The Secretary of State to the President of the American Federation of Labor (Gompers)

Sir: The receipt is acknowledged of your letter of March 15, 1921, in regard to the trade relations between the United States and Russia.

I recognize the interest of the American people in the questions you raise and I take pleasure in replying in detail to them.

In reply to your first statement, it is evident that after years of war, during which normal industry was diverted to the production of war supplies and accumulated stocks were consumed, Russia does not now possess important quantities of commodities which might be exported. It should be remembered that in addition to the period of the war against Germany, Russia has now passed through more than three years of a civil war during which industrial activities have been almost completely paralyzed. In fact the devastation of industry in Russia has been so complete, the poverty of the country is so acute, the people are so hungry and the demand for commodities is so great that at present Russia represents a gigantic economic vacuum and no evidence exists that the unfortunate situation above described is likely to be alleviated so long as the present political and economic system continues. Though there is almost no limit to the amount and variety of commodities urgently needed by Russia, the purchasing power of that country is now at a minimum, and the demand must consequently remain unsatisfied.

In some respects the condition of Russia is analogous to that of other European countries. The war has left the people with diminished [Page 770] productive man-power and largely increased numbers of the disabled, the sick and the helpless. In one important respect, however, Russia’s condition does not correspond to that of other belligerent states in the world war. While those states are taking such action as is likely to reestablish confidence, the attitude and action of the present authorities of Russia have tended to undermine its political and economic relations with other countries. The Russian people are unable to obtain credit which otherwise might be based on the vast potential wealth of Russia and are compelled to be deprived of commodities immediately necessary for consumption, raw materials and permanent productive equipment. The effect of this condition is that Russia is unable to renew normal economic activities, and apparently will be unable to obtain urgently needed commodities until credits may be extended to Russia on a sound basis.

It should not be overlooked that there has been a steady degeneration in even those industries in Soviet Russia that were not dependent upon imports of either raw material or partly finished products, nor in which has there been any shortage of labor. The Russian production of coal, or iron and steel, of flax, cotton, leather, lumber, sulfuric acid, or copper, of agricultural products, of textiles, and the maintenance and repair of railroad equipment, have degenerated steadily from their level of production at the time of the Bolshevik revolution. There can be no relation of the failure of all these industries to blockades or to civil war, for most of them require no imports, and the men mobilized since the Soviet revolution were far less in number than before that event.

During the existence of civil war in Russia, her ports were in the hands of anti-Soviet forces. However, trade with the world through Baltic ports was opened in April, 1920. Restrictions on direct trade with Russia were removed by the United States on July 8, 1920. The conclusion of treaties of peace with the Baltic States enabled Russia freely to enter upon trade with Europe and the United States. Both American and European goods have been sold to Russia, but the volume of trade has been unimportant due to the inability of Russia to pay for imports.

As suggested in your second statement, it is true that agents purporting to be representatives of the so-called Bolshevist Commissariat of Foreign Trade have placed immense orders for the purchase of goods in the United States, Europe and Asia. It is estimated that perhaps six and one half million dollars’ worth of orders have been booked. But shipments as a result of these orders have been made only in small volume because the Soviet agents were unable either to pay cash or to obtain credit so as to insure the delivery of the goods ordered. The actual result of the placing of [Page 771] these immense orders on the part of the Soviet regime has not, therefore, materially stimulated industry in the countries in which the orders were placed, but has chiefly resulted in further impairing the credit of the Soviet regime due to its inability to carry out the transactions which it had undertaken.

Much has been written about the large sums of Russian gold which have found their way abroad in exchange for foreign goods. In reality, such transfers of gold have been relatively small. According to the most liberal estimates the Soviet authorities do not now have in their possession more than $175,000,000 worth of gold. It is apparent that the proportionate share of this amount of gold which might be expected to reach the United States, and even the immediate expenditure of all of this amount of gold in the United States, would not have a pronounced or lasting effect upon the advancement of American industry and trade, while its loss to Russia would take away the scant hope that is left of a sound reorganization of the Russian system of currency and finance.

In response to your question regarding the transfer of funds from Russia to the United States it may be stated that there are no restrictions on the importation of Russian gold into the United States, and since December 18, 1920, there have been no restrictions on the exportation of coin, bullion and currency to Soviet Russia or on dealings or exchange transactions in Russian roubles or on transfers of credit or exchange transactions with Soviet Russia. It is true that no assurances can be given that Russian gold will be accepted by the Federal Reserve Banks or the Mint, in view of the fact that these public institutions must be fully assured that the legal title to the gold accepted by them is not open to question.

It has often been stated that if the Government of the United States would recognize the so-called Soviet Government, Russia would immediately export immense quantities of lumber, flax, hemp, fur and other commodities. The facts in regard to supplies in Russia completely refute such statements. Russia does not today have on hand for export commodities which might be made the basis of immediately profitable trade with the United States. Furthermore, the transportation system is utterly inadequate to move any large quantity of goods either in the interior of Russia or to Russian ports. The export of such commodities as exist in Russia at the present time would result merely in further increasing the misery of the Russian people.

The issue of January 1, 1921 of “Economic Life”, an official organ of the so-called Soviet Government, reports that the production of lumber amounted to seventy million cubic feet in 1920, as compared with four hundred million cubic feet in 1912. The production of lumber is, therefore, less than one-fifth of the pre-war level, even [Page 772] though the lumber industry is in far better circumstances than other important Russian industries. This same situation is further illustrated by the following article appearing in the “Economic Life” of February 6, 1921:

“By December 20 the following supplies were gathered:

Horse hides 3,831 12 per cent. of am’t expected
Colt 1,142 35
Cattle 22,701 20.6
Calf 15,679 14.6
Sheep 37,771 58
Flax poods 22,871 12
Hemp 6,863 18
Bristles 99 14

“The Government of Ekaterinburg, which occupies a high place in furnishing food supplies, for several reasons has proven to be very weak in furnishing raw materials.

“During the past week the results of the work have become still smaller, reaching zero in some places, in spite of the extreme energy and intensity of the work.”

Note is taken of the statement that if restrictions on trade with Russia were removed, many mills, shops and factories in this country, which are now closed, would resume operations, and unemployment would thereby be diminished. Even before the war, trade with Russia, including both exports and imports, constituted only one and three-tenths per cent, of the total trade of the United States. In view of the fact that the purchasing power of Russia is now greatly diminished, as compared with pre-war years, it is evident that at present even under the most favorable circumstances the trade of Russia could have but a minor influence on the industrial and agricultural prosperity of the United States. Under conditions actually prevailing in Russia, that trade is of even less importance; a statement amply demonstrated by the fact that though restrictions on trade with Russia have been eliminated, no business of consequence with that country has developed.

According to the reports of the Department of Commerce, our total trade with Russia for the fiscal year ending June 30, 1913, was as follows:

Import from European Russia $26,958,690
Asiatic Russia 2,356,527
Exports to European Russia $25,363,795
Asiatic Russia 1,101,419
Total trade between Russia and the United States $55,780,431

[Page 773]

The total imports into the United States for the fiscal year ending June 30, 1913, were $1,813,008,234, and the total exports for the same year were $2,465,884,149, the total of both imports and exports amounting, therefore, to $4,278,892,383.

For the calendar year 1920, the total trade of the United States was:

Exports $8,228,000,000
Imports 5,279,000,000
Total $13,507,000,000

Excluding Finland, the Baltic States, Armenia, and Georgia and Siberia for the periods when they have been free of Soviet Domination, the trade of the United States with Russia during 1920 was absolutely negligible, probably amounted to less than $4,000,000.

Though figures for trade with Russia during that period are not available, there is every reason to believe that it was of far less relative importance than in 1913.

It is unquestionably desirable that intimate and mutually profitable commercial relations on an extensive scale be established between the United States and Russia, and it is the sincere hope of this Government that there may be readjustments in Russia which will make it possible for that country to resume its proper place in the economic life of the world.

I am enclosing herewith as of possible interest to you in this connection, copies of the Department’s announcement of July 7, 1920,76 of the Treasury Department’s announcement of December 20, 1920,77 of a statement made by Mr. Alfred W. Kliefoth, of the Foreign Trade Adviser’s Office of this Department, before the Committee on Foreign Affairs of the House of Representatives,78 and of an announcement made to the press by the Secretary of State, dated March 25, 1921,79 also a brief statement of the total trade with Russia for the fiscal years ending June 30, 1911 and June 30, 1912.80

I would also invite your attention to the recently published hearings of the Committee on Foreign Affairs of the House of Representatives, entitled “Conditions in Russia”, and of the Committee on Foreign Relations of the United States Senate, entitled “Relations with Russia”. The former was held in compliance with House Resolution No. 635, and the latter in compliance with Senate Joint Resolution No. 164.

I am [etc.]

Charles E. Hughes
  1. Foreign Relations, 1920, vol. iii, p. 717.
  2. Ibid., p. 724.
  3. Conditions in Russia (Hearings before the House Committee on Foreign Affairs, 66th Cong., 3d sess., H. Res. 635), pp. 145 ff.
  4. See telegram, Mar. 25, to the Consul at Reval, p. 768.
  5. Not printed.