had always been the prime deterrent to a large and peaceful commerce, felt that some increase in East-West trade would be beneficial as a supplement to their much greater trade in the free world. They recognized the limitations of the Soviet bloc as a stable, long-term trading partner, yet saw no reason why an expansion should not be sought.
This attitude was stimulated by the Korean truce of July 27, 1953. It was also stimulated by the gestures that the Soviet Union began making in the direction of livelier East-West trade.
Governments in the free world tended increasingly to the view that some revisions in Western controls might be made without sacrifice of security interests.
The new administration in Washington, taking account of such considerations as those, and wishing to be sure that United States policy was the most effective that could be devised, began a thorough review of the economic defense policy of the United States in the spring of 1953.
This policy review was completed around the beginning of August. The third semiannual Battle Act report, which was published last September 28 and which covered the first half of 1953, stated that the conclusions of the review “will be reflected in the economic defense actions of this Government during the months to come.” In the present report, which covers the second half of 1953, it is possible to give more information about those conclusions.
As a result of the policy reviewthe basic economic defense policy of the United States was reaffirmed. There were, however, some shifts of emphasis—with respect to trade with the Soviet bloc in Europe—designed to make the basic policy more effective. We shalldiscuss those shifts presently, but first let’s summarize the basic policy as it has existed throughout the 6 months covered by this report.
This basic policy of the United States on East-West trade rested on the following principles:
In accordance with those principles the United States has long been exercising certain controls over its own trade. Here is a short description of those controls:
United States exports to Soviet bloc in Europe: Not prohibited entirely, but limited to clearly nonstrategic goods.
United States imports from Soviet bloc in Europe: Not prohibited, except for certain types of furs.
United States shipping to Soviet bloc in Europe: Not prohibited, if carrying properly licensed goods.
United States exports to Communist China and North Korea: Prohibited.
United States imports from Communist China and North Korea: Prohibited. (Some licenses were issued, though not recently, for goods needed in United States military stockpiles and in special hardship cases.)
United States shipping to Communist China and North Korea: Prohibited.
As for the trade of the rest of the free world with the Soviet bloc, the policy of the United States was set forth in the Battle Act (the text of which is at the end of this report) and in certain executive directives. The policy was not to prevent all East-West trade but to cooperate with other free-world countries in a system ofselectiveand flexible controls. The aim was to prevent Soviet-bloc countries from obtaining items that would contribute significantly to their warmaking power, and to insure that the trade which did go on served the real economic and security interests of the West.
Ever since the Communist aggression in Korea in 1950, the Far East has presented a policy problem different from the problem of controlling shipments to the bloc in Europe. The official position of theUnited States Government—both before and after the 1953 policy review—was that the current levels of controls by the United States and free world over shipments to Communist China and North Korea should be maintained. Later on in this chapter we shall report on what happened in the China trade during the last half of 1953.
So much for the basic policy. Now for the shifts in emphasis that took place in United States economic defense policy toward the Soviet bloc in Europe during the 6 months covered by this report.
It was determined that the system of the free-world controls that had been developed during the last 4 years substantially satisfied the objectives of retarding the buildup of Soviet warmaking power and strengthening the free world relative to the Soviet bloc. The effort to extend the control lists appeared to be reaching the point of diminishing returns. It was decided not to pursue an extension of the lists to many other items—though items would always be added occasionally because of changed conditions or new information.
On the other hand the Government recognized a need for simplifying the lists and removing or downgrading items, which, in the light of current information, were no longer deemed to be so important. The Government believed that much could be done in the months to come, if done carefully and with due regard for security, to adjust the controls to a “long-haul” basis. (Developments in the first half of 1954 will be reported in the next Battle Act report.)
In general, it was decided to concentrate on seeking more effective control of those items which, if shipped, would make a significant contribution to Soviet warmaking power.
The main thrust from the United States toward improvement of the control system, it was decided, would be in the field of implementation and enforcement of controls. Notable deficiencies existed in that field. To overcome them the free nations would need to keep improving their techniques, and would need closer international collaboration and pooling of information.
The new direction also took into account, even more than ever, the economic and political problems of free-world countries. Free-world unity was so vital, and the economic health of free nations so important to the defense of free institutions, that problems of our allies deserved to be given great weight in determining the actions of this Government in the East-West trade field. This was not a new concept, but this Government felt that such problems needed to be discussed among the free countries more than in the past.
In setting the new direction the Government recognized:
Those were among the highlights of the new direction. As explained before, the basic economic defense policy was not altered.
In the light of this basic policy, and its new direction, the Government agencies responsible for economic defense were engaged in certain projects during the period covered by this report.
One of the most important of these projects was the review of the control lists. This review was a complex and time-consuming operation, which continued into 1954.
It is easy for the public to become confused about control lists, not only because of their necessarily secret nature, but also because there are so many lists, serving different purposes.
The United States has had three main lists for its own exports:
The munitions list, compiled and administered by the Department of State; the atomic energy list, compiled and administered by the Atomic Energy Commission; and a much longer list, covering all other controlled items, which is compiled and administered by the Department of Commerce.
In addition there are the Battle Act lists. They relate to potential exports from other countries to the Soviet bloc. They include those primary strategic items which we believe the other free-world countries should embargo in the interest of mutual security.
Then there are lists consisting of those items—at varying levels of control—which the cooperating free-world nations have accepted as a part of their informal coordination of controls.
All of these lists are subject to a continual process of review. But as a part of the new direction in United States policy, this continuing review process was broadened into an intensive reappraisal. Specialists from several Government agencies were reevaluating all our listings in terms of sharper and more meaningful criteria, and inthe light of all the new relevant technical and intelligence information that could be assembled.
This review would furnish the basis for appropriate adjustments and for United States discussions with other governments in 1954 concerning the coverage of export controls.
It is a part of the economic defense policy of the United States never to lose sight of the vital need to keep open all paths that might lead to a sounder basis for peace in the world.
We not only recognize the economic benefits that free-world nations can get from an expanding East-West trade in peaceful goods; we also bear in mind the possibility that trade contacts can help to improve relations among peoples.
But in hoping for and working toward that end, we are not thereby accepting the belief that international trade inevitably and automatically leads toward peace. Hitler’s Germany expanded its foreign trade right up to the outbreak of World War II. We must view with skepticism the Communist propaganda line on trade and peace, for we know what their trading objectives and methods are. East-West trade as now constituted is carried on not with private individuals in the Soviet bloc but with agencies of Soviet-bloc governments.
International trade in general can be a broad highway toward better living standards and more peaceful relations. It has served humanity well. There should be more of it. But it takes two to trade, and trade is not necessarily a road to peace unless both parties wish to make it so.
Toward the close of the 6-month period under review, the President’s Commission on Foreign Economic Policy (Randall Commission) was hard at work. There was a great amount of public discussion, continuing into 1954, concerning ways in which the United States and other free-world countries could eliminate or reduce the obstacles that hinder the international exchange of goods.
The Commission, issuing its report in January, had much to say on the reduction of trade obstacles.
The Commission also included a section on East-West trade, recommending that the United States not object to more trade in peaceful goods between Western Europe and the European bloc.
These two subjects, trade liberalization and East-West trade, are connected with each other. When businessmen in free-world countries are hindered—either by trade barriers or other artificial causes—fromselling products in other free-world countries, they are more prone to seek markets in the Soviet bloc.
To a certain extent this aggravates the problem of maintaining adequate strategic trade controls and the problem that some free-world countries have of avoiding undue dependence on the Soviet bloc.
It would be impractical to seek the elimination of all trade restrictions within the free world but it is important to reduce unjustifiable barriers and it is also important to take whatever other steps are possible to develop new markets and new sources of supply.
To bring alternative markets and supplies into being is not an overnight task but it must be done. It means the reduction of many restrictions in the United States, thus allowing more goods to come in from our friends and allies. It means a similar loosening of restrictions by other free nations. It means more and better economic integration among the European countries. It means steady advancement in the economic development of the underdeveloped areas of the world.
All those things are important for many reasons. East-West trade is one aspect of the matter. The United States Government recognizes that hindrances to the exchange of goods within the free world do have a definite relationship to the international system of strategic trade controls.