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

95. Memorandum From the Chairman of the Council on Foreign Economic Policy (Dodge) to the Staff Assistant to the President (Goodpaster)¹

Washington, January 31, 1956.

SUBJECT

• Penalties on U.S. and Other Foreign Countries from East-West Trade Controls

1. At the NSC meeting of 29 January 1956,² the President requested the Chairman, Council on Foreign Economic Policy, to provide him with a brief statement indicating the gains or losses in dollars to the United States and its major allies that would result from the virtual removal of all controls on trade with the Bloc.

2. Pursuant to the above, there is attached hereto a brief statement entitled “Gains in Trade, Expressed in Dollars, Which Might Follow From The Virtual Elimination of All Controls on Trade With the Bloc.” This statement has been cleared with Mr. Herbert V. Prochnow, for the Department of State, Mr. Gordon Gray, for the Department of Defense, Mr. Harold C. McClellan, for the Department of Commerce, Admiral DeLany, for the International Cooperation Administration, and Mr. Robert Amory for the Central Intelligence Agency.

3. More detailed comments on the problem are attached to the statement as Annex A.³ These detailed comments are an elaboration on the points made in the brief statement and have been approved by State, ICA and CIA but not by Defense and Commerce. The short time available to prepare this paper has not permitted a resolution of reservations by Defense and Commerce to Annex A.

4. Admiral DeLany has asked me to note that because of the security objective expressed in the Battle Act, there is a question as to whether a reduction of the Battle Act list to the full extent indicated in the attached statement would not violate Congressional intent.

Joseph M. Dodge⁴

[Enclosure]

GAINS IN TRADE, EXPRESSED IN DOLLARS, WHICH MIGHT FOLLOW FROM THE VIRTUAL ELIMINATION OF ALL CONTROLS ON TRADE WITH THE BLOC⁵

The elimination of trade controls against the Soviet Bloc for all commodities, except arms and atomic energy materials, might result in an annual increase of Free World exports to the Bloc of as much as $350 million. About $150 million of this increase would result from the relaxation of the differential controls against China. However, if the United States maintained its unilateral controls, the increase in trade attributable solely to the differential China controls would be in the neighborhood of $60 million assuming there were no significant extension of Western long-term credits.

The increased trade resulting from the elimination of virtually all controls, though amounting to about 15 percent of the present level of Free World exports to the Soviet Bloc, would be very small in relation to total Free World trade. Such an increase is too small to he of significant economic benefit to the Free World as a whole; although to a number of business firms, particularly in Japan, this improvement in trade would be important.

Since the imposition of trade controls, the Soviet Bloc has continued to develop a rapidly expanding capability to export many commodities in categories similar to those being controlled by the Free World. While Bloc imports of industrial equipment, chemicals and petroleum products remained relatively constant during 1953–56, Bloc exports of such goods have increased very substantially during the same period from a low initial level. Although Bloc trade with the West is relatively small, the Bloc has a rich natural resource base comparable to that of other major industrial states and it is now supplying some of the industrial requirements of Western countries.

The elimination of virtually all trade controls would probably lead to some increase in total Bloc purchases, particularly of certain metals, ships, electronics and other complex industrial equipment. Bloc demand for such complex industrial equipment would be confined to relatively few categories since most of it is not included in the relatively narrow range now effectively embargoed by the West.

The relative self-sufficiency of the Bloc’s economy is the result of years of Soviet policy directed toward autarky stimulated to some extent by over five years of Western trade controls. If the Bloc chose to revise this policy, it could generate and pay for an increase in imports from the West of as much as one billion dollars annually without adverse and possibly with beneficial effect on the Bloc’s other long-range economic plans. Such a change in policy could be adopted by the Bloc within the pattern of Free World trade controls. However, it is not considered likely that the Bloc would in fact change its policy of present limited trade with the Free World even if virtually all trade controls were eliminated, except possibly as it might find it desirable to do so for political reasons.⁶

1. Source: Eisenhower Library, Special Assistant for National Security Affairs Records. Secret.
2. Apparent reference to the meeting of January 26. See Document 91.
3. Not printed.
4. Printed from a copy that bears this typed signature.
5. Secret. Prepared by the CIA and forwarded to Dodge on January 31, under cover of a memorandum from Amory. (Eisenhower Library, CFEP Records)
6. On February 13, Gleason forwarded this memorandum and the enclosure to the NSC. (Department of State, S/S–NSC Files: Lot 62 D 1, Communist China: Multilateral Export Controls on Trade with)