REVIEW OF THE WORLD SITUATION AS IT RELATES TO THE SECURITY OF THE UNITED STATES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP67-00059A000500100010-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 18
• Document Creation Date: November 17, 2016
• Document Release Date: November 9, 1999
• Sequence Number: 10
• Content Type: REPORT

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IEVfl I Or THE WORT 57TUU.VWN AS i1 RELATES TO THIS 5ECWt1TY OF
THE W ITiJU 6TATI S
10 Emphasis on Aafao
East Asia haft become the center of the world's mpxe3 irciats
and urgent international tensions, The Western Powers, committed
to a policy of containlnr Soviet influence, heretofore have cone
contrated their efforts in Europe and the !dear East. The danger
of Soviet aggression or subversion in these areas has not passed., but
it has receded, k'nr the time being the ripe "revolutionary situation"
of Communist doctrine is little in evidence, very much less than
in trance and Italy a year or two ago. The year 1950 will be a
crucial period in the efforts of the Western European community to
reorganize and reconstruct its political, economic9 and military
strength, These efforts? associated with the second, i.et,, con-
structive, phase of the European Recovery Program (loft) and the
first phase of the gil .tary Assistance Program (D4AP), remain the
primary factors in calculations in US security interest s The
opportunity to develop these long--awange prograws,, however,, exists
because the thrrast of Communist revolution has lessened and the
atmosphere of iam diaate military emergency has liftedo While the
strength and stability of Europe will continue to be of prior
strategic importauzce to the U$ zaost of the crises of 1950 probably
will arise in Asia? Some of them are ri ready at hard,
In Asia,; the situation is still fluid. As elsewhere around the
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world, the USSR is working toward the expansion of soviet ins
fluence,, 1.s elsewhere, the USb t has employed the traditional
pressures of power politics wh never they seemed profitable, but
mainly relies on the revolutionary Communist techniques of
propaganda, infiltration of government by subservient local Gomm
monists, :ubversicn, and in3urrectiono In China., the local
Coro?-unist movement eas able to identify itself with endemic agrarian
discontent as well as with national resentment against Western in-
tervention, The revolution has succeeded and, temporarily at least,,
virtually has destroyed US influence in China along with the poi;er
of the Kuomintang government. Peasant unrest and nationalism
are not peculiar to China? They are powerful forces nearly every-
where in Asia, Moreover,, at present there is a stubborn elesrnent
of anti-Westernism in Asiatic nationalism, The urgent question
of 19% in Asia, therefore, is whether 6ovietcoriented, China
based Communism can continue to identify itself with nationalism,
exploit economic privations and anti Western sentiment, and sweep
into power by one mans or another elsewhere in Asia?
2, Communism in China,
In the long run, and to some extent in 1950, the success of
Sovielt-oriented Communism in South Asia will depend on hom China
develops as a base from which to export revolution, The Chinese
Communist regime in Peiping has won undisputed military control of
China proper and will receive diplomatic recognition by most of
the nations of the world,.,
2
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iI C1i T
an & cognitto i~
Political leaders in w ny 4k$ vatic sts mess, particularly
Nehru in inch? ser thL advent Of the Coz'nur-ist rsgimes to poorer
as the culmir,E. tiorl of an indigenous national ravol.ut1cn of marw
years duration aanck vreicameo it as suChe Though these k,si?ttic
political `leader: s.ay have misgivings about the Communist govern-
ment the; consider it to have a comparativealy broad popular base
and thexw.fore to be., qualified to replace the ltuomintang, which not
only has bser, thoroughly discredited as an effective government
but also was widely identified 'ith ti--extern intervention., dictatorial
political procedurrs, and special privilege for a landed,, cotr-merdia??
and financial minority*
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c:. Eclipse of the Nationalist CovernmentQ
The collapse of organized resistance on the mainland Md
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retireaoent ox the National uovern ent to the Taiwan redoubt havz^
ended whatever slight chance there wa:3 that the Kuomintang could
place any effective opposition in the way of Communist control
of ('tzinao Various r z.ante of the old political and military
machine of Chiang Kai-shek are struggling desperately to work
out political realignments that will give the illusion of success-
Ally coping with the gram economic and administrative difficulties
in Taiwan. Discontent among the native Taiwanese, poor morale
among the Nationalist _orces, and corrupt inefficiency on the
part of the Chinese authorities continue as before, however, and
in time would undermine the Nationalist position even if the Corm=
muniets did not assault t .1-m island, Actually the Nationalists
are only toying with the local problems. Basically they are
concentrating on one last hop decisive bS intervention on their
behalf against the Chinese Communists,
In these circumstances eventual Communist capture of Taiwan
probably will occur in 1950, Nothing short of outright military
occupation and complete administrative control by the b5 is likely
to save the island. Even assuming occupation of Taiwan to be
strategically advant .genus enough to warrgnt using; the necessary
forces, such US action would seriously hamper the achievement of
general US aims in Asia, It would give new grounds for Communist
and other anti grestern attacks on W "impsrialismFZ? Probably it
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would prevent the newly independent governments of India and
Pakistan from coaperati.r g with the US in South Asia. It would
diminish LAS prestige and. opportunities for leadership in the
IL Inside Ghana the propaganda thus that US aims were "im-
perialistic" would spread among Chinese of all shades of political
belief, Finally., the more. doctrinaire S alinist leaders among the
Chinese CoMaunists would advance their positions at the expense of
such Communists as way be favorably disposed toward an independent
policy in international affairs and an accommodation with the
Western Powers
d0 The Link between Peiping and Moscow.
The critical question with respect to China concerns
whether or not eventual accommodation of some kind between Cosw
munist (hu.& and the Western Powers is a possibility. On the basis
of preliminary evidence tho tentative anse-sr is that such an ac-
commodation is possible but remote in tined The Chinese Communist
leaders certainly are confirmed Marxist-Leninist Communists and not
simply agra?ian reformers. Nevertheless, they have built their power
on peasant support, most of which they won as agrarian reformers,
The Peiping regirie is the victorious party in a long national
rebellion. Part of their popular appeal has stemmed from their
steadfast opposition to ?iehtern imperialism. As a result the
Communist administration is unlikely to be overthrown by internal
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foresee 'r, iadgj,; ij n to possess:b-i ; a powerful apparatus of cutatrol
the Corramunis't. govr xr4nar? :=.s prob-ably core otficient and less cos rupt
than any r v ? -., w:.tt 4n the rnamo,- y of living. Chinese,
The d?eipi ig lee dor:_-i probably wiU tz~,T hard to widen the base
of their popviar support end retsin their reputation as nationalists
while at the aame time at mr ngibes;ing the rather unpopular alliance
with the USSR. The i.r success will depend mainly on the degree
of subservience that May b3 re-qu:&,rerd by the Soviet Politburo,, which
thus far bas guided then Chinese Communists by a relatively :loose rein,
At best,, Chinese Co +.rur.,i.st Party Chairman Rao Tse-tung has to
look forward to many years, probably at, least a decade, of indwtriAl-
iz tion and irrdcctr:illation before he has an urban proletariat
of sufficient size and loyalty to permit effective socialization
of Chinese economy and society, during this period,, progress in
industrialization wi-7.1 dapand on extensive capital accumuIation4
Assuming that the bulk of it, does not come in the form of Soviet
or other foreign iaivostiaent, which. 3eew,3 likely,, most of this
capital will have to couao from thtl scanty surpluses of China's
small-scale agriculture., Gonsequentiy,, long before basic
socialization can begin, Chinese Communist administrative efficiency
and peasant to raltie i will be severely tested by the problem of ex--
tracking this af:ricuitura1 surplus and using the proceeds as
capital for zndastriali. nation'-,
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China., in cons jlle zce of It e size, he primitive character
of itc aconozry, and the durr.uility of itzt cultural tradition.,
always has px ved difl"i$ ul-v enou{ h for any re itae to manage, let
alone razno:l.do It is true that the lLizit has developed to new
height, of pro 'rtssioiial. skill the theory and practise of capturing
and controU z(* social insti.tutione, Soviet penetration o f icey
units of the Piping adzainiatrat.ion i8 now in process, however,
and the USSR, capitalizing on the Sino--Soviet alliance and China ? s
requests for assistance, Is installing itself solidly in China,
thus reducing the chances for Chinese "Titoism" and reducing the
impact on the USSR or whataver dissident movements develop, The
ultiri.te C isi a orientation in international affairs is impossible
to estimate with confidence at this stage For some time at least
China will apj>Bar an uncertain quantity to Soviet leaders, in-
cluding Stalin,,, whose fingers were burnt in dealing with unreliable
Chinese r3volutionar y nationalists a quarter-century ago,,.
+o T'se-tzang probably will bring back from Moscow a treaty of
Sine-,Soviet friendship guaranteeing Soviet economic and technical
assistance to China and arranging for Joint development and use of
Chineso military facilities,, From the Soviet point of view all
thasxr links with China are of long'ran .!strategic value, For the
immediate `uture the Kremlin probably will continue to tighten the
Soviet grip on the inoreasin y autonomous bordor areas of Manchuria,
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Inner Mongolia, and S3nkiang. In China proper,, privileged
Soviet banks and Soviet-owned or joint Sino-.Soviet coamert: 1
enterprises will ear to influence Chinese production and trade
into patterns agroesnle to general Sov1.it objectives, The tWR
probably does not v3h to become deeply committed in the painful
and intricate taeka of reorganizing China es economy to food its
vast population, Nrrrerthelcea, many Chinese zrila hold the USS&t
and the Peiping regine jointly responsible for the famine and inflation
that is bound to arouse widespread disccmtent in the coming year.
Resentment is already in evidence among non-Communist Chines, and
apparently among a few Chinese Communist Party members over Soviet
privileges end economic exploitation of Uanchuria, rumored, Soviet
profiteering in trade, and the influx of Soviet political, technical and military adviser 3, If dissatisfaction against Soviet penetration
of the government ard economy grow3, the Peiping regime will be
increasingly vL nerable to effective criticism from the nationalist
point of view,
In these circumstances the Chinese Communist leadsrs will
find it hard to follow the Stalinist line scrupulously,, espcc1ally
in international affairs. In rogard to relations with the Western
Powers in particular, foreign capital and foreign manufacture.-i
will exercise a grorit attraction to e'conom,ic planners intent on
industrialization, A demonstration of independdnce of &oscow, even
though accompanied by continued assevdracions of Communist faith,
probably would re:.re.:or.~" the Peiping regime's popular standing,
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US interests will be advencsd by ovezy new strain on the
link between Peiping and scow The existing strains in
Sino'Soviet relations9 however, probata.y -rill not become critical
in 19%, For several years, China probably will be a reliable
instrument of Soviet foreign policy$, though it will not contribute
much to the Soviet uiitaz7 potential, In theses years the Chief
threat China wL 11 pose to US interests in Asia will be as a
base from which to carry on revolutionary activity elsewhere in
Asia0
00 Beyond China.
Tthatever alas is envisaged in the Politburo 9s plans for
the Peiping Cormur-ist.s, the USSIt pla3nl y proposes to use the Chino
base in its drive to spread Cciunis c In Asia. As of 1 January 1.950
a kind of Co sin otsa of the Orient has been set up in Peiping under
the designation of "Liaison bureau" of the Go-mmuniot-con trolled
World Federation of T: d,5 Unions ;YaFTU)0 it will facilitate Soviet
control of Asiatic la'oor.? groups, among which opposition to Communism
is alight and unorganized, and set up new labor federations where
they do not exist? The Chinese representative on the bureau, one
of the four "preaponsiUs" : mbero (with the represenTatdves from
the USSK. Australia, and India), will be able to exploit the sympathies
of overseas Chinese, The function of the Peiping Liaison Bureau
is Indicated in recen Chinese Co>runist propaganda, calling for
Cormunjat labor oadre to Assist in the "armed stru gle" for
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"nation*l liberati.oa, 4 particularly in the more vulnerable "coloni.ri"
ar4as of South xorea, Indochizsa. and Indonesia.
In 3r16a of the 1u0tr. bilittr of western influence In Indochina,
where the Ppejicb still have not transferred total sovereignty to the
nationalist but non ist Ytetna., regime of Bso Dal, the Whole, of
southeast Asia has become excellent ground for poltttcal gains at
"inirum dense to Cor nist China end the USSA, Tbsre is probably
more than an even chataee that the French will be forced to withdraw
from Indoeb1na within two yeexe, tearing control in the hands of a
Communist-led, indigenous regime. Once Indochina had succumbed, the
fragile Trial and Burmese governments also would orient themselves at
least nomina.ly toward China rather that toward the West. Thus the
line of farthest Communist advatico would approach the borders of India
ana Indon si,a. alaere Wee tern influence has been Zrovin ; rather than,
diminishing since the British and Dutch gr rated nationalist regimes
virtually complete independence. prompt and wholehearted French
adoption of the British teclrigna, thaw is, winning influence by losing
aolories,,possibly could elirAiruit, the semi-colonial situation from
which Communist movement In Indochina draws its strength. The time
to try is short,
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The eee1:4W off oC Comm auis t
rauces beyond Mina will ~
to a greet "tent on the irawrMt political. stability and economic
strength of stem-CCOMMtolot redone. Two stubborn feats to be dealt
rich are bitter inter regional antago sms and chronic f i
margins of economic cutfieir~aciy-. These facts underlie the present
conflict between the pow, ?omPSrasive1y stable. and comparatively
pro-Western states of the I~ atl snbcontinat. At present Pakistan
and India are on8N#-Ug in a Costly caim of economic warfare that
neitber country can afi''os+d.
The issue is broader than Conflicting territorial claims
future political affiliation of ~,. `but the
stair is the main immediate
of contention. For point
two years the UX has tried .
aAd failed to find a
mutually acceptable solution of the Baslzmir case. Public opinion on
both side] is sufficiently inflamed to create sore threat of the re-?
newel of arced -hostilities. In this atmosphere, trade between the two
countries Yirtual4 ceased after India devalued its currency and
Pakistan refused to follow suit . India's Jute end cotton goods
industries soon will be In severe straits, and the entire economy
Pakistan will be seriously hand'"'PPed by the suspension of coal shiPnen;s
from India. 2' a outbreak of war in all likelihood would
to both countries. In prove disastrous
ay event. the Prolongation of punitive trade
interdictions would grave'y weaken both states and in time would create
the economic and social 'eat the USS$ is horeftitla. a~faitingo
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4. ~u a n Be rovers=s,,,,1g
?her* are increasing si, s of a return to oceparat1ve "unIai4tF"
in the polltice1 affairs of moat Weetersa Buropsan nations. Frlmalf r,
the Chia is a result of the swoess of the first (i.e., r'ebabllttsr-
Lion) phtpe of the brapeaa BCoverr Program. This cb g. has not been
as rmmised blessing for zitioas facing the oo plex issues of the second
p#mse of recovery, wbis involves maintaining a stable and e:qerzdins
ecano r in the whol9.Weetern Etopean region. Political coalitions of
moderate middle parties such as those which have cooperated in re-
sistauee to Comm mist seisms of power in France and Italy tend to crumble
as soon as the immediacy of the threat of Comruuish recedes.
In France particularly, the "third force" government almost con-
stantly is on the verge of disintegration as a result of tuademental dis-
agreements over eoeiaweoo c policy, centering at preuent in the
controversial issues of wage, price, and tax levels? Decisions on these
issuos were avoided or compromises reached as long as Communists -a or
Gaxtl vista ..,. were threatening to end both representative government and
political dissension. In a aenee, the political disputes in France
spring from successful inddustrial rehabilitation and from the containment
of the advance of Communism a, the Luebeck Trieste line. In this sense
the 5nitial success of 03 strategic aims in Europe has permitted a return
to zmtional strife over domestic socio-economic policy. The Initial
euaccss cannot alter the fact that the political instability of France
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or elsewhere in Western Europe threatens to sabotage the second
(i.e., constructive) phase of reao+rery, undermine the Atlantic Pact
silitaz7 s11iance, end eventually bring back the Comvit List sonace.
Inds MA *2 Rolla MAGUA.
leprovemmts in Western Suropeaa levels of tadt*stria3 production,
now above 3.938 ererages, only accentuate the broader problea of re-
orgaaisiag and rebuilding the several national economies to ca ete in
world narkets, pasNricularly in the Western Bemisphore. The industrial
nations must secure raw materials and sell manufactured goods outside
Western Europe if they are to maintain employment. expand production
and productivity, and coopers with one another In regional military
prograve.
For a le, the extraordinary economic revival of Western Germany
now, has reached the stage where pressure for new markets is becoming
an iutportant factor in Germany1s political as well as economic
orientation. German exports are falling off. lnless German goods can
cross national barriers to reach consumers in the non-Soviet worlds,
there will be a strong compulsion to revive an extensive and perhaps
politically entangling trade with Soviet-dominated Eastern Europe.
Britain and France in particular must adjust their overseas trade
in a way to reduce the dollar deficit, which threatens to persist after
the and of M. whey have been making little headway in this direction.
In 1949, Preugh exports to the dollar area have paid on the average for
only about 15 percent of imports from the dollar area, only a slight gain
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over the preceding year. Simi1ar17, although the UK has attained a
rough over-all balance of paysents, the sterling area as a whole still
is biin from dollar markets goods worth approximtely one bullion
dollars more than it is suing.
In view of the probable persistence of dollar deficits, the
Western Burgpeaan nations will be driven increasingly to put further
restriotione on dollar imports. In this circumstance, unless Western
Iuropo develops other markets and soirees of supply, or new forms of 11$
financial aid replace REP funds, european production will decline, perhaps
to the point of frustrating US strategic aims in urope,
k. Po l ttcal Crisis iu Iraece
7rance's economic recovery, accompanied by rises in the cost of
living, has sharpened the political controversy over distribution or
redistribution of the increased Incomes The current differences between
the Socialists and the Radical Socialists over the budget and over wage
policy and wage controls have been bridged by government compromises,
but only with great difficulty and by a slender margin.
The recent agreement to restore collective bargaining was a
major concession to the Socialists, who anticipate a general wad increase
as a result. Considerable economic unrest and political a. tation
probably will make themselves felt in the near future, first during a
drive for an additional cost-of-living bonus and later in campaigns for
wage increases. By the end of December 1949, the cost-of-living index
for the average Parisian worker without dependents had risen more than
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16 percent above the level of September 1946. when the government
permitted the last increase in wages, The Bidault government way bs
forced to concede zone new wage benefits along the lines of Socialist
demands. but will then find. It e'en hard..er to Increase tax revenues
and balsam the budget in the face of Radical--Socialist opposition. As
labor costs rise and bring about higher prices, drench industrialists
will resist more strorWly than ever an efforts to relax import
restrictions and thus expose their products to competition from lower-
cost producers. economic, political, and military weaknesses lie just
below the surface of the eonparatively "normal" political bargaining
and bickering in the French Assembly,
5' i onojjc Reprint tgn ms's osleyiaz.
The Tito regime in Yugosslavia still appears to be more immediately
concerned with economic problems than with the danger of Soviet or
satellite military action. The Tugoslavs recently have wade ei.gnifi-
cant advances in offsetting the Soviet economic blockade of Tii oelavia
by strengthening their economic ties with the West. After long negroo.
tiatious, a five'-yaar agreement, bringing Yugoslavia L 110,000,000
worth of badly needed capital equipment and raw materials from the UK,
has been completed. A trade agreement with Western German r will provide
Yugoslavia with $60,000,000 worth of coke, machinery, and industrial
goods during 1950. The recently concluded US civil air transport
agreement and t approval of Yugoslavia's purchase of civil aircraft parts
will contribute further towerd 'smroved relations crith the Meat, as will
ntterialization of the proposed $25,000,000 lnterni tional Banat loan.
Assurance of further Western assistance, especially US dollc.r cre.Lta, may
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be required during the com z ; months to sustain Yugoslav will to resist
Soviet pressure as well as to carry the Yugoslav economy through the
traasitional reorientation toward the Western world.
The USSR seems to be curr+entiy preoccupied with shoring up Soviet
control of the other Eastern Zluropean states and reducing ?deviat oaisu"
sons Commmist orgaai.satione outside the orbits especi?ilp in It .y
and Prance. Recent Noscow propaGanda, has shifted its emphasis from
frantic izsistence on the eradication of the Tito government to the tbame
that "Fascist" and "imperialie t" Yugoslavia must be "sealed off"
effectively, from the purer world of Moscow-dominated Corn k isr . This
shift may indicate that the USSR is prepared to tolerate the Tito
situation for some time. Temporarily, in any event, the western boundary
of Soviet domination in the Balkans r=e along the Evmaaian and Bulgarian
frontiers rather than along the Adriatic coast.
6. Eesvtian Elections.
In B'pt's first free elections since 1935, the Wafd Party has won an
overwhelming Parliamentary majority and has now formed a government. As
a result of this election, the prestige and political influence of King
Farouk, who dominated the coalition cab-nets of the past fire years, has
been diminished. The Ward victory will bring an unaccustomed stability to
the government because of Wafdist parliamentary strength and popular
support. The Wafd will continue Bgypt' aliment with the Western Powers
in opposition to the USSR, and relations with the British, who were
responsible' for Wafd control of 3 yptiaat affairs during the wars probably
will improve. The new Egyptian Government and the UK may well reach a
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satisfactory compromise on revision of the Anglo-E yptian Treaty a"
may also reach an understanding over reduction of Egypt's sizable
blocked sterling balances. Successful settlement of these issues would
permit the British to continue their stssLtegie control in the Baetern
Heditenanean. which is c3mpatible with VS security interests.
7. CariblbAum
Lltercatisn .
Vs recent disputes between Cuba and the Dominican Republic on the
one hand and Haiti and the Dominican Republic on the other have not
threatened open warfare, but they do reflect the continued seriousness of
underlying political tensions in the Caribbean area, They adversely
affect progress toward greater solidarity within the American family of
nations. The Cuban-Dominican dispute, a prominent feature of which was
Dominican congressional autcorisation of special war-powers for Trujillo,
was brovht to the attention of the Inter-American Peace Committee of the
Orgaaiaation of American States (OAS). The second dispute came to the OAS
when Haiti charged Dominican participation in an abortive plot to overthrow
the Haitian President, tin with the result that the Rio Treaty was
involed at the request of both governments. While fundamental differences
between these countries rennin unresolved and futher manifestations of mis-
trust and hostility may ba expected, the lecision of the Council of the
OAS to study the Caribbean situation will at least curb open hostility.
The appeal probably will increase the prestige and usefulness of the Rio
Treaty and strengthen the formal machinery of inter-American solidarity
against more serious tests in the future.
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