Trade with the Communists

Joseph Stalin boasted just before he died that Communism had deprived the capitalist nations of 800 million potential customers--the have-nots in his Soviet empire. The capitalist powers would fall out over the remaining market, he predicted, and this would lead Britain, France, Germany and Japan to "break out of American bondage . . . on a path of independent development."

Stalin, like Marx before him, overlooked the fact that healthy capitalism creates its own expanding market by 1) raising the living standards of its people; 2) opening new frontiers, such as Africa. Yet in Europe, and Asia last week, there were some, not all of them Reds, who thought that Stalin's prophecy might be on the way to coming true. Only economic issues, said Britain's new Ambassador to the U.S., Sir Roger Makins, can ever drive a wedge between America and Britain.

Western Europe, and Japan too, are hag-ridden with fears that their hard-won recovery might be crushed between the Iron Curtain and a U.S. tariff wall. Since V-J day, Western Europe, encouraged by the U.S., has increased its productive capacity well above prewar; at the same time, its traditional markets, notably in Russia and China, have all but disappeared. In 1953, Dutchmen, French and Germans sell Eastern Europe barely one-half, and buy only a quarter, of what they did in 1938. Japan's trade with the Chinese mainland, which accounted for 21% of all Japanese foreign trade in 1938, has shrunk to less than one-twelfth of 1% of her overseas trade.

Since Stalin's death, his successors have teased the free world with promises of lucrative trade with the "Great Eastern Market." U.S. policy is to discourage trade with the Communists, particularly with the Red Chinese, but so far the U.S. has shown insufficient willingness to provide an alternate "Great Western Market" for the surplus manufactures which Europe must sell to live. All over could be heard the complaint: the strategic desirability of cordoning off Communism is colliding with economic necessity.

BRITAIN, whose daily bread depends on worldwide trade, was mightily disturbed at the prospect of receding markets in both Asia and America. Ex-Labor Minister Harold Wilson went bustling off to Moscow in search of timber supplies for Britain's housing drive; Bevanite Sydney Silverman stayed at home and told the House of Commons that "nothing can be more ridiculous than [our] straining every nerve . . . to export goods to the one market [the U.S.] in all the world that does not need them . . . whereas all over the world there are [Communist] markets waiting . . ." Even Rab Butler, the commonsensical Tory Chancellor who has done much to put Britain back on its feet, worried that a Republican Congress might undo 20 years of reduced Democratic tariffs. "We have shown we are ready to make sacrifices," said Butler, referring to his "trade, not aid" policy. "The other side of the Atlantic [must] make up its side [of the bargain]."

That was precisely what Britain was not doing in its trade with Red China, which shot up ten times in the first three months of this year. Total British trade with the Chinese mainland is less than one-third of what it was in 1938, yet an average of one ship a day still clears Hong Kong for Communist ports.

The British insist that they scrupulously adhere to the U.N. embargo on shipments of war materials, but their assurances leave scope for convenient "exceptions." Whitehall's definition of the term non-strategic is more elastic than the State Department's. Example: Britain regards railroad equipment as non-strategic; the U.S. officially bans everything, so far as its own traders are concerned, and has persuaded its European partners to ban 260 items as strategic.* Most dismaying of all in Britain's case, the Foreign Office admitted that until very recently it had turned a blind eye towards British flag vessels shipping war goods to Communist China, so long as their cargoes were loaded in ports outside Britain and the colonies.

FRANCE reported glumly that its trade with Eastern Europe has plummeted to about half what it was in 1938. Franco-Russian trade talks are slated for next week, and Bernard de Plas, a right-wing businessman who believes in "trade regardless of political regimes," is flying to Peking, via Moscow, as the guest of Nan Han-chen, president of the People's Bank of Red China.

WEST GERMANY, encouraged by the success of a $40 million trade compact signed with Red Bulgaria, announced "direct consultations" with the Kremlin; Ruhr manufacturers dreamed of the good old days when Hitler's Drang nach Osten sent 12% of all German exports off to the East.

GREECE was getting ready to swap tobacco for Polish coal; ITALY could not resist Bulgaria's bid for lemons. JAPAN industrialists, noting that U.S. coal and iron ore costs them more than twice as much as the nearer but unavailable supplies ofo the Red mainland, bluntly say: "There is no hope for the Japanese economy until trade can be resumed with China."

Look East, Old Europe. Next to the Iron Curtain, European and Japanese traders resent the thickets of U.S. tariffs and import regulations. Said a Japanese: "The Americans tell us not to trade with the Communists . . . then they turn around and raise their duties on tuna and silk scarves. It doesn't make sense."

The Communists know it, and at last month's Geneva conference of the U.N. Economic Commission for Europe (ECE), they turned it to their own advantage. Red Rumania offered to buy generators and transformers--the very items that the U.S. had just refused, under the Buy American Act, to buy from a British firm which had placed the lowest bid for the Chief Joseph Dam contract in the State of Washington (TIME, April 27).

P:Bulgaria wanted vegetable oils; the U.S. has just imposed a stiff import quota on tung oil after spending thousands to teach the Paraguayans how to grow it for the U.S. market.

P:Within days of the U.S. decision to embargo imported dairy products, Russian trade agents snapped up Swedish dried milk.

Rice for Rubber. But for all their heady talk of a Great Eastern Market, waiting to absorb Western Europe's exports, the Communists have notoriously failed to keep their side of the trade bargain. Eastern Europe's contribution to Western Europe's coal imports has dropped from 22% in 1949 to a mere 12% in the first half of 1952; the 20-billion-francs Franco-Czech trade agreement of 1952 worked out at less than 3 billion. "Politics apart," says the London Economist, "the main barrier to any expansion of East-West trade is the sheer inability of the Communist bloc to provide anything suitable in exchange for increased exports from the West."

Worse still, the Soviet traders regard trade, like war, as an arm of policy, and demand strategic, not monetary profits. To win strategic metals and machinery for their Five-Year Plans, Peking and Moscow offer up to ten times the going price for nickel and ferro-molybdenum. One Red satellite agreed to take Norwegian herrings, but only if Norway would also sell strategic ores. Red China's trading weapon is the rice it extorts from hungry Chinese peasants. By offering rice to the Ceylonese, the Reds got a promise of 22,000 tons of rubber (TIME, Nov. 3). Rubber may be strategic for the Chinese, said Ceylon's Premier Dudley Senanayake, but rice is strategic for Ceylon.

Up to Washington. Undismayed by the cynicism of Soviet trade practice, a U.N. survey team concluded last year that an approximate return to the 1938 pattern of East-West trade would save Western Europe roughly 300 million precious dollars every year. Such a prospect, however visionary, moves hardheads as well as softheads in Europe's factories. But the decision inevitably lies with the powerful U.S. A substantial increase in East-West trade would irrevocably strengthen the Soviet empire, a prospect which the U.S. and its Allies deplore and hope to prevent. Yet Europe and Japan need larger markets to live. Africa will help: it is already absorbing four times as much from Britain, six times as much from France, seven times as much from Belgium as it did prewar. The decisive market remains North America, site of well over half the free world's purchasing power. "If you buy more from us," Britain's Ambassador Makins told the Detroit Economic Club last week,"we can continue to buy your wheat, your cotton and your tobacco . . . If not, we shall have to . . . buy [our] raw materials and food from countries who are willing to accept our goods in exchange."

-Yet though U.S. traders may not legally sell to China, they may buy from her. Last year the U.S. incomprehensibly allowed its importers to pay hard cash for $27.8 million worth of Red Chinese exports--more than three times the amount purchased by Britain. Peking could use the dollars.

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