Foreign Relations of the United States, 1958–1960, Foreign Economic Policy, Volume IV

2. Memorandum From Secretary of State Dulles to Vice President Nixon⁰

January 10, 1958.

I refer to the Cabinet action as a result of which you were requested to make some suggestions as to a study of possible future economic problems created by the Communist economic warfare.

There is, of course, the politico-economic penetration of less developed countries, where the Clarence Randall Commission already has a mandate.¹ The problem which I envisage is, however, different and broader. It should, I think, cover these matters:

I. The ability of the Western-fashioned economic system of private enterprise, the operation of which depends on profits, to survive in the event of all-out economic warfare by the Sino-Soviet industrialized totalitarian state system, which operates without regard to profits and which can channel the economic efforts of its people into international economic warfare.

In connection with this, I suggest that there should be consideration of Sino-Soviet prospective capabilities as regards:

(1) Manipulation and disorganization of staple markets such as wheat, cotton, metals, and so forth;

(2) Encouraging the “nationalization” of foreign investments and creation of a climate which would in many areas check the outflow of private capital;

(3) Disruption of Western industrial exports by competitive sales on terms which are less than our costs;

(4) Effects of possible large scale Sino-Soviet barter deals for raw materials, eliminating for the raw material countries the risks inherent in free markets which fluctuate sharply in terms of prices and volume, and carry the additional hazard of tariff barriers.

II. If it is found that there is or may be a serious danger in one or more of the foregoing respects, what protective measures are presently available? And what might be done to increase our ability to respond effectively to such Sino-Soviet actions?

My meeting yesterday with the Foreign Relations Committee² indicated there is already some rising Congressional concern on these matters. It may be useful to be able to let it be known that we are aware of the potential danger and preparing accordingly. On the other hand, publicity might have a depressing effect on international trade and investments.

0. Source: Eisenhower Library, Dulles Papers. Confidential; Personal and Private. Enclosed with a brief covering note of the same date from Dulles to Nixon. The source text is not signed, but in a telephone conversation that day between Dulles and Deputy Under Secretary of State for Economic Affairs C. Douglas Dillon, the latter referred to the memorandum as the Secretary’s memorandum. (Memorandum of telephone conversation by Dulles’ personal assistant Phyllis D. Bernau; ibid.)
1. Reference is to the Council on Foreign Economic Policy, chaired by Special Assistant to the President Clarence B. Randall. In February 1957, Randall established a Subcommittee on Soviet Economic Penetration which in turn set up a working group to examine agency proposals on this subject. See Foreign Relations, 1955–1957, vol. IX, pp. 43–72 passim.
2. For the record of Dulles’ January 9 testimony before the Senate Foreign Relations Committee, see Executive Sessions of the Senate Foreign Relations Committee (Historical Series), Volume X, Eighty-fifth Congress, Second Session, 1958 (Washington, 1980), pp. 2–57.