US Economic Statecraft for Survival 1933-1991

Chapter 3

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Eisenhower.

Problems with colleagues and problems with allies.

When Eisenhower succeeded Truman as President in 1953 he inherited an established and expansive embargo policy on trade with communist states. But being an established policy did not prevent it being troublesome throughout his two terms of office. Problems were exacerbated by tensions between the Administration"s determination to be tough and inflexible in its opposition to communism, and by both pressure from allies and Eisenhower"s own desire to relax export controls. As these tensions pulled and pushed policy-makers, and as the economic and strategic effectiveness of the embargo was rea.s.sessed, subtle changes occurred in the way that Americans justified their economic defence policy.

During the period 195361 the USA fought a continuous rearguard action, successively adopting what proved to be untenable positions on the Western embargo in the face of onslaughts from allies demanding liberalisation. The Americans were not totally against changes of any kind, but they did not want to reduce the embargo to the extent or in the manner demanded by their allies. First came contraction of the embargo lists in 1954. Second came the a.s.sault on the China differential, which climaxed in 1957 and had a major impact on the way Americans thought about their embargo policies. And third, in the wake of the allies abandoning the China differential, came a second round of general relaxation of COCOM controls in 1958 and a period of American introspection, the results from which caused fluctuations between bureaucratic obstruction of the relaxation of controls, and a more positive att.i.tude towards liberalisation. All these changes were primarily propelled by demands from the European allies, and to a lesser extent from j.a.pan, and by moderates within the Eisenhower Administration who thought that there had to be change, partly out of conviction, but more for the sake of sustaining unity within the Western Alliance.

In explaining the allies" desire for liberalisation of the embargo, different authors have emphasised different reasons, such as their need for exports, a change of threat perception after both the death of Stalin and the Korean Armistice, and the diminishing of US leverage as its aid programmes contracted. All these things were significant, but none fully explain the movement of policy among the allies. Their reasoning was complex, involving aspects of all these factors and others, but always it led to the conclusion that a stringent embargo policy was not the most effective way to maximise Western strength and Eastern weakness, nor was it the best way to combat the threat of communism in the long term. They argued along these lines partly because they did not see the embargo policy producing significant results in r.e.t.a.r.ding either the economic growth or military potential of the Soviet bloc or China.l Oddly enough, the Americans did not see such results either, but during the latter part of the 1950s they began to construct other grounds upon which to rest their case for a stringent embargo.

Similarly, in trying to explain why the Americans were determined not to liberalise the embargo policy, broad generalisations have been offered. In particular, much has often been made of public and congressional pressures to maintain the high level of the multilateral embargo achieved during the Korean War. There is no doubt that these were important factors, but they were not decisive. The main reason why the USA was strongly opposed to anything other than minor changes to embargo policy was that members of the Eisenhower Administration were overwhelmingly convinced that it would be wrong and contrary to US and Western interests substantially to change policy. It was as simple, or almost as simple, as that. The main exception to this line of thinking was Eisenhower"s, but he was loath to override the collective view of his senior colleagues. What made things not quite so simple were two factors. First, even when the forces of liberalisation engineered a change in policy, the executive departments, whose responsibility it was to carry out policy, but which did not have their hearts in liberalisation, often did not execute the letter, never mind the spirit, of any new dispensation. For failing to remedy these bureaucratic shortcomings, Eisenhower has been sharply criticised.2 Secondly, the grounds upon which the Americans opposed liberalisation changed, from a justification based on strategic and economic criteria, to a position that still claimed benefits in those areas, but also emphasised political, psychological, and symbolic benefits to be derived from a strict embargo.

Thus, before examining the way US policy evolved in detail, three broad issues need to be discussed in a more thematic vein, which will help give some general indication about the direction taken by US policy and why it took the route it did. These issues are the respective roles of Eisenhower and of the West European allies in liberalising embargo policy; and the way US justification of the embargo began to change, rather subtly, away from economic and strategic towards more political, psychological, and symbolic reasons and towards matters to do with negotiating tactics.3 Eisenhower"s role will be considered first, then that of the West European allies and the change of justification will be examined together in the next section. Considering the emerging shift in thinking about how to justify the embargo will also draw us into discussion of the change that Eisenhower"s New Look security strategy brought to overall US policy.

Eisenhower.

Eisenhower"s role in US embargo policy has been portrayed in starkly contrasting ways by Frland and Spaulding.4 However, they both start from the same point: Eisenhower"s strong personal preference for relaxing controls. He wanted to speak out on this several times during his election campaign, but was dissuaded by political considerations. At his pre-inaugural Cabinet meeting on 12 January something similar happened, when Defense Secretary designate Charles Wilson persuaded him to moderate the tone of any p.r.o.nouncements he might make publicly about East-West trade liberalisation. He warned Eisenhower against the dangers of "selling firearms to the Indians".5 The points of departure for Frland and Spaulding are: the extent to which Eisenhower drove US liberalisation, and the extent to which it came about because of West European pressure; and the degree to which Eisenhower was culpable for failing to ensure that policy decisions for modest relaxation of the embargo were carried out in practice. This study finds it difficult to agree with Spaulding that "Eisenhower kept the US policy review moving". It also finds it difficult to square things entirely with Frland"s sharp criticism of Eisenhower"s bureaucratic shortcomings, his judgement that the President"s impact on changes that reduced the scope of the embargo was minimal, and his a.s.sertion that the changes were the result of hard-won compromises with European, and particularly British, demands.6 These interpretations are mutually exclusive. In fact, both seem to overstate their case, which obscures the nuances of Eisenhower"s position and its circ.u.mstance.

On 1 July 1954 in a tense NSC meeting that attempted to decide how to deal with British demands for a major relaxation of controls, Eisenhower said "that he might just as well sit back and listen to what the members of the Council had to say on these problems of East-West trade because as the members of the Council well knew, he thought that they were all wrong on the subject".7 This does not sound like the man who kept the US policy review moving, but neither is it a case of the President insisting on one policy and then being ignored by subordinates who adopt something different. Eisenhower spoke boldly about relaxing controls on trade with the Soviet bloc, but did not push things to decisions for radical change. Also, when it came to the embargo on trade with China, Eisenhower"s position was not entirely consistent; at times he strongly opposed the relaxation of controls. Thus his actions did not always match his outspoken rhetoric.8 On trade with the Soviet bloc, Eisenhower was resigned to the fact that he could not get his own way without going against all his senior colleagues (even the State Department had shifted to a more conservative policy under John Foster Dulles), and it became clear, despite his irritable outbursts at several NSC meetings, that he was not prepared to do that. He was also sensitive both to the possibility of the Congress and public opinion criticising a radical change of policy, and to the dangers to wider strategy that relaxing controls might pose. A good example of the latter is American procrastination on liberalisation before the Geneva Conference in 1954, which dealt with the end of the conflict in Korea and the division of Vietnam after the French military defeat at Dien Bien Phu: the USA did not want to change embargo policy before the Indochina war had been brought to an end for fear of weakening its bargaining hand. In contrast to these factors, Eisenhower was responsible for initiating a review of US policy with the aim of reducing controls before Washington came under strong pressure for reduction from Western Europe, and he repeatedly spoke out in favour of relaxation and advocated compromise with the Europeans rather than outright resistance to their proposals. In this sense, he helped to prepare the ground for change and cultivated a disposition that, at least, recognised that some compromise with the Europeans might be necessary. In these ways he fostered change, but this picture needs further detail.

Part of the exasperation Eisenhower showed in the NSC meetings was because he did not think embargo policy merited such costly man-hour atten-tion.9 This makes one wonder just how important the issue was for Eisenhower, and it may go some way to explaining why he did not push his views in the face of united opposition in the Cabinet and the NSC, and why he did not always ensure that when liberal policy decisions were made that they were fully carried out. This is not to say that Frland"s criticism of Eisenhower for bureaucratic inept.i.tude should be ignored, but its thrust is deflected somewhat if the charge against Eisenhower is now seen as a failure to implement something that he did not see as being very important in itself. However, when embargo issues threatened Western unity, when he engaged with the idea of weaning the satellites away from the Soviet Union, or when he thought of the relative gains from embargo policy and the problem of the West European economies and the fact that their standard of living "was too d.a.m.n low",10 then the issue did become important, and he used such arguments to urge his colleagues to compromise with the allies and relax the embargo. Unfortunately for Eisenhower, some of his ideas about the embargo were inconsistent with the findings and recommendations of his Administration"s overall strategic policy- for example, on the likelihood of separating the satellites from the Soviet Union-and this blunted their impact on the architecture of the embargo. Also, while he favoured liberalisation, he still often parted company with the British on the definition of strategic. In the NSC on 1 July 1954, he said "he would fight the British to the death to keep electronic equipment on the embargo list, but in any event let us pare this strategic list down to its fundamentals".11 While in spirit he was with the British on liberalisation, his notion of "fundamentals" was different and he was not willing to go as far as them. Thus Eisenhower helped to change the direction of American thinking about the embargo, though this was also taken up at various times by others, including Secretary of the Treasury George Humphrey, Secretary of State Dulles, and more importantly and more consistently by Clarence Randall, who was influential in economic policy-making. But the Americans were always several steps behind the Europeans, and especially the British, in terms of how far to take liberalisation. As a result, they always appeared to be protesting against liberalisation, whereas in fact what many of them opposed were its speed and extent.

These considerations are by no means conclusive, and one of the difficulties of a.s.sessing Eisenhower"s role is the complexity of this policy area and the way thinking about embargo policy changed during the 1950s. As these complexities are unravelled later, a clearer perspective and additional grounds for the judgements made here will emerge.

Changing the justification for the embargo and the impact from allies If for no other reasons, the Americans had to rethink embargo policy because Eisenhower demanded it, and because the Europeans repeatedly forced them to justify the strict embargo. Also, embargo policy did not exist in isolation; it was a part of America"s overall strategy for waging the Cold War. It thus could not escape being influenced by the review of strategic policy that was undertaken as soon as Eisenhower came to power. The exercise was known as Operation Solarium, and the outcome was NSC 162/2.12 The new strategic policy doc.u.ment was not promulgated until 30 October 1953, after the new economic defence policy was adopted on 30 July, but the thinking embodied in it was immanent within the Administration during the formulation of the new embargo policy. It is therefore not an offensive anachronism to look at the general strategic policy first, in order to identify its impact on how economic defence policy developed.

The legacy from the Truman Administration was NSC 141, which built on the logic of NSC 68 and suggested a need for a further ma.s.sive expansion of defence spending in order to be able to meet the communist threat in kind wherever it arose. Eisenhower had a conservative"s distaste for large government spending, and his conviction that the conflict with communism had shifted from one with an imminent danger of war to a long-haul conflict in which the victor would be the one with the most effective economic system, reinforced his inclination towards parsimonious government. In Operation Solarium, planners looked closely at four options: to continue with Truman"s containment strategy; to place more emphasis on nuclear deterrence and ma.s.sive retaliation; to adopt rollback-liberation of communist satellites; or to negotiate, ideally during the two years before the Soviets achieved a credible nuclear capability.13 The strategy that was chosen evinced a considerable degree of continuity with Truman"s containment policy, but there was a new look to it, which took into account the need to be as economical as was prudently possible. The need to conserve the economic strength of the USA and the West as a whole underpinned what became known as the Eisenhower New Look. Containment was not to be achieved through meeting the communist threat in kind wherever it might arise. Instead, the West would retake the initiative by holding forth the possibility of nuclear retaliation if the containment line were breached: deterrence was better and cheaper than a conventional-force cure. Supplementing this were to be three sub-strategies: more emphasis on alliances and the value of allies; vigorous waging of psychological warfare to undermine the strength of the communist bloc and to win over the hearts and minds of the uncommitted elsewhere to the West; and the use of covert operations to counter encroachments that could not be dealt with by the threat of a nuclear sanction.

This strategy is interesting in itself, but what does it have to say to the strategy of economic defence, or embargo policy? The importance attributed to allies clearly meant more emphasis on co-operation, which had implications when the USA came to the problem of trying to persuade its allies to maintain an expansive embargo and apply it strictly. The changeover to seeing the conflict with communism as a long-term phenomenon placed more value on solidarity, co-operation with allies and building up stable Western prosperity: it also de-emphasised the threat of war and provided grounds for arguing for a relaxation of export controls. Finally, if deterrence were to stabilise the containment line, and if roll-back were rejected as a viable way forward, then other means of launching offensives against communism had to be sought, and they were found in the realms of covert and psychological confrontations and economics. Certainly in the latter case, the embargo could play a part. Indeed, some saw it as a means of carrying the conflict into the heart of communist states. Specifically, NSC 162/2 called for the USA to take "feasible political, economic, propaganda and covert measures designed to create and exploit troublesome problems for the USSR, impair Soviet relations with Communist China, compli-cate control in the satellites, and r.e.t.a.r.d the growth of the military and economic potential of the Soviet bloc".14 However, these different strands of the overall strategy did not always interweave easily. When the Americans insisted that the levels of embargo should be maintained in order to damage the communists and restrict their war-making potential, which was in harmony with the New Look, they ran into strong opposition from their allies. This then endangered another principle emphasised by the strategy, namely allied unity. Soon the problem became even more complicated because the Europeans argued that the embargo, in fact, did not restrict either the economic growth or the war-making potential of the communists in a significant way. Most Americans also began to acknowledge that in these respects the results of the embargo were indeed disap-pointing. They thus had to find other means of justifying its maintenance at a level that incurred serious costs for the West. In their search for justification they turned to less quantifiable benefits of a political nature, to the New Look"s emphasis on the psychological aspects of the Cold War, to symbolism and moral positioning, and gradually to tactical needs for negotiations.

However, while NSC 162/2 placed value on indirect strategies for waging the Cold War, other a.s.sumptions, underpinning its policy p.r.o.nouncements, indicated that the effects of the embargo would be limited to irritating rather than achieving anything really substantial. Despite this conclusion, some involved in economic embargo policy continued to nurse hopes that it would have a more dramatic impact, particularly with regard to China, but the evidence was against them: "The Chinese Communist regime is firmly in control and is unlikely to be shaken in the foreseeable future by domestic forces or rival regimes, short of the occurrence of a major war."15 Ironically, relaxing export controls seemed unlikely to achieve much either. Unleashing centrifugal forces so as to loosen the gravita-tional pull of the Soviet Union on its satellites was largely wishful thinking: "The detachment of any major European satellite from the Soviet bloc does not now appear feasible except by Soviet acquiescence or war."16 The detachment of satellites from their Soviet orbit, or (to switch metaphors) at least gradually weaning them off "big mother", was one of Eisenhower"s fond hopes for relaxing the embargo. The potential for economic action, whichever way it went, looked limited, which made the determination of policy all the more difficult. If clear-cut results could have been reliably forecast for options, it would have made the choice of embargo tactics easier. Finally, a point that cannot be emphasised enough about NSC 162/2 was the stress it placed on the importance of allies. Ominously, it was noted that "allied opinion, especially in Europe, has become less willing to follow US leadership". However, at the same time, "The United States cannot...meet its defense needs, even at exorbitant cost, without the support of allies."17 The USA, it was clear, would run into difficulties if it tried to impose its leadership will on the European allies, whose co-operation it needed as a vital part of the overall containment of communism. It could not afford to alienate them by pushing its line on the embargo too hard.

All these matters caused difficulties for the Americans and go some way to explain why they developed reservations about insisting on an expansively construed embargo policy, even though they still wanted to implement it largely as they had in the past. However, there was a further problem, which has already been touched on but will be elucidated in detail below. The Europeans argued that a strong embargo policy of the kind the USA desired was not justified by the results yielded. In other words, the West was not actually getting relative gains in economic and strategic terms: the justificatory grounds upon which the embargo had been originally constructed. The American att.i.tude to this was ambivalent, almost as if they did not want to concede that the embargo was not justifying itself in economic and strategic terms. Ideas that the Americans expressed in 19545 ill.u.s.trate well the gradual withering of the economic and strategic justifications, and the emergence of new lines of thinking that were in tune with NSC 162/2"s emphasis on psychological aspects of waging the Cold War.

The review of economic defence policy in 1954, which was specifically to reconsider the effects of the embargo, was referred to the Council on Foreign Economic Policy (CFEP),18 which in turn pa.s.sed it to a steering committee. What emerged from that review and correspondence between the steering committee, the secretary and chairman of the CFEP (Paul H.Cullen and Joseph Dodge respectively) and Robert Amory, Deputy Director Intelligence, CIA, casts interesting light on the way thinking was evolving. Among other things a serious divergence of views emerged and an uncertainty about the benefits of the embargo and how it could be justified at its then existing level. Both the review and the background paper accompanying it noted that export controls had only had marginal impact on the Soviet Union and China. "These controls have not... prevented the substantial economic development or military build-up of the Communist bloc."19 This was also the case with the weaker communist power, China, where the maintenance of the China differential had increased the costs of obtaining materials but had not prevented their acquisition. Thus the damage was in terms of "delays" and "costs" and short-term production bottlenecks. But, interestingly, as soon as the embargo"s effectiveness in achieving its original objectives was questioned, Americans were quick to switch to others. For example, the background paper noted that the export controls "continue to serve as an impediment to general international acceptance and prestige of the Chinese communist regime."20 Another readjustment was evident in a letter from Dodge to Amory. With the advent of Khrushchev as leader of the Soviet Union more emphasis had been given by the Soviets to peaceful trade. In particular, the Soviets wanted to expand the import of consumer goods. This was obviously attractive to the West Europeans and seemed to be compatible with trading in non-military items. However, Dodge, in a clear formulation of fungibility, pointed out the dangers of expanding trade even in consumer goods. Given the Soviet emphasis in their domestic economy for expanding heavy industrial production the prospective expansion of trade in consumer goods "becomes a...obvious replacement of the domestic resources diverted from consumption to war purposes".21 Amory took Dodge"s point, but noted that as, in the previous year, the Soviet output of machine tools had been 90,000 and that of the US 70,000, "it is hard to see how any control program can seriously impair the Soviet regime".22 Neither Dodge, nor Amory nor the arguments in the review had the final or definitive say on these matters. At the end of March a very different judgement on the effects of controls on China was made, which suggested that the maintenance of controls could "ultimately lead to disintegration" there. The Deputy Secretary for Defense for International Security, Vice Admiral A.C.Davies, thought that Amory"s conclusion that controls could not be made effective had "no basis in logic" and that "any delay in Soviet industrial expansion is important and valuable to US security";23 this was the position of the Defense Department as a whole. So the policy issue was not yet resolved, but what this brief detour into 1955 discloses is that doubts, serious doubts, were arising in the USA about the economic and strategic effectiveness of the embargo, and this eventually shifted its justification to a more political, psychological and symbolic basis. Secondly, the willingness to introduce fungibility, while logically pertinent, also seems to indicate a desire to rationalise the continuation of the embargo, even in the face of evidence that the relative gain expected from it had not materialised. This suggests that other motives were involved to do with moral and ideological antipathy towards communism. Of course, just how much these interplayed with officials" fears of retribution from political and public opinion if the embargo were weakened is difficult to a.s.sess. But, it is hardly surprising that members of the Administration should reflect the visceral hatred of communism present among members of Congress and the general public and insist for those reasons that the stringent embargo be upheld.

Reviewing policy and accepting change 19534.

When Eisenhower came to power severe difficulties confronted the West. The war in Korea continued and provided a sound argument for the continuation of both the complete US embargo against China and Korea and the China differential in the COCOM controls. Only slightly less draconian controls restricted US trade with the Soviet bloc, though Western Europe traded much more freely with the bloc in commercial goods. America"s allies had reservations about the severity of the embargo programme, but Britain, for example, was still prepared to continue with stringent controls while the Korean War lasted. When Foreign Secretary Eden visited the USA, 47 March, he and Dulles talked of the problem of trade with China, and Eden agreed to a public statement, which explained the measures Britain had taken to curtail strategic exports. Also, Eden was sympathetic towards keeping in step with the USA and towards introducing more effective transhipment controls. By early February, after Eden"s report to the Cabinet on his trip to Washington, the British government decided to introduce such controls if the rest of COCOM did.24 However, the problem that was uppermost in everybody"s mind was embargo policy after Korea.

The Americans knew that after the war there would be strong pressure from Europe to relax controls not only regarding China, but the Soviet bloc as well. How the USA should react to that was a major issue. It was made even more important because in 1953 there was difficulty with Western unity. Plans for improving European defence, and for utilising German military capabilities, in the form of the European Defence Community that had been proposed by France, had run into serious difficulties, and there were to be many recrimina-tions arising because of this.25 They threatened allied unity and made the West vulnerable to Soviet divisive tactics-one of which was the temptation of more trade with the Soviet bloc: the USA took this problem very seriously. There were also problems of allied differences of opinion about Asia, in particular the war in Indochina, and the problem of the Nationalist Chinese. Thus when Prime Minister Churchill, who had returned to power in 1951, proposed a summit meeting with the Soviets, Eisenhower and Dulles staunchly resisted for fear that the Soviets would exploit Western disunity.26 The Americans held to this even though the death of Stalin on 5 March 1953 seemed to many to present a useful opening for improving relations. However, it also created yet another uncertainty about how the Cold War might now develop. The Americans would not agree to an East-West summit until the defence structure for Europe and the problem of German rearmament had been solved, otherwise the West would have been just too vulnerable.27 Thus the problem of allied unity was a major factor in US a.s.sessment of how embargo policy should develop in the future.

The sixth report on NSC 104/2 19 January 1953, effectively a progress report on the embargo policy, indicated US intentions of seeking tighter controls across the board, upgrading list 2 items to list 1, implementing the controls more effectively by introducing transhipment and transit controls, reducing the quotas for list 2 items, and reducing reliance on Soviet trade.28 This was at a time when the USA had a complete embargo in operation against China and North Korea and an embargo of all goods defined as strategic to the Soviet bloc. Commerce also had "administrative discretion to limit approvals of non-strategic goods", which, in fact, was used to refuse shipment of goods that could make "a significant contribution to Soviet war potential". In actual licensing practice, virtually no US exports to the European Soviet bloc were approved, because of the way the Commerce Department used its discretion. It is against this picture of US embargo policy that the changes proposed by the Eisenhower Administration in NSC 152/2 must be measured.

One consequence of the large US national embargo lists was that they included more than the multilateral COCOM lists that determined the embargo operated by its European allies. This disadvantaged US companies. The COCOM list fell short of the US embargo list by 25 out of 285 items and by 168 out of 253 in the controlled list. In order to try to close the gap the USA had applied "on a limited scale...unilateral pressure on other countries to achieve the objectives of the control program".29 This had resulted in adverse reactions among allies, particularly to the retrospective effects of the Battle Act with its lists of goods that US allies in receipt of Mutual Defense Aid were prohibited from exporting. The report recommended a "package exemption" from the Battle Act for trade commitments entered into before the act became law, because "Further negotiations on this subject can only weaken our position generally in COCOM negotiations and prevent us from pressing other important matters."30 The Americans did not want to endanger the degree of allied co-operation achieved in this field by pursuing their ideal objectives too vigorously. The problems that arose because of the discrepancy between the US and COCOM lists and the threat to allied unity, already precarious because of the EDC, were the two main issues that drove the Americans towards a moderate relaxation of controls.

When the NSC met on 18 March to hear a summary of the report from Harold Sta.s.sen, the new Director for Mutual Security and head of the Foreign Operations Agency (FOA, later renamed the Mutual Security Agency), it had in the background the various factors discussed above. It did not take long for Eisenhower to move them into the foreground. He declared that he "could not agree with the general philosophy underlying NSC 104/2... It would be impossible to win any war with such severe restrictions placed on our allies." Given the small amounts of trade involved, he could not see "any great importance or significance" to it, and in any case Sta.s.sen had overlooked the key question, "which side was benefitting [sic] most from East-West trade-the free world or the Soviet bloc?" A further tightening of the international controls would involve costs to the USA because of its need to replace materials denied to Europe from the Soviets, and existing restrictions on trade were already adversely affecting West European recovery. "We cannot permit our national policies to lower the standard of living still further if we want to keep these nations on our side in the struggle with the Soviet Union." Sta.s.sen responded that there was general consensus among the allies that they were enjoying relative gains from the trade with the Soviets. He also added, at the end of a debate prompted by the President"s claim that it no longer made sense to distinguish between strategic and non-strategic goods, that by denying the Soviets certain items "it was certainly possible to delay the Soviet build-up for war". Secretary of Defense Wilson and Sinclair Weeks, the Secretary of Commerce, both made it clear that they supported Sta.s.sen"s views and in fact went further than he in questioning the wisdom of the President"s position. The meeting ended with the adoption of a suggestion from Under Secretary of State Bedell Smith that senior NSC staff should investigate matters further. This was pa.s.sed to the NSC Planning Board and representatives of the Commerce Department with a note that the President thought that the basic question was about who benefited most from the embargo.31 At least lip-service was still given to the original idea that the West should have relative economic and strategic gains from the embargo.

The report from the NSC Planning Board, which was drafted by the Economic Defense Advisory Committee (EDAC) of the FOA, came without specific recommendations, but some of the alternatives were presented as less problematical than others. Part of the difficulty was the inscrutability of embargo policy. It did not lend itself to easy answers because it was very difficult to calculate likely costs and benefits. These problems, time and again, plagued National Intelligence Estimates in this area.32 With such patent indeterminacy, it was unsurprising that bureaucrats had difficulty in settling this controversial matter with a firm recommendation. The alternatives offered were: status quo; abandonment; expansion and intensification of application; and contraction, with the embargo restricted to items of "major importance to Soviet war poten-tial".33 The more detailed suggestions for option four meant in effect that the USA should relax its embargo to the level existing in COCOM, even to the extent of trading with China in non-strategic items. When the NSC met to discuss the proposals on 4 June, Sta.s.sen"s preference immediately became clear and seemed to represent something of a shift since the meeting of 18 March. He was now clearly in favour of moderating the severity of the US embargo, largely because of the way that this would ease relations with America"s allies.

Sta.s.sen opened the discussion by saying that, "this was basically a question of how to deal with our friends, since the Soviets were obviously using East-West trade as a means of dividing us from our allies."34 This was a serious point, given the existing disarray in the Western alliance because of difficulties with the EDC and policies for south-east Asia and Taiwan. Secretary of State Dulles was also clearly in favour of a moderate relaxation of US policy, though, like everyone else present, he thought that there should be no change regarding China, at least not until after the end of the Korean War. The remarkable thing about Dulles" contribution to the debate was that he appeared to view existing trade controls on non-military items as bargaining chips to be negotiated away for "maximum diplomatic benefit". This rather pragmatic approach was also evident in his remarks about the problem of controlling allied levels of trade. He had an exaggerated view about the way the USA had manipulated the aid issue to persuade allies to adopt strict embargo policies, but the net effect on his thinking of that view, and of the knowledge that US aid to Europe was now contracting dramatically, was the belief that America was de facto losing its means of controlling its allies" trade policies. Therefore, as its aid and influence diminished the USA should gracefully condone more European trade with the Soviet bloc. The President"s only contribution was to repeat the fundamental goal that the West should achieve relative gains through East-West trade. However, the reasoning of the most vocal supporters of a more liberal policy, Sta.s.sen and Dulles, was directed at reducing friction with the allies, nullifying the Soviet strategy of exacerbating Western divisions through the expansion of trade, and facilitating tactical moves that would gain the West diplomatic bargaining advantages.

Secretary Dulles thought that our policy toward China and Europe were two different things. On China he believed we should keep our economic embargo, since it appeared to be causing the Communist Chinese economic suffering and might be one reason why they wanted an armistice. On the other hand, if we get an armistice, Secretary Dulles said "all h.e.l.l will break loose." We must, therefore, keep some pressures on for the political negotiations. We have very few such pressures, and holding back trade would be one we could exert.35 Secretary of the Treasury Humphrey declared that it was impossible to stop East-West trade, and even the Commerce Department representative said that he would go along with the option of contracting the embargo provided that no change of policy came about before the armistice and the Anglo-American-French Bermuda Conference, scheduled for December, in case changes made it appear that the USA was going soft. The NSC therefore asked its Planning Board to prepare recommendations on the basis of no change for China, but a moderate relaxation of controls on trade with the Soviet bloc in line with option four, which it had presented to the Council.

Finally, on 30 July the NSC was ready to make its final decisions about how to change embargo policy. The meeting was notable for two things. The first was that Eisenhower kept repeating that the purpose of expanding trade was to cause divisions within the Soviet bloc and "detach", "win away" the satellites from their Soviet orbit. As a result this objective was incorporated in a general sense into the list of new policy objectives. The second was a lengthy quibble over whether the word "clearly" should be retained to qualify the criterion for embargoing, which stipulated that goods "contribute significantly to the war potential of the Soviet bloc". Admiral Delany of the FOA thought it should remain. Both Dulles, and the National Security Adviser, Robert Cutler supported him. Eisenhower seemed uncertain about what the net effect of retaining or deleting it would be. If deleted it would in fact leave the Commerce Department and the EDAC with more discretion over granting and denying export licences. In the end it was decided to delete the word on the basis of a rather dubious bureaucratic argument presented by Commerce. Some have seen this as an emasculation of any liberalising intent in what was to become NSC 152/2, but it was hardly that. The proposals were always modest in themselves anyway. There was no intention among the members of the NSC, with the exception of Eisenhower, to alter the embargo policy substantially. But, there was now a clear majority in favour of switching "from discouraging to encouraging trade", as Dulles put it. It would have been possible to achieve that modest objective whether or not "clearly" were in the text.

NSC 152/2, read as it is written, certainly conveys the sense, that change was intended and that the USA should move towards closing the gap with the position agreed multilaterally in COCOM. Much would depend on whether or not the relevant agencies would carry out the spirit of this new dispensation. Only in the light of that could a proper evaluation be made of whether NSC 152/2 really did represent a genuine and effective change of policy. However, that a.n.a.lysis is not possible, because NSC 152/2 was overtaken by events: first of all by the Korean Armistice, secondly by the demands for greater liberalisation from the European allies, and thirdly by a change in Soviet trade policies, which made some Americans think again about the wisdom of liberalisation. In the light of these considerations we can see that judgement about what NSC 152/2 actually meant is not easy. The interpretation taken here is that it was a significant change of direction, and that was what the NSC intended. It was largely the result of fear of getting too much out of line with the European allies. Once that was acknowledged as a factor and change was deemed to be necessary, then Dulles began to evaluate possible benefits in using reductions in controls as bargaining chips in the broader diplomatic game. By the July meeting several members of the NSC, Sta.s.sen, Dulles, Cutler and Humphrey were convinced of the need to achieve modest liberalisation: Eisenhower did not have to express his exasperation with his colleagues on this occasion, and in fact his only contribution, apart from the point he repeatedly made concerning dividing the Soviet bloc, was to add confusion over the import of keeping or deleting the word "clearly".

NSC 152/2 reaffirmed the need to reduce the Soviet and Chinese "relative economic potential for war" and that the embargo should produce clear advantage for the free world. The embargo must be continued for these reasons, but the danger of war had receded, and thus the underlying a.s.sumption now was that "we are faced with a long period of tension short of war".36 Although export controls could not seriously impair the Soviet economy they could in the "short term and in selected areas" r.e.t.a.r.d the "growth of the Soviet war potential". In terms of a definite change of emphasis, the claim that the international controls substantially met US objectives and that the USA needed to cooperate with its allies were the most pertinent.

The system of controls already agreed among the United States and cooperating nations of the free world substantially satisfies our economic defense objectives of r.e.t.a.r.ding the build-up of the Soviet bloc war potential and of strengthening the free world relative to the Soviet bloc.... The princ.i.p.al future emphasis in improvement of the control system should be in the field of implementation and enforcement. US efforts should be devoted to establishing the control system on a narrower and more flexible basis by tightening the criteria so as to concentrate on commodities and services which contribute significantly to the war potential of the Soviet bloc.... Our economic defense program must be framed and administered with full recognition of the fact that the economic defense system of the free world is part of the larger system of military and political alliances and, like them, depends upon the cooperative efforts of the free nations.37 While there were to be changes towards the Soviet bloc, there was to be no such action on China controls, despite the Korean armistice on 27 July. The NSC had considered US policy and clearly thought that an armistice would not warrant change. "It is important to our national security, as well as to the objective of obtaining an acceptable settlement in Korea, that political and economic pressures against communist China be developed and maintained during the immediate post-armistice period, and that expected opposition of our major allies to such pressures be overcome." In order to achieve this there should be a "high-level diplomatic campaign to persuade our allies to accept US courses of action" and "an inventory of economic measures" that could be taken "to induce our allies to accept US courses of action".38 It was only after some heated debate that pressures from the State Department and Sta.s.sen managed to get the NSC to agree to a policy of trying to persuade allies not to weaken controls rather than seeking to get them further tightened; interestingly, as we shall see later, this modification was against the wishes of the President.39 Dulles and the members of the NSC in general were, among other things, too aware of the need to use western bargaining chips effectively to move on the China embargo at a time like this. Thus NSC 152/2 exempted China and North Korea from the new-look embargo policy, the aims of which were set out concisely in five sections: a To control selectively exports of commodities and supply of services from the free world which contribute significantly to the war potential of the Soviet bloc, b To obtain the maximum net security advantages for the free world from economic intercourse which takes place between the free world and the Soviet bloc, c To decrease the reliance of the free world countries on trade with the Soviet bloc. d To increase the political and economic unity of the free world, e To decrease, through skilful flexibility in applying controls, the political and economic unity of the Soviet bloc.40.

The flavour of this was more than just a new look without substance, but it was not a radical departure from the Truman Administration"s policy. The China controls remained intact, but the controls on the Soviet bloc were now set for a "gradual and moderate relaxation", and this was a change of direction. More emphasis was given to coming into line with the European allies and increasing trade in non-war materials. The USA was also moving because of a sense of prudence: it knew that the Europeans would demand relaxation of controls once the Korean War had ended, and that their arguments for doing so would be difficult to answer. It was also conscious that its inducements to make allies follow US desires would be reduced as the US level of aid to Europe fell away to insignificant levels. Better to move now rather than appear to be coerced. What the Americans did not count on was the vehemence with which their allies called for radical relaxation, which made their modest attempts at liberalisation look inadequate: nor did the USA expect Soviet policies to change in a way that would make the USA, but not the Western allies, once again question the wisdom of export control liberalisation.

On 7 August Eisenhower appointed a Commission under Clarence Randall to review American foreign economic policy and make recommendations. Its brief included East-West trade. The work of the Commission and its liaison with the Congress disclosed the continuing strength of feeling against relaxing the embargo, but in the end its recommendation for moderate liberalisation was accepted. Also, in December 1954, as a result of its findings, the President established the Committee on Foreign Economic Policy, which was chaired initially by Joseph Dodge and later by Randall. It spent most of the rest of the decade constantly reviewing the problem of East-West trade and, once Randall took over from Dodge, it generally pressed for moderate liberalisation. While the Randall Commission"s input into policy lay some way in the future, the EDAC and the Advisory Committee on Export Policy of the Commerce Department began to review the embargo lists in the light of the new policy embodied in NSC 152/2. That was still in progress when copies of the new policy were distributed to US emba.s.sies abroad and when, in September, the US emba.s.sy in London was asked to disclose the new policy to the British. The explanation of US policy was largely faithful to the literal wording of NSC 152/2. However, since the summer, concern had continued to grow in the USA about Soviet trade strategy. That concern, which had tinged the new US policy with caution in July, now became substantially stronger.

In November, during talks between Lincoln Gordon, Minister for Economic Affairs at the US Emba.s.sy in London, and Foreign Office officials it became clear very quickly that little progress could be made, as the British were also in the process of reviewing embargo policy. Gordon explained NSC 152/2 did not envisage "a wholesale downgrading program". Some items would be removed from the list or downgraded, and there would be a change of emphasis and direction. He also made clear growing American apprehension about the motives underpinning Soviet trade policy and sounded a note of caution. Changes in Soviet trade tactics had been noted in NSC 152/2, but there was now the observation that "trade is playing an increasing role in Soviet strategy". The Americans wanted "Full multilateral consideration...[of] problems and shifts in Soviet trade tactics which affect the movement of strategic goods to the Soviet Bloc". While the Americans were becoming increasingly concerned about the motives and intent of the Soviet desire for more trade with the West, the British interpreted things differently. They made it clear that a "substantially curtailed list" would be more appropriate for the long-haul strategy, and that political and economic reasons made it necessary to explore this route. Furthermore, Gordon was told: "The UK does not feel that the recent changes in trading patterns and tactics by the Russians are to be viewed primarily as a tactic in the Cold War, but are rather inclined to view them as primarily reflecting a Soviet desire for trade motivated by internal economic and political factors."41 This divergence in the interpretation of Soviet trade policy created a serious gulf between Britain, other West European countries and j.a.pan on the one hand, and the USA on the other.

There now followed a crucial development in the Western embargo programme, the net result of which was a near 50-per-cent cut in the international embargo lists and a tightening up on COCOM enforcement measures. In the USA there were also substantial changes to America"s own national embargo lists. The process by which this came about is important because it discloses how America"s allies managed to change the actual substance of America"s own embargo policy, but, more importantly, the change in embargo policy brought a recasting of the way the Americans thought about its objectives and the reasoning that continued to justify them.

In one sense things in London were no different from those in Washington: a division of opinion existed as to what should be done about the embargo. Foreign Secretary Eden was well disposed to the policy set out in NSC 152/2,42 and firmly opposed to getting out of step with the Americans. When Peter Thorneycroft, the President of the Board of Trade, sought a radical curtailment of the strategic embargo by drawing up a short list and abandoning both COCOM"s quant.i.tative control and the watch list, Eden opposed him, with the support of the Ministry of Defence and the Chiefs of Staff. Nevertheless, on 17 November, the Cabinet decided to proceed with the short list and, more in hope of gaining bargaining power than full acceptance by the Americans, authorised its submission to the US Emba.s.sy in London for preliminary consideration.43 Not unexpectedly, as US Amba.s.sador Winthrop Aldrich informed the British Government, the US reaction was one of "profound concern" at the "serious divergence" in British and American policies.44 This was the very thing that the Foreign Office had feared and had been determined to prevent: it did not want "the situation go too far...we are well aware of the serious dangers of a political dispute which it contains."45 While the makings of a difficult period of negotiation had emerged, and while there was profound concern in some quarters in the USA at the short list proposal, it also has to be said that Clarence Randall and his Commission had come down in favour of a further relaxing of controls,46 that Eisenhower was not unduly troubled by the British proposal, Secretary Humphrey was sceptical about being able to sustain severe controls, and even Harold Sta.s.sen was prepared to talk things through in an attempt to find a compromise solution. In fact, the existence of divided opinion on both sides of the Atlantic was eventually to facilitate a compromise, but in early December things looked bleak for allied unity. Yet another divisive issue had arisen.

At the Anglo-French-American summit meeting at Bermuda in early December 1953 the Western leaders sought to iron out differences and difficulties in the alliance. The EDC problem was the main stumbling block, but there was also some talk about the embargo, in particular regarding China. Churchill explained to Eisenhower that trade for Britain "was necessary to keep their nose above water".47 Churchill was in fact a strong advocate of opening up trade with the communists, and soon after returning to Britain he took a decisive step in the conflict over future embargo policy between the economic ministries, on the one hand, and the Foreign Office and the defence establishment on the other.

In Cabinet on 18 January 1954 Churchill, knowing that there was some division of opinion in Washington, and favouring liberalisation of export controls himself, decided to end the controversy that had developed in Whitehall and side with Thorneycroft. He argued that: increased trade with the Soviet bloc would mean, not only a.s.sistance to our exports, but greater possibilities for infiltration behind the Iron Curtain. Determined efforts should be made to persuade the United States Government to accept a new policy on this matter. The policy which he suggested was that we should in future deny the Soviet bloc only goods of direct military value, and should no longer seek to prevent the export of goods which would help merely to strengthen their industrial economy. He considered that the existing lists should be at once reviewed on that basis.48 This sounds like NSC 152/2, but in fact the different interpretations placed upon their respective guidelines meant that the British wanted to reduce the embargo lists far more than the Americans.

Churchill outmanoeuvred the Foreign Office. He chaired the Cabinet committee set up to deal with the problems that arose regarding what should and what should not be deleted from the embargo lists, and thus the Board of Trade got most of what it wanted. There were some compromises because of arguments from the Minister of Defence, Lord Alexander, and the criteria for selecting items for embargo was stretched to include those of "significant indirect military importance". Nevertheless, even this compromise version of the short list meant reducing the COCOM lists from 263 to 134 items.49 The Cabinet decided that this should be put to the Americans for discussion. On 25 February, just over a week after the Cabinet meeting and before the British list had been given to the Americans, Churchill, to the embarra.s.sment of the Foreign Office and the consternation of the Americans, attempted to influence the outcome of the Anglo-American review of embargo policy by stating in the House of Commons that a "substantial relaxation would undoubtedly be beneficial in its proper setting". This should include prudence about military items, but also recognition that circ.u.mstances had changed since controls were inst.i.tuted. He said that Britain was reviewing the situation and would discuss things with its American friends.50 On 1 March the British proposals were handed to the Americans. They were discussed in the NSC ten days later. In that meeting the overwhelming majority of the NSC was vehemently against accepting the British proposals, with only Humphrey and the President critical of the current embargo policy. But, while the President displayed "great impatience and exasperation", even he eventually concluded that "at the present moment...for tactical reasons, we could not agree with the British proposals".51 An irony that ran through the meeting, which contributed to the President"s exasperation, was the fact that intelligence reports summarised by CIA Director Allen Dulles and the opinion of the Defense Department, expressed by Secretary Wilson, both indicated that "a relaxation of controls even on so drastic a scale as the British were proposing, would result in only a limited amount of additional trade between Eastern and Western Europe". Relaxing trade would not, according to intelligence estimates, produce substantial advantages for the West, but neither would the effect of "relaxation on the Soviet economy...be very significant except in a certain limited number of key strategic items. In the latter case, ability to purchase these items would break certain bottlenecks in the development of the Soviet war potential."52 Clearly this latter point was not without importance, but was its significance such as to warrant a major rift with allies? And to what extent was British policy different to American policy under NSC 152/2?

At the outset of the meeting Cutler explained that the "essence of the difference between the US and British positions with respect to items which should be subject to export control, was the US view that a number of strategic items should be subject to control when they contributed indirectly to Soviet war potential, even though such items were not themselves actual munitions of war".53 But the British, under pressure from their own defence people, had added back into their short list items of "significant indirect military importance". So the problem amounted to different judgements as to what fell into that cate-gory-not, one would have thought, a matter to cause such consternation among the Americans. But, there was more to it than that. The problem was that US policy-makers took a number of other factors into account, which inclined them sharply away from wanting to reduce list 1 by 50 per cent and abolish the other two lists, which is what the British had called for. Those Americans who opposed did so not just because of a difference with the British as to what was of indirect military value to the Soviets; there was a whole catalogue of other reasons. They were suspicious of the new Soviet trade strategy. They feared congressional criticism and believed that opening up trade with the Soviets would result in large transhipments to the Chinese. They thought that reducing the embargo before the Geneva Conference and a settlement of the Korean and Indochina wars would weaken the West"s negotiating hand. They felt a need to adopt a more aggressive stance towards China than the other Western powers in order to set an example, and they were worried that a reduction in the embargo list, even if it were restricted to the Soviet bloc, would send the wrong message and would be a preliminary to a relaxation of controls on China trade once the Korean and Indochina wars were out of the way. Therefore, for political, as much as economic and strictly military-strategic reasons, acceptance of a radical relaxation was not tolerable.

Regarding the new Soviet trading strategy, Sta.s.sen turned the argument that expanding trade would yield relative gains for the West on its head. He pointed out that the actual resources of the Soviets to expand trade were limited; thus, if the West made more items available, "they would use their restricted resources to select and purchase...precisely what they most needed to develop their war potential". There would not be much expansion of trade overall, and therefore "very little net advantage to the free world."54 Vice President Nixon explained the danger of a chain reaction against acceptance of the British proposals that would unite the congressional critics of East-West trade with anti-British and anti-UN elements. Such a coalition would be powerful, and that eventuality must be avoided-if necessary, argued Nixon, by making concessions to Britain in other policy areas. Allen Dulles made the running on the China perspective, arguing that opening up trade with the Soviets would automatically mean more Western exports finding their way to China. This would ameliorate the effects of the present embargo, which he said was "severely punishing that country and throwing the whole Chinese economy back on the Russians for support".55 This seemed to be something of an exaggeration compared with other views of what the embargo was achieving, and a mischievous mind in the NSC might have pointed out the lack of wisdom in forcing the two great communist powers together like this. Such mischievousness was not in evidence; instead Dulles was strongly backed up by Admiral Radford, Chairman of the Joint Chiefs of Staff. Eisenhower remained unimpressed by their arguments, and this is not surprising given that his natural inclination was to open up trade and that the arguments for strict controls were shot through with contradictions: relaxation would not produce much more trade, but it was alleged that the effects of the relaxation would be significant increases in the build-up of the Soviet war potential and an important increase in transhipments to the Chinese! For Eisenhower, the point that clinched the argument against relaxing controls on the scale suggested by the British was made first by Acting Secretary of State Bedell Smith. After expressing moderate support for liberalisation in the past, Smith now opposed the British proposals because he thought that they would give valuable strategic items to the Soviets and would cause uproar in the Congress. These points had some, but not great purchase on Eisenhower. More important was Smith"s argument about tactics: he argued that relaxing controls before the Geneva Conference would throw away an important Western bargaining chip. Arguments in favour of rejecting the British proposals were also made by Weeks and Admiral Delany. Only Humphrey supported the President"s line and indicated some scepticism about the wisdom of trying to hold back the "Niagara Falls" of trade. Eisenhower thought: "If you hope to preserve the free world as an effective unit against the Soviet bloc, you simply can not stifle the trade of the free world."56 He thought it was necessary to look at the problem again from a long-term perspective, and he had iterated time and again, in this and other meetings, the need to avoid disruptive arguments with allies. Nevertheless, for the time being, he agreed that for tactical reasons they could not go along with the British. He accepted a suggestion from the NSC Planning Board that he should write directly to Churchill about the matter and press for a compromise. And, for all the criticism and strong feelings expressed in the meeting, it is important to note that that is what the USA decided to seek: a compromise. In Smith"s words, a cut of 2025 per cent in the lists instead of the 50 per cent proposed by the British.

On 19 March Eisenhower wrote to Churchill in as an accommodating a way as possible under the circ.u.mstances, indicating a willingness to move towards the British position, but not so far or so quickly as Britain wanted: "To do so would be, I think, to go beyond what is immediately safe or in the common interest of the free world."57 On 24 March, after discussion in Cabinet, Churchill replied to the President, elaborating on the delightfully school-boyish cloak-and-dagger argument concerning infiltration of the Communist bloc that he had mentioned in Cabinet on 18 January, and only adding an economic perspective as a secondary, though important, factor. We have to feed, he told the President, over fifty million people "on these small islands". Eisenhower repeated in turn that the British seemed to want to go "a bit further than seems wise or necessary": he hoped that Harold Sta.s.sen, who had been dispatched to discuss matters with the British in London, might be able to sort things out.58 The Americans knew of the rift between Eden and Churchill over this matter and hoped that they might exploit that in working towards a compromise. In talks with the British, which culminated in a session at Chequers, the Prime Minister"s official country residence, Sta.s.sen was probably not surprised to discover that Eden had been carefully excluded from the talks. But, Sta.s.sen still had room to manoeuvre. It was not just the Americans who feared divisions among the allies: the British needed the Americans more than they needed the British. Perhaps not so much so in the realm of embargo policy, but of course that could not be treated in pure isolation. At Chequers Sta.s.sen emphasised the need to avoid a public dispute between Britain and the USA in COCOM and the serious implications that might have for the broader Anglo-American sphere of co-operation. This registered with both Churchill and Thorneycroft.59 Also, although Eden had been excluded from the formal talks he continued to work on the sidelines to promote a compromise.60 The result of this was progress towards a solution. Thorneycroft agreed to drop the idea of a single short list: there should continue to be an embargo, a quant.i.tative control and a watch list, but all substantially pared down with a stricter notion about the contribution of non-military items to

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