840.50 Recovery/12–1848: Telegram
The Ambassador in the Soviet Union (Smith) to the Secretary of State
2959. MA, NA and AA agree with me in expressing our concurrence general tenor and thesis re east-west trade expressed Bern’s 1622, December 7 to Department1 and basic principles State and ECA policies outlined Deptel 3352 August 27 to Paris (Torep 816).2
We agree that theories of creating “friendly feelings” as well as increasing dependence east relative to west based on false assumptions. While recognizing necessity certain minimum of this trade at present and in future, little doubt in our minds of Soviets long-range intent and proven capability all essential purposes reorient satellite states trade ties from west to east; hence seems to us incumbent on west to devise methods long-range conduct and control this trade in same hard-headed manner as will Kremlin and as actively and effectively as we now pursuing evolution harmonious and prosperous union freely trading nations west and world. Extent to which Russia is still dependent on foreign technique to develop her industry is very great in all fields and we feel that considerable carefully chosen extensions of prohibited exports would be very advantageous to us.
In this connection we consider of major import and suggest review one phase this overall problem apparently unstressed to date, i.e. east’s acquisition hard currency exchange through export essentially luxury and other consumer goods commodities to west and through present false value current ruble exchange rate with consequent increment east’s basic economic military potential at home and/or in chaos fomenting capabilities abroad. While US is essentially dependent upon and must seek to obtain maximum cooperation OEEC countries in observance 1/A–1/B restrictive lists, we almost alone responsible [Page 592] for establishment and implementation of logical long-range policy cognizant of feature outlined above.
In summary, we believe until whole present character unstable east-west relationships changes radically: (1) America’s acquisition luxury items should be directed toward only those items available from the still free nations of the world; in this connection we think possibility using ERP counterpart funds to stimulate exports from OEEC nations might well be explored; and (2) engineering and other technical assistance to Communist nations should be kept to absolute minimum in all fields.