POSSIBILTY AND PREVENTION OF UNCONVENTIONAL ECONOMIC WARFARE ATTACKS AGAINST THE UNITED STATES AND HER ALLIES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-01634R000100070044-6
• Release Decision: RIFPUB
• Original Classification: R
• Document Page Count: 6
• Document Creation Date: November 17, 2016
• Document Release Date: April 6, 2000
• Sequence Number: 44
• Publication Date: November 4, 1948
• Content Type: REPORT

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' AivI7 PREVENON OF
OIvr~
WA-VARE AATTACKS
With the differences between the existing economic and political
ems widening and the accumulation of economic power under potential
snow control increasing, the anticipation of the possible use of such
power for =conventional economic warfare attacks against the United
States seems more than timely. An exploration of exposed or unprotected
pants in our economic system., which could become targets of a surprise
attack aiming at the crippling of our economy, could indicate adequate
defensive measures and lead to their timely adoption and to the pre-
vention of such attacks, Even though our own position may be found
relatively impreinable, the possibility of similar attacks on our allies
should, be examined and prevented.
It is aesumed that the potential enemy and his satellites have
adopted totalitarian economic and political systems. An unconventional
nOW could use even conventional business transactions for unconventional
e attacks, The unconventional nature of such attacks need not lie
itself but in its timing, scope, execution and objectives,
effectiveness of such attacks could be parried if their nature and
timing could be foreseen. However, it is next to impossible to antici-
pate and list in detail all the irnairrable forms vhi.ch such attacks could
have in the facture, The present statement thus merely indicates the
various possible tJIies of unconventional economic warfare attacks., suggests
their eventual: objectives and limitations, and some of the defensive
mes a'os which could prove effective. Their comprehensive investigation,
anticipation of their possible timing by the ener ,y and the devising of
suitable methods for their early detection and forestalling and counter-
action should be made the continuous responsibility of appropriate
government a;encies. It would be dani;erous to restrict our attention
only such forms of unconventional. attacks which we are able to
`crresee already at the present stage or to rely only on improvised
arrangements, for their detection and prevention. The stakes involved,
and the novel nature of the threat, seem to justify a continuous and
ehensive effort to meet it.
1. Forms of Unconventional Eco.omic Warfare Attacks,
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According to their nature and immediate objectives, the various
e measures with Bch totalitarian states could attack free
es could be listed under seven ;principal categor.es. .le such
sabdi ision should not be cr,nsidered as all-inclusive, it might facil-
more systematic dealing with the subject. The specific examples
below under each category should be considered as merely illustrative.
;implied that such attacks will or could be K=ade, or that the
complete.. Even though most of these forms of attack might prove
ective if aimed at the United Sites economy now, they could seriously
men the economies of some of our potential allies. Their current
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Attacks on l .nancial Markets
Free economies in which financial markets play an im-
portant part in'inf3uencing economic activity could be exposed to
attacks aimed at the upsetting of established price levels,, creation
of panics,, financial difficulties,, shifts in controls,, and eventual
depressions. The possible making of immediate 'prof to on such
attacks, by their instigators would be secondary to the main objective
of initiating a,crisis in, the opponentts economy. Such attacks could
be visualized in the following forma:
a Raids on the stockmarket leading to market weakness,
curtailir of new investments and reduction pf business activity.
b. Dumping on the bond market,, embarrassing financial
institutions,, and creating difficulties in government financing and
affecting the interest rates,
e scale gold imports,, adding to monetary reserves
ionary pressure.
d Sudden release of hoards of authentic or falsified
currency,, with a view of accentuating inflation and creating mistrust.
-Underminix foreign exchange values through dumping
andblackmarket operations in gold and currency.
,The effectiveness of similar operations would at present be
hampered by government bond market support., gold sales regulations.,
Monetary Fund foreign exchange agreements,, as well as the technical
difficulty of performing undetected similar operations on a large enough
scale. They would probably have to be organized through-intermediary
of foreign banks so as to be inconspicuous. Different techniques and
ti =U4 would have to be adopted from country to country,, according to
the prevailing financial institutions, market conditions and regulations.
The flow of important staple commodities including food,,
d fasts, could proauxrably be interfered -itli by well-timed
sad to price breaks.. costly curtailments and reorientation of
e operations on pr? ncipal commodity markets. Dumping could
production and distribution,, even destruction of crops. Cornering of
t, supplies could create bottlenecks and accentuate price in-
nation. Unconventional.commodity operations could be visualized both
l and international scale. To become fully effective, they
ever, have to circumvent the following obstacles:
Governments are operating already now on large scale
markets, provide price support, and in some countries at
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the present time monopolize foreign trade in certain commodities*
b, The effectiveness of ruthless large scale operations
Euld be ham-pored by existing export and import licensing, allocations,
storage requirements and requisition possibila.za.es,
c. Several international staple commodities are already
under some control of international government or private agencies in
Which the presumable enemy country does not participate.
d. The formation of stockpiles, and the existence of
mart zt commodity reserves under goverment control, would permit
counteracting of smaller scale unconventional market operation.
o,. Large scale or continuous operations sponsored by
foreign Zoverriments could hardly remain secret.
In spite of these obstacles, an unconventional attack on
cmtmodity markets could become more practicable than an attack on
financial markets as it could be undertaken on a smaller scale and
would produce more immediate results.
Paining-Control of Industries and Business Organizations
Nazi Germany weakened the industrial war potential of her
enemies through business control of German foreign investments and
license agreements. Implementing Nazi policies through business
,Banding in foreign countttes, artificial bottlenecks were created
in potential war industries, war contracts were sabotaged, engineering
and military secrets disclosed. With rdattive3,y small means applied
with considerable leverage at strategic points, remarkable results
have been obtained due to the unconventional nature of the attacks and
kill ful disguise.
If patiently and cautiously prepared. similar infiltration
of some of our ema3jer war industries by potential enemy interests can
be visualized. If adequately cloaked from the beginning, such in-
filtration of ene control might be even more difficult to uncover than
during the last wa, Proper industrial mobilization policies could
reduce the possible effects of such enemy control on our total in-
dustrial war effort. However, the danger of espionage and sabotage
even greater infiltration of control of industries
? would remain. An
oculd take place in some of the allied countries. Adequate measures
t 'detect and supervise unconventional foreign control of strategic`
industries should therefore be considered., established and maintained.
Adverse Propaganda Car, s
4.
The communist inspired world wide propaganda against
cooperation with the American "boom and bust" economy and the dangers
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all' Street Imperialism" has no doubt affected our relations with
dollars in foreign commerce and terms-of-trade. Foreign inspired
tacks on the free enterprise system in some of the allied countries
immediately after the war have remained largely unanswered, discouraged
our free enterprise from resuming foreign operations, and prepared the
ground for socialization and nationalization and final communist pen-
etration. An even more direct and insidious form of "unconventional"
economic attack are the various communist inspired and fostered strikes
and other campaigns promoting social, racial and national unrest. In
view of the relatively small cost and great effect of such propaganda
campaigns and subversive activities, it is vital that proper attention
would be gi ven to them.
with Foreign Economic Relatio
Once totalitarian countries would be able to increase
foreign trade, the fact that they can export and import without
Btively at higher price in foreign markets and thus to inter-
titive restraint would enable them to dump below cost or to
eriously with free competitive economic systems. Applying uncen-
.onal trading techniques successfully used by Nazi Germany in South
Europe and Latin America, large totalitarian unions could mono-
polize,, one by one,, the trade of adjacent smaller countries, penetrate
tbgm economically and later politically and thus gradually restrict the
markets accessible to the United States. During this process, our
foreign investments would gradually be lost and our terms-of-trade im-
paired and our economy eventually forced into isolation. Accompanied
by depressions and social unrest, such piecemeal attack on our markets
could become a long range scheme for world conquest without war.
6,
AlMse,2f International Agencies
Certain totalitarian countries have refused to participate
in United. Nations agencies proposing to facilitate international economic
cooperation on a free competitive basis, such as are the International
Bank and Monetary ?uad and the International Trade Organization. At
the same time they and their satellites have made sure to get their
full she in . international relief and assistance campaigns, such as
were undertaken by UNR . and FAO. Beyond that, totalitarian countries
dog+t fall to use the forum of the United Nations for political pro-
paganda whenever opportunity presents itself. We are being challenged
to increase our participation in world reconstruction and development,
v
bileat th.e earls time facing attempts to discredit our economic system
in the eyes of other nations and direct attacks on our national economic
objectives and policies. If not counteracted adequately, such uncon-
ventional attacks to which we are exposed by totalitarian countries' could
not tail to .affect in the long run our international standing-and leader-
ship and possibly alienate some of our potential allies.
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Being Wsled into False National Policies
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With their own countries made practically inaccessible,
their military preparedness a well guarded secret and their foreign
motions and propaganda apparatus under absolute control, totalitarian
-ies could be in position to drain the resources of democratic
erratic and costly rearmament and mobilization efforts. While possibly
weakening our economy by tens of billions of dollars, such unconventional
,tacks may be next to impossible to divulge. Since suspension of ..
best safeguard against finding ourselves locked in an economic or military
trap is to remain strong enough to be able to break it. Lest they in the
and would help our potential enem;r-, it appears vital that our foreign aid
and that our military preparations be part of a well considered and
ssfu diplomatic and military over-all strategy. Evidently the
lessening of the dollar shortage abroad and the export of armaments can
strengthen us only if we make absolutely sure that the dollars and aimnun-
itions thus supplied will not eventually be used against us.
U. Effective Countermeasures Possible
While the array of possible unconventional forms of attack
on our economy may seem impressive, such attacks could be effective only
if adequately prepared and skillfully executed and if not prevented or
,nteracted by adequate measures. The inherent momentum, adaptability
wid strength of our economy should make its protection against attacks
relatively easy if foresight and determination will be used. The
following broad measures could be envisaged for the prevention and
countering of possible attacks:
1. Maintenance of a well balanced, fully productive and
oyed economy with continuous internal and external readjust-
ments preventing development of weak spots, which could become targets
of concentrated well-timed attacks.
2, $diness of suitable controls for detection of irregular
foreign sponsored operations in our monetar?,, financial and commodity
markets.* andfor prompt counteraction of eventual enemy-sponsored un-
conventional attacks in these markets.
3. Establish definite industrial mobilization standards
against which the performance of individual plants could be assessed
so as to disclose companies falling, behind suspiciously in preparations
for possible emergency. Maintain up-to-date information on industries
der foreign financial and license control and rosters of administrative
p tsornnel of such industries.
,. Improve the tracing down and counteracting of foreign
propaganda campaigns., assure disclosure of possible alien influence on
Our associations and trade unions, consider eventual adoption of re-
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tal.iatory legislation against abuse of our freedoms by foreign agents
instigating subversive actions.
5. Consolidate and reassert economic leadership abroad
trade, licensing and investment, encouraging acceptance of our
tutions and iechni_ques, carrying out the ECG. program, strengthening
allied countries and preventing their being used as bridgeheads for
possible attacks.
6. Bolster effectiveness of international institutions
under our leadership, particularly the united Nations agencies so as
to increase their participation in international consolida`aon and
development, improve exchange of information and set up bulwarks
against possible unconventional economic attacks by obtaining broader
acceptance of Monetary Fund and I TO covenants.
7, Prepare, and if necessary adopt, retaliatory measures
against institutions and indivikuals of countries restricting economic
freedoms by curtailing their fi'ncial, commercial and industrial
operations in other countries tip the scope permitted to (reign nationals
and institutions in their own government controlled economies.
Till. Conclusions and Recomm, endhtions.
a. A preliminary exploration of eventual unconventional
economic attacks on the united Mates leads to the tentative conclusion
that while the possibility of such attacks actually might exist, their
effectiveness in the immediate future would probably be limited in view
of the various government controls already in existence, and especially
since strong protective measures could be devised and taken to counter
such attacks on the United States as and when our potential enemy should
resort to them,
b, At the same time, some of our allies may be found vulnerable
and exposed to. such attacks already now. Their success would evidently
weaken our own relative position and our prospects to consolidate and
increase our balance of economic power in the future,
ierefore, it is believed advisable to deal nor with the
possible danger and the eventual prevention of such attacks adequately
cally both from our point of view and that of our allies:
J. The vulnerability of the united States and its allies
to unconventional economic attacks should be investigated with the
assistance of agencies interested and close to the subject such as the
Department of National Defense, State, Treasury,, Commerce, Agriculture,
Justice, Federal Reserve Board, etc.
ii. Adequate measures for prevention and counteraction should
be devised and, as and if found necessary, applied.
iii., Desirable coordination of such measures with our other
foreign economic policies in ;)ace and war should be provided for.
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