National Intelligence Estimate 2
Vulnerability of the Soviet Bloc to Economic Warfare
To estimate the vulnerability of the Soviet bloc to economic warfare.
The term “economic warfare” as applied in this paper covers the offensive use in peacetime of measures to diminish or neutralize the war potential of the Soviet bloc*
The extent to which in the event of war the resources of conquered territories could be effectively utilized and the extent to which they would represent a net gain to the bloc is a problem beyond the scope of this paper. The absence of military operations is assumed as a part of the terms of reference.
Since China is engaged in military operations against United Nations forces in Korea, it is necessary to assess the effect of economic warfare upon China under the existing circumstances.
The measures considered available to the Western Powers to deny exports to the Soviet bloc include the following: export and import licensing, trade manipulation, preclusive buying, black listing, foreign funds control, and the denial to the Soviet bloc of access to non-Soviet maritime and air facilities. The effects of blockade and of the use of the navicert and ship warrant systems are not considered in this paper under the term economic warfare since these measures are usually not employed except in a state of war.
1. A program† of economic warfare directed against the Soviet bloc, which encompassed selected commodities and services and which [Page 1047]received a high degree of cooperation from the Western Powers would, if well coordinated and well enforced, seriously retard and limit the development of the Soviet bloc war potential. Although, because of the advanced state of Soviet preparedness for war, such a program would not significantly affect the present capability of the USSR to wage initial campaigns, it would, nevertheless, seriously affect the capability of the USSR to conduct a general war of long duration and might correspondingly influence a decision concerning such a venture.
Conduct of Foreign Policy.
2. The total effects of a program of economic warfare are not likely to force a basic change in the aggressive foreign policy of the USSR.
Economic and Political Stability.
3. The effect of a program of economic warfare on the economic and political stability of the USSR and its Satellites and upon relations between the USSR and its Satellites would not be decisive, though such a program would intensify popular discontent, particularly in the Satellite states and would aggravate problems of commodity distribution throughout the bloc. Soviet authority, however, would doubtless be effective in dealing with conflicting claims among the Satellites for scarce commodities. In view of the repressive power of the Soviet bloc security organizations, the political stability of the various regimes would not be seriously jeopardized unless and until other disruptive pressures were brought to bear, in which case the cumulative effect would be serious.
4. A program of economic warfare would add to the internal economic problems of the USSR and its Satellites and would make it virtually impossible to carry out the planned balanced development of their economies. Such prospects as they now have for narrowing the present great gap between their combined productive capacities and those of the West would be decidedly reduced.
Ability to Reduce the Effects of Controls.
5. To achieve worthwhile results a high degree of cooperation among the Western Powers is essential;‡ otherwise the Soviet bloc could reduce the effect of an economic warfare program: a) by purchases from Western nations unwilling to engage in parallel action on the economic warfare program; and b) by the employment of covert [Page 1048]trade channels to circumvent controls. In any case, the Soviet bloc would attempt to reduce the effects by adjustments within the economy, including reallocation of resources, the use of synthetics and substitutes, and the temporary utilization of stockpiles. There would, however, be a definite limitation on their ability to reduce the effect of controls through such internal adjustments.
Chinese Military Capabilities.
6. The effect of a program of economic warfare against China requires special consideration since China is actually engaged in military operations of major importance. The effect of economic warfare alone would not be a decisive factor in limiting Chinese military capabilities. Combined with the present drain caused by the Korean war, however, economic warfare would substantially reduce Chinese military capabilities (though not to the extent of critically disrupting current tactical operations) and might ultimately affect the Korean war itself. Unless the Soviet Union were engaged in supplying major campaigns elsewhere, it would have the capability, despite certain stringencies in its economy, of supplying China’s essential military requirements, but it is uncertain how much the flow of Soviet supplies to China could be stepped up without creating critical transportation difficulties. The effect of these difficulties together with the drain caused by the Korean war might, conditioned upon the degree of resistance, exert a restraining influence upon Chinese plans for further expansion in Southeast Asia or might significantly hamper the execution of such plans if they were put into operation.
7. The industrial centers of China which are largely the product of Western capitalism are peculiarly dependent upon the West for raw materials, for supplies, and for industrial spare parts, and, indeed, even for the maintenance of some of the barest essentials of an industrial type of society. A program of economic warfare, by depriving these centers of their imports, would consequently have a serious effect on their economy and would increase the problems of internal control there. In addition, a well enforced program of economic warfare would make Communist China more dependent on the very limited Chinese rail facilities connecting with the USSR. Such a program would have increasingly serious effects. It would hamper current industrial production, retard industrial development and might seriously limit China’s ability to sustain large-scale military operations. If continued for a long enough time, it might even threaten the internal stability of the regime.
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- Files of the Bureau of Intelligence and Research, Department of State.↩
- For information on National Intelligence Estimates, see footnote 1, p. 4.↩
- The omitted section of six pages contains a detailed analysis upon which the general conclusions are based.↩
- The Soviet bloc is defined as: the USSR, China, Albania, Bulgaria, Czechoslovakia, Eastern Germany, Hungary, Poland, and Rumania. The vulnerability of Korea, Outer Mongolia, and certain Communist-controlled areas in Southeast Asia is not considered because of the relative insignificance of the economies in these areas; however, it is assumed that economic warfare measures will also apply against these regions. [Footnote in the source text.]↩
- No attempt is made to assess the general effectiveness of the control measures that are already in effect, or to suggest wherein they are adequate or need to be supplemented. It should be noted, however, that direct US shipments to the Soviet bloc have already been reduced to relatively insignificant proportions through our export control policies. [Footnote in the source text.]↩
- Although it is not actually within the terms of reference of this estimate, it should be noted that effective measures for economic warfare against the Soviet bloc would involve substantial cost. This cost would probably include, inter alia, loss of the imports of Western Europe from the Soviet bloc which are of significance to their economies, and would require a redirection of trade. This estimate makes no attempt, however, to balance off the costs of economic warfare against its advantages. [Footnote in the source text.]↩
- Documentation concerning United States policy with regard to restriction of trade with North Korea and Mainland China is presented in volume vii.↩