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

4. Letter From the Director of the International Cooperation Administration (Smith) to the Chairman of the Council on Foreign Economic Policy (Randall)⁰

February 7, 1958.

Dear Clarence: This letter is in response to your request dated January 3, 1958,¹ for comments and suggestions as to what might be done to keep abreast of and counter the Soviet program of economic penetration of the underdeveloped areas.

There already exists a unit which keeps abreast of these activities. It is the Economic Intelligence Committee Working Group on Sino-Soviet Bloc Economic Activities.² What we need now is more centralized authority to do something about it—but first and foremost, I agree with Mr. Sprague that we need a restatement of U.S. policy toward the Soviet economic and political offensive. As you know, we have not changed our policy since Khrushchev announced that he was opening economic warfare on the U.S. This announcement would seem to call for a policy which more distinctly spells out what our reaction should be. Existing statements of policy do not appear to concern themselves directly with this new phase of the Soviet offensive.

No one will deny that we are up against tremendous competition on the part of the Soviets in the economic field, yet nowhere in the economic Courses of Action of our Basic National Security Policy³ does the word competition even appear. We find in Para 28–a the admonition to recognize “that it is not U.S. policy to endeavor in each instance to match Soviet offers,” and that we should “counter, so far as practicable, the apparent attractiveness and damaging effects of the Soviet bloc economic offensive.”

In the U.S. Policy Toward South Asia,⁴ we are told “not to give the impression that the U.S. will bid against or attempt to match in size and scope the credit and aid activities of the Soviet bloc.”

In the Latin America policy,⁵ we are asked to “take action appropriate to the case if a Latin American state establishes close economic or other ties with the Soviet bloc.”

The Mainland Southeast Asia policy⁶ says that U.S. policy “should not depend primarily on the degree and nature of Communist activity at any particular time.”

I submit that this negative approach is no longer in consonance with the events of today.

In my judgement, therefore, we require first, a positive policy in the economic field and second, integrated action in the Executive Branch. This latter action would require far reaching steps to ensure that Export-Import loans, DLF, PL 480, Trade Agreements, Fairs, Cultural Exchanges, Peaceful Uses of Atomic Energy, Propaganda Support, etc., are all focussed on the central policy purpose.

I think that we should also search for more adequate means to counter Soviet moves in the manipulation of commodity markets and in the subsidization of industrial exports. We should also find means of stopping the trends toward nationalization as distinguished from our present system of offering guaranties to protect companies from effects of actual nationalization. Finally, we should find out how we can assure foreign producers of raw materials the long-term and constant markets which they need, and provide ourselves with assured long-term supply.

We are not in a position, legally or financially, to undertake a positive program in these areas. The Soviet ICA, on the other hand, is not inhibited by legal and financial considerations. Moreover, it is established as a highly centralized department embracing all of the tools which we have, divided between Government and private industry. It is thus much better equipped than we are to wage economic warfare. We should not lose sight of these considerations.

With reference to your communication of January 22,⁷ I am assuming that the Vice President’s decision to take under consideration the establishment of a study committee would supersede Mr. Black’s proposal.

Sincerely yours,

Jim⁸

0. Source: Department of State, E–CFEP Files: Lot 61 D 282A, Soviet Economic Expansion-CFEP 560. Secret. Filed with a covering memorandum of February 20 to the Council from Lieutenant Colonel Paul H. Cullen, the CFEP Secretary.
1. For text, see Foreign Relations, 1955–1957, vol. IX, pp. 71–72. Cullen circulated several other responses to the Council with a February 3 memorandum and with the February 20 memorandum cited in the source note above. (Department of State, E–CFEP Files: Lot 61 D 282A, Soviet Economic Expansion-CFEP 560)
2. A series of semiannual reports prepared by the Economic Intelligence Committee, entitled “Sino-Soviet Bloc Economic Activities in Underdeveloped Areas,” is in Eisenhower Library, CFEP Chairman Records, Intelligence Reports Series.
3. NSC 5707/8, “Basic National Security Policy,” approved June 3, 1957; for text, see Foreign Relations, 1955–1957, vol. XIX, pp. 507–524.
4. NSC 5701, “U.S. Policy Toward South Asia,” approved January 10, 1957; for text, see ibid., vol. VIII, pp. 29–43.
5. NSC 5613/1, “U.S. Policy Toward Latin America,” approved September 27, 1956; for text, see ibid., vol. VI, pp. 119–137.
6. NSC 5612/1, “U.S. Policy in Mainland Southeast Asia,” approved September 5, 1956; for text, see ibid., vol. XXI, pp. 252–263.
7. Randall’s January 22 memorandum to the Council enclosed a letter of January 14 from Eugene R. Black, Jr., to Randall suggesting the appointment of a Presidential Commission on U.S. economic policy toward the underdeveloped nations. (Department of State, E–CFEP Files: Lot 61 D 282A, Review of U.S. Foreign Economic Policy-CFEP 564) A memorandum of March 6 from Cullen to the Council indicated that the responses to the suggestion were generally unfavorable. (Ibid.)
8. Printed from a copy that bears this typed signature.