Part 4

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In the late 1930's, the oil was withdrawn.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 its monopoly 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?

=Gold Sales Expanded=

Down through the centuries, the word _gold_ has 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 gold hoard 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.

=Reaching Outside Europe=

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 modest representation 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 to _import_. 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.

_CHAPTER IV_

=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 been _less_ zealous, 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.

=The Kremlin and Peace=

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 a revolution, 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."

=A Mixture of Motives=

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.

=Their Objectives Haven't Changed=

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:

1. To feed the economy, especially the industrial-military base, with imports that help the bloc become more powerful and less dependent on the free world. 2. To drive wedges among free-world nations at every opportunity. 3. To increase the reliance of free-world nations on the bloc for markets or supplies, and thus make the free world more vulnerable to bloc pressures.

Within this broad framework the Kremlin pursues more immediate and specific goals, such as:

# Obtaining through normal commercial channels the ships, machinery, and other industrial goods which they can produce only at relatively high expenditure of labor and resources--or which they cannot produce at all.

# Obtaining through illicit channels those strategic materials whose shipment is restricted by free-world governments in the interest of their national security.

# Forcing the relaxation of free-world security controls in order to get strategic goods more cheaply and easily and to create dissension among free nations.

# Fostering rivalry among free-world merchants in trading with the bloc, thus reducing the net cost to the bloc of obtaining goods it desires from the West.

# Buying increased quantities of certain consumer goods, though apparently just enough to help with problems within the bloc and to rouse the interest of the West. (Of course it would not take a "trade offensive" to obtain these consumer goods, for they have never been restricted by the West.)

# Selling the West an exaggerated idea of the size and reliability of markets, supplies, and general benefits that can be obtained through East-West trade.

# Making their limited export commodities go as far as possible in solving their import problems without draining vital resources away from their program of forced industrialization.

# Making financial and other economic arrangements in neighboring countries and nonindustrial areas in order (1) to gain more influence and more access to resources there, and (2) to diminish the influence and access to resources of free-world industrial nations.

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.

=Their Practices Haven't Changed=

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 export controls 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.

=The Free World Is Strong=

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.