Soviet Trade

on the World Today

WESTERN observers have been startled by the size and character of Soviet purchases and sales in many parts of the world during the past twelve months. The Russians have sold manganese to England, oil to France, armaments to Egypt, equipment and machinery to India; they have bought butter from the Netherlands, refrigerator ships from Denmark, hides and wool from Argentina. They have offered to buy large quantities of butter and cottonseed oil from the United States, and recently have put out feelers for the purchase of sixty-five American cargo vessels.

In addition to large-scale individual transactions, the Soviets and their Eastern European satellites have entered into a dramatic series of one-year, two-year, and three-year trade agreements with more than twenty West European, South American, and Asiatic countries. These agreements, if fulfilled, would result in a 10 to 25 per cent increase of East-West trade in 1954 as against 1953.

The Soviet-Argentine agreement of last August, to cite one of the most striking examples, calls for an exchange of goods to the value of $200 million, apart from $30 million worth of industrial goods to be purchased by Argentina with Soviet financing. Prior to 1953, Soviet-Argentine trade had been practically nonexistent. Why is the Soviet Union increasing ils activity in world markets, including the markets of countries such as West Germany, Yugoslavia, and England, which are committed to a strong anti-Soviel foreign policy?

Soviet “trade offensive”

The Kremlin has never had moral scruples about trading with hostile countries. True, it has by way of reprisal occasionally cut off trade relations — as in the case of Britain in 1927, after the British police raided the Soviet trade headquarters in London — or withheld certain commodities — as in the case of the United States in 1949, when Soviet manganese and chrome shipments were held up because of our government’s refusal to issue export licenses for certain goods, chiefly locomotives, which the Russians had ordered. In general, however, the Soviet government Las sought, to soften foreign antagonism by the offer of mutually advantageous exchanges of goods — often at the same time that it stiffened that antagonism by political recalcitrance.

A prime example of this double policy of economic appeasement and political toughness may be seen in. Soviet relations with Germany from 1939 to 1941, when the Russians sold large quantities of grain, timber, and other commodities to the Nazis in a deliberate effort to appease Hitler’s increasing appetite for expansion eastward, but at the same time adopted strong political and military measures of preparation against the impending attack.

Ever since the inauguration of the Marshall Plan and the insistence by the United States that strategic exports to Communist countries be prohibited by governments receiving aid from us, the Soviets have been campaigning for East A Vest trade. Also they have been stressing, at least since 1950, their desire to import consumer goods from Western countries and their willingness to export some industrial products in exchange.

The political purpose of such trade, from the Soviet viewpoint, is a much subtler kind of appeasement than that which lay behind the Russian shipments to the Nazis prior to June, 1941. The Soviet leadership seeks to demonstrate the economic interdependence of the Communist and non-Commnnist worlds, thereby to weaken Western restrictive trade policies against the Soviet bloc and thus, indirectly, to soften Western political and military defenses against the spread of Communist influence.

Quid pro quo

Soviet foreign trade policy does not place the same emphasis that we do on the distinction between strategic and non-strategic goods. To the Soviet leadership, butter may be no less strategic than Locomotives. The Soviet leadership does not seem to consider it significant t hat its exports may be increasing the strength of potential enemies, so long as the buyer pays and the money may be used for purchases of goods of equal importance.

This is not to say that the Soviets do not attempt to use bilateral trade exchanges as a means of acquiring strategic raw materials and machinery. Soviet import policy in Western Europe is to seek industrial goods first, and if these are not available, to be content with consumer goods. At the same time, however, Soviet policy loward main Asian and South American countries is to provide those countries with “hard” goods in return for agricultural raw materials and consumer goods.

Thus the trade agreement between the Soviet Union and India, signed December 2, 1953, provides for SON iet exports of oil and oil products, iron and steel products, industrial equipment, bulldozers, electrical equipment, tractors, and many other similar items, in return for Indian exports of jute, wool, tea, coffee, tobacco, shellac, and so forth.

A drop in the bucket

To see the Soviet “trade offensive” of the past year in proper perspective, it is necessary to recognize, first, that foreign trade plays a far smaller role in the Soviet economy than in the capitalist economies of the West. The entire foreign trade of the Soviet Union, including trade with other Communist countries, amounts to less than one per cent of world trade. If one adds to the Soviet I nion its European satellites and China, the combined Communist foreign trade with non-Communist countries amounted to less than $3 billion in 1953. (United States exports and imports in 1953 amounted to more than $22 billion.) Even if this amount were increased by 25 per cent in 1954, the over-all impact on world trade would be slight.

Secondly, despite the flurry of Soviet trade activity in the last six months ol 1953, Soviet trade with non-Communist countries for the entire year declined slightly, as did the combined trade of the Soviet bloc with the non-Communist world.

Thirdly, the Soviet campaign for increased trade in the latter half of 1953 and the first half of 1954 coincided with a decline in United States imports from and exports to Western Europe, and especially with the decline of American foreign aid. American retrenchment left a small vacuum which the Soviets rushed in to fill.

The additional billion dollars of non-Communist trade which the Soviet bloc seeks for 19.54 — judiciously allocated among a host of countries and commodities — represents a slight shift in the center of world economic gravity from the United States to the Soviet Union. The shift is important not in itself but in what it portends. It suggests the possibility that over a period of ten or twenty years many nations now under our economic influence may come under Soviet economic influence, or may at least play off one influence against the other. Certainly in countries like India and Argentina, the Soviet Union is seeking to usurp the economic role hitherto played by England and the United States.

Whether this portent has any lasting significance depends primarily on the inherent economic strength of the Soviet Union, which in turn depends primarily on the soundness of the Soviet economic system and the extent; to which it can free its resources from military production.

Russia’s NEED for imports

Prior to World War II, the Soviet economy was directed toward progressive withdrawal from the world economy. Exports were kept to the minimum required to pay for imports; the import policy in turn was explicitly aimed at acquiring foreign machinery in order to effect “the speediest liberation from the need to import.” By 1938, the volume of Russian exports and imports was 43 and 39 percent, respectively, of that of 1931.

The pre-war policy of progressive economic isolation, which helped to prepare Russia industrially and militarily for the Nazi invasion, would have been ineffective, however, to meet post-war needs. The cost of forced industrialization in the thirties was borne by the Russian people, whose standard of living fell drastically. To have adopted a similar policy alter the terrible .suffering of World War II would have made a mockery of the Soviet victory. The pressing demand in 1946 and 1947 was for houses, food, building materials, and, in general, reconstruction. In this situation imports were almost a necessity.

Fortunately for Russia, such imports were available largely in the form of German and East European reparations, which with other imports, including UNRRA and Lend-Lease aid as well as some other United States exports, enabled the Soviet Union to achieve a level of imports in 1947 perhaps 30 per cent higher than the previous peak in 1931.

The cessation of reparations coincided with the emergence of a European recovery plan directed toward the United States and away from the Soviet bloc. Now the Russians could not withdraw into selfsufficiency, even if they had wanted to, without seriously in juring Poland, Czechoslovakia, and other satellite countries, who depended for their economic well-being on substantial foreign trade and who because of Soviet policy were prevented from joining the Marshall Plan.

The Molotov Plan

The obvious alternative, which the Soviets adopted, was a “Molotov Plan” for expansion of commerce among the countries of the Soviet orbit. While trade between the U.S.S.R. and non-Communisl countries dropped from about $1 billion in 1948 to about -$500 million in 1950, trade between the U.S.S.R. and Communist countries approximately doubled during the same period.

This docs not mean that Soviet trade with the satellite countries is motivated by a desire lo solve the economic problems of those countries. Undoubtedly, however, the Sov ict leadership is extremely eager to maintain the economic strength of the bloc as a whole.

Inter-Communist trade cannot satisfy all the pressing, needs either of the Soviet. Union or of its satellite’s. Just as Western. Europe needs Soviet grain and timber, Polish coal, Czech textiles, and the like, so the Russians and Poles and Czechs need Western equipment, manufactured goods, chemicals, and so forth. The economic law of comparativ e advantage, which underlies all international trade, cannot be abolished by the Soviet State Planning Committee; it can be defied only at. a price ‘ which the Soviet leadership is no longer eager to impose on its subjects.

Trade with Britain

The Soviet leaders both before ami after Stalin’s death continually reasserted their desire for large-scale expansion of East-West trade. In April, 1952, the Russians told British industrialists and traders at a foreign trade conference in Moscow that the Soviet Union was willing to buy more than $1 billion worth of British goods. The impression was left with many that the main reason for the failure of such offers to materialize is the restrictive policy of the British government, act ing under American pressure.

The fact is, however, that the Soviet government coidd not afford to buy $1 billion worth of British goods, and was not willing to do so — unless it could have exactly the goods it wanted, including goods which Britain for economic and military reasons could not afford to sell. The Soviet offer to Britain was a “programmed” offer: “We will buy A, B, and C, if you will also sell us D, E, and E.”

The British refused that offer. Nevertheless the Russians have been able to conclude many individual deals with British businessmen in the past twelve months. In the first three months of 1954 they placed orders for $140 million worth of British goods, including trawlers, electrical equipment, milk-bottling machinery, and many other commodities. They sold Britain 10,000 tons of manganese in January. They shipped about $200 million worth of gold to London last winter.

These facts testify to increasing Soviet economic strength and a rising Soviet standard of living. Blit they do not indicate any sudden emergence of the Soviet Union as grand mast er of the world’s markets. As long as the Soviet Union is committed to intensive production for military purposes, it cannot engage in foreign trade on anything like the scale it talks about, unless it can get the West to reverse its policy of withholding military exports from Communist countries.

Recognizing this, the Soviet leadership has in general made its foreign trade practice conform to economic as well as political realities. The fact that Soviet foreign trade is increasing, however small may be its proportion to total world trade, and the type of trade which the Soviet Union is undertaking especially in Asia and South America, are therefore matters which in the long run may be at least as important as the competition for production of atomic weapons.