Foreign Relations of the United States, 1955–1957, Foreign Aid and Economic Defense Policy, Volume X

47. Memorandum From the Chairman of the Council on Foreign Economic Policy (Dodge) to the Deputy Director for Intelligence, Central Intelligence Agency (Amory)¹

Washington, February 7, 1955.

Note—This memorandum was written before the Malenkov resignation and other changes in the Soviet Government Administration, which served to emphasize the situation indicated.²

J.M.D.

Recently there has been considerable press and other comment about the change in economic policy by the Soviet Union. This was highlighted by the resignation of Mr. Mikoyan as Minister of Trade,³ and the subsequent announcements of Mr. Khrushchev.

It seems to be clearly indicated that the program of Mikoyan which promised a rapidly rising standard of living, even at the expense of heavy industrial expansion, has been reversed. This is supported by the 1955 budget of the Soviet [Union] which shows sharp increases in appropriations for the armed forces and heavy industry and cutbacks in allocations for consumer goods and agriculture. The evident conclusion is a reallocation of their internal resources. Apparently capital resources proved inadequate to meet the ambitious plans for consumer goods expansion without seriously interfering with the expansion of heavy industry and its inevitable relation to war production. As a result the progress in living standards is set back.

This situation suggests implications with respect to East-West Trade Policy. It seems to clearly indicate that the acquisition by means of trade of goods and materials, whether acquired directly or through satellite nations, that contribute to the maintenance or increase of their domestic living standards becomes a more obvious replacement of the domestic resources diverted from consumption purposes to war purposes.

The same factor is apparent with respect to Communist China and the diversion of its internal resources to industrialization related to the growth of its military power. In the case of China, we see reports of a nation exporting certain categories of food supplies for industrial equipment when there are inadequacies in food availability within China. ChinCom is willing to deprive its people of the essentials of life and living for other purposes.

Doesn’t this combination of circumstances suggest that any contribution through trade to improved living standards, no matter what its nature, becomes a direct contribution to military power and the industrialization that supports it?

From the information that you have available, would you care to make any comment about this in relation to CFEP 501 (East West Trade)?

1. Source: Eisenhower Library, CFEP Records. Secret.
2. On February 8, Georgi M. Malenkov resigned his position as Chairman of the Soviet Council of Ministers. That same day, Nikita S. Khrushchev, First Secretary of the Communist Party of the Soviet Union, proposed that Nikolai Bulganin succeed Malenkov. The Supreme Soviet approved Khrushchev’s recommendation and several other cabinet changes later that day.
3. On January 24, Anastas I. Mikoyan resigned as Minister of Trade.