TRENDS AND PROSPECTS IN EAST-WEST TRADE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01049A001400140001-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 22
• Document Creation Date: November 16, 2016
• Document Release Date: January 4, 2000
• Sequence Number: 1
• Publication Date: April 10, 1956
• Content Type: MEMO

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S-E-0-R-E.T
CENTRAL INTELLIGENCE AGENCY
Office of the Chief, Economic Research
Office of Research and Reports
Pro3act Action Memorandum
Project No. 42.1080
Date: 10 April 1956
TITLE: Trends and Prospects in East-West Trade
Rk UESTER: DD/I
STATEMENT OF THE PROBLEM AND TERMS OF REFERENCE:
: To prepare a paper to be- use briefing the President
on the agave subject.
Terms of Reference: 1. Terms of reference as given (see outline
atta e .
and Defense.
RESPONSIBILITY:
Action Division: D/S
Braneg: S/TF 50
Consulting Branch:
Princi al Ana x 3098
258X3A
Project Monitor:
~~~
This project will not delay completion of currently scheduled projects.
The classification of this project will be no higher than SECRET.
25X1A
APPROVED - Ch/E
2. To be coordinated with D/E, State, Commerce,,
Concurrence
Man-hours D! Date Initials
N/NF
St/PR
25X1A
S_E-C-R..E-T
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Trends and Prospects in East-West Trade
1. East-'Vest Trade in Relation to rlorld Trade
World trade was at an all-time high of nearly $92 billion in 1955
exceeding the previous peak (1954) by more than 7 percent. Trade of
Free World nations with each other accounted for some 00 billion of
this or more than 86 percent of the total. In contrast the trade among
Bloc nations amounted to 07.8 billion or less than 9 percent of total
world trade. Trade between Free World and Bloc countries was $64
billion in 1955, less than 5 ueeicent of total world trade. The major
change in the distribution of world trade sit-tee 1948 has been the d x-~
fold increase in intra$Aloc trade, $1.2 billion in 1948 to $7.8 billion
in 1955. This increase has derived primarily from a more, rapid increase
in trade between F3].oc countries than between Free '-'arid couuntries, and,
from the diversion of much of mainland China's trade to the Soviet Bloc.
Although the total value of East-[Brest trade has risen by about half a
billion dollars in this sane period, the proportion of East-I.-Jest trade
to total trade has actually declined from 7 percent in 1948 to less
than 5 percent in 19554,
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2. Bloc Foreign Economic Policy and the Pattern of East-?West Trade.
The outstanding features in the recent 'East-West trade pattern has
been: a rapid expansion of trade after 1953 acco;oanied by increased
trade ties with underdeveloped cauntrieS, and important shifts in the
commodity composition of traded
The value of East-West' trade declined from 34 billion in 1948
to $3 billion in 1953 and then rose to an estimated 44.4 billion in
1955. Since 1953, although ^restern Europe has remained the Bloc?s
major trading partner, the action of the Sino-Soviet Bloc to increase
trade ties with underdeveloped areas has become increasingly apparent-
This trend has been evidenced both in terms of actual trade and trade
overtures.
The commodity composition of Bloc trade with the Free World has
also changed. In the immediate postwar years the Bloc was a large
net importer of capital goods (machinery and. equipment) and a large
net exporter of food products. By 1954 the Soviet Bloc, including
both the USSR and the European Satellites, for the first time became
net importers of food products from the Free World. At the same
time the value of Bloc capital goods exports ~rnrte ten-times
from 1952 to 1954. The European Satellites by 1954 had become net
exporters of capital goods to the Free !-.?orid, although the USSR and
the Bloc as a whole: remained a net importer.
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Although the Bloc aa a whole remains a net importer of capital
goods, it bad,, by 1951, became a net exporter of such cities as
in hire tools, agricultural machinery, office machinery, and tx an
port eauipment except ships and boats. While eoz fete commodity
e . are not yet availkable for 1955, evidence suggests that the
Bloc is continuing to move toward a position of a net exporter of
capital goods.
above- changes in the pattern of FAMt-West trade suggest
th:?Ft Pace foreign eeon=ic policies are in process of adjustment
to internal developwntS.
i prewar years the USSR, in support of its industrialization
but at
pr,-o'm., exported raw materials in return for capital goods
the same time strived to attain an increasing measure of independ.
ence from western markets. As a result of years of high investment
in heavy industry, assisted by imported capital goods, the USSR has
achieved a position of industrial power second only to the United
;States, although it should be noted that the value of its industrial.
prodietion is on3y about of that of the United States.
the poster period, the Soviet ec, augznted by the
reeources of the man Satellites has not only becom a higww
deve industrial nation but has achieved a higher degree of
seif.aufficieney than any other major country' in the World.
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7iie USSR's present economic advantage tends to be is the
export of capital goods and the import of food and certain raw
materials. The costs of manufactured goods have declined as pro-
duction has expanded, as skills have !developed, and as additional
capital goods have made other economies possible. During the same
time, haver, the costs of food and raw materials have risen with
increasing demands and the exhaustion of low-cost production
opportunities.
The steady transition of the USSR frm a relatively undeveloped
to a highly industrialized economy, provides the economic basis for
the foreign economic policy toward underdeveloped countries being
evolved by the present Soviet leadership. This policy may also
have the dual purpose of using the current needs and capabilities
of the Soviet econmmj to promote the broader and lour range
political and strategic aims of the USSR in world af'f'airs.
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3. Free World Trade Controls
a. Controls Against the USSR and European Satellites
The Free World has restricted multilaterally the import of
selected strategic goods into the European Bloc for almost six years;
the United States for over eight years. During this period the Bloc
economy continued to expand rapidly, particularly in the heavy industry
sector. While controls undoubtedly had some retarding effect on the
economy, nevertheless the Bloc internal supply position for many of
the items on the original control lists has improved markedly.
Currently Free `-brld embargo lists do not impose a significant deterent
on the economic nor on the military growth potential of the European
Bloc, although in a few selected sectors controls continue to have an
important impact.
This impact derives primarily from embargo of advanced electronic
materials and equipment, selected non-ferrous and ferrous metals and
alloys, and a small range of advanced equipment in other fields. While
the impact may be quantitative in some sectors, the primary effect of
controls is a qualitative one in restricting the transmission of
advanced technology.
Among the items which the Bloc relys on external sources for a
large part of its requirements are copper, ships, and natural resources.
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(1) comer
Even before the downgrading of copper :sire to List III in August
1954, the Bloc imported from the Free World some 20'30 percent of
its total new supply. Because of the embargo most of this procure-
ment was be clandestine means. Imports of copper and copper wire
were in excess of 120,000 tons in both 1953 and 1954. In 1955, it
is estimated that the Bloc imported approximately- 100,000 tons.
Because of the downgrading of bare copper wire to List III, most
of these imports consisted in 1955 of legal procurement of copper
wire,
Although almost no copper is produced in Western Europe, most
of the shimients to the Bloc are from this area. For examnle in
1955, the United Kingdom supplied almost 40 percent of total exports,
western Euronean countries accounted for another 40 percent and most
of the remainder came from Japan.
Although the Bloc is currently procuring a si gn.ficant part of
its copper sunn7,y from the Free World, imports in 1955 decreased by
as much as 20 percent from the 1954 level. If current Bloc nians for
increased copper production are realized Bloc dependence on Free
T?iorld supply may have lessened by 1960.
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(2) Ships
Trade controls have been effective in restricting the sale to the
Soviet Bloc of certain types of vessels, such as tankers and higher
speed freighters but other types of vessels, not subject to embargo
have been sold in considerable quantity to the Bloc. In 1955, approx-
imately 120,000 tons of new shipping was nurchased by the Bloc-from
the Free 1,brld and in 1956 it is expected that at least 250,000 tons
will be purchased. Since vessels of the Bloc merchant fleets are
generally over age and slow, new acquisitions are of considerable
importance in improving the overall characteristics of the fleets.
Trade controls have been most effective in restricting the acquistion
of ocean going tanker tonnage from the West and, in fact, have
forced the USSR to undertake a very sizable tanker construction pro-
gram in its own yards. However, there is no conclusive evidence
that the tanker construction program has adversely affected the con-
struction of naval combat vessels.
Thus, the primary importance of the embargo has been to delay
the overall modernization of the Bloc merchant fleets, to prevent the
acquisition of certain strategic types of vessels, and require the
expansion of Bloc merchant shipbuilding capacity.
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{3) Natural Rubber
Natural Rubber is embargoed to Communist China but can be freely
imported by the European Bloc. However, Ceylon has been supplying
Communist China since the beginning of 1953 with quantities of rubber
more than sufficient to meet China's domestic requirements and China
has re-exported significant quantities of its rubber purchases to
other members of the Bloc.
.the USSR purchased no rubber directly from the Free World between
July 1953 and July 1955 and then resumed purchases at a rate below its
estimated requirements. It is estimated that the USSR had a stockpile
of 3OO OOO tons of rubber at the end of 1952, or sufficient for 3-4
years normal requirements. After 1952 the USSR apparently liquidated
hart of its stockpile and in addition received part of China's rubber
imports from Southeast Asia.
The elimination of trade controls would probably lead to some
increase in total Bloc imports, tarticularly of certain metals, ships,
electronics and other complex industrial equipment. Increased Bloc
purchases of such complex industrial equipment, however, would probably
be concentrated in a relatively small number of categories since most
of it is not included in the relatively narrow range of items now
effectively embargoed by the West.
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b, Controls Against Communist China
Free World trade controls on Communist China being much more
inclusive have a more significant economic effect on Communist China
than the controls applied against the 'European Bloc. The difference
in effect is due principally to the ancillary transportation controls
(which increase Bloc transporttion handling and other costs), to US
unilateral financial and Import controls. A relaxation of trade and
ancillary controls including those of the US to the level maintained
with the European Bloc would not greatly increase Communist China's
access to strategic imports (most commodities are presently available
through transshipment from European Bloc torts) but would permit less
costly procurement and an expansion of exports. It is believed that
in this way a relaxation of controls would enable an increase in
Communist China's annual import capabilities by about .3125 million,
of which two-thirds would be due to the relaxation of US controls.
To that extent, the buildup of Communist China's economic and military
potential could be accelerated, There would also be a reduction in
internal Bloc transport costs amounting to approximately $100 million
annually.
An expansion in Communist China's imports from the Free World of
:150 million, though amounting to about 8 percent of the present level
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of Free World exports to the Soviet Bloc, would have little effect
upon total Free World trade. For particular business in a few
countries, however, especially Japan, this increase would be regarded
as important.
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4. The L`u~rretat mtoc 'made Dive in U erdevelo nee world Areas
M,e Sino?Soviet B3 oc is currently participating to a much greater
degree than in the peat, in the international economic affairs of the
Fiee Wand, especial1e the underdeveloped countries of Asia, Africa,
and Latin America. 'his program in underdeveloped areas is marked
by an expansion of trade, the extension of liberal ms's, cfferu
of technical assistance, and wider participation in trade fairs.
A1tbough the Bloc trade drive in underdeveloped areas is not
limited to the extension of credits, this feature is one Of the mare
important oases. It is estimated that fran Ja nu y 1954 through
?ebrueay 1956, the Bloc countries bar extended 1onggtem credits O
most $900 million to non-Bloc countries. Sixty percent originated
with the USSR and the remainder with the European Satellites.
Ytoalavia has been the principal recipient Of the n w Bloc
trade drive followed by Egypt, Afghanistan and India. Tire Bloc has
also been active in other countries of the Now East as veil as
Southeast Asia and Latin A=wi ca.
Se bulk of this credit (65 percent) arises from tour large
agreements; Yugoslavia, million; Indian steel mill, $115 million;;
Af nistan, $100 million.; Egyptian arms, $l4o million. with the
exception of the credit r a t on arms sbipmenU to Bgypt, these
are longer term (10-30 years) credits. The remaini credit
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allocations are of smaller size (usually less than $5 Million each)
and with shorter terms. Virtually all of the credit extension
bear a rate of interest approxime-tely half that of normal Western
c.rcial, rates.
In addition to obtaining needed capital equipment with payment
terms more attractive than usual in the West, the underdeveloped
countries are able to repay the USSR through the barter of their
exportable surpluses. Many of these surpluses do not at present
bring eatiefactory prices in Free World markets. Outstanding
examples are Egypt and Burma where the Bloc has arranged to take
exportable surpluses of cotton and rice for Bloc eq 1 ant and
for the services of Bloc technicians.
a. Cow
Cotton is a i 4or export of a number of countries in the Near
East, Africa, South Asia, and letin America. It outranks all other
trade of Egypt, Mexico, Paraguay, Peru,
cowaditiee in the export
Sudan, and Uganda It accounts for four-fifths of Egypt's exports
and over three-fifths of the exports of Sudan and Ugaa ?
Although world cons'ullption of r*W cotton has increased signify
scantly in the fart five years, production has distantly been
greater than the demand. By 1955 accuaulated stocks totalled almost
22 million bales, half of them held by the united States. In
addition the world is preocntl.Y faced with another bumper crop
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and many consumer countries are holding otr large purchases in
anticipation of lower prices. Thus certain of the underdeveloped
countries welcome the opportunity to sell cotton to the Bloc.
Currently the Bloc is virtualky self-sufficient in cotton.
Nevertheless, it can purchase from the world market in consider-
able volume if it so chooses. These purchases enable the USSR to
exPand exports of Soviet cotton to the Free World.
The Bloc has been exploiting the mounting cotton surplus problem
in its trade drive in underdeveloped Free told areas. In addition
to the exchange of arm for Egyptian cotton, the Bloc has shifted
sow of its cotton purchases from Pakistan to India and Egypt.
Since such purchases yield political gains at little or no economic
cost, further Blocigulations in the Free World cotton market
seem likely.
b. Rice
Rice, like cotton, is a major export of a number of countries,
particularly in South Asia. It yields 70 to 80 percent of Burma?s
exPOrt earnings and about 50 percent of 7__iland?s.
Since 1953, the Asian rice situation has shifted from a condition)
of relative shortage to one of oversupply. Prices have slipped sub.
stantiefly from their postwar peaks and major exporters are plagued
by surpluses and difficulties in finding Satisfactory export markets.
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A number of factors have contributed to this situation, including
a shift to other cereals and an expansion of cereal production in
traditional Asian deficit areas, for example, India and Indonesia.
The burden of rice surpluses was most severe in Burma when the
government marketing agencies strongly resisted the dawrd trend
in rice prices.-
Prior to 1955 no significant amounts of rice were imported by
the Bloc. on the contrary, C__nunist China bad been exporting
about 250,000 tons of rice a year to Ceylon as part of a five-year
rice rubber agreement. Since 1955, however, there have been a
number of rice purchases by Bl.oe countries, principally from Burma.
I 19550 Com mist China,, the USSR, Czechoslovakia, Huaga y, East
Cep, Poland, and Rumania all negotiated agreements for the
purahs a of Burmese rice. These agreements covered from 250,000 to
300,000 tons of rice. Much of this rice was destined for North
Vietnam, as part or the Bloc aid agreements.
under a new 1956 agreement, the USSR has sigsned a contract to
purchase from Burma 400, 000 tam of rice annually for the next four
years. This represents over one-fourth of Burma?a expected rice
export for the period.
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o ? Prros is for Bloc FW3ilimeat oft edit Amts
Present Bloc commitmmsts for the was of capital goods to the
underdeveloped Free Wand arras amount to less than case percent of
Luustrisa production. Thus it is likely that the pries c the
Bloc could expend, credit and a rt pmgram with vederdevol ped
countries substoutiel3y without IgW=mt to their wn economies.
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Future Bloc Prospects for
Bast'-west Trade
As the Bloc develops its industrial capacity fir, resulting
in increased industrial. demands for basic resources and the gradual
depletion of these resources, it vin become increasingly advanta.
geoua for the Bloc to export capital goods and to import industrial
rem. materials. In addition, as population continues to grow, it
vill also becene more advantageous for the Bloc to import food
products. The bulk of the exports of capital goods, hoe+ever, vill
probably be Confined to the siagaer types vbich are relatively easy
to manufacture. Such export, are the it= % VW .h the uad,e veloped
countries have eespeciaijy desired to import, - transpor atiaa equip-
Rant, prim "very, achinerY for extractive industries, and basic
and standard maufacturing facilities. In addition, the Bloc is
able and willing to direct the expo of technical assistance. Thus
the basis exists for an expansion Of East-'hest trade particulaly
bet" M the Bloc and Free World =weerdeYelaped countries.
The future level of mat-West trade depends not only on eco, c
considerations but also on political considerations. Nonetheless,
there is reason to believe that the motivations brhi,nd Soviet trade -v
including the relatively bIA-q st mineral and agricultural resource
base, the desire to extend Soviet influence ,among other nations, and
the rapidly expanding industrial plant -. point to an increasing trade
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between the Bloc and the Free World. It is estimated that Bloc
exports to the Free World could double within, the next five years
end exceed $ billion by 1960.
Soviet exports to the Free world in 1960 could exceed $2 billion.
Yeeam of -priority expansion in the machinery and equi.~- at sector of
t rrnra r ban broa:g the UM tzi a point where it has export
; otr: z a1 for many basir t s of machine tools, industrial products,
end industrial. instillations. Without regard to difficulties in
ammemaing comparable quality and production, it is iaVortant to note
that in 1955, Soviet production of machine tools (excluding metal
!or ; equi t) exceeded that of the US in terms of units. A
progr oriented toward export of such m'cbineay, bovever., would
to scm extent core with the Soviet progrem of noderaisatiof
and re,-*qua mt which hes been put rcrth as a part of the Sixth
Pi .-,Year Man.
Substantial imateasea in Soviet production of agricultural
r ?hine-mss traator*D and truce planned for the period 1955 to 1960
also pride a considerable export potential. The 1960 output of
agricultural machinery is to be 62 percent greater than the 1955 leore1,
while the 1.960 output, of tractors is to be almost double that for i955.
T3'hi1e such of this equipment is obviously ea nrked for the accelerated
chani Lion of agriculture it must" also be viewed as a potential export.
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Such equipsant is sorely needed by the letss U611-developesd and
agriculfi ally-criested econcr es MA +2" USSR could probably exploit
this requirement for politicall, as well. as econcE is advantage.
E aropean Satellite ex ports to the Free World might also exceed
$2 billion in 1960. The primary export potential of the European,
Satellites lies in an expansion of exports of industrial products.
Indeed because their own natural resources, with the exception of
Polish eoal, Runian oil, and l riei- bauxite, are not sufficient
to supply their own current needs, the sueeeesful fulfillment Of
their plans for industria develop wnt depends an an a xpaasion of
such . In the post the USSR has provided the bulk of
Satellite food and raw materiel. irOport requirements, but it is likely
that the share of these imparts from the UM Will deallne in the
future. The USSR can retard the inexorable rise in its own raw
material costs by encouraging its Satellites to seek other *our*"
of supply.
In the pattern of Sino-Soviet Bloc trade with the Free World,
C st (hint will play C ay a secondary role for tote next five
year=. Chitin, fared with the problems of developing its own ew=M'-O
structure, Viii not be in a position to make large direct contributions
to Bll.oc exports to the Free World. l ewers a large share of the
Chinese export potential., primarily rear materials and foods will be
directed to the MW in return for industrial products.
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of the three major areas within the Sino.Soviet Bloc tho
European Sateilite3 face the sat pressing agricultural problem.
Tn food production the Satellites are deficient and vill require,
by 1950, about 1.5 million tons of wheat aim ally in order to main-
tain their present living standards. Tn the past the USSR has
?svided their food imports, but during the next five years the
USSR, even barring unfavorable weather, will only be able to increase
i1trig standards slightly at Ixm . In nearly all instances th
:.irate 31tes can obtain the needed food pnsduet$ fri vuagrdevele]d
arms, who will aim provide a market for their r chinex7 industries.
For ray 7m t .a L. the European Satellites are also the moire, hard-
pressed of any area in the Sino 8o:,riet Bloc. The USSR hers been
upp: ying them v tb. considerable quantities of raw msat -"~ -s but
r Soviet demestic demand has risen there has been evidence of
reluctance to chip to the Satellites. In iron ore the Satellites
m1st import more than two-thirds of fir requirements, much of which
bes been supplied by the rest a the Bloc. Me Satellites will
r equi. about 10 million ton of Iran we imports by 1960. E a't
a a a)Ay's requix nt3 for ode oil will, be doubled: one million
r= sins are now being obtained f r a Austria. Satellite #2atu ?al rubber
-eq ir, w namely double is the next five years. All of the
viafiei1ites have twade agmements with underdeveloped countries
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oi~ zzr, rubber ship?ra ra . the European SattUAilzs, even at
cur t o tp te; levels, are also deficient in new-ferrous metal s
and other minerals end will have increasing d ds for ir4=ts of
c er, bauxite,, rutile (for titanium).
bast, cola mbiuan, tantalum,
; u , sul ur, mica, and industrial die zonds. In nearly all cases,
. oir h and Sow; e t Asia has the ca sility for exporting tbase
catelsials.
The UDR bas less a problem of deficiency in raw mat
earials
wsh ~ a p .?obl awi of high s iw-rea sing costs. In coat, petroleum
p eadtm'Ls, and timber the U t is relatively well-situate., but in
fersi u metals, as well as Haas- `pus metals, costs of additional
supplies have risen in recent yew. MWW of the ores are very
lean and e:r action costs bigh. Since the U has no natural
s: b , her requirements of nearly 200,000 to= in 1960 mast b
itxpox cd. The USSR will also continue to be an increasingly large
il: .rke~ for wool and possibly cotton.
.e Si s-Soviet Moe will continue to have high demands tar
IInc`n"-ry nazi equipa nt from the Ffte World. In the past use have
o .,iced nearly half of total imports and while this pementa s
decline ao ;sat, they will ,probably continue to be the major import.
It i 1ikel., that Bloc orders in the Free World will c rp'tr iae the
ec capital equip s t, prototypes, and products which if
prodvved internally would interfere with military i oritieaa, such
a2 ? rcba nt hips and equipment of relatively low priority dax Ctieelr.
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6.
It can be seen fkan the above discussion that both the direction
of Fozt.-Weet trade and its char dity composition should change
between nor and 1960. ports will become increasingly weighted in
favor of manufactures and capital goods as food and rw materials
decline in relative itance. The share of food and raw materials
in imports will probably increase aignificantly. Many of the
InVorts which the Bloc will need aunt came Increasingly from Asia,
the Near Eat, Africa, and even Latin America, where the capital
and manufactured goods which the Bloc is increasingly prepared to
export cyan be absorbed. Consequently, it is likely that during the
next five years the proportion of imports originating, frwa and
e rta shipped to the relatively underdeveloped nations of ABIa,
the Near East, Africa, and Latin America will increase.
6?1
Approved For Release 2000/04/17 : CIA-RDP79TO1049A001400140001-0