RUSSIA'S TRADE WAR

A New Threat to U.S. Exports

WE declare war on you in the peaceful field of trade." Thus last November Nikita Khrushchev threw out a new and threatening challenge: a worldwide Soviet economic offensive designed to cripple U.S. trade and capture the economies of underdeveloped and uncommitted nations. Since then, Soviet economic penetration has moved so fast that U.S. Ambassador to the United Nations Henry Cabot Lodge fortnight ago warned that the U.S. may have to face the question of subsidizing its exporters to keep them in competition with the Russians.

From 16th place among the world's trading nations in 1938, Russia has risen to sixth--and is still rising. Its volume jumped from $1.5 billion in 1946 to $8.25 billion last year; its exports of industrial equipment have increased twentyfold. Today the Soviet Union has trade agreements with some 31 countries outside the Iron Curtain, and in the last year alone added Morocco, Tunisia, Cambodia, Japan and Ceylon to its list.

Russia has granted Afghanistan loans totaling $106,600,000 to build public projects, India a $115 million loan to pay for Soviet blueprints, equipment and technicians for a 1,000,000-ton-capacity steel mill. Credits for industrial development have been granted to Yugoslavia, Egypt, Indonesia. Russia last week signed a $750 million trade agreement with West Germany (see FOREIGN NEWS), has increased its trade with Latin America from virtually nothing four years ago to 8% of the area's foreign trade.

Though money spent by Russia since World War II on loans, aid and technical assistance (including massive aid to Red China and the satellites) is only one-tenth of the U.S. effort, the Soviets make the ruble go many times farther than the U.S. dollar. While the U.S. program has benefited almost every non-Communist country, Russia has concentrated 95% of its aid in key countries it hopes to win. In Egypt, Syria, India, Afghanistan, Indonesia and Yugoslavia, the total Soviet program during the last 2 1/2 years has been double the free world's. The U.S. grants aid only when it considers a project economically sound; Russia picks projects largely for propaganda value, makes sure that they are plain for all to see, e.g., a soccer stadium in Burma, a road-paving job in Kabul.

As a state in which economics is second to politics. Russia can overbid for raw materials, ignore market prices to compete, even take heavy losses to win friends. Says Central Intelligence

Agency Director Allen Dulles: "They will buy anything, trade anything and dump anything if it advances Communism or helps to destroy the influence of the West." Last month, for example, Russia moved heavily into the British aluminum market with lower prices (TIME, April 7). Russia has also sold tin, zinc and soybean products below market prices, is selling trucks, autos and machinery in the Middle East at prices the West cannot match.

One of Russia's big lures is its interest rates and repayment terms. U.S. loan interest is high, usually 4%-4 1/2%, compared to 2% on Russia's $100 million loan to Afghanistan, repayable over 30 years. But perhaps the chief appeal of the Soviet program is that Russia, a nation that still needs many raw materials and foodstuffs, can accept commodities in trade that Western countries already have in abundance. The U.S. is actually a competitor of underdeveloped nations in selling such surplus items as rice and cotton, buys many other commodities only when they are scarce. -

With the world commodity market now glutted, the situation is made to order for the Soviets. Iceland made a trade deal with Russia to dispose of its surplus fish, Burma to dispose of its surplus rice. Such countries often accuse the U.S. of damaging their economies by sales of its surpluses on the world market; less well known is the fact that Russia often puts the commodities it takes in trade right back on the market, as it did with Egyptian cotton, Turkish tobacco, Syrian wheat.

A more serious complaint about the U.S. is American trade barriers. Chile last week was preparing to open sales talks with Russia because new U.S. trade restrictions have squeezed its outlet for copper. To make matters worse, the U.S. Tariff Commission last week recommended higher tariffs on imports of lead and zinc, which several Latin American countries export heavily to the U.S.

Russian economic offers often prove less attractive than they first seem; most countries have to accept barter instead of hard cash, often find Russian goods shoddy, Soviet maintenance poor. But so long as the threat of a congressional cutback in U.S. aid and trade programs and increasing pressure for more U.S. tariffs on basic commodities exist, the attractions of the Soviet lure are apt to become even stronger. U.S. business will not only lose some of its present markets, but, far more important, will be kept out of the markets of the future.

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