United States. Foreign Operations Administration

“ The world has heard how the transformation of satellite agriculture into the Soviet pattern was impeded by the opposition of the rural populations to collectivization and by the difficulties of mechanizing farm output; how shortages of raw materials slowed the textile program in Czechoslovakia and the electric power industry in Hungary; how the mining and metallurgical industries lagged in some areas; how the rights of labor were obliterated in the attempt to shift manpower into heavy industry; how purges furnished scapegoats for Communist failures. ”

“ Soviet-bloc governments can—and not infrequently do—set their prices at levels which discriminate among the various buyers and sellers with whom they deal. They exercise monopoly control not only in selling their own goods abroad but also in disposing of imported goods at home. The Soviet-bloc governments get bargaining advantages from such practices, made possible by their totalitarian trading system—practices which the West would not wish to imitate but which it might as well squarely face.
Foreign trade is a political as well as an economic weapon in the hands of the Soviet Communist state. ”

“ To picture the free world as in or near a general economic crisis is of course familiar Communist mythology. But Stalin’s discussion did reveal clearly the Communist indifference to the mutually fruitful and expanding international trade that the West desires. It was an admission of Communist responsibility for—or at least satisfaction with—a divided trade world. ”

“ We must suppose that the intent of any steps to improve the lot of the Soviet-bloc consumer is to improve it just enough to rescue his productivity in the interest of the state, but not enough to give him such a taste of better living as would lead to a wider and wider opening of the valves and hinder the buildup of the totalitarian war economy. ”

“ In chapter I, Stalin’s Lopsided Economy, we looked at the basic economic structure of the Soviet Union. Beginning in the 1920’s, the Bolsheviks deliberately concentrated on an industrial-military buildup, at great cost to their peoples. After the war, the same pattern was forced upon the European satellite countries. Trade was reoriented away from the West. That did not mean that the bloc could do without Western goods, but the goal was to obtain those imports that would help the bloc become more powerful and less dependent on the free world. ”

“ West Has Never Barred Peaceful Exports
The Kremlin, while coldly managing the East-West trade of its domain in the manner described, always had its propagandists and fellow travelers out beating the drums and making a continual outcry against the security trade controls of the West. The main line of the propaganda was that trade was equivalent to peace and prosperity, and that the Soviet bloc always stood ready for unlimited trade, but that the Western “economic blockade” barred the way. ”

“ 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. ”

“ 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. ”

“ The Kremlin’s new Eastern European empire included vast natural resources and sizeable labor reserves. Nevertheless it was—and still is—a long way from being self-sufficient, in the sense of being able to match the production levels of the free world, or even in the sense of fulfilling its own ambitious production plans, without trade with the West. Imposing an ultimate goal of self-sufficiency thus could not eliminate the Soviet bloc’s dependence on the free world. Communist trade planners still found it advantageous to import from the free world many things the bloc countries needed. ”

“ But now large numbers of anti-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. ”

“ In each country the businessmen were constantly handed the false but inflammatory story that they were being shamefully discriminated against by their government and that the businessmen of neighboring countries were less subject to restrictions. Western Europe as a whole was treated to an alluring picture of a vast prospect of East-West trade, beyond all factual probability in view of Soviet policies.
This propaganda cannot be separated from the Soviet trading objectives. It is merely one of the instruments used in trying to achieve those objectives. ”

“ 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. ”

“ The objective of security controls as embodied in the Export Control Act of 1949, as extended, is to exercise the necessary vigilance over exports from the standpoint of their significance to the national security. The controls were designed to deny or restrict the exportation of strategic commodities to the Soviet bloc in order to impede the buildup and maintenance of the Soviet war potential. Shipments of all commodities to Communist China and North Korea are embargoed while shipments to the European Soviet bloc, Hong Kong, and Macao are either denied or restricted. ”

“ In the first place, trade agreements are usually only hunting licenses. They merely authorize—but do not guarantee—the exchange of goods. The governments agree to permit the export and import of the types listed—if contracts can be arrived at between Soviet monopolies and Western business. If the goods turn out to be unavailable, or if the demand is not forthcoming, or if the price is too high or the quality too low, the publicized amounts of the trade agreements do not materialize in the export-import statistics. ”

“ 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 even bought some grain on the Baltimore exchange. That was a breathing spell in the midst of the first big Soviet push toward rapid industrialization. ”

“ The free world is strong, and if free nations refuse to be divided or deceived—if they work shoulder to shoulder to prevent the Soviet bloc from getting the advantage—they can trade with the Soviet bloc on terms that bring benefits to the free world. ”

“ 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 is no rigid definition that holds good for all times, places, and circumstances. All strategic goods don’t have the same degree of strategicness. The free countries have embargoed some, merely limited others in quantity, and kept still other items under surveillance so that controls could be imposed if necessary. Even the same item may vary in strategic importance, depending on the destination, the changing supply situation behind the Iron Curtain, and other circumstances which may change from time to time. Whether an item includes advanced technology is an important consideration. ”

“ Even in police states there are physical and psychological limits beyond which human beings cannot be driven without lowering their incentives, their energy, their morale to the degree that production is severely hampered. The Soviet leaders have always recognized this. At three different periods in the thirty-odd years of their control of the U.S.S.R. they have shown themselves adept at opening the valves enough to relieve accumulating pressures and then shutting them again—always without swerving very far in the basic drive to build the industrial-military machine. ”

“ All these viewpoints and all these special areas of expert knowledge and experience are necessary to a well-rounded economic defense program. Each agency, while discharging its obligation to make its own special contribution to policy, is perfectly well aware that it is only one of the participants, and that the other agencies have legitimate points of view and valuable contributions to make. It is natural and inevitable that these agencies should not approach every problem of economic defense with identical views. ”

“ We must always remember that heavy industry constitutes the basic foundation of our socialist economy, because without its development, it is impossible to insure further growth of light industry, increase productivity of agriculture, and the strengthening of the defensive power of our country.” Taking up this theme, the Communist propagandists in the U.S.S.R. and the satellites have constantly assured the people that they should not interpret the “present tasks of the economic policy as a retreat from the Marxist-Leninist principles of building up socialism.” ”

“ 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 modest [Pg 33] representation by United States firms. ”

“ The main features of the trade-control systems of most free-world countries were originally established to deal with such problems as foreign-exchange control, conservation of goods in short supply, and directing foreign trade to particular currency areas. For most countries security trade controls have been inlaid in these general economic controls and are exercised through them, using the same basic techniques of export licensing and customs inspection as in export control for other purposes. ”

“ But when the Grand Alliance crushed Hitler, and the western nations, hoping for a peaceful world under the United Nations, practically dismantled their military establishments and fell back into their normal roles as consumption economies, the Kremlin did not alter the lopsided war economy of the Soviet setup. The Stalin regime inaugurated a new phase of hostility toward the West. The grim drive to build up an industrial-military foundation continued. Consumer goods were still given a low priority in the scheme of things. ”

“ 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. ”

“ 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. ”

“ It is true that even bicycles, typewriters, or ordinary hardware may help the other fellow by strengthening his general economy. And these people argue that anything that contributes to the general economy helps in a military way, too.
That is a correct concept in actual warfare but it is not an acceptable concept of “strategic” in the present situation, for trade on certain terms can help the free nations too. They carry on two-way trade with the Soviet bloc for concrete commercial benefits. ”

“ 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. ”

“ 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. ”