Us Economic Statecraft for Survival, 1933-1991: Of Sanctions, Embargoes and Economic Warfare 0415281849, 9780415281843

Table of contents :
Book Cover
Half-Title
Title
Dedication
Copyright
Contents
Acknowledgements
List of Abbreviations
1 Economic statecraft
2 The Practice: Economic Statecraft and US Foreign Policy
3 Transforming Policy: From Peace to War 1933-42
4 The Demise of Neutrality and the Development of Economic Instruments of Coercion
5 The Truman Administration and the Development of Strategic Embargo Policy
6 Eisenhower: Problems with Colleagues and Problems with Allies
7 Thinking about Change: The Kennedy and Johnson Administrations
8 Economics becomed High Politics: Constructing the Base and Building up Détente, 1969—74
9 Ford and Carter: The Decline of Détente and the Approach of the Second Cold War 1974—9
10 Through the Second Gold War to Liberation
11 Economic Statecraft: Theoretical Considerations
12 Concluding Thoughts
Notes
Primary Sources and Bibliography
Index

Citation preview

US Economic Statecraft for Survival 1933–1991 How have US economic defence policies promoted the United States’ security since 1933? US Economic Statecraft for Survival 1933–1991 concentrates on an important and neglected facet of America’s fight for survival in the latter half of the twentieth century. It explains how US policy-makers crafted and used instruments of economic statecraft against states that posed vital threats to the survival of the USA. This study situates economic defence policy within the broad context of US foreign policy and explores its response to the totalitarianism of the 1930s, the Second World War and the complex strategic and political developments of the Cold War. Dobson charts an extraordinary change in US policy, from its defence of neutral rights to trade in wartime to its denial of trade to prospective enemies in peacetime. From his explanation of how it developed and evolved over the years there emerges a new perspective. This study emphasises the importance that economic instruments of statecraft have for symbolic, communication and political bargaining objectives. Economic instruments of statecraft are more important for what they say than what they do in an instrumental sense. Without being aware of these factors it is not possible to give a credible account of much of US economic statecraft in the post-war period. This book reassesses the nature and character of economic instruments of statecraft in the light of the detailed narrative of, and findings about, US policy from 1933 to 1991. Among other things, it raises difficulties about how to assess the effectiveness of such instruments of statecraft, once it is appreciated that assessment by purely objective economic criteria is inappropriate. It includes details of US economic actions against Japan, Nazi Germany and the Soviet Union. Alan P.Dobson teaches US government and foreign policy and has published extensively on Anglo-American relations, US foreign policy and international aviation. He was a senior research fellow at the Norwegian Nobel Institute in 1997, and since 1999 he has been Professor of Politics at the University of Dundee, from where he will launch The Journal of Transatlantic Studies. He is currently working on the single European aviation market and, in collaboration with Dr Steve Marsh, on Anglo-American summitry since 1941.

Routledge Advances in International Relations and Global Politics 1 Foreign Policy and Discourse Analysis France, Britain and Europe Henrik Larsen 2 Agency, Structure and International Politics From Ontology to Empirical Enquiry Gil Friedman and Harvey Starr 3 The Political Economy of Regional Co-operation in the Middle East Ali Carkoglu, Mine Eder, Kemal Kirisci 4 Peace Maintenance The Evolution of International Political Authority Jarat Chopra 5 International Relations and Historical Sociology Breaking Down Boundaries Stephen Hobden 6 Equivalence in Comparative Politics Edited by Jan W.van Deth 7 The Politics of Central Banks Robert Elgie and Helen Thompson 8 Politics and Globalisation Knowledge, Ethics and Agency Martin Shaw 9 History and International Relations Thomas W.Smith 10 Idealism and Realism in International Relations Robert M.A.Crawford 11 National and International Conflicts, 1945–1995 New Empirical and Theoretical Approaches

Frank Pfetsch and Christoph Rohloff 12 Party Systems and Voter Alignments Revisited Edited by Lauri Karvonen and Stein Kuhnle 13 Ethics, Justice and International Relations Constructing an International Community Peter Sutch 14 Capturing Globalization Edited by James H.Mittelman and Norani Othman 15 Uncertain Europe Building a New European Security Order? Edited by Martin A.Smith and Graham Timmins 16 Power, Postcolonialism and International Relations Reading Race, Gender and Class Edited by Geeta Chowdhry and Sheila Nair 17 Constituting Human Rights Global Civil Society and the Society of Democratic States Mervyn Frost 18 US Economic Statecraft for Survival 1933–1991 Of Sanctions, Embargoes and Economic Warfare Alan P.Dobson 19 The EU and NATO Enlargement Richard McAllister and Roland Dannreuther 20 Spatializing International Politics Analysing NGOs Use of the Internet Jayne Rogers

US Economic Statecraft for Survival 1933–1991 Of sanctions, embargoes and economic warfare

Alan P.Dobson

London and New York

In memory of Eric and Emma

And dedicated to Sue; Steve; Helen, Gary, Max and Jessica; Tom; and Cathy

First published 2002 by Routledge 11 New Fetter Lane, London EC4P 4EE Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 Routledge is an imprint of the Taylor & Francis Group This edition published in the Taylor & Francis e-Library, 2005. “To purchase your own copy of this or any of Taylor & Francis or Routledges’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” © 2002 Alan P.Dobson All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Dobson, Alan P. US Economic Statecraft for Survival, 1933–1991: of sanctions, embargoes, and economic warfare/Alan P.Dobson. 1. United States—Commercial Policy—History—20th century. 2. Economic sanctions, American—History—20th century. 3. Embargo— History—20th century. 4. Foreign trade regulation—United States. 5. United States—Foreign economic relations—History—20th century. 1. Title: US Economic Statecraft for Survival, 1933–1991. II. Series. HF1455 .D63 2002 337.73–dc21 2001058590 ISBN 0-203-40206-5 Master e-book ISBN

ISBN 0-203-41052-1 (Adobe eReader Format) ISBN 0-415-28184-9 (Print Edition)

Contents

Acknowledgements List of abbreviations 1 2 3 4 5 6 7 8 9 10 11 12

Economic statecraft The practice: economic statecraft and US foreign policy Transforming policy: from peace to war 1933–42 The demise of neutrality and the development of economic instruments of coercion The Truman Administration and the development of strategic embargo policy Eisenhower: problems with colleagues and problems with allies Thinking about change: the Kennedy and Johnson Administrations Economics becomes high politics: constructing the base and building up détente, 1969–74 Ford and Carter: the decline of détente and the approach of the second Cold War 1974–9 Through the second Cold War to liberation Economic statecraft: theoretical considerations Concluding thoughts Notes Primary sources and bibliography Index

viii ix 1 10 29 48 77 104 137 167 198 230 260 281 285 342 354

Acknowledgements This book has been a long time in coming. When I started research back in 1990, I was a lecturer in the Department of Political Theory and Government at the University of Wales, Swansea. In 1994–5, I had sabbatical leave, which allowed me to complete two other projects, and also move this one forward. In 1997 I enjoyed a Senior Research Fellowship in Oslo funded by the Norwegian Nobel Institute, which enabled me to write Chapters 5 and 6. In 1999 I received an Arts and Humanities Research Board Sabbatical Scheme Award, which gave me six months of leave funded jointly by the AHRB and the University of Dundee. This allowed me to complete the first full draft of the book. Along the way I also had grants from the British Academy, the Harry S.Truman Library and Foundation, and the Franklin D.Roosevelt Library and Foundation. Without these awards I could not have written what follows. It is also important to register my gratitude for the support and faith in me of my publisher, Routledge/Taylor & Francis. Throughout they have been patient and understanding, as one deadline superseded another. They have received two other books from me since the signing of the contract for this (one of which was not foreseen in 1990), but, nevertheless, their patience has been much appreciated. Chapters, or the whole manuscript, have been read by friends: Steve Marsh, Tom Zeiler, Saki Dockrill, Ian Jackson, Norrie MacQueen, and, last but by no means least, my long-standing intellectual mentor Charles Reynolds, who commented extensively on Chapter 11. Two anonymous readers for Routledge/Taylor & Francis also deserve a mention for their constructive and painstaking comments, which helped to improve the manuscript in its final editing. The help I received was always constructive and to the point; the flaws that remain are my responsibility, and mine alone. The 1990s was a busy decade for me, and writing was not always easy. Respite and sustenance from friends and family kept me sane at moments of desperation when continuing the explanation seemed beyond my grasp. Most of all, thanks go to Bev and our girls, Naomi, Jessica and Becky for their love and support, and good fun. Alan Dobson Dundee August 2001

Abbreviations ABM

Anti-Ballistic Missile

AEC

Atomic Energy Commission

AFL-CIO

American Federation of Labor-Congress of Industrial Organizations

BEW

Board of Economic Warfare

CAP

Common Agricultural Policy

Carter Lib.

James E.Carter Library

CF

Central Files

CF

Confidential Files

CFEP

Council on Foreign Economic Policy

CG

Consultative Group

CIA

Central Intelligence Agency

CIEP

Council on International Economic Policy

CIEP-DM

Council on International Economic Policy Decision Memorandum

COCOM

Coordinating Committee

CSCE

Conference on Security and Cooperation in Europe

CWIHP

Cold War International History Project

DDE Lib.

Dwight D.Eisenhower Library

DDR

Deutsche Demokratische Republik (East Germany)

DEFCON

Defence Condition

EAA

Export Administration Act

EC

European Community

ECA

European Cooperation Administration

ECA

Export Control Act

ECRB

Export Control Review Board

EDAC

Economic Defence Advisory Committee

EDC

European Defence Community

EEC

European Economic Community

EFTA

European Free Trade Area

ERP

European Recovery Program

EWFTB

East-West Foreign Trade Board

Eximbank

Export Import Bank

FDR Lib.

Franklin D.Roosevelt Library

FEA

Foreign Economic Administration

FOA

Foreign Operations Administration

Ford Lib.

Gerald R.Ford Library

FRUS

Foreign Relations of the United States

GAO

General Accounting Office

GATT

General Agreement on Tariffs and Trade

HST Lib.

Harry S.Truman Library

IBRD

International Bank for Reconstruction and Development

ICBM

Inter-Continental Ballistic Missile

IEEPA

International Economic Emergency Powers Act

IMF

International Monetary Fund

ITO

International Trade Organisation

JCS

Joint Chiefs of Staff

JFK Lib.

John F.Kennedy Library

LBJ Lib.

Lyndon B.Johnson Library

LDC

Lesser Developed Country

MDAP

Mutual Defence Assistance Program

MEW

Ministry of Economic Warfare

MFN

Most Favored Nation

MIRV

Multiple Independent Re-entry Vehicle

MIT

Massachusetts Institute of Technology

MNC

Multinational Corporation

NA

National Archives (USA)

NATO

North Atlantic Treaty Organisation

NIEO

New International Economic Order

NME

Non-Market Economies

NSA

National Security Adviser

NSAM

National Security Action Memorandum

NSC

National Security Council

NSDD

National Security Decision Directive

NSDM

National Security Decision Memorandum

NSF

National Security Files

NARB

National Security Resources Board

OECD

Organisation for Economic Cooperation and Development

OEEC

Organisation for European Economic Cooperation

OSS

Office of Strategic Services

OPEC

Organisation of Petroleum Exporting Countries

PD

Presidential Directive

PPS

Policy Planning Staff

PRC

People’s Republic of China

PRO

Public Record Office (London)

PSF

President’s Secretary’s File

SALT

Strategic Arms Limitation Talks

SDI

Strategic Defence Initiative

SLBM

Submarine-Launched Ballistic Missile

START

Strategic Arms Reduction Treaty

TEA

Trade Expansion Act

UK

United Kingdom

UN

United Nations

UNRRA

United Nations Relief and Rehabilitation Agency

US

United States

USA

United States of America

USDA

United States Department of Agriculture

USSR

Union of Soviet Socialist Republics

VE-Day

Victory Europe Day

VJ-Day

Victory Japan Day

WHCF

White House Central Files

WHSF

White House Secretaries’ File

WPB

War Production Board

1 Economic statecraft The strength of a war waged without monetary reserves is as fleeting as a breath. Money is the sinews of battle. François Rabelais, c. 1492–1553

Irony provides an enduring fascination for the historian. It emerged in the early stages of research for the present work, when sanctions and embargoes often appeared more costly for those that sanctioned than for those who were sanctioned. The idea that one state should make another pay for unacceptable behaviour by imposing greater economic costs on itself than those endured by the target state does indeed appear ironic. But, as the investigation into US policies proceeded, it became apparent that this involved more of a semblance of irony than a reality. Once costs and benefits are calculated broadly, and not simply in crude economic terms, the balance between gains and losses shifts. As this study demonstrates, there are important non-economic dimensions to economic statecraft that need to be drawn into the calculation of costs and benefits. The heart of this enquiry is concerned with how the USA crafted policies of economic statecraft that were an integral part of its foreign and strategic policy, geared towards ensuring the survival of the USA in the face of vital threats to its security. The way American officials thought about such policies was partly the outcome of longestablished traditions of practice and styles of policy-making, and partly the result of the contemporary context set by the character of US domestic politics, the international system, and the economic instruments of statecraft available to twentieth-century practitioners. However, these factors alone only set the parameters of the possible, they cannot explain radical changes in American thinking. For example, to explain how the USA moved from defending its traditional neutral rights to trade in wartime to arrive at a position of waging a kind of economic warfare against the Soviet Union in peacetime, the ideas and moral positions of individual policy-makers need to be factored in. Explaining how and why that journey was made is one of the early tasks of this book. However, a more abiding concern and a more important claim is to do with the value US policy-makers ascribed to the ability of economic instruments of statecraft to act as a means of communication: to project symbolic meaning in ways that were vital for the more political and strategic goals of the USA, and to provide a means of bargaining in the broad panoply of diplomatic negotiations. The importance of those qualities and tactics has been seriously underestimated in previous attempts to explain US policy. Understanding the importance of the power of symbolism and communication with which US policy-makers came to imbue economic instruments of statecraft casts new light on important lines of reasoning within the American official mind, and helps to

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explain many of the contours of, and directions taken by, US policies. This, in turn, helps one to understand why the USA continued to shoulder the costs of a wide-ranging strategic embargo during the Cold War, even after most officials came to believe that it was ineffective in terms of slowing down either economic or weapons development in the Soviet Union. It was not, as some were to claim, a case of fossilisation of policy and ‘the inability or refusal to re-evaluate the “optimality” of these policies once the assumptions underlying them proved to be erroneous’.1 While bureaucratic inertia played a part in maintaining the stringency of the US embargo, much more significant were lines of argument to do with the importance of symbolism and communication. These led to positive and conscious decisions to sustain the embargo, even when calculation of economic losses and gains no longer justified it. The assumptions that underpinned the US strategic embargo in the 1940s no longer did so in the 1960s, but new ones did, and they provided the justification in American minds for continuing with an expansive embargo against communist states. It did not become a policy by default. Part of the reason why the importance of symbolism has been so seriously understated in previous works is a strong tendency to look for quantifiable and observable economic results from sanctions, strategic embargos and economic warfare. There is no denying that such instrumental economic effects were looked for by practitioners and often used to justify US policies. However, more commonly, practitioners used instruments of economic statecraft for symbolic or communication reasons, or for bargaining purposes. In a rather crude categorisation, one might say that during 1933–41 the USA looked for a mixture of economic instrumental and symbolic effects from its embargo against Japan. It looked overwhelmingly for economic instrumental effects from its economic warfare during the period 1941–5 and from its early Cold War embargo aimed at the Soviet Union, from 1947 to the early 1960s. Thereafter, in the early 1960s (but beginning in the mid-1950s), the emphasis shifted in Washington, and the USA looked to the symbolic, communication and bargaining aspects of the strategic embargo. Such objectives reached their apogee of importance in the period of détente from 1969 to 1979. Finally, during the Second Cold War, the Reagan Administration was ideologically riven into two factions in a way no previous administration had been on policies of economic statecraft. One faction looked for economic instrumental effects, the other for symbolic and communication effects and advantages for the US bargaining position. For a while, these factions, although they had different motives, were agreed upon a hard-line policy, but beginning in 1983–4 their policy preferences began to diverge. Not only have there been failures to give due prominence to these changing features of US objectives, but a closer look at the way they were pursued casts new light on the kind of lessons that American policy-makers drew from their experiences and provides a sharper perspective on the limitations of US power within the Western Alliance. The lessons drawn from 1933–41 and from 1941–5 were highly influential in US Cold War policies. While economic sanctions failed to deter Japan, economic warfare during 1941– 5 was seen as highly effective. Furthermore, the clearest policy imperative to emerge from the pre-war period was that appeasement did not work and had given the wrong message to the totalitarian regimes. But, while appeasement was now seen as the worst possible kind of folly, and effective communication of US resolve was deemed to be of paramount foreign-policy importance, how was the USA to convey that effectively and

Economic statecraft

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safely to its potential adversaries in a nuclear-perilous world? Especially after the Soviet Union acquired its own nuclear capability, the answer to that was increasingly seen to lie in the use of economic instruments of statecraft, such as sanctions and a strategic embargo. A corollary of US determination to avoid appeasement involved vigorous leadership of the Western Alliance, but the suggestion made by many that this was hegemonic in character is brought into question by a close examination of America’s experience in the field of economic statecraft. While some scholars declare outright that the USA was hegemonic in the Western Alliance, others nuance their interpretation by suggesting that US prudence, made manifest in numerous occasions of self-restraint, disguised the real extent of its hegemonic dominance. Both these views are significantly modified by the present work, which shows that US policy-makers believed that, had the USA tried to flex its muscles more vigorously, the alliance would have suffered serious ruptures, and that American power would have diminished not expanded. Although the idea of hegemony is brought into severe question by these arguments, ironically there were leadership costs that had to be shouldered by the USA of a kind similar to those predicted by hegemony theory.2 The USA, throughout the Cold War, maintained a more extensive national embargo list than that imposed multilaterally by the Western Alliance through the Co-ordinating Committee (COCOM, of which more shortly). The USA maintained a very substantial differential between itself and its allies on trade with the People’s Republic of China (PRC), and always took the lead in imposing sanctions in response to crises such as the Soviet invasion of Afghanistan in 1979. Part of the reason behind all this was a US sense of leadership responsibility. But why did the allies not dutifully follow suit? Was the US inability to achieve such action from its allies a major failing of persuasion? Did the West Europeans and the Japanese cynically free ride and exploit the US leadership dilemma for their own interests? Alternatively, did the allies genuinely disagree with the USA on the best tactics for waging the Cold War and see benefits for overall Western strategy from the USA playing hard-ball and getting the right deterrent message across to the communists, while the Europeans and the Japanese pursued a softer line to seduce the opposition with trade, communications and cultural exchanges? These preliminary observations give some hint of the importance of economic statecraft in general and of US policy in particular, and yet, rather puzzlingly, for many years study in this area was neglected. Rabelais’ view that state power and money were directly related was part of the conventional wisdom of the age of mercantilism, but, beginning in the eighteenth century, the laws of supply and demand seemed to create an independent economic realm, which challenged that conviction. At the very point in history when the industrial revolution began to produce unprecedented wealth and undreamt-of military capabilities, there was a tendency to see economics as separate from the study of political power and strategic relationships. Vestiges of that perception remained influential, well into the latter half of the twentieth century, until the revival of political economy. Economics then rejoined high politics as a focus of study in diplomacy and international relations, and there was thus a return to something not dissimilar to mercantilist perceptions of power and the importance of wealth. In contemporary parlance, such views often find their expression in the language of

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realism.3 As a result of this revival of interest in economic statecraft, there has been a growing scholarly preoccupation both to try to identify the nature of economic power and the manner in which it operates in, or impacts on, the political and strategic domains. There are plenty of works on US foreign policy conceived of primarily in political and strategic terms. By comparison, economic instruments of foreign policy and economic issues as the subject of policy-making are generally only of peripheral or passing concern, or are seen as technically separate from other aspects of foreign policy. Banishment to the periphery and the segregation of the economic from the political and the strategic are regrettable. Deterrence and attempts at deterrence in the 1930s and in the Cold War went deeper and spread broader than can be captured simply by focusing on the purely political and the purely strategic. The political, the strategic and the economic are all inextricably intertwined strands of foreign policy. A brief excursion into the 1930s will demonstrate the pertinence of this judgement. In 1935, with the Western democracies in disarray over how to deal with the threats of militarism and totalitarianism, the Italian fascist dictator Benito Mussolini deemed it an opportune time to embark on a mission. He wanted to recreate the Roman Empire by invading Abyssinia. Britain and France were in a dilemma: they wanted Italy to help balance the threat from Hitler in Europe, but could not countenance the moral outcry against Mussolini’s naked act of aggression. They decided to impose economic sanctions through the League of Nations, but excluded oil from them, which was the one key commodity that would have hit Italy hard. At the same time French Foreign Minister Laval and British Foreign Secretary Hoare sought a compromise deal whereby Italy could have part, but not all, of Abyssinia. In the end both policies failed, and Mussolini seized the whole country. Henry Kissinger has aptly noted the folly of Anglo-French policy, the two countries’ failure of resolve and their inability to convey the right messages to Mussolini. He has also commented: ‘Prime Minister Baldwin [of Britain] was to say somewhat wistfully that any sanctions that were likely to have worked would also have been likely to lead to war. So much, at any rate for the notion that economic sanctions provide an alternative to force in resisting aggression’4 Kissinger was only partly right. If a state is bent on aggression and convinced that its potential enemies cannot withstand its force of arms, then war does indeed seem inevitable. But in the Abyssinian case Baldwin’s timid attitude was not universally subscribed to. Winston Churchill thought ‘Mussolini would never have dared to come to grips with a resolute British Government’.5 Italy could not have prevailed against France and Britain, or either of them separately, but the danger of retribution had to be conveyed effectively. If economic sanctions had been imposed in a different way, had included oil, and had been made to appear as a clear preliminary to the use of force by France and Britain, then the story might have been very different. Economic sanctions might have ‘worked’. But they would not have worked as an instrument of economic statecraft unrelated to other aspects of statecraft. They would have worked as part of a wider strategy that used economic sanctions as a means of conveying a determination to use force as the next step, if that were necessary.6 In other words, much will be conveyed to the target state and to other constituencies by the way sanctions are imposed, upheld and withdrawn, and those messages may often be a vital part of the political and strategic policies of the state imposing them.

Economic statecraft

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Between the Marxist idea of the state in capitalist society and the liberal conception of laissez faire falls the actual role of economics in the life of both the state and the international realm. Economics does not necessarily dictate to politics, but neither is political life immune from economic influences. The liberal conviction that social and political values should not interfere with the economic laws of the marketplace created an unfortunate tendency to approach the study of the ‘high policy’ of states through a preoccupation with political, diplomatic and military matters, to the neglect of economic considerations. This was, of course, with the exception of Marxists, who asserted the truth of their doctrine and consequently that politics was a mere epiphenomenon conjured up by economic realities. Between these two incompatible extremes little intruded for many years, and the result was what is now widely recognised as a neglect of economic statecraft.7 Economic theory may have flourished, but explaining both why economic policies came about and how they interacted with the political and the strategic did not. The key issue here is not so much to do with the abstract complexity of economic theory, but the understanding of it by policy-makers. If one draws the distinction between economic theory, on the one hand, and how politicians understand it on the other, then inhibitions about marrying the political with the economic can fall away even for the semi-numerate, providing that they are not enmeshed in the ideological straightjackets of market liberalism or Marxism. The distinction between economic theory and the understanding of economic policy by decision-makers is one that it is important to draw. And, although this may seen a rather obscure point, it is a highly relevant one, because it helps to differentiate the narrative and analysis contained in this book, which concentrates on explaining specific US practice and understanding of it by the agents involved, from the kind of work produced by scholars such as David Baldwin, Philip Hanson, Per Lundborg, Michael Mastanduno,8 and others, whose main, but not exclusive, concerns are to produce frameworks for policy evaluation and strategic guidance for future practice. Not everyone avoided economic statecraft. Some pointed out the interaction of political and economic forces in the US Marshall Plan and the drive for European integration, in Western policies of economic denial directed at the Soviet Union and other communist states, and in Western policies embodied in the Bretton Woods international monetary system and the General Agreement on Tariffs and Trade (GATT).9 Such scholars were still in a minority, however. But with the oil price traumas and behaviour of the Organisation of Petroleum Exporting Countries (OPEC) in the 1970s, economic matters became such an obvious and integral part of the international political system that the prejudice against the study of economic statecraft began to break down.10 Both social scientists and historians took corrective action, but economic affairs still often sit uneasily beside political, diplomatic and military matters.11 This book is an attempt, among other things, to make them sit together more comfortably. One of the problems of writing this kind of book is the contested meaning of some key terms and concepts. In Chapter 11 we shall look in some detail at these issues in the light of the explanation offered here of US policies of economic statecraft and argue that definitions of practice cannot be imposed a priori, but only derived from an explanation of practice. For the purpose of clarity in the narrative that follows it simply needs to be declared that the terms ‘sanctions’, ‘strategic embargo’, and ‘economic warfare’ all have

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rather elastic meanings that overlap in terms of the kinds of practice that they attempt to identify, and the meaning of these terms will become clear from the context in which they appear. However—rather ironically, given claims made here that much of the literature in this field has been too a priori and procrustean in its definitions—it emerges that an important distinction is often not drawn by scholars, namely that between economic warfare and cold economic warfare.12 The former can involve military action such as blockades and strategic bombing, and is thus only possible in wartime, whereas cold economic warfare, which shares similar objectives, is conducted in conditions of formal peace.13 Similarly, notwithstanding all the ink that has been spilt on the subject, it is not clear that previous scholars have given sufficient weight to the effects that the change from conventional total war to nuclear war has had on what is technically known as fungibility. The term ‘fungibility’ attempts to capture the sense in which a seemingly non-strategic good can prove to be of more strategic value than weapons. In other words, there is no such thing as an intrinsically strategic good; all is relative. Those who think otherwise fall into what Wu has called the strategic materials fallacy.14 Everything depends on the context, the nature of the conflict and the state of technology. In modern warfare, and particularly in conditions of conventional total war, fungibility is of immense importance—providing, of course, that it has time to take effect. This is a problem. For example, it takes time for personal computers to raise the industrial productivity of a country, thus providing the potential to make it militarily more powerful. In a cold-war nuclear world fungibility becomes even more problematical. If nuclear war were to break out there would be no time for fungibility to take effect, but in the peaceful meantime strategic decisions need to be taken on the basis that fungibility might have time to impact on the potential enemy’s war-making capabilities. Contrary to what some scholars have claimed, US policy-makers were either directly or intuitively aware of the significance of fungibility, and that influenced both their assessments of what were and were not strategic goods and their relative economic and strategic values. The narrative will demonstrate that these kinds of calculation went on, and that they were not conducted in a vacuum. Political factors within the domestic realm, alliance politics, and assessment of whether or not the target state might overreact often modified what might have been determined, in the abstract, as the most economically cost-effective line of action to take. Such calculations were also further complicated by the need to assess future developments, not solely in relation to the results of action to be taken in the realm of economic statecraft, but also in relation to possible moves in world politics and international strategic changes. For changes in the broad international situation might determine whether fungibility would have time to operate, or whether a crisis might arise in which items of less strategic value in the long term might have a critical impact on the not-so-distant here and now. Many of these considerations, particularly domestic political pressures for expanding trade, raise the issue of the autonomy of the executive branch of the USA—and particularly with regard to the office of the President and the State Department where one would normally choose to look first of all for policy development and implementation in the foreign field. Just how autonomous the foreign-policy executive was during this period will be considered in the next chapter, but the balance between autonomy and

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external influence will only become fully apparent in the detail of the later narrative. However, it is also important not to forget the general pluralist condition of the free market in which decisions had to be made and policy carried out. From time to time, and particularly after détente demonstrated the potential for US trade with the Soviets, and US corporations established vested interests in continuing and expanding such trade, the Congress and US corporations had more important input into US economic statecraft. Those inputs often complicated policy-making and sometimes forced matters in ways that were not agreeable to the executive branch. In contrast, the Japanese in the 1930s, and the Nazis, and the Soviets, did not suffer from such complications. Thus economic statecraft emerges as a focus of concern for scholars within the broader field of foreign policy. In this study, activity falls within the scope of economic statecraft not only when economic instruments are used as means for conducting statecraft, but also when non-economic instruments are used against specific economic targets in wartime. In examining the different categories of economic instruments of statecraft, it is clear that sharp theoretical distinctions drawn between sanctions, strategic embargoes, cold economic warfare and economic warfare cannot be sustained when trying to explain practice. We come to understand things by experiencing change and rendering it into an explanatory form via an appropriate theoretical framework. Practice is too complicated to be captured by preconceived rigid definitions that make no allowance for change. In simple terms, trying to define sanctions in the abstract has severe limitations. However, using the term sanction in a particular context can make sense, even when it overlaps with other tactics or strategies of economic statecraft, and when it has both instrumental and expressive effects. Actors often have several motives and several objectives in mind when they impose trade controls. Both intent and effect might simultaneously involve restricting and weakening the military and economic strength of a target state, economically strengthening satellites of the main target state in order to create tensions and jealousies, enhancing a bargaining position, allowing trade with the specific aim of trying to seduce mass opinion in the opponent state, attempting to persuade it to change policy, making a moral statement, and sending complicated and different messages to the target, neutral states, allies and the sender’s own domestic constituency. In these kinds of situations a single action is a sanction, a strategic embargo, a message-sender, and an instance of cold economic warfare or economic warfare. In situations where trade is allowed or promoted and looks like normal trade from the outside, it is only by addressing intention that we can see that more is at stake than just profit and loss. If the intent is to change attitudes in the target state, then this distinguishes the trade from normal commercial transactions. However, it is not just in cases where trade is allowed or promoted that we need to be sensitive to the expressive as well as the instrumental effects of trade controls. They all make statements. Sometimes they speak to a target state in a way that was not intended by the sender, but they always say something. Particularly in times of heightened tension short of war, and especially in the Cold War, the ability of economic instruments of statecraft to send messages was of great significance to American policy-makers. For much of the Cold War it was more important than the instrumental effects of trade controls.15 The actions and policies of the USA of interest here are those, which use economic means, or non-economic instruments directed at economic activities, for political,

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military or strategic reasons. The intention of such actions is to damage another state or states in some way; to bring about changes of policy; to enhance the power, influence and status of the USA, or its bargaining position—either in a tangible way, by keeping important resources for itself and/or by denying them to others, or, in an intangible way, by conveying messages to the targeted state, to non-aligned states, to allies, or to its own domestic constituency. How the USA fared in such policies will be examined shortly, but first some general foreign-policy context is needed. The impact and importance of economic issues in both the study and practice of international relations have clearly changed over time, and states have crafted their policies in response to those developments. There are some common characteristics in the economic statecraft practiced by individual coun-tries, but they also have distinctive national policies, and none more so than the USA. Economic statecraft is not only a general sub-category of response to developments in both the domestic and international economy, it is also particular to the nation engaged in the activity, reflecting its individual traditions, characteristics and circumstances. So far as the USA is concerned, economic statecraft has always had prominence: ‘the American people and their governors turn automatically to boycotts, embargoes, and other economic sanctions as ways to solve international conflicts.’16 However, the aim here is not to produce an exhaustive account of either the traditions of US foreign policy or of its economic statecraft. With regard to both there has been selection. The practice and traditions of American foreign policy are only characterised in so far as it is necessary to provide indicators of how its economic statecraft has developed. And the focus on economic statecraft is restricted to a selected scope and to policies that involve economic matters as either the means or the targets of US policies. The chronological scope is from 1933 to 1991, which is determined by the assumption that between these two dates the USA faced international challenges to its survival—from Japan, Nazi Germany and Italy, and then from the Soviet Union—in a way that it did not either before or after those dates in the twentieth century In these circumstances pressures emerged for a particularly aggressive form of economic defence policy. The focus is thus on the US Government’s attempts to advance its political and strategic interests through economic warfare in times of war, and the use of economic instruments of statecraft in times of peace, which could damage the commerce and industry of other states in attempts to ensure the survival of the USA if intense rivalry with them were to develop into open war. This is not a study of more purely commercial and profit-driven policies such as trade and investment strategies, nor does it deal with American non-governmental economic actors to any great extent.17 The main concern is with what American officials thought about how to conduct economic statecraft in order to further US national interests under conditions of strategic threat to the survival of the USA. In terms of the thinking involved in these economic strategies, the key questions are: Why did the USA switch from its long-established position of defending neutral rights to trade in wartime to trying to deny trade to countries during peacetime? What did Americans learn from the ineffective use of economic instruments of statecraft in the inter-war period? How did the form and content of US thinking change in the crucible of war? Why did the USA continue with its trade-denial policies during the Cold War, after they were perceived to be ineffective in either damaging the Soviet economy or restricting its military capabilities? What kind of

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role did the USA play in the West’s multilateral Cold War strategic embargo, organised by COCOM, and what kind of relationship did it have with its allies? And where, in American thinking, did the balance lie between the importance of achieving concrete economic consequences from the USA’s economic denial policies and sending effective messages to militaristic or totalitarian target states, neutrals, allies, and its own domestic political constituency?

2 The practice Economic statecraft and US foreign policy Mercantilism, the realism of Thomas Hobbes, and the raison d’état of Cardinal Richelieu have much in common. They project a view of the international arena as a state of nature with finite resources, where all states are pitched against each other as their interests come into conflict. Most disturbing of all, there is neither a Leviathan to impose order nor a powerful enough sense of a moral order, such as universal Christendom, to override priorities of state. Modern economic statecraft emerged from these conditions. In the mercantilist age, before the idea of comparative advantages of trade, and in a situation where gold and silver were in great demand to facilitate the continuance of trade with the Orient, the accumulation of wealth became a major imperative. A positive trade balance, together with the accumulation of silver and gold, was a zero-sum game in which wealth also came to be seen as the basis for military and political power. Mercantilism dictated policies of economic denial and that trade with other countries should be politically assessed regarding its benefits within the overall context of an ongoing power struggle of all states against each other. Policies of economic denial were not restricted solely to use in time of war. Their potential was recognised for a kind of pre-emptive strike to prevent other states from realising their full potential. This was an early version of cold economic warfare that uncannily anticipated the attitude towards economics in the ideologically charged conflict between East and West after the Second World War. Mercantilism was an important development in the history of economic strategies of statecraft, largely because it made explicit what had previously been implicit: namely, that power depended greatly on economics. Just as power in the form of warfare had often been used in the past to acquire wealth, now the use of economic policies of denial were seen as important in determining the power level a state might achieve. Power, while not solely dependent upon accumulated wealth, was clearly something difficult to muster without it. The relationship between economic wealth, productive capacity, and the power to wage war under conditions ushered in by the industrial revolution broadened the horizons of economic statecraft in general and economic warfare in particular. In the USA, these changes were assimilated into policy-making in a rather contradictory way. A conflict between normative prescriptions about foreign policy and interests of state produced a confused position on the use of economic instruments of statecraft. Furthermore, the democratic system of the USA conditioned the manner in which policies of economic statecraft were both formulated and implemented. However, before examining how these factors influenced US policy, we need to understand what instruments of economic statecraft had come to be by the twentieth century.

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Developments in economic statecraft After the publication in 1625 of Grotius’ seminal work on international law The Law of War and Peace and the Treaty of Westphalia in 1648, there developed a more orderly system of international relations, at least compared with the unholy chaos of the Hundred Years War. Within this system the modern state emerged and began to flourish. As it did so nationalism also began to develop, and its manifestation in the French Revolutionary and Napoleonic Wars posed new dangers to international order and created a new context for economic statecraft. Figuratively speaking, things changed overnight with the French Revolution, though the makings of change were to be found in developments that occurred over a time span in excess of a hundred years. The French levée en masse—the attempt to mobilise the nation for war through conscription—and all that that entailed in terms of production of arms, supplies, and war materiel for a mass army, would not have been possible without three necessary preconditions. The first of these was a degree of industrialisation, the second was the development of democratic theories of government, and the third was the emergence of the secular nation state. Risking being both too assertive and prosaic, one could say that the necessary conditions for total war are industrial revolution, the democratisation of politics, and the emergence of the secular nation state. It is misleading to talk of total war in the nineteenth century, but the Revolutionary and Napoleonic Wars and the American Civil War came as close to this as the world was to see until 1914–18. The nature of the Napoleonic Wars had a major impact on economic statecraft with the institution of Napoleon’s so-called Continental System and the British government’s retaliation with Orders in Council, 7 September 1793, which imposed a trade embargo on Napoleonic Europe. American Secretary of State, Thomas Jefferson, wrote to his Minister in London, protesting about these measures. Reason and usage have established that when two nations go to war, those who chuse [sic] to live in peace retain their natural right to pursue their agriculture, manufactures, and other ordinary vocations, to carry the produce of their industry, for exchange, to all nations, belligerent or neutral, as usual, to go and come freely without injury or molestations, and in short that the war among others shall be for them as if it did not exist. One restriction on their natural rights has been admitted to by nations at peace, that is to say, that of not furnishing to either party implements merely of war for the annoyance of the other, nor any thing whatever to a place blockaded by it’s [sic] enemy. What these implements of war are, has been so often agreed, and is so well understood, as to leave little question about them at this day.1 Jefferson’s rather altruistic view was a vestige of a world order that had passed away. While the British adapted pragmatically to the new condition of warfare, the USA appeared not to—though later argument will show that American altruism was heavily spiced with self-interest with regard to its position on the right of neutrals to trade in wartime. Britain, even with the added complication of its free-trade doctrine (which

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became dominant from the mid-nineteenth century onwards), managed to balance needs of state and the facts of modern warfare with the requirements of international order and the demands of commerce. In theory, free trade and comparative advantage were seen as incompatible with anything other than peaceful economic competition and development. Unlike mercantilism’s zero-sum mentality, free trade was an optimistic theory whereby all nations were to gain from commerce. Such a doctrine could be used to reinforce the demands for extensive neutral rights to trade in wartime, especially when buttressed by the claim that economic affairs were separate from political and other activities. However, that never moved the British from their position of overriding both economic and legal principles with interests of state. Not surprisingly, therefore, the USA made little headway with them when it asserted neutral rights to trade in wartime. The British deferred to the demands of neutral trade and the norms of the international system inherited from the seventeenth century only in so far as they recognised the right to trade courant normal in non-contraband goods and then only providing that it was not to a blockaded port. In practice, they breached even these canons of behaviour when the national interest demanded it. It was Britain above all others that influenced the way that economic statecraft developed in the nineteenth and the first part of the twentieth century. The reasons for this are not difficult to identify. It was the richest state for much of this period, with a great empire and the world’s most powerful navy. However, it did not have a large standing army, except in the First World War, and relied upon the Royal Navy, wartime alliances, and economic warfare to achieve its aims and to protect widespread interests. The story of British policy during this period is also, among other things, that of the development of international economic statecraft. Throughout the nineteenth century the policies of Britain and the USA continued to coexist uneasily. In 1812 they fought a war provoked by what the Americans viewed as unlawful interference with their neutral rights by the Royal Navy. But the USA was not always positioned on the moral high ground. In the war with Mexico 1846–8 and in the Civil War 1861–5, it acted contrary to its own previous position on neutral rights and developed naval embargo policy in a way that was not unfamiliar to the British: these US policies were auguries of things to come in the twentieth century. In both conflicts, the USA relied on a so-called long-distance paper blockade, which involved interception well away from a blockaded port, and the monitoring of cargo lists for contraband. This was in direct contradiction of policies of physically effective blockades that it had called for in the past. But, as inshore blockades require large numbers of ships, which the USA did not have at the time of either the Mexican or the Civil War, self-interest drove it to adopt long-distance paper blockades. Furthermore, in the case of the seizure of the British ship Bermuda, during the Civil War, Chief Justice Salmon P.Chase of the US Supreme Court declared: if it is intended to affirm that a neutral ship may take on a contraband cargo ostensibly for a neutral port, but destined in reality for a belligerent port, either by the same ship or by another, without becoming liable, from the commencement to the end of the voyage, to seizure, in order to the confis-cation of the cargo, we do not agree to it.2

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This was the adoption and development by the USA of what is known as the doctrine of continuous voyage. Nevertheless, despite practising policies that encroached on neutral rights during American national crises, the US government reverted to being a champion of extensive neutral rights to trade at all other times, and as a result agreement with Britain remained elusive. There was no agreement at the Second Hague or the London Naval Conference, 1907 and 1908 respectively. The Declaration of London, 1909, was the last opportunity for an international accord on neutral trading rights before the outbreak of the First World War. It specified that blockades were to be physically effective, and it defined goods as non-contraband, or absolute or conditional contraband. According to the latter, goods were designated as contraband if they had strategic value in the context of a particular conflict: a provision that in effect acknowledged the growing importance of fungibility and hinted at what Wu later termed the strategic materials fallacy (namely the failure to realise that trade in materials for civilian production can be more strategically valuable than trade in weapons of war).3 Goods were catalogued under these three categories, and contraband could be seized, not only when on direct course for a belligerent port but also if it were determined that it would be transhipped by sea or conveyed overland from an intermediary to a belligerent (i.e. a continuous voyage). The declaration embodied some concessions from both Britain’s and the USA’s traditional positions. The definition of contraband would restrict economic warfare more than Britain had allowed in the past, and the Americans were willing to acknowledge what they had practised in the Civil War as now internationally acceptable regarding continuous voyage. However, neither Britain nor the USA accepted the Declaration of London in the end. The British House of Lords, apprehensive of growing German naval power, rejected it. Once that was known in the USA, the President refused to accept the declaration as well, even though the Senate had approved of it. As a result there were no clear rules to apply once the First World War broke out. Fortunately for the British, their hands were not tied by a formal understanding with the USA, for, as the historian H.C.Allen has speculated, if Britain had had to breach such an understanding because of her national interest, the consequences for good relations with the USA, which were invaluable, would have been dire indeed.4 Even as it was, the Americans and the British soon found themselves in serious dispute over neutral rights to trade. The Americans repeatedly urged the British to adopt the Declaration of London, but the British would only go so far as to adopt it after excluding the contraband lists. They did that by an Order in Council, 20 August 1914, but then subsequently broadened the scope of their blockade even further. The underlying causes of the dispute over the British blockade can be divided into two broad categories. The first was the development of technology, communications, trade and industrial production, and the overall impact that they had had on the potential for waging war. So far as the war at sea was concerned the single most important technological development was the submarine. On 3 March 1915, Winston Churchill, the First Lord of the Admiralty, wrote to the Cabinet explaining the problem that now confronted Britain and its policy of economic warfare at sea. The international laws relating to blockade were framed without reference to the new conditions introduced into warfare by the presence of the submarine.

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However great the superiority of the stronger fleet, it is not practicable to draw blockading lines in close proximity to the enemy’s coasts and harbours, as was always previously possible, because the submarines of the weaker fleet would sink the blockading vessels although that fleet was unable or unwilling to put to sea. It therefore becomes necessary to draw the lines of blockade at a greater distance from the enemy’s coasts and ports than heretofore, and this involves in certain cases the inclusion within the scope of the blockading lines, not only of enemy but of neutral ports…. It is for neutral nations to recognise that it is not practically possible, nor in neutral interests, to claim the maintenance of a situation which would deprive naval strength of all its rights while permitting naval weakness to indulge in every abuse.5 The result was the formal abandonment of inshore blockades and the adoption of a policy which gave an ever-broader definition of contraband, relied on selective/random interception and search, and, most important of all, expanded the practice of the so-called paper blockade. In effect, this meant Britain tried to monitor and ‘license’ world trade in order to prevent supplies reaching the enemy via neutrals. These policies directly interfered with the rights of neutrals, which, among other things, were only allowed to trade at normal pre-war levels—courant normal. There was a certain ineluctable logic at play here, which drove Britain towards an ever more comprehensive conception of strategic embargo. Such logic would be resisted by the USA at first, but gradually it too had to give way to the new realities of modern warfare. The second category of cause concerned the different circumstances of Britain and the USA. The latter had not felt territorially threatened since the war of 1812, and its policy of isolation from European political and security matters had allowed it to uphold the principle that neutral trade in times of war should be as extensive as possible (except during the Mexican and the Civil War). The imperative of national survival under threat from an external power had not been felt in the USA for over a century, and thus there was a lack of sensitivity to the overriding demands of survival felt by Britain, which forced it to restrict neutral trade in the First World War. The story in the Second World War, when direct threat to the security of the USA was much more overt, was very different. Policies of economic denial had become an integral part of strategic thinking in Britain by the twentieth century. The strategic importance of depriving the enemy of trade, commerce and capital, even when they were, prima facie, of little direct use for the actual waging of war, was axiomatic in British wartime thinking. Although civilian goods might not immediately be employed in the waging of war, when society as a whole is mobilised in the war effort, the question has to be asked: In these circumstances what kinds of materials and services are not of strategic importance? For example, if food becomes unavailable for munitions workers, war production is prevented. A more likely scenario than starving the munitions workers would be that the state that is denied food has to redirect its labour force to fulfil people’s nutrition needs under comparative disadvantages and at the cost of war production and manpower that could be used in the armed forces. Democratic society entails democratised war. When government involves all the people, then so does war. When all the people are involved, then the scope and effect of economic

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warfare is limitless. When the possibilities are limitless, then controls on trade have to be ever more intrusive into neutral sovereignty and ever more comprehensive. In the end, trade with Germany in the First World War was only allowed by the licence of the British Government. It made the rules, and that involved a very extensive definition of contraband. As the First Lord of the Admiralty wrote some time after the events: ‘The whole conception of conditional contraband was affected by the fact that the distinction between armies and nations had largely passed away.’6 Even before America’s entry into the war, the aims of the British in controlling neutral trade were defined largely in pragmatic rather than legalistic or moral terms. British Foreign Secretary, Viscount Grey of Fallodon, wrote in his memoirs: ‘The object of diplomacy… was to secure the maximum blockade that could be enforced without a rupture with the United States.’7 Rupture, however, there nearly was. The indignation of the USA at Britain’s stop-and-search policies, its definition of contraband, its promulgation of a Black List of companies in February 1916, and its policy on continuous voyage was very real and a serious threat to the continuation of Anglo-American amity.8 Fortunately Britain was saved by the German unrestricted U-boat campaign in the Atlantic, which helped to put things into a clearer perspective in the USA, especially after the sinking of the Lusitania in May 1915. Gradually the realities of modern warfare began to gain a purchase on American minds. In the course of that process one thing above all stood out in the contrast between British and German policies on the high seas. As Prime Minister Asquith put it: ‘Let the neutrals complain about our blockade and other measures taken as much as they may, the fact remains that no neutral nation has ever lost a life as a result of it.’9 Ironically, when the Americans entered the war in 1917 they adopted even more draconian measures than the British to prevent supplies reaching Germany. The USA co-operated fully in the food embargo against Germany, and then in July 1917 embargoed all exports to neutral Scandinavia and shortly afterwards extended that to cover the Netherlands as well. Britain, because of the fact that some neutrals provided her with vital supplies, would not go as far as the Americans, for fear of retaliation. The USA’s experience of the reality and horror of total war in 1917–18 appeared speedily to disabuse it of fond beliefs that the principles of extensive trading rights for neutrals could be upheld in time of war. The logic of modern war dictated the practice of economic warfare, and little space was left for neutrals. They could only trade at the indulgence of the superior naval combatant. Total conventional war was just that: total. With the entire population and economy of a state mobilised for war the targets of war strategy broadened to include the entire population and the economy, with only very narrow areas cordoned off on humanitarian grounds. If supplies from neutrals were to be used in the German war effort, then that trade had to be stopped. This was so unless supplies to the allies might be stopped in retaliation and cause more damage than the stopping of supplies to Germany. Whatever policy might be adopted, it would be on the basis of a pragmatic assessment of how most effectively to damage the German war effort and maximise the Allied. The matter of neutral rights in terms of principles, moral and international legal claims was of decidedly secondary importance when governments were confronted by the option of adopting a total embargo in violation of international norms, or of upholding such norms and risking defeat. One might be tempted to ask, was

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it not ever so? The answer is probably yes, but the difference now was the extent to which war could be carried into everyday life and into the domestic economy of the state. War was so pervasive that it was not possible to maintain the myth that moral principles and international law held sway over force. In the past, rules and principles sometimes appeared to be upheld simply because they were rules and principles, but it was also the case that states simply did not have the technology available to breach the ‘rules’ in, a way that would be to their advantage. Modern technology changed all that. With no Leviathan in the international realm to uphold neutral rights contrary to the immediate interests of the stronger naval powers, it was inevitable that they would be eroded, and in the end extinguished. As clear as this development might appear now, with the benefit of hindsight, it by no means dominated American thinking in the inter-war period. There were still powerful crosscurrents at work in the way that US officials and politicians thought about foreign policy, and that affected how the USA regarded economic statecraft as a tool in its international dealings. In order to get a clearer view of this it is necessary to have a grasp of the main traditions and doctrines that have influenced the style and content of American foreign policy-making.

United States foreign policy: traditions, doctrines and economic statecraft The USA was conceived of by the Founding Fathers as a nation that embodied a political morality expressed in terms of rights, which required justice and liberty for all citizens. This ideal political society was provided for through a written constitution and protected from corruption by checks and balances, the due process of law, divided sovereignty, and popular elections. Arising from this came ambivalence in American foreign policy and a tendency to moralise, particularly in terms of public justification of US policies.10 Pride in the American society and system of government produced two incompatible inclinations: the first was to protect the integrity of the republic both from the danger of becoming entangled in the dynastic power struggles of Europe and from contamination by its corrupt political system—in short, isolationism; the second was to shed the light of liberty abroad and to pursue American international trade and economic interests—in short, internationalism. Furthermore, these dispositions often contained within them conflicting approaches to the conduct of foreign affairs. Idealism emphasised ethics, rights and moralising, while realism emphasised security, self-interest and geopolitics. This matrix of forces has affected the making and conduct of US foreign relations, and, while it undoubtedly oversimplifies things, it nevertheless casts light on policy-making and provides a starting point for explanation and analysis.11 Isolationism and internationalism were both infused with a mixture of moralising and self-interest, though the former mainly took precedence over the latter in the articulation and public justification of American policy Idealism fed off American exceptionalism. America was supposedly different from other states, and particularly those of the European Old World, in that it had an altruistic mission to uphold and spread the benefits of justice, liberty and constitutional representative democracy in a flawed, but perfectible world. Accordingly, American actions should arise from its moral principles and not

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calculation of either self-interest or power relations, with their exclusive preoccupation with security. Native Americans, Afro-Americans, Mexicans and others, often feel that they have good grounds for questioning this moralistic picture of US foreign policy Selfinterest arose in various guises. For many years a potent concern within the isolationist mind-set was fear of entanglement with the more powerful European states at a time when the young United States needed to consolidate and grow peacefully. Later, the benefit of being able to continue trade and commerce during European wars clearly benefited the USA, as did the desire for independent action. Fear of entanglement was often equivalent to fear of losing the ability to command one’s own affairs in a situation where other states were much stronger than the young republic. Here moral super-egoism and self-interest coincided. Furthermore, entanglements could draw the USA willy-nilly into de facto war, and this would undermine the integrity of the constitution, which reserved the prerogative of declaring war to the Congress. All these factors, as well as a sense of moral superiority, nurtured the tendency towards the USA’s political and strategic disengagement from Europe: US isolationism was, in fact, tantamount to an attempt to be politically and strategically isolated from Europe. The self-interest in America’s internationalism arose first of all from its expansion of trade and commerce and the need to protect those interests. Soon the need for defence, strategic and international policies became self-generating, as American influence spread with trade, missionary work, and through colonial acquisitions. The need to defend this expanding sphere of interest then developed a dynamic of its own. For example, the need to meet naval threats in both the Pacific and the Atlantic prompted the building of the Panama Canal, which in turn expanded America’s immediate defence concerns to Central America. In contrast, the moral vigour, which reinforced internationalism, came from a sense of mission to convert the corrupt world to the American way, and this grew as a force in foreign policy as national power grew and the ability developed to project American values abroad. But that eventually brought the USA into confrontation with threats to its very existence from powerful states and prompted more overtly selfinterested calculations of power politics of the realist kind that it had spurned publicly for so long and for which it had condemned the European powers. These divergent dispositions emerged early in the life of the new republic, with two of its leading statesmen adopting different lines of argument. Treasury Secretary Alexander Hamilton favoured the development of the USA into a manufacturing and commercial state with the ability to project its power abroad, whereas Secretary of State Thomas Jefferson looked to the future with America standing as an example to others and fiercely protecting its integrity without great intercourse abroad (later as President, he did not actually live up to these principles). Falling somewhere in between was the first president, George Washington. In his Farewell Address he observed: ‘it must be unwise in us to implicate ourselves by artificial ties in the ordinary vicissitudes of her [Europe’s] politics or the ordinary combinations and collisions of her friendships and enmi-ties.’12 Compared with Jefferson, Washington was less afraid of corruption by association with Europe and gave more recognition to America’s weakness vis-à-vis the military might at the disposal of the great European Powers. Although political and military entanglements were to be avoided, Washington favoured the expansion of trade and commerce by all means. One could say this was either a recipe for the best of all worlds, or a rather naive

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belief that political isolation was possible even during economic intercourse. The precarious nature of this policy emerged as the nineteenth century progressed: isolationism as a doctrine and a moral position only prospered because Britain tacitly gave approval to the US Monroe Doctrine of 1823 (which cautioned European powers to stay out of the western hemisphere), and its navy kept other European states from threatening the north American continent. This allowed the USA to avoid the selfinterested power political arrangements that European powers, under mortal threat from other states, had to make. Even so, neutral trade in wartime brought difficulties with Britain that flared into war in 1812 and continued to rumble on as a major bone of contention between them throughout the century and on into the early 1930s. By 1900 the interlinked policies of isolationism from Europe’s political power games and neutrality and extensive neutral rights to trade in wartime were under threat from technological developments, and indirectly from Britain’s relative decline, which undermined its ability to maintain the balance of power in Europe and threatened its naval supremacy. This in turn posed problems for the Monroe Doctrine. Ironically, there was also a challenge posed by America’s own burgeoning power. The technology of modern warfare reduced the effectiveness of the Pacific and the Atlantic as defence buffers, and the rise of both Japan’s and Germany’s military and naval power posed further threats to the viability of isolationism. Furthermore, America’s own development into a world power complicated matters. On the one hand, it provided the means to enforce claims to extensive rights of neutral trade if the USA so wished, but at the same time it made the tenability of neutrality ever more difficult to sustain. Whether or not Americans liked it, their nation was necessarily part of the world community of states, and, as US power and commerce grew, they became potentially decisive in the shifting power struggles of the wider world. Even though the USA might have preferred to be left alone, other states with a more Realpolitik view of international relations could not afford to leave it out of their power calculations. Protestations of neutrality were not persuasive when confronted with the Realpolitik aphorism—today’s friends must always be seen as tomorrow’s potential enemies. Thus, when foreign powers directly threatened the USA, it had to make a choice of friends; isolation and neutrality were no longer viable or acceptable as policies. If the USA were drawn into war it might be in America’s interest to compromise the principles it had asserted for so long regarding neutral rights to trade. By the 1930s, although America still publicly sought to draw Britain into negotiations to guarantee extensive neutral rights to trade, the US Navy was beginning to have doubts about the wisdom of all this: if America were drawn into war her naval power could be used for America’s self-interest in precisely the same way that Britain had used its power over the years during its period of naval supremacy. Tension thus arose, and became more and more acute, between contending public arguments about isolationism and internationalism, idealism and realism. Each of these represented a potent tradition within US foreign policy, and as they vied for influence they complicated the process of producing a coherent foreign policy to cope with the challenges of the 1930s. Realism had flourished in those areas of policy where the USA had immediate security interests. The USA had a long record of ruthless Realpolitik in its relations in the western hemisphere and the Pacific, and had seized opportunities when they arose in its relations

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with European states. It exercised skilful pragma-tism in its land purchases from European powers: it had blustered and threatened force on numerous occasions at the end of the nineteenth century to grasp land and secure its interests against European powers. And it had experienced the nearest thing to total war in the nineteenth century during the conflict between the Confederacy and the Union. It waged war against Mexico and Spain and interfered to protect American economic interests in the sovereign states of several Latin American republics. In the light of all this one might ask why, therefore, has American foreign policy retained such a strong moralistic flavour over the years? There is no doubt that the sense of moral mission, derived from American exceptionalism, runs deep in many of its leaders. But things are no different for any other power: Britain had its version of exception-alism—with its White Man’s Burden, its imperial mission, and its pride in constitutional government—no less than America. But the tradition of British foreign policy-making developed in a very different context from the American. For Britain to survive, immediate moral scruples often had to be overridden. The USA enjoyed the luxury of not having to make such hard decisions for much of its early life, and thus avoided the language of Realpolitik and the need to trade power-political security needs against the value of its moral principles. The tradition of couching American foreign-policy goals in moralistic language was thus able to develop potency throughout the nineteenth century. And, even when more power calculations were forced into American thinking, three factors continued to favour the idealist tradition. First of all, the USA shied away from entangling alliances, which it had traditionally seen as symptomatic of the moral relativism of European power politics. It tried to avoid them in the twentieth century in order to maintain its independence of action and also to ensure that alliances did not take away the congressional prerogative over war-making power. Secondly, the tradition of foreign policy-making that had grown up over the years, under circumstances very different to those that prevailed in the twentieth century, had a potency that outlasted the conditions that had nurtured it. And, finally, democratic requirements led American leaders to seek the approval of public and congressional opinion by justifying and laying out foreign-policy objectives in moralistic and principled terms. Thus, while US economic statecraft recognised the need for embargo policies in the First World War (and took them to extremes that the British had not), after the war there was a return to the confused thinking, or at least the rhetoric, of the pre-war period. Again American moralising reasserted itself, and there was widespread reversion to the idea of neutrality being the best policy for the USA. The lesson of the war was not that neutrality itself had been doomed to failure, but that neutrality had not been defined clearly or adhered to strictly enough. Thus the main answers that the USA had to the rising tensions in the world in the 1920s and 1930s were isolationism and neutrality laws. In the 1930s isolationism was a potent force. It limited President Roosevelt’s scope of action in countering the threat from the Axis countries, Japan, Italy and Germany. Like internationalism, it was a rather curious mixture of idealism and realism, but with the focus very much directed away from Europe, so far as politics and strategy were concerned. Isolationism concentrated its focus on the USA and the western hemisphere, or, when it was directed further afield, on the Pacific. After the Japanese attack on Pearl Harbor in December 1941 internationalism pushed traditional isolationism to the edges of influence in policy-making. There was still a small minority that favoured the

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isolationism of the 1930s for the USA, but the effective power of the isolationist tradition now manifested itself rather more indirectly. Two characteristics of isolationism continued to have a periodic effect in US foreign policy. The first was a strong proclivity for untrammelled unilateral US action; the second, a logical concomi-tant of the first, was a tendency to insensitivity to the needs of allies. Congress evinced these traits in the Battle Act of 1951, which imposed restrictions on allied trade with communist states as a condition for receipt of US aid. Similarly, the Reagan Administration’s extension of extraterritorial powers in an attempt to control the trade of oil industry equipment in the 1980s was another example, and the most notorious, of unilateralism and insensitivity to allies. Thus isolationism continued to affect policy, albeit in this rather indirect fashion, from time to time after Pearl Harbor, but it never again held centre stage as it had in the 1930s. With the entry of the USA into the war came the triumph of internationalism, tempered by a strong and necessary strain of realism with which to meet the immediate challenges to American security. Within a relatively short time America’s traditional attitude towards both neutrality and neutral rights to trade were to be radically transformed by President Roosevelt and officials such as Treasury Secretary Henry Morgenthau and his assistant Harry White, and Vice President Henry Wallace and his assistant Milo Perkins. A policy of a hundred and fifty years was abandoned. In fact, for trade restrictions to be enforced against a country, it was American judgement by 1946 that the target no longer needed to be a belligerent: being designated unfriendly was enough. The USA came to hold a view that was immeasurably more restrictive than the one it had criticised Britain for adhering to throughout the nineteenth century. The USA now defined contraband, or goods to be embargoed, in a much broader way than the British had ever contemplated, and the idea that a blockade was only a blockade when it was physically enforceable was abandoned. This change of attitude contradicted much of what America had stood for in the past: namely views about international law, custom, natural rights and common reason that could be invoked to defend neutral trading rights with belligerents in noncontra-band goods at ports not subject to an actual, physically effective, blockade. In this turnaround one can discern the religious fervour of the convert. Moralising was not exorcised from US decision-making, it was simply given new direction and content. Although internationalism was triumphant and did not suffer any major challenge from isolationism after 1941, there was still tension between different perspectives within the internationalist camp. There was a constant jostling to decide what relative weight should be given to the promotion of American democratic and free-market ideals on the one hand and Realpolitik, or security concerns, on the other. In the Cold War the ideological moralising of important figures, like Secretary of State John Foster Dulles and Secretaries of Commerce Sawyer and Weeks, affected the tenor of policy, particularly regarding the strategic embargo. On other occasions there were rich mixtures of idealism and realism— for example when John Kennedy and Ronald Reagan whipped up public opinion and called for support for actions that would enable the USA to recapture the initiative in the Cold War, or when Nixon, Kissinger and Carter practised détente. This complex interaction between, and the rise and fall of, the influence of realism and idealism has been a continuous feature of US foreign policy-making and has helped determine the character of US economic statecraft. Just how complex that interaction has been will

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become evident in the detailed narrative.

Making policy, impacts of Congress, public opinion, allies, US selfsufficiency and free-market doctrine In theory, the President and the State Department are in charge of US foreign policy, but, in a democracy, things are never that straightforward. In practice, both the policy-making process and its execution are much more complicated, even when the focus is simply on the executive branch, because the Defence, Treasury and Commerce departments have major inputs, as well as the National Security Council (NSC) and security agencies such as the CIA. Moving outside the executive branch, there are other powerful agencies, actors and factors also that affect, and sometimes determine, foreign policy. When these are taken into account, a very real issue arises concerning the nature of executive autonomy in foreign policy-making. The role of the Congress has fluctuated erratically over the years, but it always has the potential to play a major role, particularly in the field of economic statecraft. The potential for that is grounded on the constitutional provision that charges Congress with the control of foreign commerce. This prerogative was closely guarded until the Great Depression and the damaging effects of the Hawley-Smoot protective tariff. The Congress now began to see some political benefit in delegating responsibility to the executive branch in foreign trade affairs. The 1934 Reciprocal Trade Agreements Act gave the President power to negotiate reciprocal tariff reductions of up to 50 per cent with foreign countries: he could also raise tariffs by the same amount. That type of legislation has been periodically renewed. In the Second World War the Congress delegated massive powers to the executive branch to dispose of billions of dollars worth of assistance through Lend-Lease. But, despite the trend from the 1930s to delegate power in the foreign economic and trade fields to the executive branch, it should not be overlooked that what the Congress delegates, it can also recall. It has both the potential and (from time to time has had) the will to exert a major influence over trade policy. This was very apparent in the neutrality laws of the 1930s, and later the Congress played a significant and often controversial role in the development of Cold War policies. Public opinion and the US Congress have constrained and helped to determine US policy throughout the post-war period; in particular, they were influential in the early years of Cold War policy formulation. Congressional influence and power were frequently used to affect policy and impose conditions in overseas aid legislation. Many of the earliest calls for a strategic embargo came from Congress, and those calls were influential in developing export controls for trade with the Soviet bloc in early 1947. Later US European aid legislation laid down conditions prohibiting East-West trade in certain goods for recipients of US assistance, and in the 1970s the Jackson-Vanik amendment did much to reverse détente in the economic as well as the political realm. The Congress and public opinion have generally been more significant in their impact on policy during peacetime or periods of reduced tension in the Cold War, when strategic imperatives are not so pressing. Public opinion has been a volatile factor in the conduct of US economic statecraft, at

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least before and after the Second World War. During the war itself there was general acquiescence in the Administration’s economic warfare policies, despite disputes between people like Vice President Wallace and Commerce Secretary Jesse Jones and periodic criticisms of alleged allied misuse of US Lend-Lease aid. In the 1930s the story was different. Public opinion was often schizophrenic in wanting to help good causes but not to risk any chance of getting into a war. Franklin Roosevelt was acutely aware of the dangers of acting without the backing of public opinion with regard to both domestic and foreign policy. In 1935–6, at the time of the crises over the Italian invasion of Abyssinia and the start of the Spanish Civil War, he did not want to alienate members of Congress from his domestic programme by grasping more power in foreign policy. At this time there was a struggle between Roosevelt and the Supreme Court, which had struck down some of the most important economic reforms of his first term on the grounds that they unconstitutionally expanded the federal government’s powers of economic regulation. Roosevelt feared that, if he were to gain more power in foreign policy (for example by revising the neutrality laws to give himself discretion in applying trade embargoes), that would be interpreted in a similar way. His critics would claim it was another ploy to gain more executive power in order to lead the USA down the political path taken by the centralised totalitarian states. This problem arose again in 1938. Public opinion favoured revising the neutrality laws to enable the President to deal more effectively with both Japanese aggression in China and with the Spanish Civil War, but Roosevelt feared that the more isolationist Congress would wreak revenge on his domestic priorities, such as the Executive Reorganisation Bill, if he tried to change America’s neutrality. Even after the war started, and public opinion swung overwhelmingly in favour of the Allies, Congress still wanted to give aid without provoking Germany, Italy or Japan in such a way as to lead to direct US involvement. Thus public opinion was a potent force, expressed both directly and through Congress, for limiting the kind and controlling the timing of US economic pressures. In the post-war period public opinion again proved its potency, but in terms of demanding harsher rather than more cautious poli-cies.13 There were also always some constraints on US policy stemming from its relationship with allies, though they were probably least in evidence during the inter-war period.14 Once war broke out, the need to keep in step with allies became pressing, but, as we shall see, Americans gradually came to dictate the speed and the route for the steps. It was not until Cold War complexities arose that allied views posed serious political and policy problems for the USA. This book is not about Western economic statecraft in general, it is about important facets of the USA’s. However, sometimes an understanding of the way the USA worked with her Western allies is crucial to a proper appreciation of its policymaking. When we turn to the narrative there will be frequent discussions of US policy in the context of allied policy-making, but here it is important to explain something of the general character of those relationships. The picture will become more refined by detail later, but it will be helpful to bring into focus now the broad picture, and in particular the extent to which the USA could dictate Western policy. The classic work on Western economic embargo policy by Gunnar Adler-Karlsson, back in the 1960s, presented the theme that Western policy was largely dictated by the USA, which coerced its allies through the leverage of economic aid and other political and strategic means. More recently Vibeke Sørensen, and Philip Fungiello have

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supported Adler-Karlsson’s interpretation. For example, Fungiello has written that ‘the ERP [European Recovery Program—or Marshall Aid, as it was commonly known] countries had little choice except to give general consent to the American strategic embargo’. However, Mastanduno has attacked that view of the role of the USA, and Førland and Jackson have adopted a kind of middle position that emphasises the positive and constructive role played by Britain and some of the other allies. The latter, for example, concludes one of his papers: ‘In order to understand American economic warfare against the Soviet Union at the height of the Cold War, one must acknowledge the centrality of the British-led COCOM countries in the forma-tion of policy.’15 A short detour away from economic embargo policy might help to cast light on how the US relationship with its West European allies is viewed in the present work. In conversation with Defense Secretary James Forrestal in November 1948, Secretary of Commerce Averell Harriman expressed the conviction that ‘US influence, if properly exerted, could induce the European countries arrive at almost any decision desired by the United States. The important thing is to avoid giving appearance of infringement of their national sovereignty’.16 Just under a year later Harriman took part in a US ambassadors’ conference in Paris at which there was much anger expressed at Britain’s failure to lead the countries of Western Europe forward into integration as part of the ERP. Harriman bemoaned the fact that the British had prevailed ‘in setting the pattern of OEEC (the Organisation for European Economic Co-operation, set up to implement the ERP) whose impotency was now becoming alarming’. He declared that the British should be ‘bluntly told’ that their stance was directly contrary to the US aim of European integration. America’s freedom to talk bluntly to the British was, however, circumscribed by more than just a need to avoid the appearance of infringing national sovereignty. The Cold War was now well under way, and George W.Perkins, Assistant Secretary of State for European Affairs, pointed out that: ‘There was a deep conviction (in Washington) that the US needed Great Britain above everything else…All these things must be taken into consid-eration when studying the problem of how far to press Britain in the matter of European integration.’17 No matter how angry the Americans might be that British policy was undermining their plans for European integration and, in their view, threatening European recovery and political stability, they could not force the British to their way of thinking because, as US assessments reiterated time and again, they relied too heavily on British co-operation and help in waging the Cold War. In early 1950 US ambassador to London, Lew Douglas, spoke of the existence of the Anglo-American special relationship as being an inescapable fact.18 The State Department Policy Planning Staff (PPS) in November 1951 stated: ‘We have in fact, at the present time, a special relationship with the UK.’19 Briefing papers for the ChurchillTruman talks of 1952 described the British as the ‘most resolute and effective of our allies and, through their Commonwealth ties and influence with other areas, represent an element of strength in the free world second in importance only to the US’.20 Even after the Suez débâcle, the briefing paper for the 1957 Macmillan-Eisenhower meeting at Bermuda, spoke in similar tones.21 These views indicate America’s dilemma. The interdependence with Britain, and other allies, in relation to fighting the Cold War and in managing the economy of the West, meant that sometimes the USA had to give way to its allies when differences arose. How, why and under what circumstances are only revealed

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in the details of policy developments, but it is an important general point to bear in mind.22 These difficulties and conflicts within the USA and between it and its allies often reflected different judgements about how potent the threat from the Soviets was, how idealistic or realistic policy should be and, on the margins, how isolationist or internationalist it should be. After the USA entered the Second World War it rapidly changed its policy, though up to 1943–4 some deference was still paid to the status of neutral states and to the danger of pushing them into German hands by demanding over-strict embargo policies. Once it became clear in 1943 that the Allies were going to win, and more importantly after the Normandy landings in 1944, American policy became ever more coercive towards neutrals and in the end effectively terminated their trade with the Third Reich.23 The USA, instead of recognising the rights of neutrals to trade with the enemy, insisted that they accept a duty not to trade with them: in short, that they must cease to be neutral so far as trade was concerned. One of the reasons why the USA was able to require that the neutrals should adopt policies of total denial was its independence of neutral supplies of strategic materials and food. Unlike Britain, it did not have to calculate trade-offs between maintaining vital supplies from neutrals and the extent to which neutral trade with the enemy could be tolerated. The USA had massive resources of its own and influence over the western hemisphere such that raw materials throughout that vast tract of land were at its disposal. Under these circumstances the USA never felt the constraints Britain had felt in the past and continued to feel in the Second World War. In short, the USA had few needs that acted as constraints on her demands for total embargo and denial policies. This attitude was carried over into peacetime Cold War embargo polices, not so much in terms of neutral trade with communists as in terms of allied trade with them. For, once again, the needs of the USA were different from those of its allies. Just as in the war it had been less reliant on neutral sources of key products and materials, so in the post-war world its economy was generally less reliant on international trade than Britain’s and France’s and certainly much less reliant on trade with the Soviet Union and later the People’s Republic of China. This created a different perspective, which caused friction and difficulties that affected US freedom of action. Although the USA was relatively self-sufficient economically, its allies were not, and that became an important factor in the Cold War multilateral Western embargo, because that could not work without co-operation between the USA and its allies. Another component of this picture of the broad factors that affect US foreign-policy formulation and execution is the executive branch itself, which was often a house divided. That undermined the idea of executive autonomy. The President and the War, Navy, State, Treasury and Commerce Departments, which were all directly involved in embargo and sanction policies, could only act under legal authority and within whatever framework the Congress and the President designed. To many who either worked the system or have studied it, design seemed palpably lacking. Economic statecraft certainly developed erratically and with no clear overall plan. The result was a bewildering complex of unclear lines of authority and overlapping jurisdictions, with contending bureaucratic factions squabbling over their respective but ill-defined bailiwicks. As one senior Treasury official put it in 1940: ‘It is a weird and wonderful system.’24 The

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bureaucratic arrangements for formulating and implementing policy were fragmented and complex. The War, Navy, State and Commerce Departments, the White House and, after the Second World War, the NSC—in particular the National Security Resources Board (NSRB)—and the Atomic Energy Commission, all had formal roles to play in the determination and implementation of policy, and other departments, such as Agriculture, played a part from time to time. There were frequent differences between the Defense Department after its establishment in 1947 and the State Department, and, ironically, the Commerce Department championed a highly restrictive embargo. One might have thought that Commerce would seek to maximise trade opportunities for US firms, but that was not always the case. This was partly because deeply conservative individuals, such as Commerce Secretaries Charles Sawyer and Sinclair Weeks, opposed trade with the communists, and partly because, once the multilateral Western economic embargo was established, Commerce always strove to minimise the amount of de facto discrimination that American firms would suffer. America’s national embargo lists were longer than the multilateral COCOM lists, so Commerce Secretaries usually came down in favour of extending, or at least maintaining the maximum agreed allied embargo list possible in order to minimise the trade that Europeans could engage in but their US counterparts could not. Thus, while for the most part during the period from 1933 to 1991 there was considerable executive autonomy over policy-making in the sphere of economic statecraft directed towards America’s strategic enemies, there were times when that autonomy was visibly reduced.25 There were often differences within administrations, because of the contending positions, which undermined the policy favoured by the President and his immediate entourage. And, while this point does not overturn the idea of executive autonomy, because the disputes were within the executive branch, it does question the efficiency and control suggested by claims of executive autonomy in this policy field. More potentially damaging to executive autonomy were the democratic forces of the Congress and public opinion, and later, during the Cold War, the influence of allies and powerful US economic interest groups and corporations that wanted to expand trade with the communists when the Administration wanted to maintain an expansive embargo.26 These difficulties and conflicts within the USA and between it and its allies indicate that executive autonomy in policy-making was not always as strong as some have suggested.27 Finally, there is one further problem we need to consider that has arisen periodically in the practice of US economic statecraft. Throughout the twentieth century the USA has been the vanguard of liberal capitalism, and yet it has also been responsible for policies that have regulated trade in peace, war and cold war more vigorously than any other state, whether liberal democratic or totalitarian. For some this has been a deeply troubling paradox, for others a difficulty that constantly required arguments about reasons of state to override economic principles and the demands of domestic economic interests wanting to trade with states embargoed by the US Government. The kind of regulation involved has been intensely discriminatory vis-à-vis both foreigners and America’s own commercial companies. Such policies create domestic difficulties for a liberal freemarket democracy in ways that would not arise in totalitarian states or those with high levels of economic regulation. Thus, in one of the great unsung ironies of the twentieth

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century, it has been the free-market USA that has looked most often to economic sanctions, embargoes, cold economic warfare and economic warfare as means of exerting influence in international affairs. At least it must look ironic to Marxist and other forms of totalitarian government, which do not acknowledge some distinction between the state and economic activity in the way that liberal Western democracies do. Marxists view the modern Western state as an outgrowth of capitalism. Capitalism is not in the state: the state is in capitalist society, and the governing dynamic of this system of production is the pursuit of profit. If the overriding driving force—the energy of capitalism—is to do with profit-making, and if Western states are dominated in the political sphere by capitalist values, how is it that Western governments persistently obstructed profitable trade with the Soviet Union, the People’s Republic of China, Eastern Europe, North Korea, Cuba, and North Vietnam? In the early 1960s, this supposedly contradictory behaviour caused an angry outburst from the Soviet leader Nikita Khrushchev. At the time the Soviet Union was vigorously developing its oil industry, both for strategic reasons and in the hope of selling oil and gas to the West for hard currencies, thus increasing its ability to buy much-needed Western technology for its consumer-starved economy. Unfortunately, one of the production weaknesses in the Soviet Union involved wide-diameter steel pipes of the kind needed for moving oil from the wellhead to refineries and on to the point of sale. Here, then, was a great opportunity for the West to sell large quantities of piping, make profits and help revive the flagging steel industries of countries like Britain. Instead, the USA orchestrated a concert of opposition among its Western allies through COCOM, through the North Atlantic Treaty Organisation (NATO), and through bilateral avenues of communication, most notably with Japan.28 Capitalism was not following its own market principles: it was denying its own essential character by forgoing the possibility of trade and profit-making. As one American observer remarked, this ‘violated the Soviet sense of the order of things’.29 The episode led to a rather amusing outburst from Khrushchev who exclaimed: ‘Who the hell do these capitalists think they are, to believe that they can go around and not act like capitalists?’30 Western behaviour over its policies of economic denial, embargo and cold economic warfare certainly seem to pose a serious challenge to the proper Marxist-Leninist order of things. According to their theoretical analysis, capitalists should trade with whomever they can for profit: they should not be in the business of self-denial. Clearly, theoretical stipulation did not accord with practice here. A similar, though more subtle, problem arises from the view (which Baldwin effectively explodes as a myth) that states that nurture free trade and free-market economic policies have depoliticised economic activity to the extent that it cannot be viewed as an element of economic statecraft. The mistake is similar to the one made by Marxist-Leninists, in that the theoretical framework applied does not adequately explain practice. In the case of the theory of free-market economic policies and the claim that economic activity must be autonomous, self-sustaining and independent of the political world, this is not even in accord with what was said by the great theorists and exponents of free trade and free markets. In an ideal world, the liberal visionaries such as Adam Smith and Richard Cobden believed that there was a harmony of private interest and public good in the workings of the free-market laws of supply and demand. Furthermore, if they were

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universalised they would nurture international peace by the spread of interdependent commercial relations and the growth of prosperity. However, both realised the constraints of raison d’état: Smith recognised that the prosperity of a neighbouring state would be beneficial for trade and commerce and the economic well-being of its people, but could also pose a political and potential military threat. And Cobden, as F.H. Hinsley observed, ‘worked for free trade because he wanted peace, not for peace because he wanted free trade’. ‘If free trade conflicted with peace, as in the case of loans for armaments to foreign governments, he opposed free trade.’ ‘No free trade in cutting throats.’31 Neither the Marxist-Leninists who expected the profit motive to override all, nor the liberals (but not Smith or Cobden) who asserted that the free market was distinct and free from the corruption of politics were right. Khrushchev evinced a certain naïveté, or perhaps it was simply angry rhetoric, when he complained that capitalists were not behaving as they should. The fact was and always has been that there is interaction between the political and economic realms. The two are inextricably interwoven. To claim that a state that fosters a free-market foreign economic policy has abandoned politics in favour of the free market is as fatuous as the claim that all politics is economically determined. Western states have fostered free markets because of political decisions that that is the best economic policy for them to pursue in order to increase their wealth, well-being and power, as well as the individual liberty of their citizens: it is not a matter of a given policy dictated by economic or any other kind of law. It is the outcome of political choice no less than the choice of a protectionist or autarkic economic regime. At a more theoretical level, it may be seen that the error arises from the mistaken notion that human actions ought to be consistent: liberals who profess the virtues of the free market ought to practise free trade with all parties. The fact is that consistency is a commendable quality of arguments—ideo-logical and otherwise—but not necessarily of human action when agents are confronted by the complexity of conflicting moral, political, economic and social imperatives: in these situations some things have to give. And the liberal economic theologians of the eighteenth and nineteenth centuries were not so absurdly enamoured of their own creed as actually to believe that there were no differences between scientific laws, which human will was impotent to alter, and economic laws, which were more flexible. If economic laws had to be breached for a greater good, then so be it. American policy-makers evinced little compunction about controlling US exports for the sake of national security and to secure foreign-policy objectives. The disjunction between free-market theory and the practice of successive US governments did not produce difficulties in that sense. Nevertheless, there were problems that arose for the USA, as a follower of the free market, that did not arise (at least in such a forceful way) for communist and other kinds of totalitarian states. The problems were connected with the Congress and lobbying by US corporations. The former made it difficult to use economic instruments of statecraft against Japan and Germany in the 1930s by passing neutrality laws and supporting the impartial workings of the market. Between the mid1940s and the late 1960s Congress took a different line and tried to restrict exports and commercial interaction with communist states. Then, from the late 1960s until the Jackson-Vanik amendment in the 1970s, Congress tried to promote US trade with communists.32 Thereafter it once again turned back and tried to restrict the flow. US corporations, in contrast, generally played a more minor role until détente under Richard

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Nixon. Thereafter, they consistently sought a more liberal trade regime with communist states. This kind of political pressure from the Congress and US corporations had an impact on US policy and often caused difficulties and complications. These would not have arisen if the USA had not been a free-market economy. The world we experience is change, and it is to changes in the character of warfare, the modern economy, American values, traditions and government, and the international context that one needs to look in order to understand the development of American attitudes towards neutrality and the use of economic statecraft. Language and the justification of American actions lagged behind the reality that confronted the USA in the mid-twentieth century, but its eventual actions in denying neutral rights and the ruthlessness with which it pursued economic sanctions and practised economic statecraft in general were imbued with the same vigour and sense of moral righteousness with which America had championed neutral rights to trade in the nineteenth century. Realpolitik, the dictates of power-political calculations and the need for survival vitiated the idea of an altruistic and moral foreign policy divorced from self-interest and calculations of power politics; nevertheless, America, like any other actor in the community of states, continued to couch justifications in moral terms and to seek moral ends for its policy objectives. The USA could have hardly found a more adept politician to see her through this difficult transition period in the development of its policies of economic statecraft than Franklin Delano Roosevelt, nor one who could propel policies forward within a system where executive autonomy was far from complete.

3 Transforming policy From peace to war 1933–42 If the aggression of the Nazis was a crime, which warranted the execution of those who conspired to make it, must we not say that all concepts such as neutrality, which are based on the legality of war, are invalid? Thomas K.Finletter1

The idea that neutrality might be an invalid or immoral stance was totally alien to the vast majority of Americans in the 1930s. However, between 1933, when Franklin Delano Roosevelt became president of the USA, and 1942–3, when it became clear that the Allies were going to win the Second World War, there was a transformation that made the USA a more active participant in international affairs, encouraged its realist tradition, and turned its leaders against neutrality. By 1942 US practice reflected the view that there was a diminishing space for neutral trade and neutrality itself in total war. The logic of both collective security, which placed responsibility on all to respond to aggression, and total war undermined neutrality. Soon Americans justified their assault on neutrality in the same moralistic manner that they had championed neutral rights to trade, though they also acted on the basis of realist perceptions of how their national interest could best be promoted. This transformation had major implications for the use of economic sanctions and embargoes, not only in conventional total war but also later in the Cold War, with its ever-present threat of total nuclear war. Change came gradually at first, and without a clear pattern emerging, because of compromises that Roosevelt felt it politically expedient to make. However, after the outbreak of war policy developed more vigorously. It turned away from long embedded traditions and abandoned both the principle of extensive neutral rights to trade and policy traits derived from the isolationist tradition. A complex constellation of factors created the momentum for these radical changes, but policy was still riddled by contradictions. This was partly because political and bureaucratic factions fought over their different ideas about the substance of policy, departmental jurisdictions, and tactics. The decisionmaking process had to deal with a mêlée of contending forces and ideas, but it was inexperienced and fragmented with numerous agencies and departments taking part with overlapping authority and with no clear hierarchy of responsibility. This type of bureaucratic mess was to characterise American embargo and economic warfare policies from 1933 to 1991. Nevertheless, as the 1930s progressed and gave way to the 1940s,

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Americans came to see economic statecraft as a central feature of their overall foreign policy, and, notwithstanding the failures of sanctions in Europe and against the Japanese, they remained sanguine about the effectiveness of economics as a tool in international affairs. Americans learnt much between 1933 and 1942, including salutary lessons about the dangers of appeasement and the need to convey messages in the international sphere effectively.

The beginnings of change After the First World War several problems loomed large and emphasised the central importance of economic issues for US foreign policy. These problems included the revival of the world economy, war debts, reparations, and the League of Nations and economic sanctions. President Woodrow Wilson had masterminded the League and he wanted to replace traditional international relations with a new regime based on his famous ‘Fourteen Points’ designed to guarantee free trade, self-determination of peoples, freedom of passage on commercial waterways and on the high seas, and a form of open diplomacy that would be subject to democratic scrutiny and held accountable by the people. Overseeing all this was to be the League of Nations, which would enforce collective security through Article 10’s provision for the League Council to ‘advise upon the means’, such as economic sanctions, by which League members’ obligation to ‘preserve’ the territorial integrity and political independence of all other members of its covenant could be carried out. In 1925 the League tried to ensure that there would be automatic arbitration and sanctions in the event of war by proposing the Geneva Protocol, but it was never adopted. If it had been, Wilson’s international idealism and the logic of collective security would have squeezed neutrality out of existence long before US policy moved to do so in the Second World War. However, effective collective security was not to be. Americans, already aware of how economic relations had drawn them as neutrals into the First World War, saw League sanctions as a means by which they would be drawn into future wars. This fear of losing control over policy was at the heart of the US Senate’s refusal to ratify the Covenant. Senator Henry Cabot Lodge, Chairman of the Senate Foreign Relations Committee, and others insisted on safeguarding the constitutional prerogative of the Congress to decide on war or peace. Opposition in the Senate, and Wilson’s ill health and political ineptitude, prevented ratification of the League Covenant, and the USA went its own way in the inter-war period. The USA was not bound by the League, nor was it formally party to its attempts to uphold collective security through economic sanctions, but this is not to say that the USA did not draw up or apply embargoes. It did, but they were in an American context, which was moulded largely by the neutrality legislation of the 1930s and a determination to steer clear of European disputes.2 Although the USA distanced itself from the League and from the political and strategic arrangements made by the European powers, it continued to play an active role in the world economy until 1933. Economic diplomacy was given a high priority in the 1920s by successive Republican administrations. They were preoccupied with getting their wartime allies to repay debts, and they took the lead in relief operations in Europe, in the

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rebuilding of the international economy with the Dawes (1923) and Young (1929) Plans—designed to cope with the problem of German reparation payments—and in encouraging states like Britain to reverse wartime suspension and return to the gold standard, which it did in 1925. US trade, commerce, investment and banking flourished in the world economy of the 1920s under guidance and tutelage from US Secretary of Commerce Herbert Hoover. Thus economic statecraft had a high profile and was used extensively by the USA in the inter-war period. Indeed, the USA saw economics as underpinning many of the world’s political problems and accordingly formulated solutions for them in economic terms.3 Faith in the effectiveness, and belief in the importance, of economic statecraft properly conducted deepened in American minds during the period from 1918 to the end of the Second World War. The fact that trade was widely seen as the cause of American involvement in the First World War focused attention on American international trade and economic policies for much of the inter-war period and underlined the importance of economic issues and the difficulty of separating them from political and strategic matters more directly related to war. These things catapulted economic statecraft into a central position in foreign-policy considerations. Its importance could hardly be denied. With the coming of the Great Depression faith in the capitalist system wavered, and the Roosevelt Administration temporarily turned inwards and concentrated on domestic recovery at the expense of mending the international economy, but Secretary of State Cordell Hull soon revived economic internationalism with the Reciprocal Trade Agreements Act of 1934. Overall, there was no loss of faith in the potency of economic instruments of statecraft.4 As storm clouds gathered over Europe and south-east Asia, American minds turned once again to the benefits of neutrality. The long-standing debate about neutrality was inextricably linked to questions about what kind of trade could be conducted by a neutral in wartime, what effects it might have on the relationships between neutral traders and belligerents, and whether or not impartial neutrality could be overridden in order to help a just cause. While the international situation deteriorated abroad, at home isolationism and internationalism, realism and idealism jostled for influence in US foreign policy-making, and US officials and members of Congress struggled with the problem of foreign economic policy in the context of three broad attitudes towards neutrality that gradually emerged from those competing positions in the 1930s.5 The first view of neutrality reaffirmed America’s traditional policy of demanding the most extensive rights of trade possible for neutrals in wartime. The seas and commerce should stay as open and free as possible. This had been the US position before 1917, but American revisionist historians in the 1920s and 1930s savagely attacked the traditional position on neutral rights to trade, alleging that US trade with the allies had compromised US neutrality, and that Britain and France had duped the USA into entering the First World War for the sake of their national and imperial interests.6 The Senate Nye Committee hearings, 1934–5, to investigate the munitions industry, added credence to the notion that bankers and munitions manufacturers, in pursuit of their own trading interests, had been the cause of American entry into the war. Such views produced a new version of neutrality in the 1930s. The idea behind it was to abandon traditional isolationism to prevent America being drawn into war again contrary to her best national interests. The new isolationists argued that trading with both sides in a conflict, which was the

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traditional right of neutrals, had been compromised by total war. Neutral trade under modern circumstances would inevitably provoke the belligerents. By eroding the distinction between armies and people, modern war had vastly expanded the notion of strategically important materials. Almost everything could now be defined as useful to the war effort, and hence as contraband. The new isolationists recognised the dilemma posed by these developments and sought to resolve it by self-imposed duties and obligations for a neutral America. The duties, embodied in the 1935 Neutrality Law, were to embargo the sale of arms and implements of war to either side in a dispute and declare that Americans travelling on ships registered in a belligerent country did so at their own risk. The 1936 and 1937 neutrality laws extended prohibitions to loans to belligerents and to the export of any materials on American ships proscribed by the President. The only discretionary aspect to this mandatory and non-discriminatory embargo policy was the President’s freedom to define implements of war. And the only major liberalisation of neutrality restrictions prior to the war were the cash-and-carry provisions introduced in 1937, which allowed a belligerent to pay cash for non-munitions supplies and carry them away on its own ships. Thus, instead of claiming that the belligerents had the duty to allow the most extensive neutral rights to trade, the USA now claimed that a neutral had the duty to restrict its own trade in order to avoid entanglement in war.7 The internationalists championed the third position on neutrality, which, strictly speaking, was not a form of neutrality at all. After the defeat of Wilsonian idealism in the early 1920s, the internationalist camp in the USA became fragmented and lacked political leadership. Nevertheless, there was bipartisan political support for internationalism at lower political levels, and there was also a spate of both scholarly organisations and, later, pressure groups that sprang up to promote internationalism. Of these organisations Robert Divine has written: ‘The cumulative effect of the activities of the League of Nations Association, the Foreign Policy Association, the Council on Foreign Relations and other organizations was to create a body of internationalists in the United States. These men and women represented only a small minority of the American population, but they were capable of exerting great influence.’8 Later these organisations were joined in the internationalist cause by the Century Group, Fight for Freedom, William Allen White’s Committee to Defend America by Aiding the Allies, and war hawks within the Roosevelt Administration— Secretary of War Henry Stimson and Navy Secretary Frank Knox, who were Republicans; Harold Ickes Secretary of the Interior, a Progressive Republican; and Henry Morgenthau, Secretary of the Treasury, who was Democrat. These organisations and individuals argued, along with allies in the Congress, that the neutrality laws should give discretion to the President, so that embargoes could be used to discriminate between aggressor and victim. The internationalists wanted to use sanctions to persuade countries to keep the peace. The kind of neutrality laws they favoured had nothing to do with traditional neutrality except for the fond hope that the USA might avoid actual entry into war. For all other intents and purposes the internationalists were conceding that the USA was inextricably involved in the affairs of the world; that it could not remain aloof from a major conflict and should take a moral position and judge who was the aggressor and who was the victim; and that the USA should play a part in collective security even though she was not a member of the League. This was an attempt to come to terms with the universalism of American liberalism and, albeit ineffectively,

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with the reality that the world of the mid-twentieth century confronted a type of warfare that had little space left for neutral trade or for isolationism when US action now had the potential to tip the scales of power in international relations. Throughout the inter-war period economic diplomacy was prominent in foreign policy debates and policy considerations and was seen as an important tool to be used in the international arena and one that Americans had strong grounds to believe would be effective. This judgement was confirmed by America’s wartime experience. Scholars may have both neglected and tended to devalue the effectiveness of economic statecraft: US practitioners did neither. As late as July 1940 Harry Dexter White, a senior adviser to Henry Morgenthau, said of a proposed oil embargo against Japan: ‘This has real prospects. If England will only back you up on this, this is—this can turn the tide of events.’9 Similarly ambitious claims were made regarding the effectiveness of messages that would be sent to Germany by repealing the US arms embargo for the benefit of Britain. There were others in the Administration, however, who were less sanguine about the effectiveness of economic statecraft, but who nevertheless thought by 1941 that an embargo was necessary to restrict Japan’s power in case war were to come, and to try to convey a message of American resolve, albeit late in the day.

Partial neutrality Franklin Roosevelt was too preoccupied with domestic problems for much of the 1930s to be able to invest the time and energy to re-orientate US foreign policy away from the neutralist and non-interventionist policies that were favoured by public and congressional opinion. And, while the evidence suggests that he was more internationalist in his own outlook than the public at large, his disposition was not such as to compel him to take up the internationalist cause with vigour, especially as the political costs involved in doing that could have undermined his ability to consummate domestic reforms. To some critics of Roosevelt’s foreign policy, it appeared that US attitudes towards economic sanctions in the 1930s were determined by fear of war and the conviction that special interests and European imperialists had contrived US entry into the First World War. The natural corollary to this was that the isolationist desire to avoid foreign entanglement and war represented America’s true national interest. These attitudes had been partly moulded by revisionist historians,10 and they were also further strengthened by the findings of the Nye Committee. The Roosevelt Administration, in particular Secretary of State Cordell Hull, co-operated with Senator Nye because since the 1925 Arms Traffic Convention official US policy had been bent on controlling the arms trade, and under Roosevelt had gone a step further by seeking controls over arms manufacturing. The Administration was thus in accord with the preliminary view of the Nye Committee, which was ‘in substantial agreement on a principle to govern the export of munitions and contraband in case of a major war, and expects to make certain recommendations to the Senate on this subject in the near future’.11 Those recommendations contributed in 1935 to the passage of the first neutrality act. However, Roosevelt’s inclination to take a more active role in international affairs emerged briefly over whether its embargo on arms and implements of war should be mandatory. Roosevelt wanted to maintain discretionary power over

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these matters in order to be able to exert influence in international affairs. His hopes were foiled by a Republican-led filibuster in the Senate that persuaded him to give way, but even neutrality legislation crafted as carefully as the 1935 act could sometimes be applied equally against both parties at war and could still have unequal impact. There was little that the USA could do to help Abyssinia when it was invaded by Italy in 1935. Hull worried that Italy might be alienated by the imposition of an arms embargo, but Roosevelt insisted on an immediate declaration of neutrality (thus automatically introducing the mandatory arms embargo) and issued a warning that ‘any of our people who voluntarily engage in transactions of any character with either of the belligerents do so at their own risk’.12 On 30 October 1935 Hull stated that ‘the policy of the government…rests upon the recent neutrality act designed to keep the nation out of war, and upon the further purpose not to aid in protracting the war’.13 Mussolini was victorious in Abyssinia in 1936, but the USA never recognised the fruits of his aggression. The Roosevelt Administration, while keeping to the letter of the laws inspired by isolationists, was determined to try to implement internationalist policies by using them to favour victims of aggression. At times this was difficult to square with public pronouncements, such as the one by Hull quoted above, or with party political stances, such as the one issued at the 1936 Democrat Party Convention: We reaffirm our opposition to war as an instrument of national policy…We shall continue to observe a true neutrality in the disputes of others…to work for peace and to take the profits out of war; to guard against being drawn, by political commitments, international banking or private trading, into any war which may develop anywhere.14 China posed a further challenge for Roosevelt’s internationalism, and on this occasion the response was more effective. The Japanese had been spoiling for a fight with strife-torn China for some time, and in the autumn of 1931 contrived the Mukden Incident, which allowed them to establish the puppet Manchukuo regime in Manchuria the following year. In 1937 matters flared up into renewed conflict, and Roosevelt was again faced with choices, despite the ‘mandatory’ character of the neutrality legislation. After the Japanese Rape of Nanking in 1937 the clamour increased for Roosevelt to recognise a state of war in China, invoke the neutrality laws and apply an arms embargo. However, he and Hull resisted. They felt that such action would antagonise the Japanese and, as Robert Dallek has put it, ‘weaken Japan’s moderates, produce new aggression, and precipitate a war in which the United States would be unable to respond effectively to the more serious threat from Berlin’.15 Furthermore, an embargo would discriminate against the Chinese, who had the greater need for US armaments: equal application of the law would have unequal consequences. Roosevelt’s refusal to recognise the fighting in China as a war—no formal declaration had been made—allowed him the discretion not to invoke the neutrality laws, avoid an arms embargo, and favour China. These kinds of considerations coloured Roosevelt’s actions in relation to the neutrality laws throughout the 1930s, and they disclose how the President sought some leverage in international affairs despite the will of Congress and the weight of isolationist opinion. Running in tandem with this was the

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Administration’s attempt to gain more discretion in the use of embargo policies by diluting the isolationist content of the neutrality laws and by Roosevelt’s periodic forays against isolationism. The most notable of these was the famous ‘quarantine speech’ of 5 October 1937 in Chicago, in which he called for a concerted effort to oppose those ‘violations of treaties and those ignorings of humane instincts, which today are creating a state of international anarchy and instability’.16 He went on to urge the community of nations to respond by quarantining this disease, which he now saw as a potential vital threat to the USA. The Chicago speech sounded like a call for a renewal of collective security, but, as always in the interwar period, no Western power would take the lead and initiate strong and purposeful action against international aggression. The dangers of a resolute response from the democracies were compounded by the fact that there were two widely separated threats. One was from Germany, the other from Japan. The USA feared that, even if it did take the initiative against Japan, the European democracies would not support it and would excuse their shortcomings by pointing to the threat on their own doorstep. All the democracies suffered from lack of public support for strong deterrent action, and all feared that they could not rely on their fellow liberal democracies to back them up. In these circumstances the USA became torn between wanting to institute economic sanctions to deter the Japanese, and fear that those very actions might provoke war. The USA continued to call for international peace and justice, but would not take any practical steps to realise these objectives. Even economic statecraft, despite overoptimistic assessments of its effectiveness, was little used. This was partly because of the constraints of the mandatory and impartial arms embargo, partly because of lack of legal provisions to carry it out, but mainly for fear that it might provoke war rather than deter it. In some ways it could be said that this fear of provoking war through the use of economic statecraft was exaggerated, duly reflecting the exaggerated impact that embargoes were thought to have on targeted states. At least this was probably the case with Germany. Economic sanctions against Germany would have had few direct economic consequences, but they might have conveyed a more effective message from the democracies that there was a point at which their resolve would harden and armed resistance would commence.17 The case of Japan is more difficult to assess, because it was more vulnerable to economic sanctions; however, when they were finally applied in 1940, the Japanese had more scope for manoeuvre than in the 1930s because of the strategic stockpiles that they had accumulated. If sanctions had come earlier they might have demonstrated a kind of resolve that would have given Japan pause for thought.18 While Roosevelt manoeuvred for more scope to play an internationalist foreign-policy role, there continued to be immense optimism about the impact that economic sanctions would have in either deterring potential aggressors or bringing them to heel if the political will to apply them could be mustered. On the eve of war this optimism remained, even though economic statecraft had not been effectively deployed earlier in the 1930s. In May 1939 William Bullitt, US ambassador to France, commented to Roosevelt that the German war faction wanted the USA to continue with its arms embargo because this would favour the Germans by denying Britain supplies, whereas if the embargo were lifted Britain would be able to obtain supplies while denying them to Germany through the power of the Royal Navy. In the light of this R.Walton Moore of

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the State Department told the President: ‘A change in our Neutrality Act at the present moment, therefore, would enormously strengthen the chance of peace.’19 Both Roosevelt and Hull wanted to take action and had wanted to repeal the neutrality legislation in 1938. However, as late as July 1939 it was clear, as Vice President Garner put it: ‘You [Roosevelt] haven’t got the votes and that’s all there is to it.’20 Once war broke out in September, reports came through time and again about the importance of repealing the act. Ambassador Kennedy reported from London that British War Secretary Hore Belisha thought ‘if our Neutrality Act were not modified, the Soviet Union, Italy, and Turkey would decide that Britain could not win and would hasten to side with Germany’.21 On 4 October Prime Minister Chamberlain wrote to Roosevelt that Britain could win by persuading the Germans that they could not win. He thought they were already half way to achieving this and that the repeal of the Neutrality Law would have a ‘devastating’ impact on German morale.22 All this was wishful thinking, and perhaps a misunderstanding of what economic statecraft could and could not do. At this stage of the game it was too late to try to send messages of resolve to the Germans, and no economic measure could have brought them to heel. Earlier, things might have been different. When sanctions were applied to Japan, before war was declared, again it was too late in the day, and, instead of deterring, they only inflamed the hawks in Japan to a greater determination than ever to wage war against the USA. Apart from the cash-and-carry provision and some minor alterations, it was not until the Second World War had begun that Roosevelt managed to get significant changes to the neutrality laws. In November 1939 the arms embargo was repealed and exports were allowed on a cash-and-carry basis. That was quite a success for Roosevelt, and it helped Britain, but it took two more years before Congress repealed other important neutrality restrictions. However, during the period between the outbreak of war in Europe and Pearl Harbor the USA went through two learning experiences: one was in the process of introducing sanctions against Japan; the other was to do with the development of economic warfare by the British Ministry of Economic Warfare.

Japan and the failure of sanctions Throughout the 1930s the USA faced a dilemma concerning Japanese aggression in the Far East: first, it did not wish to be diplomatically isolated in a forward position opposing Japan (which essentially meant that, if Britain were not prepared to take a strong stance against Japan, neither would the USA); second, even if by some means that problem could be resolved, there remained the problem of US public opinion and what policies it would be prepared to tolerate. There was the additional complication that if policy went wrong, and conflict with Japan came, public opinion would have to bear the early and inevitable loss of the Philippines: a scenario no administration could contem-plate with equanimity. Both sides of the American dilemma were evident in Hull’s assessment of the Brussels Nine Power Conference called for November 1937 to discuss the Sino-Japanese conflict. In a letter to Roosevelt, Hull observed that even before the USA was invited to participate in the conference it was clear that the League had no intention of really pressurising the

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Japanese. Instead there was talk of the USA taking the lead, but in Hull’s opinion such leadership would have to be so prominent to get anything done, that it would not be acceptable to US public opinion or the Congress.23 The only positive course of action the USA felt able to take was to avoid recognising the Sino-Japanese conflict as a war in order to prevent an embargo on arms to China. The elder statesman, soon to be Secretary of War, Henry Stimson wrote to the President arguing that an arms embargo would ‘not only be a serious present military blow to her but it would psychologically have permanent and damaging effects upon China’s faith in us and our civilisation’.24 In March 1939 Roosevelt expressed to Hull and Under Secretary of State Sumner Welles his dissatisfaction about the Neutrality Act, which he thought would help Britain in the Atlantic in the event of war, but would also favour Japan in the Pacific. He added: ‘The more I think the problem through, the more I am convinced that the existing Neutrality Act should be repealed in toto without any substitute.’25 As we have seen, he was unable to do that, and even when war came in Europe the best he could get was a cash-and-carry amendment for arms. Over the following months, during the ‘phoney war’ before the German attack in the west, US policy changed little. However, after the blitzkrieg that overran the Low Countries, shattered France and placed Britain on a defence footing that looked doomed to failure, US attitudes and policies began to change. Furthermore, as Britain proved both her mettle and her ability to survive, Roosevelt took successive moves away from neutrality towards non-belligerent help for Britain. In September 1940 there was an exchange of US destroyers for bases in the British West Indies and Newfoundland. In the spring of 1941 Lend-Lease came on line. In August Roosevelt met for his first wartime summit with Prime Minister Churchill at Placentia Bay, Newfoundland. At the same time Roosevelt’s rhetoric against Hitler hardened, and ‘defensive’ actions were taken in the Atlantic to help protect British supply lines and bolster Britain’s still precarious position. Also, the Americans began secretly to discuss war strategy with the British. However, with Britain fighting for its life in Europe the last thing it wanted was to provoke a war in Asia with Japan, and that complicated matters for the USA in the Pacific. Washington had to factor this into its own policy in trying to deter Japan from further aggression. If America took a strong line against Japan, would it deter or provoke her to war? With France out of action and Britain engaged in Europe, the hand that the Western democracies had to play was severely weakened, and calculations of the likely effect of US sanctions against Japan were difficult to make. As the events of 1940 and 1941 unfolded divisions appeared within the Roosevelt Administration about what policy to follow. The most aggressive were Morgenthau, Harry Dexter White, Stimson and Robert Patterson, Undersecretary for War. Vice President Henry Wallace and his lieutenant Milo Perkins were close behind this group in terms of the vigour with which they supported strong responses to aggression. The State Department was the most cautious, though even here there were different shades of opinion: the keenest to avoid provoking the Japanese (and the Germans) were probably Adolf Berle and Sumner Welles, whereas Herbert Feis took a more vigorous line. Although the State Department was highly cautious, on 26 July 1939 Hull informed the Japanese that the USA wished to terminate the 1911 treaty of commerce, which was the first practical step towards the possibility of sanctions. A year later the next step came

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with the passage of the National Defense Act, which provided the President with powers to embargo exports if he so wished. Soon a range of strategic materials were placed under licensing export restrictions, but the cautious faction in the Administration, led by Hull, ensured that scrap metal and oil were not included in the list of licensed goods. By this time the Japanese were taking advantage of the war in Europe to extend their power and influence in Asia. The British had been even fuller of appeasement for Japan since the catas-trophe in Europe, but in the summer of 1940 they wanted the Americans either to seek a deal that would reconcile Japanese interests with those of the democracies, even if it meant paying a considerable price, or to take a stand to deter further Japanese aggression. The Japanese had made significant gains in terms of trade with the Dutch East Indies and in gradually isolating the Nationalist Chinese from outside help. In the summer of 1940, for example, the British felt that they had to acquiesce to Japanese demands and close the Burma Road that had been used to supply Chiang Kai-shek’s Nationalist forces with arms to fight the Japanese. There was only one country that might be able to stop Japan, and that was the USA, and so the British sounded it out, and in doing so helped to provoke renewed debate in Washington about economic sanctions and Japan. On 18 July 1940 there was a dinner party at the British Embassy in Washington at which both Stimson and Morgenthau were guests. In the course of the evening Stimson criticised the British for closing the Burma Road. In reply Ambassador Lothian and Arthur Purvis of the British Supply Mission pointed out that they had little alternative when the USA was not providing them with support and continued to export oil to the Japanese. Morgenthau declared that no one had asked them to embargo oil.26 From this point Morgenthau and Stimson decided to take up the matter with their advisers. With their help, and assistance from Frank Knox, Secretary of the Navy, they hammered out a comprehensive policy to deny oil to both Germany and Japan. Over the following days things developed rapidly, driven by Morgenthau’s energy and his enthusiasm for deploying the sanctions weapon. Harold Ickes, Secretary of the Interior, was approached, and his support was engaged in order to cut off oil supplies to Japan on the grounds of conserving US oil stocks. Momentum for changing US policy along these lines gathered pace and then ran into difficulties with the State Department. Stanley Hornbeck, Hull’s adviser on Far Eastern affairs favoured coming down hard on Japan, but others in the State Department, including Under Secretary of State Sumner Welles and Adolf Berle, were strongly opposed to such action. Berle, in particular, had a bad reputation among those who favoured strong supportive action for Britain and hard opposition to the Axis powers. In conversation with Morgenthau on 23 July Stimson commented that their opponents in the State Department were ‘all dead wrong…Berle… why he pretty nearly got us into trouble with Great Britain with his early notes’. ‘I mean in the first negotiations over the blockade the original drafts were nearly always drawn by Berle. So I don’t count Berle at all.’27 On 25 July it looked as if the Morgenthau-Stimson-Ickes group had won the day: the President announced an embargo on iron, scrap steel and oil products. But Welles was not done. He ‘took his arguments to Roosevelt who, much to Morgenthau’s fury, insisted on a compromise and limited the embargo to aviation fuel and high-grade iron and steel scrap’.28 For the next twelve months the Americans kept an eagle eye on the strategic oil

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situation in Japan. In mid-August 1940 Morgenthau reported to Roosevelt that the Japanese continued to increase their stockpiles despite the US embargo. This was largely due to massive increases of imports from the Dutch East Indies. The Germans had put pressure on the authorities in the Dutch East Indies to export oil to Japan by threatening relatives in occupied Holland. A month later, at a meeting with Morgenthau, Ambassador Lothian pointed out that the situation was so delicate in the Far East that the British could hardly be expected to antagonise the Japanese by interfering with the oil supply in the Dutch East Indies unless the British were able to depend upon the United States for support in the Far East. ‘The Secretary made no answer to this feeler.’29 The Americans were not prepared to commit themselves in a way that would convince the British to take strong action against the Japanese; however, on 26 September Morgenthau and his supporters gained another victory when the President embargoed all grades of scrap and steel in retaliation for the Japanese move into Indochina. Nevertheless, as late as 1941 basic problems remained for the USA. It dare not go too far in sanctions against the Japanese because of public and congressional opinion, even though public opinion supported the September sanctions against Japan.30 It was difficult to co-ordinate a strong stand with the British, as they could not risk antagonising the Japanese too far because of their position in Europe, and the USA was still divided by differences about whether to seek an accommodation with the Japanese or to try to deter them through resolute action, including a more effective embargo policy. Trying to estimate the impact of whatever the USA might do was extremely difficult. In December 1940 it was the view of the US Ambassador to Japan, Joseph Grew, that: ‘Economic obstacles, such as may arise from American embargoes, will seriously handicap Japan in the long run, but meanwhile they tend to push the Japanese onward in a forlorn hope of making themselves economically self-sufficient.’31 The truth was that a complex constellation of factors had arisen over time that had undermined the effectiveness of sanctions against Japan. Indecision on the part of Britain and the USA, and their reluctance to take the lead, or to be seen as the initiators of retribution through sanctions, resulted in their inability to co-ordinate policy effectively. Their fear of being unable to carry public opinion with a firm policy of opposition to Japan, and fond hopes that the Japanese might succumb to reason and reach an accommodation with the liberal democracies also conspired to create confusion and vacillation in Washington and London. When sanctions came, they were too late effectively to damage Japan’s war-making potential and came about in such a way as to send only a feeble message of condemnation. On 20 June Roosevelt stopped all east coast oil exports to Japan on the grounds of domestic shortages. It had little effect in curbing Japanese aggression. When Roosevelt proclaimed the freezing order on Japanese assets in July 1941 and effectively cut off all oil exports, in an attempt to deter Japan from striking south to gain the oil-rich Dutch East Indies, the main effect in fact was to help push the Japanese further along the road to war. Even after this the USA was still unable resolutely to confront the Japanese with what the consequences of further aggression would be. At the Atlantic Conference in August 1941 Churchill, Roosevelt and their advisers drew up a strong statement to be delivered to the Japanese, but on his return to Washington, and after the State Department had been allowed its full say, the message was watered down to become limp and anodyne.32 Four months later the Japanese attacked Pearl Harbor.

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Sanctions against Japan were not successful. They came too late in the day and there was insufficient consideration of what they were supposed to do. People like Morgenthau, who had strongly advocated sanctions, was too naïvely optimistic about their effect. Too little attention was given to the diplomatic role of sanctions sending messages and to the problem of how to square attempts to deter Japan through economic sanctions at a time when US public opinion was clearly unprepared to support a military initiative in the Far East. There were difficulties with co-ordinating policies with other key countries such as Britain and the Netherlands, and too much conflict and confusion within Washington about what should or should not be done. In retrospect it became clearer what the USA had actually done. While the US provided oil, raw materials, and scrap iron, Japan invaded China. Firm collective action on the part of the US and its allies in 1937 vis-à-vis Japan may, perhaps, have led to a far different outcome, sparing the tragedy of four years later. Lamentably, the US had yielded to Japanese aggression so many times in the 1930s that it could not in July 1941 suddenly say ‘enough’ and expect to be believed. America was paying the high price for two decades of isolationism, and it could not realistically alter its international image, as such, in a couple of short months.33 From this experience some lessons would be learnt for the future. The coming of war and the manner of its coming exposed the true character of the nostrums of appeasement. American leaders learnt the lessons of history and developed new medicine to deal with the disease of international violence and aggression. America must never again imperil its own security by providing the sinews of war to a potential enemy. It was futile to appease totalitarian regimes. The USA must always show a resolute and determined profile to the outside world, and it would have to take a more active line in educating and leading public and congressional opinion. It was vital to have close co-operation and concerted policies with allies. And, above all else, America had to be prepared, and its leaders would have to make sure that they communicated their intentions clearly enough to potential enemies in order to deter them from aggression.

Preparing the ground for economic warfare After American entry into the war the internationalists were ascendant. Soon the character of total and ideological warfare became clear, and the USA rapidly became the most ardent advocate of total economic warfare and justified it on the grounds of the illegal nature of the war, the evil of those who had started it, and the impossibility of being able to distinguish between civilian and military needs in total war. As one American war hawk put it: ‘Whether they [isolationists] admit it or not. Whether indeed, that is any part of their purpose. They are working for Hitler. In this war today there is no such thing as neutrality: you are either for Hitler or against him, you either fight him or you help him.’34 However, the full logic of this was not pursued immediately on America’s entry into the war. At first, as two American officials who were directly involved in economic warfare noted later, America followed practice established by

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Britain. But soon: ‘In Washington…there developed gradually a conception of economic warfare objectives and of strategy and tactics going considerably beyond what the British were willing first to attempt.’35 Economic sanctions and warfare should be prosecuted to their utmost limit, even against neutrals. There was a moral obligation to do that, and the USA laboured under fewer constraints than Britain in pursuing a policy of complete denial, because it was so much more self-sufficient and did not need vital supplies from neutrals. American policy had thus turned one hundred and eighty degrees: from championing extensive rights to neutral trade to condemning them. The USA had shifted along the spectrum from one extreme to the other. It claimed that belligerents had a duty to allow extensive neutral rights to trade, then argued for the need for self-imposed duties on the neutral not to trade. Once war broke out, and it became involved, it began to deny the right of trading courant normal with neutrals. And it finally ended up demanding that neutrals recognise a duty not to trade with the enemy. But, even after this radical turnround, there was still a further step to take, which came with peacetime cold economic warfare. This policy U-turn had to be accomplished within the legal framework of a constitutional democracy where law counts. The legislative framework within which policy had to operate between 1933 and 1943 had five main sources, and they not only complicated things but also imposed restrictions on the speed and manner of change. The first two were the Espionage Act of 15 June 1917 and the Trading With the Enemy Act of 6 October 1917. As Malloy has noted the latter ‘has been utilized by the US Government against states that were declared enemies of the United States or that, in situations not involving declared war, have been considered to be engaged in the pursuit of policies otherwise threatening to US interests’.36 In short, the act was broadly construed. In 1933 Roosevelt even used its provisions to declare a domestic ‘banking holiday’, which was subsequently ratified by the Congress: it amended the law ex post facto to cover domestic national emergencies. In April 1940 a more predictable action was taken when Section 5b was invoked to freeze the assets of Denmark and Norway in the USA, after the Nazis had occupied those countries. But the real force of the act could not become active until after America entered the war. The situation was similar with the Espionage Act, even though it was considered as a possible means of restricting the sale of potentially important strategic items, such as flying boats in the 1930s, on the grounds that they might be used to the injury of the USA. The problem here was the danger of running foul of nondiscrimination: if flying boats were sold to one country they would have to be made available to all others; if they were denied to one they would have to be denied to all, which would have caused ‘financial hardship’ to the US Douglas aircraft company.37 A similar kind of problem arose with British requests for the revolutionary Norden bombsight. On 31 August 1939 Roosevelt explained to Prime Minister Chamberlain that the USA could not make it available to the UK without making it generally available on the international market.38 The problem of legality posed real problems for foreign policy in the context of the delicate state of US public opinion and some of the controversial reforms Roosevelt sought to achieve in the domestic realm. In November 1937 at the time of the Nine Power Conference in Brussels, at which there was much talk of the USA taking the lead in opposing Japanese aggression in China by imposing economic sanctions, Cordell Hull wistfully observed that ‘there is not a syllable of law to authorise

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our Government to participate in sanctions’.39 There was little chance of Congress enacting law to change that, and, in any case, Roosevelt felt unable to take the gamble of trying, because of the fallout that might result for his domestic agenda. The third factor in the legal framework was the terms of existing trade agreements, which generally prohibited discriminatory economic restrictions. Thus, until July 1939, when Hull gave notice that the USA was terminating the 1911 Treaty of Commerce and Navigation with the Japanese, there was no legal prospect of being able to take peacetime economic sanctions against Japan in retaliation for its military aggression in China. Roosevelt had chosen not to recognise Japanese aggression in China as ‘war’, which thus avoided the neutrality laws coming into operation and enabled military supplies to continue to go to China. However, by July 1939 a stronger stance against Japan was required, and six months after giving notice the US-Japanese treaty came to an end and the USA was free to take economic sanctions against its erstwhile friend. A fourth component of the legal context was the neutrality laws, particularly their mandatory provisions, which prevented Roosevelt from exercising his own discretion to support victims of aggression and those seeking to uphold international collective security. The fifth factor was legislation passed after 1939 both to ease the restrictive character of the neutrality legislation and to facilitate broad measures of defence for the USA. The most important act in this latter respect was the National Defense Act of July 1940, which provided Roosevelt with the means of embargoing exports to Japan. It gave him legal authority for the control of exports from the United States of munitions, materials and machinery essential to the national defence. Even this brief summary of some of the main components of the legal context within which American economic sanctions had to operate discloses the piecemeal and fragmented character of the policies, and a similar picture was reflected in agency and departmental responsibilities. On trade and exports the President and the Department of Commerce had principal authority, but the State Department was involved in formulating overall policy, and the Navy and War Departments had natural and strong interests in advising and helping on policy matters to do with national security. After the passage of the 1940 Defense Act Colonel Russell L.Maxwell was appointed Administrator of the Office of Export Control and was in charge of screening exports until the office was transferred in September 1941 to the Economic Defense Board (which became the Board of Economic Warfare—BEW—after Pearl Harbor), where Milo Perkins took over and Maxwell returned to army duties. With regard to controls on assets and money, the Treasury had the main expertise, and certainly under Morgenthau took a strong line to expand its authority and prestige. Once war broke out Roosevelt tried to centralise things with the creation of the BEW under Vice President Henry Wallace, but authority was still divided between several departments and agencies. Wallace tried to dominate economic warfare, but it was a policy area that spilt over into the domestic economy, for which Donald Nelson had prime responsibility, and into the foreign sphere, where Wallace and Milo Perkins collided with the State and Commerce Departments. There was thus widespread jealousy and discontent, and nowhere more so than between Wallace and Jesse Jones, Secretary of Commerce. Among other things, Jones was in control of the Reconstruction Finance Agency, which was used for the pre-emptive buying of strategic

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materials. Wallace felt that Jones did not act vigorously enough, and eventually there was an open feud between the two, which led to the abolition of the BEW and the creation of the Foreign Economic Administration (FEA) under Leo T.Crowley, which took over the responsibilities of the BEW and the Commerce Department’s economic warfare duties.40 There were different views throughout the Administration as to how policy ought to be conducted, and the tensions between those views as well as jurisdictional jealousies went largely unresolved during the war. The following views of two members of the FEA give the flavour of the problems that afflicted US economic warfare policy in its formulation and execution. Even after we entered the war…the definition of responsibilities among the United States Government agencies interested in various aspects of these programs was far from perfect. For one thing, economic warfare was a fascinating subject to dabble in, and everyone had ideas in what should be done. The Department of State had policy determining powers but became involved in operations. BEW-FEA was given operating authority and constantly tried to fix policies. The War Department was concerned to obtain or preserve supplies of scarce materials. And the Navy considered themselves by definition, the experts on blockade…Over all hovered the Chiefs of Staff, issuing directives without clearly seeing their import, while their nominal subordinates in the military services assailed the civilian agencies for carrying out the policies of the Chiefs of Staff. The Board of Economic Warfare properly speaking, the cabinet committee itself, had been intended to provide co-ordination and guidance, but it met infrequently and was abolished after the Wallace-Jones feud broke into the newspapers. Only the President could finally decide the controversies, and he usually had other things to do.41 Such conflict within the central administration of government adds to the general qualifications noted in the previous chapter about the autonomy of the executive branch. Immediately after the Second World War the situation did not improve. If anything the bureaucratic structures became more decentralised and had to cope with greater public and congressional interference and with the difficulty of alliance politics in peacetime, which were not as easily handled as in wartime. In fact, as we shall see in Chapter 7, twenty years after the Second World War an official memorandum for the incoming administration of Lyndon Johnson itemised problems obstructing the execution of the strategic embargo under President Kennedy that were almost identical to those that had afflicted the Roosevelt Administration.

Learning from the British Even as the Japanese sanctions policy was unravelling in failure, Americans were climbing up a sharp learning curve as they co-operated with the British in their deployment of well-prepared strategies for economic warfare. The British Government planned the operation of a Ministry of Economic Warfare in detail well before 1939. As early as 1930 the Committee of Imperial Defence had established the Industrial

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Intelligence Centre, which collected and collated a vast amount of information that was fed into the MEW after war broke out.42 The Americans were later to take the idea of economic warfare to its logical conclusion under conditions of total war, but much of the strategic thinking and the administrative structures from which they developed their policies were pioneered by Britain. British policy was complicated by Britain’s dependence upon strategic materials from neutral sources and by the fact that, after the fall of France and the evacuation from Dunkirk, Germany could exercise more influence on the neutrals than it could. At the outbreak of war Britain negotiated War Trade Agreements with the neutrals, which provided for trade courant normal, but prohibited re-export of contraband to Britain’s enemies. After the German successes in the summer of 1940 the War Trade Agreements were not adhered to by the neutrals, but Britain was loath to denounce them and instead placed more emphasis than ever on trying to control world trade at source in order to prevent massive haemorrhaging of its strategic blockade. It was through this strategy— the development of the worldwide paper blockade, supported with pre-emptive buying— that Britain showed the way for the USA. Co-ordination between Britain and the USA, while qualitatively different from the troubled experience of the First World War, was not without its difficulties. In particular, as we have seen, Berle created a number of problems with the British over blockade policy in the early months of the war. He was Assistant Secretary of State for International Economic Affairs and Chairman of the Liaison Sub-Committee of the Interdepartmental Committee on Neutrality. As such he worked on early embargo policy with the British, who were led in Washington by the Commercial Counsellor Sir Owen Chalkley. The British were bent on extending the principles that had governed their blockade policy at the end of the First World War; these involved rationing, pre-emptive buying and a long-distance blockade, at the heart of which was the Navicert system. A Navicert was in effect a stamp of approval on cargo, issued by British consular officials at the port of loading. In a wider sense Britain was asserting the right to license international trade. The Royal Navy would not interfere with ships issued with a Navicert. Ships not issued with a Navicert could be stopped, taken to port for search, and contraband seized. This grand strategy ‘involved a further shift in the burden of blockade enforcement from the Admiralty to MEW, from sea power to economic and administrative sanctions. In a real sense, it became a paper blockade’.43 To implement this the British needed US approval. According to R.W.Matson, severe problems with the embargo, which had resonance with the experience of the First World War, troubled Anglo-American relations until April 1940. The problems were allegedly more severe, particularly regarding the British blacklist of American companies (i.e. those deemed to be trading in contraband with the enemy and therefore excluded from any trade with Britain and her Commonwealth and Empire) than was suggested in earlier studies.44 There is some truth to this, but insufficient weight is given to the fact that Berle, seen by others in the Roosevelt Administration as an extremist in his views about neutrality and the blockade, was the key US negotiator with the British. Seeing things through his eyes gives a rather distorted view of the troubles experienced by Britain and the USA. Nevertheless, a memorandum of November 1939, drawn up as a code of practice for the British, clearly indicates that

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the USA had concerns over the niceties of neutral rights. 1 The proposed Navicert System will in no sense be used to interfere in any way with the normal volume of exports of genuine neutral character from the United States to any neutral country. 2 The proposed Navicert System will not be used in any way to discriminate against the United States and United States exporters. 3 The granting or rejection of a Navicert shall be conditional upon circumstances related solely to the character of the goods and conditions in the country of importation and in no respect upon conditions related to American exporters or to the United States. 4 Whenever applications for Navicerts are rejected a clear, concise statement of the reasons for such rejections shall be given to the applicant for the Navicert.45 The British did not fully respect the principles in this memorandum, but an accommodation was reached in the spring of 1940. By then the USA was moving into a more supportive role in any case. Three months after the British agreed to abide more closely by the rather legalistic American principles an incident occurred that reveals just how different the US positions were in the First and Second World Wars. On 11 July 1940 Morgenthau talked with Hull over the telephone about how they might deal with contraband that was about to be shipped from the USA. Recently enacted regulations would stop such shipments in the future, but the cargo at issue could only be prevented from sailing by applying the rules retrospectively, and both were reluctant to do that. In the end Hull suggested that they simply let it go, but ‘notify the British so they can pick it up anywhere they want to’.46 Coming from Hull, who was generally seen by Morgenthau as both too timid on sanctions and too weak in supporting the British blockade, this places an interesting gloss on US policy. And although there was some fuss over the British blacklist, nevertheless, even before the US entered the war, it too drew up a blacklist, the Proclaimed List of Certain Blacked Nationals, which was operated by the Economic Defense Board. As early as the summer of 1940 the Americans were forming a global perspective on economic warfare based on the strategy developed by the British of a paper blockade controlling materials at source. On 5 July Ambassador Lothian, in talks and in an aide mémoire that he gave to Hull, emphasised that the only way effectively to prosecute economic warfare against the enemy was by ‘the strictest possible control of the source’.47 He explained that this was what Britain intended to do and urged that all means should be used to: i cut off exports to the enemy and its occupied territories; ii block finances; iii prevent Italian and German nationals returning home to technical jobs or the armed services, and iv co-ordinate US and British policies in the western hemisphere, ideally with the USA taking the lead.48 This global range of thinking was reflected in ideas Harry White expressed in August 1940 for dealing with oil. He suggested that Britain should be supplied with oil from Latin America. The USA would control any of its own surplus production by export

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controls justified on the basis of conservation. The Dutch and the British should destroy or control oil production in the East Indies. The Soviets could take control of the Romanian oil fields, and the British should bomb German oil production centres. On the basis of this scenario, White hoped that both the German and Japanese war machines would grind to a halt.49 Enthused by such a scenario, Morgenthau had pushed for oil sanctions against Japan the month previously, but, as we have seen, he was partially thwarted by Welles and the State Department. After Pearl Harbor Franklin Roosevelt himself clearly demonstrated that he too had developed a global perspective on economic warfare. He wrote to Milo Perkins: ‘I am anxious to get into a conference at an early date with the British, and possibly the Dutch, relative to the raw materials of the world which are either under our control or are under the control of our friends. It is essential that we make the best and most effective joint use of these materials.’50 By 1942 US economic statecraft had travelled a long way from the obsession with neutral rights and obligations that had characterised it in the early and middle 1930s. Even before America herself ceased to be neutral, there was a definite shift towards narrowly circumscribing neutral rights. There was also little sign of agonising over Britain’s paper blockade or its policy of stopping and searching ships on the high seas, though the British were careful not to antagonise the Americans here. The Americans had learnt a lot about economic warfare from the British before entering the war. Soon the British were to start learning from the Americans, who now became the most ruthless wagers of economic warfare. Just how ruthless can be seen in the USA’s policy towards European neutrals, particularly Sweden, and in the way it dealt with allies as they pushed for acceptance of their vision for a new post-war international economic order. In such policies were born the principles of economic statecraft, which were later to dominate American thinking in the Cold War. There was also a more general and more important lesson that the USA learnt from the international events of the decade that led into the Second World War. Appeasement and Pearl Harbor were powerful symbols in American strategic and foreign-policy thinking in the post-war years. The fear of appeasement leading inadvertently to war and the danger of being ‘Pearl Harbored’ through lack of preparation and inadequate precautions impacted forcefully on US policy-makers. Conveying wrong messages had to be avoided, and the demonstrable will and means to protect what were defined as vital national interests had to be cultivated and nurtured. Looking back on the 1930s Americans saw vacillation, weakness of will and a lack of resolve to do what was necessary. Above all these things, the Western democracies had conveyed the wrong messages to potential enemies. The classic case was that of Hitler’s expansion in Europe. Hitler had remilitarised the Rhineland and then proceeded blatantly to rearm: both actions were contrary to the Versailles Settlement. He then achieved Anschluss with Austria—again contrary to Versailles. No effective action was taken by France, Britain or the League to reverse these developments. Next on Hitler’s agenda came the Sudetenland, which was ceded to the Third Reich under the auspices of the Munich Agreement; a few months later Germany digested the rest of Czechoslovakia. Again the West had done nothing except to contrive with Germany the dismemberment of Czechoslovakia. But now Britain and France announced their guarantee of Poland. Not surprisingly, Hitler did not believe

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that they would in fact do anything if he invaded—but they did, and the Second World War began. The lesson of appeasement was that the Western democracies had to convey the right message to their potential opponent. When they said ‘enough’, it had to be seen to mean just that. If they said ‘enough’ after á period of indecision and granting concessions, they might be misunderstood: in the post-war world there was to be no equivalent of the falling dominoes of the Rhineland, illegal rearmament, Anschluss, the Sudetenland and Czechoslovakia. US resolve and determination had to be conveyed effectively. There were to be no more Munichs, no more mistaken liberal assumptions about the reasonableness of totalitarian leaders, no more vacillation. Public and congressional opinion would be rallied. Allies would be nurtured, reassured and led purposefully. The right messages would be conveyed and, in the post-war confrontation with the Soviets, sanctions and embargo policy were to play important roles in getting the right message across, not only to the communists but to allies, non-aligned states and America’s domestic constituency as well.

4 The demise of neutrality and the development of economic instruments of coercion But whatever legal principle or precedent we cited as the basis of our economic warfare methods, there can be no doubt about their practical effect. They spelled the end of the conception of neutral rights in wartime.1

In January 1943 US Secretary of State Cordell Hull alerted the Swedish government to its obligations as a neutral and intimated a threat of American reprisal if they were not observed. He explained that ‘the determining factor in American-Swedish relations during the war must be the extent of Sweden’s resistance to Axis demands that were contrary to her rights as a neutral state and a democratic independent nation’.2 Hull later noted in his memoirs that just over eighteen months later the substance of communications with Sweden was rather different: ‘After numerous exchanges of views with the British Government, including messages between the President and the Prime Minister, Foreign Secretary Eden and I agreed on joint representations to the Swedish Government, made on August 24, stating that nothing short of cessation of all trade relations with the Axis and of a radical change in Sweden’s German policy would meet our demands.’3 Those demands were backed with substantive threats if Sweden did not comply. After threatening Sweden with retaliation for not upholding her neutral rights in 1943, the USA in 1944 threatened her with retaliation if she did not abrogate those very same rights. The change of American attitude towards neutral rights to trade did not come about simply because of relations with Sweden, but the story of America’s policy towards Sweden in the Second World War illustrates the change well. In addition to this there were three other important episodes in American wartime economic statecraft, which impacted on policy developments both during and for a long time after the war. The first and second of these were the Lend-Lease programme of wartime aid to allies, and the planning for a new international economic order for the post-war world. They demonstrated that both America’s security and economic prosperity were dependent on close co-operation with allied and friendly countries, on their willingness to trade, and on their prosperity. This recognition of interdependence with allies and international prosperity added new dimensions to America’s traditional conceptions of its own best interests and its security. Along with a new conception of US long-term security, LendLease and post-war economic planning also taught Americans a great deal about their influence and economic strength and about the strategies and the economic tools

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available to them for pursuing their national interests. The third episode was the development of an economic strategy to deal with the Soviet Union after the war. These three economic strategies, or tools of statecraft, dealt in their different ways with successive security threats to the USA: the Axis; the danger of not winning the peace; and the geostrategic and ideological threat from the Soviets. They not only affected the way that the USA sought to influence her allies during the war, they also had important implications for how Americans would deal with future adversaries. As US wartime blockade officials observed in 1947 at the onset of Cold War: The development of economic warfare since 1939 may…have indicated a way to provide teeth for collective action in defense of peace. The techniques by which we enforced economic warfare controls were both simple and effective in checking shipments to Germany and her allies in wartime; they might be equally effective in the twilight zone between diplomacy and war as a means of applying collective curbs or sanctions to actual or potential aggressors in the future.4 Once inhibitions about interfering with neutral rights had been overcome, it was easy to take the next step and use coercive and denial strategies against potential enemies even while they remained legally within the brotherhood of friendly and peaceful nation states. This is a perspective on Cold War that has never been fully explored, but it will be in subsequent chapters.

Sweden and the ‘criminalisation’ of neutral rights to trade with the enemy In December 1941 the USA inherited an existing system of wartime economic controls that had been crafted by the British. Before the Japanese attack on Pearl Harbor there had been significant Anglo-American differences over the rigour with which Britain sought to control the flow of supplies into occupied Europe through non-belligerents and neutrals. The US Ambassador to Vichy France, Admiral William Leahy, vented his anger at the British, recording in his diary that ‘the British blockade action which prevents the delivery of necessary foodstuffs to the inhabitants of unoccupied France is of the order of stupidity as other British policies in the present war’.5 Notwithstanding the vehemence with which Leahy expressed his views, American attitudes were soon to change and go beyond the British in advocating a tight blockade. With regard to neutrals such as Sweden, there were two distinguishing features of the blockade system at the end of 1941: Navicerts, and War Trade Agreements. Britain negotiated War Trade Agreements with neutral countries in order to set the parameters that were then to be enforced by Navicerts, which lay at the heart of the allied ‘paper blockade’, and were effectively trade licences issued by the British Government. The parameters were laid on two notional foundations: trade flows should be courant normal, and there should be no transhipment of contraband to the enemy. In fact, this type of attempt to limit neutral trade, and thereby the flow of materials to the enemy, was ineffective while Germany dominated the continent and held the initiative in the war. The British signed a War Trade Agreement with the Swedes on 7 December 1939 and

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amended it later in December 1941. However, during 1941 it became clear that Swedish trade was rendering enormous help to the Nazi war machine. Between 1939 and 1941 Swedish exports to Germany doubled. The export of special steels rose by 350 per cent, and of machinery by 148 per cent. Many Swedes sympathised with the Nazis, and the Swedish government extended large credits to them and allowed transhipment of German troops and equipment across Sweden to occupied Norway.6 The balance of benefit, however, was not all one-sided. The British gained from the continuation of an air link between Stockholm and Scotland and received valuable strategic goods from Sweden. The British also felt that, bad as the situation had become, they did not want it to deteriorate further by pushing Sweden deeper into a German embrace as a result of aggressive allied economic restrictions. The Americans were not insen-sitive to these considerations, but, in the light of the overall situation, they soon began to express their dissatisfaction with the existing strategy of economic warfare. As US blockade officials later explained: ‘In the cutthroat play for economic advantage in the neutrals, Germany held most cards. The British found their War Trade Agreements, negotiated before the disasters of 1940 and 1941, were of little value in curbing strategic neutral exports to Germany.’7 However, for several months US officials were too concerned with the immediate military crisis in the Pacific—and, it has to be said, with bureaucratic squabbling—to craft effective new policies. In the early months of 1942 Vice President Henry Wallace, Chairman of the BEW, pressed for more power and centralisation of economic warfare policy in his hands. He wanted to take control of Lend-Lease, seize all economic warfare policy-making for the BEW, and have his officials roam abroad on foreign economic policy missions to monitor and control things. This would, among other things, have bypassed the State Department, which Wallace regarded as listless and inefficient. Wallace had some temporary success, though, as we noted in the previous chapter, he did not get Lend-Lease or his roving ambassadors. He also stirred up so much antagonism in the State Department, for bureaucratic and policy reasons (the State Department consistently saw more diplomatic and political dangers with economic warfare than the BEW), and with Commerce Secretary Jesse Jones, for policy and personal reasons, that Roosevelt eventually restructured things by creating the FEA under Leo Crowley in 1943.8 Thus, for much of 1942 the pattern set by the British was generally followed, and the Americans were unable to make any effective policy changes. They tightened up controls over their own exports and undertook pre-emptive buying to deny the enemy strategic materials, but there was growing frustration in Washington with what was increasingly perceived as an intolerable situation, with materials still getting through to Germany and Japan. At times this frustration broke through in rather bizarre proposals, wafted around Washington by an air of desperation and unreality. On 19 March 1942 Milo Perkins suggested to Wallace that the USA should urge the adoption of a scorched earth policy on the Swedes in the event of a German invasion. This could be made palatable to the Swedes by an offer of American compensation payable after the war. He went on: ‘It’s unorthodox, of course, but why shouldn’t we use some of our strengths of the capitalist system, our wealth of capital, to appeal to Swedish capitalists in language they would understand.’9 This naïve proposal got no further, but it was indicative of both a type of arrogance stimulated by growing US economic power and an increasing insensitivity

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among Americans to the whole idea of the sanctity of neutral rights. By the autumn of 1942 increases in Swedish exports of strategic materials to Germany aroused concern in the US War and Navy Departments and prompted the BEW to undertake a detailed review of the situation in collaboration with the British MEW. On 10 September Wallace informed Roosevelt about what was happening and pointed out that it raised very grave questions about permitting Swedish trade with the rest of the world to continue on anything like its present basis. The military arithmetic of the situation seems to be on the side of our Army and Navy. Over and against this are certain intangible factors regarding Sweden as a democracy and her neutral trade rights under international law concerning which our State Department is naturally very sensitive. The British will be equally sensitive.10 Wallace explained that the BEW had tightened up control of US exports administratively, and that they were now only a trickle compared to the Navicert exports from Britain to Sweden. He promised to let Roosevelt know of the outcome of the review in hand and of the BEW’s judgement about it, which should be of use if any ‘sharp change in policy is brought to you for decision’.11 In fact, Roosevelt turned to the more cautious Hull for advice on these matters. The Secretary of State told the President that he felt fundamental questions were involved, and that they needed to co-ordinate closely with allies, namely the British. For the time being Roosevelt went along with this note of caution and allowed Hull to draft the response to Wallace.12 Any change in policy which imposed further restrictions on Sweden’s trade would have important effects and therefore requires most complete consideration of all aspects of the question. I presume that any such action would only be considered in the event that careful study showed that it would result in an added detriment to the economic or supply basis of the Axis war effort and that such detriment would more than counter-balance any actual political or military considerations. Any marked change in policy towards Sweden would require careful examination not only by the military and political branches of our Government, but also by our Allies.13 This response shows just how alert the President and the State Department were to the complexities involved. Not only should there be a clear and quantifiable balance of economic gains over losses, but less quantifiable and more qualitative considerations had to be taken into account as well. These included the danger of pushing a democracy away towards the enemy and the consequential loss of the impact of Swedish arms on German thinking. Under existing circumstances, Swedish military power could not be ignored by the Germans as a potential danger, but that would change if the Allies alienated Sweden through harsh measures of economic warfare. That could liberate more German forces for work elsewhere. And, finally, American and allied assessments of the benefits and costs of tightening the embargo differed. This also had to be taken into account for the sake of maintaining good relations within the alliance. All these things had to be factored in

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before any major policy change could be effected. The BEW was to discover that, when factored in, the components pointed in different policy directions for various, and often irreconcilable, reasons. In late October, just before the detailed BEW study of trade with Sweden was due to be considered in Washington, Prime Minister Churchill wrote from London counselling caution and a steady-as-she-goes policy. He expressed admi-ration for Erik Boheman, who was a key figure in both the Swedish Foreign and Cabinet offices. Boheman was ‘thoroughly well disposed to our cause’ noted Churchill, ‘though very guarded on account of the danger in which Sweden lies’.14 Churchill wanted Roosevelt to talk with Boheman in Washington, and ended his letter by saying: ‘I feel it most important that Sweden should be in with us all before the end, though the moment for bringing her in must be wisely chosen.’15 Quite clearly, the British did not want to change trade policy radically and alienate the Swedes, or to force them to adopt policies that might provoke a German invasion. However, contrary counsel was very much in evidence in the USA as the debate heated up, fuelled by the report from the BEW. The report identified a series of Swedish actions which could not in all conscience be squared with the idea of neutrality. These included: the shipment of strategic commodities over and above the ‘limits’ agreed in the War Trade Agreement with Britain; transhipments of arms and troops across to Norway, including a fully armed division in July 1941; Swedish credits for Germany; use of Swedish territorial waters by enemy military traffic convoyed by the Swedish Navy; and trade discrimination, which allowed trade with proto-fascist, but not pro-allied, countries in Latin America. On the positive side, UN-chartered Swedish ships brought benefit to the allies, and Britain received small amounts of strategic material and spare parts for Swedish machinery that were important for British war production, though the Americans believed that the British probably exaggerated the significance of this. In the end, the most difficult factor to assess, but which tipped policy preference away from the hard-liners, was the role of the Swedish army and navy. The British felt that they were important, and that allied action should not so alienate the Swedes that the Germans could ignore their military potential. The US War Department could not bring itself to agree with this, but the BEW, the State Department, the War Production Board and the Navy Department concluded that: a stoppage of trade, besides shutting off certain important material sent from Sweden to the United Nations, might adversely affect the determination and ability of the Swedes to resist Axis aggression. This judgement must be judged in the light of the possible military value to the United Nations of a strengthened Swedish army and the fact that a substantial part of the productive capacity of Sweden is absorbed in its armament program. A complete and permanent cessation of trade would make it difficult for the United Nations to bargain with Sweden in order to obtain certain military and economic concessions important to our interests.16 The situation was clearly not satisfactory, but the overall view was that the best way of improving it was to negotiate changes with Sweden by using a judicious mixture of carrots and sticks. Careful calculations and difficult decisions still had to be made to

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wage economic warfare effectively, even when total war simplified priorities and polarised relationships between belligerents. In the judgement of Britain and the majority in Washington, trade with Sweden should not be cut off completely if maximum benefit were to be reaped for the allied cause. Trade should continue, including petroleum ‘in exchange for commitments, secret or otherwise’, on a long list of objectives set out by the BEW and designed to choke off important supplies to Germany without endangering Sweden’s position or the flow of Swedish strategic goods to Britain and the Soviet Union.17 That decision was a matter of judgement; it was not something that could be resolved by an economic calculation. If it had been, then Henry Morgenthau at the US Treasury and Assistant Secretary of War Robert Patterson would not have found themselves dissenting in the strongest possible way from the recommendation to negotiate with the Swedes. They wrote to Wallace protesting that this policy would ‘constitute aid to our enemy without adequate offsetting advantages’. Sweden was so blatantly helping Germany and so clearly subject to it already that Swedish neutrality was hopelessly compromised, and there was no chance of it becoming more independent or more resistant to German will. In short, there was nothing to be lost by stopping trade, and lots to be gained. In our opinion, we should permit Sweden to receive no supplies which we control unless she stops all unneutral action and unless it is assured that such supplies as she may receive will not significantly aid the enemy. It is also our view that trade should not continue during negotiations but that all shipments, including oil, should be held up until the negotiations have been concluded.18 Thus a rather complex picture emerges with different departments and agencies differing over what should be done. There appeared to be a simple, straightforward division between the BEW, Joint Chiefs of Staff, the War Production Board (WPB) and the State Department on the one hand, and the War Department and the Treasury on the other, but it was not as clear cut as that. In particular, the State Department, while going along with the idea of negotiations with the Swedish Government, was actually more sensitive to the political dangers of offending and alienating it than was the case in the BEW. On 12 November Assistant Secretary of State Dean Acheson tried to persuade Milo Perkins to influence BEW to take a more liberal line on oil exports to Sweden, though to no avail.19 Furthermore, State Department sensitivities also extended to an awareness of difficulties that could arise with the British if things were not handled carefully. In fact, just as the policy recommendation came from the BEW and the Joint Chiefs of Staff, there were developments that caused further complications. Wallace reported to Roosevelt on 16 November: ‘Since our Board meeting, our Swedish friends have reversed themselves and refuse to release two ships under British charter…As a price for their release, the Swedes want us to release at once a large Swedish tanker…We think this should be done after we get some of the concessions recommended by the Board and the Joint Chiefs of Staff, and not before.’20 So, although the State Department favoured a flexible approach, the truculence of the Swedes delayed the much-sought-after talks for five months. Hull had some sympathy for the Swedish

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position, as he thought that they genuinely feared the possibility that the Germans would invade if Sweden were to cut off all trade.21 However, others had a much more jaundiced view of the Swedes. Among them was Stanton Griffiths, one of the dollar-a-year businessmen recruited to help manage the war effort. He was soon to be an important gobetween in talks with Swedish industrialists, but in the meantime he made his views known in no uncertain terms to Bill Donovan, Director of the Office of Strategic Services (OSS, the precursor of the Central Intelligence Agency, CIA): ‘And when we have done all these things and Sweden fears that Russia may sweep through Finland to face her on Finland’s west coast, she will still come into the war on the side of Germany and not on the side of the Allies.’22 The idea of compromising in order to strike a deal with Sweden was deeply resented by the War, Navy and the Treasury departments. Whether or not to trade oil was at the heart of this, and Hull had to get a decision from Roosevelt to ensure that negotiations could go ahead.23 Eventually, after the Swedes had released the two ships chartered by the British, negotiations in London between the British, the Swedes and the Americans began in May. By July the carrot-and-stick approach produced results. The Swedes agreed to cut back the level of supplies to Germany and to withdraw transit rights in return for allied undertakings to provide Sweden with limited amounts of oil. The agreement, formally signed on 23 September, was important in itself, but also it was symbolically valuable in talks with other neutrals.24 The key remaining trade issue with Sweden was the matter of ball-bearing exports to Germany and the role of the Swedish company SKF in that trade. By 1944, as D-Day approached, the allies once again became concerned about Sweden. The supply of ball-bearings to help re-equip the Wehrmacht and replace losses it would suffer on the second front became a pressing issue for the US Chiefs of Staff. Hull wrote to them on 19 May: ‘No matter how unrealistic it may appear to us here, the factor which in the final analysis will control the Swedish Government’s decision…is its conviction that full compliance with our demands will almost certainly expose Sweden to German military attack.’25 Simultaneously with this exchange between Hull and the Chiefs of Staff, Stanton Griffiths went to Stockholm at the request of the FEA to try to constrict the flow of ballbearings to Germany by cutting a deal with SKF. Among other things, Griffiths was authorised to offer financial incentives. In essence, the main tactic was a form of preemptive purchase. At first the Swedes were unrespon-sive, but they were gradually ground down by Griffiths, even though his position was difficult, both because of differences within the US Administration and British concerns about pushing the Swedes too far. In a memorandum to the President, Leo Crowley explained some of the measures that they had in mind to persuade the Swedes to accept American demands. There were various possibilities: blacklisting SKF; the US Alien Property Custodian could take over SKF’s subsidiary SKF-Philadelphia; the US Treasury could control all financial matters with Sweden; and all export licences and Navicerts could be suspended even for ‘basic rations’. Both the British and the State Department had various reservations about these tactics, and a few days after sending the above memorandum to the President, Crowley informed him that the British had ‘indicated that they will oppose the suspension of basic rations if the negotiations fail. Recent cables also indicate some Russian concern that their bearing supplies from Sweden should be protected.’26 Fortunately, as the prospect

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of allied victory grew, Griffiths’ threats of blacklisting and offers of financial incentives produced a deal. SKF secretly agreed to postpone shipment of 90 per cent of its ballbearing exports for five months to cover the crucial invasion period, and then simply forget about them altogether. It would sell no more ball-bearings to Germany during the war. In return for this the allies would compensate the company for any losses incurred and lodge more orders with SKF for ball-bearings. The US War and Navy departments still complained that this was inadequate. They could not countenance supplies going from Sweden to Germany that might be used in battle against American and allied servicemen. They pushed for more action. Patterson in particular was disappointed that a total embargo had not been achieved. This frame of mind, characteristic of members of the service departments, was much in evidence in the lengthy debates about the strategic embargo that was eventually mounted against the Soviet Union after the war. Lauchlin Currie of the FEA, tried to reassure Patterson. He told him that he could not fully share his disappointment because, while the USA could have got a total embargo if ‘prepared to take drastic measures’, he was also convinced that those involved were not prepared to do so.27 The British, in particular, would have balked at such action, and the views of allies had to be respected as far as possible for the sake of solidarity in the fight against the common enemy. By mid-July, with the battle for France well under way, Hull became persuaded of the need for further action on Sweden after meeting with Under Secretary of State Stettinius, Patterson and other officials. On 12 July he urged the President to authorise fresh demands for a total stoppage of Swedish—German trade, and, if the British would not agree to this, then the USA should think of going it alone, or possibly with help from the Soviets.28 The next day Roosevelt wrote to Churchill: Swedish exports to the enemy are becoming a very pressing question here. All the circumstances of the war, particularly Soviet successes in the Baltic area, could now be favorably used by us to bring maximum pressure to bear on Sweden to eliminate exports to the enemy. I would appreciate your getting behind the matter personally as [John] Winant [US ambassador to London] is now taking this question up with your people in the Foreign Office.29 There was no mention here of neutral rights. As one of the war hawks declared before US entry into the war, there was now no such thing as neutrality: everyone had to line up for or against Hitler.30 This was thus the ultimate zero-sum game. Insofar as the game applied to Sweden, the key points were that the allies now possessed the leverage to force it to comply with their demands to cease trade with the enemy, and that compliance entailed little danger of damaging allied interests more than it advanced them. The British Foreign Secretary, Anthony Eden, explained to Winant that he did not think that there would be any problem with making a demand on the Swedes to stop trading with the enemy, but he pointed out that the Swedish Government was now refusing insurance to ships travelling to German ports, and that that had drastically cut back the trade flow. Churchill was more circumspect and explained that he did not want to jeopardise the advantages that the allies now enjoyed with the Swedes.31 On 24 August Hull and Eden made a joint representation to the Swedes, and the

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Soviets presented them with a separate but similar demand to cease trade with Germany. On 4 September Foreign Secretary Gunther of Sweden rejected those demands, but, as Hull pointed out to Roosevelt, the Swedes often rejected matters formally and then moved in the direction desired informally. In the meantime, Hull suggested the possibility of seizing Swedish subsidiaries in the USA and letting Stockholm know that whether or not Sweden would receive supplies after the defeat of the Axis would depend upon her trade policy towards Germany. While these suggestions were being considered the US Minister in Stockholm, Herschel V.Johnson, reported that Sweden had decided to close all ports to German ships. Shortly afterwards SKF agreed to stop ball-bearing deliveries to Germany as of 12 October, and the following month Sweden decided to end trade with Germany as of 1 January 1945.32 That in fact was not quite the end of the matter, as Sweden defined Germany as Germany, whereas the USA included occupied territories, including Norway and Denmark with which Sweden continued to trade. However, after representations from Sweden and supportive comments from Britain, the USA agreed to allow the trickle of Swedish exports to Denmark and Norway to continue.33 Sweden, as an issue in neutral rights to trade with Germany, was finally laid to rest. The episode provided some salutary lessons for the future, but subsequent American actions demonstrated that they had not always been well learnt. Americans had worked uneasily, but successfully with the British, which helped to educate them in the workings of complex diplomatic and international relations. In particular, they were sensitised to the needs of allies and to the danger of alienating neutrals in such a way that in the longer term allied interests would be more damaged than promoted. The nuances of this kind of policy ran against both American idealist and realist instincts. The former disliked the power-political calculations involved, which smacked of moral relativism. The latter disliked the failure to maximise direct damage to the enemy because of political considerations, which appeared to moderate the attack of economic warfare. Actually, the making of complex moral decisions, which looked as if it involved moral relativism, was an integral challenge of effective diplomacy in international affairs, and, while moderation in the direct attack of economic warfare may have seemed like conceding concessions to the enemy, calculations were in fact always made on the basis of overall economic, strategic and political gain. The only real objection that could be made to such policies was that bad judgements had been made in striking the balance between what it was most effective to embargo and to allow through. Sadly, some of the lessons about these complex matters that were learnt during the war were temporarily forgotten in the flush of victory and in the ideological fervour that took hold of US policy in the war’s immediate aftermath when it confronted the USSR.

Lend-lease and a new economic world order While many doubted the ability of sanctions to deter Japan or to cripple her war-making capacity by the autumn of 1939, evidence was arriving from Britain of the importance of access to raw materials, manufacturing equipment, and supplies in general. Despite the move towards economic autarky in the 1930s, interdependence still remained an

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undeniable fact of international economic life. In 1940, as in the First World War, Germany’s assault on Britain’s maritime supply lines—combined with Britain’s lack of raw materials, inadequacies in her manufacturing base, and a shortage of money to buy equipment and food—endangered her ability to continue the struggle. US Lend-Lease aid, 1941–5, helped to solve this problem, and once again the importance of economics in the conduct of war and power relations was vividly and immediately brought home to the USA. Furthermore, the conduct of Lend-Lease also provided the Americans with leverage, which they exerted ruthlessly on the British in order to get co-operation in building a liberal post-war economy that would effectively internationalise the New Deal notion of responsible capitalism and, in particular, eliminate discriminatory practices. Secretary of War Henry Stimson regarded the passage of the Lend-Lease Act through the US Congress as ‘a declaration of economic war’.34 It was, but it was not only effective against the Axis. Many in London saw it as a form of economic warfare against Britain, as it was used to extract concessions about the character of the post-war economy and commitments to participate fully in the new economic order. The new regime was designed largely by Secretary of State Cordell Hull and his acolytes, who wanted freer and non-discriminatory trade agreements, and by Secretary Morgenthau and his adviser Harry Dexter White, who wanted to make the dollar the main medium of international exchange within a stable international monetary system. As we shall see, as a result of these policies Britain had to enter the International Monetary Fund (IMF) after the war, cooperate in establishing a liberal trade regime, agree to abandon preferential trade and monetary arrangements, and commit the pound sterling to convertibility within a year of an agreement for a post-war loan being passed by the US Congress.35 An integral part of America’s economic warfare strategy was Lend-Lease wartime aid to allies, which amounted to nearly $29 billion for Britain, $11.5 billion for the Soviets, nearly $3 billion for France and $1.6 billion for China.36 The flow of aid was not all one way. Britain provided about $6 billion of Reciprocal Aid for the USA, but that hardly detracts from the fact that the USA contributed massively to the supply needs of its allies and sought no cash repay-ment.37 The USA was determined to empower its allies as much as possible, so that they could prosecute the war against the Axis vigorously, but, at the same time, it wanted to avoid the kind of disruption arising out of reparations and war debts that followed the First World War. Both these goals had to do with the USA’s view of its own security. Clearly the Axis had to be defeated to make the USA secure, but leading US politicians and officials also believed that US and international economic prosperity, within a system exorcised of beggar-my-neighbour economic policies and the evil of economic discrimination, was a necessary pre-requisite for long-term peace. The story of Lend-Lease is thus multifaceted and complex. It is far too vast a subject to be dealt with here except highly thematically, in order to bring out significant aspects of how both US thinking about economic warfare, particularly in collaboration with allies, and the use of economic instruments of statecraft, developed during the war.38 These themes will be drawn out by an analysis of US Lend-Lease relations with the UK. What they show is a learning process that was to influence US policy for many years to come. Lend-Lease emphasised the importance of economics in international relations and created an inflated opinion of the effectiveness of economic leverage in pursuing US

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goals. It encouraged the development of a holistic strategy that wove economics intricately into the broad cloth of foreign-policy objectives, and it demonstrated the importance of allies and pointed the way for both multilateral co-operation and the disbursement of US aid to allies in the Cold War. The Lend-Lease experience also broke down whatever residual inhibitions that there might have been about the ruthless wielding of economic power, even when it meant breaching such fundamental principles as respect for the sovereign independence of other states. The USA had hoped to be able to determine the peace among the great powers in 1918 because of its economic leverage, but that had not come to pass. This time it would. Lend-Lease would not only help to win the war, it would help to establish a new international economic order that would enable the USA to win the peace as well, even if that meant bullying important and democratic allies like Britain.39 US economic power would be used ruthlessly to achieve a position from which Washington could determine the peace and the post-war world order. It would not allow matters to slip away out of US control as they had done after the First World War. Within the USA there was a wide range of opinion about both the shape that the international economy ought to take and the USA’s role within it. The more conservative view was embodied in the Republican party tradition of high tariffs and the aggressive penetration of overseas markets that Herbert Hoover had championed when Secretary of Commerce, 1921–8.40 However, economic nationalism had been discredited by the impact of the 1930 Hawley-Smoot tariff and the ravages of the Depression and by the belief of many that, in the hands of the Japanese and the Germans, it had been a direct cause of the war. By the 1940s economic nationalism had fallen out of favour in the Roosevelt Administration (though vestiges lingered on in Morgenthau’s Treasury), where a consensus was forming on a project to internationalise the New Deal idea of responsible capitalism. This involved a stable international economy in which convertible currencies would be held to fixed exchange rates, with only exceptional grounds for alterations in value. There would also be a lowering of barriers to trade and the elimination of preferential tariffs and discriminatory monetary arrangements. In all this the USA would play the key managerial role, and the dollar would replace sterling as the world’s master currency. It was simply a new version of the open door, but with the USA, and the international institutions it intended to spawn and manage, acting as the door-keepers. The American consensus on the need for a multilateral liberal economic order arose initially from two main convictions: it would help the USA to thrive economically, and it would help to prevent a recurrence of war. But, the consensus was also strengthened by fears that the USA would need world markets to absorb the massive growth in production and productivity that the war had occasioned. In an era unscarred by mass advertising, and before consumer society’s insatiable appetite was fully appreciated, many feared the dangers of overproduction triggering a new Great Depression. There were, of course, those like the Republican conservatives who turned their faces away from liberal multilateralism, and there were some industries that even the liberals felt inclined to protect. Nevertheless, the Roosevelt Administration was determined to push ahead with its new economic world order. One of the main problems that stood in the way of making its vision a reality was if other countries—and most importantly of all Britain, with its vast Empire and Commonwealth— could not be persuaded to take part and co-operate in

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building it. It was this need to persuade Britain to partner America in creating a freer world economy immediately after the war that caused friction and revealed so much about the power and the impotence of economic instruments of statecraft. On 7 October 1941 British Prime Minister Winston Churchill wrote to Roosevelt: ‘The moment approaches when we shall no longer be able to pay cash for shipping and other supplies.’41 Fifteen months of war had brought the greatest trading nation in the world and the owner of the largest empire the world had ever seen to the brink of international bankruptcy. The solution to Britain’s immediate problem came in early 1941 with the passage of the Lend-Lease Act and a system of combined boards that helped to coordinate production in Britain and the USA. There were to be no cash payments for LendLease, but other means of payment were involved. Lend-Lease enabled Britain to concentrate on war production and abandon export markets, as making things for profit took second place to the needs of war supply. It also made the UK highly dependent upon the USA. Taken together, those three things—abandonment of exports, the decimation of peacetime production, and dependence on the USA—placed Britain in a vulnerable situation, which made it difficult for her to resist US demands for non-cash payments in consideration for Lend-Lease. In pursuing their respective economic interests within a framework of which the Lend-Lease system was an integral part, four important matters arose between the British and the Americans: • the consideration for Lend-Lease; • controls over British exports to ensure that Lend-Lease was not misused; • regeneration of British gold and dollar reserves after Lend-Lease had averted the danger of British bankruptcy; • a division of labour, which was rational, but which was to disadvantage Britain in certain economic spheres after the war, perhaps most notably in the international airline market.42 Of these four, the first three are of concern here. In examining US policy, it has to be borne in mind that, although the USA had a commanding negotiating position, it still laboured under constraints. Domestically, Roosevelt had to contend with the Congress, isolationists and conservative protectionists. As the war progressed the business community also gained more influence, and it was by no means always in favour of liberal economic multilateralism. All these factions and forces limited bargaining strategy. In addition, Britain was not without leverage. It controlled, or influenced, a large part of the world’s economy through formal and informal political ties, through the international role of sterling, and through the imperial tariff preference system instituted at Ottawa in 1932.43 Furthermore, the USA needed British co-operation if a multilateral liberal world economy were to be created, and Britain would not be willing to undertake such co-operation if its position were so impoverished that it could not compete in world markets and gain benefits from the new regime. Finally, for purely pragmatic reasons, Roosevelt restrained those who wanted to formulate detailed plans for the post-war economy during the war. He did not want to disrupt the alliance by quarrelling over the post-war economy. Britain was too important in the war effort, and the winning of the war was the paramount goal. Allies always have leverage, even in a heavily asymmetrical relationship, so long as they are valued in the

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common enterprise that glues the alliance together. This was so in the Second World War and in the Cold War that followed. Roosevelt’s attitude played an important role in the talks about Lend-Lease consideration. The State Department wanted a series of British commitments to cooperate in fashioning the post-war economy to reduce tariffs and other barriers to trade and to eliminate preferences: the latter undertaking would affect Britain much more onerously than the USA because of Imperial Preference. By the time that Churchill and Roosevelt met for their first summit at Placentia Bay Newfoundland in August 1941, the haggling over Lend-Lease consideration was well under way. Sumner Welles, US Under Secretary of State, tried to get Churchill to commit Britain to the elimination of Imperial Preference. This was to be entered in the Atlantic Charter, which became the first major indication of what were likely to become Allied war aims. The Charter was duly issued, but Churchill had skilfully inserted a caveat to protect Imperial Preference by insisting that due respect had to be given to existing obligations. It was in the light of this that Britain and the USA would ‘further enjoyment of all states… access on equal terms, to the trade and the raw materials of the world’.44 Such mealymouthed commitments did not please Cordell Hull, who continued to press for something more concrete. By February 1942, after much heated debate, it looked as if he were about to get his way. State Department officials were demanding acceptance of a version of Article 7 of the Master Lend-Lease Agreement (or Mutual Aid Agreement as it was formally known) which specified the consideration that was to be given by Britain in return for Lend-Lease aid. It committed both countries to early talks about substantive economic issues, to eliminate discrimination by agreed action, and to reduce tariffs and other barriers to trade. The British Cabinet balked at these provisions.45 There was concern that Britain would throw away bargaining power if it committed itself to the abolition of preferences while the USA only undertook to reduce its very high, but non-discriminatory, tariffs. There was also fear that the USA wanted to move too quickly to implement the new economic regime, whereas Britain would need a substantial transition period to recover and reconvert back to peacetime production. In the end, Roosevelt gave ground in response to pleas from Churchill. Rather disingenuously, he wrote that a trade of imperial preference for Lend-Lease aid was the ‘furthest thing’ from his mind, that America was not asking for a commitment in advance of negotiations to abolish imperial preference, and that Article 7 did not contain such a commitment. With that assurance, Churchill was content, and the British signed up to Article 7, but the USA, in effect, was only left with the kind of vague commitments it had already got in the Atlantic Charter.46 Welles in particular thought that it was a mistake to postpone detailed discussions until after the end of the war and to rely on vague pronouncements like the Atlantic Charter. Interestingly, he was also in the forefront of those who thought that the USA should use Lend-Lease not only to apply leverage to the British, which happened, but also to the Soviets, which did not happen until 1945 when it was too late.47 In the actual operation of the mutual aid programme, the Americans managed to get more of their way with the British. In fact their management of Lend-Lease resulted in a forceful intrusion into British economic sovereignty. That intrusion had two entry points. The USA exercised control over British exports, to ensure that Lend-Lease was not used

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inappropriately to boost British foreign commerce, and it sought to control unilaterally the level of British gold and dollar reserves. In September 1941, after protracted negotiations with the USA, the British agreed not to use Lend-Lease in such a way as to enable their exporters to enter new markets or to extend their export trade at the expense of the United States. Owing to the need to devote all available capacity and manpower to war production, the United Kingdom export trade is restricted to the irreducible minimum necessary to supply or obtain materials essential to the war effort.48 The British accepted these controls with deep reluctance and hoped that, once the USA entered the war, they would be abandoned in favour of a pooling of effort and resources in a common struggle for survival. In fact after the USA entered the war there were always disputes and conflict within the Roosevelt Administration both over what it was wise to give the British and over British entitlements. There were military priorities as well as political considerations that affected policy. On 15 December 1941 Edward Stettinius, head of the Office of Lend-Lease Administration, said of the US War Department ‘if you leave it to those fellows, the British are going to get a couple of goose eggs’.49 More importantly for the long-term, the Export White Paper remained in force with minor modification until VE-Day under the auspices of a US policy termed the marginal theory. The President of the British Board of Trade, Hugh Dalton, explained its effect in June 1944: it prevented receipt of Lend-Lease items unless Britain had ‘reduced the civilian population to siege levels and given up all export trade in that particular commodity’.50 The Americans insisted on this for several reasons: they did not want Britain to gain commercially from Lend-Lease; there was concern that Congress should not have ammunition to attack wartime aid to Britain; there was a desire to oust Britain from her export markets in Latin America; and it was also seen as a means of keeping Britain vulnerable, and thus receptive to US proposals for reconstructing the post-war economy along liberal and multilateralist lines. The Export White Paper was the first foray by the USA into Britain’s commercial wartime activities. The second was more serious and intruded even more into British economic sovereignty. Since the start of Lend-Lease, the Americans had discussed ways to limit UK gold and dollar reserves, but these talks were in-house, and the matter was never officially raised with the British. The American argument was that Lend-Lease had been introduced because of British bankruptcy and its inability to pay the USA for goods and services. Britain should not therefore accumulate large reserves while Lend-Lease continued. In reply, the British thought that, once the USA entered the war, resources should be pooled, and that Britain was justified in rebuilding its reserves, which had been expended in 1939–41, in what was now a common cause. In addition, Britain had converted more of its economic capacity to war production than the USA and it would need reserves to facilitate reconversion to peacetime production, to boost its trade, and underpin the value of sterling. By 1945 the British had accumulated over £3.5 billion in sterling debts because of the war, and it did not seem to make sense to them to limit British reserves without taking its liabilities into consideration. In the USA, with the

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exception of the State Department and a pro-British faction within the FEA, Americans remained unconvinced by British arguments, or at least unmoved. In November 1942 there were simultaneous moves by Lend-Lease officials led by Oscar Cox and by the BEW under Wallace to bring the level of British reserves under unilateral US control. Within a few days a US Cabinet Committee was set up with a working group under Harry White. It recommended that British reserves should be held to between $600 million and $1 billion. Roosevelt approved on 11 January 1943.51 Over the next two and a half years the USA pursued a policy that upheld the Export White Paper restrictions and actively sought to influence the level of British reserves by trying to persuade the British to supply the USA with more Reciprocal Aid and by withdrawing items from Lend-Lease. Throughout, the Americans tried to maintain the fiction that these policies were dictated by congressional and political considerations. They denied that the USA aimed to manipulate things so as to keep the British reserves to a unilaterally determined and clearly arbitrary limit. Nevertheless, despite all the American effort, British reserves continued to rise, largely because of the growing influx of US GIs for the D-Day invasion of Europe. Leo Crowley became deeply disturbed by this and set in train a series of developments that revealed the true US intention to the British. In February 1944 Roosevelt wrote to Churchill: ‘I have been wondering whether it would be feasible for you to consider so ordering your financial affairs as to reduce your gold and dollar holdings…to the neighborhood of about $1 billion.’52 This letter was sent despite State Department opposition and lack of clearance from Morgenthau, who subsequently expressed disagreement with its content.53 The British were outraged. Sir John Anderson, Chancellor of the Exchequer, wrote to Churchill: ‘If we were to accept the…proposal, we should have lost our financial independence, in any case precarious, as soon as lend-lease comes to an end, and would emerge from the war, victorious indeed, but quite helpless financially with reserves far inferior not only to Russia but even to France and Holland.’54 In the days that followed the British remonstrated with the Americans about the President’s request, and an apology of sorts was forthcoming, but underlying matters did not go away.55 By late 1943 the USA’s position on a number of economic issues as well as its announced plans for the post-war economy were causing concern in London. A spate of papers were prepared for the Cabinet by imperialists such as Robert Hudson, Leo Amery and Lord Beaverbrook criticising American policies. These papers received support from many in the Labour Party, who thought that the economic liberalism advocated by Washington would compromise the chances of achieving full employment after the war and interfere with their hopes for massive reforms outlined in the famous report by Sir William Beveridge on health and welfare. In the light of all this the Cabinet decided that any further talks with the Americans on economic planning should be postponed, with the exception of monetary talks, which had already proceeded too far to be aborted. This decision was not communicated formally to the Americans, but they soon got the drift of things.56 Thus, by the closing stages of the war, there was still something of a standoff between the British and the Americans over their respective economic aims. The USA had exercised some control over British exports and reserves, but in neither case to the extent it had hoped for. It succeeded in pushing through the IMF at Bretton Woods in 1944,

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which had more stringent liability clauses, smaller resources, more rigid exchange rates, and offered a much shorter transition period to convertibility than Britain had hoped for. It also placed the USA in a commanding position in the management of the IMF and replaced sterling with the dollar as the world’s master currency.57 In the trade sphere the story was rather different. Here the USA still had a long list of conditions and policies to which it wanted Britain to append its signature. The State Department, while it had adopted a sympathetic line on Britain’s reserves in the belief that they had to be of an adequate size to enable Britain to resume liberal trade practices after the war, was also deeply uneasy that Britain had not given more unequivocal commitments to the American line on the post-war economy. It also worried about the failure to make progress in talks for economic co-operation in 1944, which Britain had committed itself to in the Master Lend-Lease Agreement. However, although Britain had evaded the more extreme US demands, its main weakness remained. It needed US help in the difficult transition back to peacetime production and trade, and it was this need that the Americans were to exploit in order to press their case. At the Second Quebec Conference in September 1944 Roosevelt nearly gave away America’s advantage. In response to pleas from Churchill, Roosevelt gave commitments to a generous continuation of Lend-Lease supplies to Britain after VE-Day, which would have facilitated reconversion to peacetime production, and furthermore he conceded that conditions governing this Lend-Lease help should not be such as to hamper the growth of British exports, though, of course, Lend-Lease items could not be used directly in the export trade. Unfortunately for Britain, the Americans blatantly reneged on this agreement. Britain’s situation was then made even worse, in an economic sense, by the abrupt and unexpected ending of the war with the atomic assaults on Japan. British reconversion to civilian production was still in its early days, and the export trade was still only a shadow of its pre-war self.58 The abrupt ending of the war and the cut-off of Lend-Lease left Britain economically prostrate. According to assessments made by John Maynard Keynes, British reserves stood at $1.9 billion, and the 1945 balance of payments deficit was $5 billion; the prospective deficit for 1946 was $2.5–3.5 billion, and total sterling debts amounted to $12–14 billion. Much of Britain’s capital equipment was worn out, exports were running at about 30 per cent of their pre-war level, and there was a massive reconversion challenge to be met.59 Faced with these problems, Britain renewed its arguments in favour of a long transition period in which it could readjust and eventually return to normality. The Americans determined that things should be otherwise. Assistant Secretary (and later Under Secretary) of State for Economic Affairs William Clayton and Fred Vinson, who had succeeded Morgenthau as Treasury Secretary, took the line that financial help had to be linked with overall British economic policy and the fulfilment of commitments that Britain had made in the Mutual Aid Agreement and at Bretton Woods. This was the American holistic approach that was to be used with the Soviets as well as with the British. The Americans were now poised to dictate terms to their ally. In the autumn of 1945 Keynes went to Washington to negotiate for help. The talks were excruci-atingly painful for the British, who were successively pushed from one untenable position to another. First they asked for a $5-billion gift, then a part-gift partloan arrangement, and then an interest-free loan. In the end they accepted a loan of $3.75

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billion and a further $650 million for Lend-Lease pipeline supplies at 2 per cent. In return for this American largesse Britain committed itself to co-operating with the USA in establishing an International Trade Organisation (ITO) that embodied free trade and nondiscrimination policies and which brought Imperial Preference directly under threat. Britain would have to enter the IMF, but also make currently earned sterling convertible within a year of the US loan agreement coming into operation. This was generally harsher and provided a shorter transition period than the IMF. The Financial Agreement was signed on 6 December 1945, but the US Congress did not ratify it for several months. During that time the US Administration used the threat of non-ratification to push Britain into other policies that the USA favoured, including an international aviation policy that helped to open up the world to US penetration. When the loan agreement finally went through a reluctant Congress, it was largely because of arguments about the need to strengthen Britain against the growing threat of Soviet communism. This all looked very much like the triumph of US policies through economic leverage and coercion. In fact the story was more ambiguous than that. The British had held out against the more objectionable US demands until the end of the war. Certainly while the war was going on the USA was more circumspect and restrained in the kinds of economic pressures that it felt able to bring to bear on the British. Here was a lesson for the future: the priority of geostrategic needs over economic ones. Even in 1945 the USA had not got everything entirely its own way: there were limits, even in peacetime, to what one friendly state could impose upon another, especially when co-operation was still important. Furthermore, economic circumstances rendered some US demands simply unrealisable. This was particularly so with the premature and abortive attempt at convertibility of sterling in 1947. Then, as the Cold War developed, the USA began to need her allies rather as it had in the Second World War. Those needs gave Britain more licence to defy US wishes. For example, as we noted in Chapter 2, despite pressure from the USA, Britain refused to lead European integration from within. Thus, developments after 1945 helped to retrieve things for the British and frustrate American ambitions. Even with the massive favourable balance of relative power that it enjoyed in 1945, America was still unable to achieve everything it wanted, and thereafter it never again enjoyed such an asymmetry of power between itself and other states. That meant less ability to press friends into policies they were unhappy about. The kinds of dispute that had been evident during the war over trade with neutrals and over economic relations with the British were to continue in the Cold War. If anything, they were more problematic, because hot war sets more clearly defined and overriding priorities than cold war. In early 1944 two colleagues in the State Department exchanged a note that epitomised how many American liberals had come to see international economics. In particular, Cordell Hull had held these views for a long time and had done much to propagate them in Washington. ‘The development of sound international economic relations is closely related to the problem of security. The establishment of a system of international trade, which would make it possible for each country to have greater access to world markets and resources would reduce incentives to military aggression and provide a firm basis for political cooperation.’60 Through their economic planning sessions and talks with the British, the Americans had gradually formulated a clear picture of their own motives and

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aspirations regarding the post-war international economy. By 1945 they were poised to enter the international economy in a massive way because of an inextricable mixture of concerns about security and prosperity. In the 1930s American liberals had changed the architecture of capitalism by making its face more humane, by introducing regulatory management structures, and by making it more accountable to the people. During the war Americans decided that the New Deal should be internation-alised, with the USA playing the pivotal management role. There were six key ideas behind this: • economic discrimination had to end because it caused friction and led to war; • a free market would bring global prosperity, not least to the USA; • America needed new markets abroad to absorb the goods created by its enormously increased production capacity, otherwise there could be another depression; • although the USA was less dependent on imports than any other major power, it was, nevertheless, short of several strategic commodities such as oil, bauxite, rubber, tungsten and uranium; • there were foreign profits to be made for US capitalism; and • establishing a strong institutionalised position for itself in the management of the international economy would facilitate the exercise of US power in the foreign domain. For this broad array of reasons, rather than as a result of the unicausal capitalist dynamic often invoked by New Left historians, the USA moulded and then managed a new liberal economic world order. The question that troubled the Americans, however, was where the Soviet Union would fit in with all this. How American thinking developed over the years of the Cold War to cope with that question is one of the more fascinating intellectual odysseys in post-war US policy development. How the context for that odyssey took shape is revealed by the way the American attitude towards post-war economic assistance for the Soviets developed between 1943 and 1947, and through the Americans’ tendency to apply lessons learnt from discussions with, and economic strategies formulated for, dealing with the British.

Trying to coerce the Soviets The American world-view was now truly that—a world view—and, while integrating the western hemisphere, China, and Western Europe and its colonial empires into an American-led system was the first priority, the Soviet Union was not to be left out. Until 1945 the preponderant view in Washington was to try to co-opt the Soviet Union as a player for the system. The Americans placed so much value on creating a new economic order, as was evident from their wartime relations with Britain, that to lose the Soviets from the game would be a tremendous disappointment. In their search for a way to deal with the Soviets, the Americans drew upon their experience of the Lend-Lease programme of aid to Britain and their planning talks for a liberal multilateral world economy. It was in these contexts that Americans had come to appreciate the effectiveness of economic instruments of statecraft. In particular, the USA had developed a holistic strategy that had succeeded in difficult negotiations with the British. It would

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now be applied to the Soviets. Economic issues should not be dealt with in isolation from one another. The Americans would insist on a comprehensive economic and political settlement with the Soviets, just as they had with the British, and gain their objectives of drawing the Soviets into the international capitalist economy, moderating their foreign policy and subduing their ideological fervour. Their apparent success with the British encouraged Americans to believe that a similar line of persuasion could be adopted with the Soviets, who were widely expected also to need financial help after the war. Americans thought that, just as Britain’s economic plight had made her vulnerable and in the end responsive to US demands, so the even greater devastation in the Soviet Union, wreaked by the Nazis, would have similar results there. This turned out to be a serious miscalculation.61 The Soviets were never treated like the British or the French in the Lend-Lease programme. Thus, when the USA began to exert the kind of economic leverage on them that it had against the British it came as a shock to the Soviets and was all the more resented for that. During the war in Europe, they were never forced to give a full account of their resources, their needs, or of how they used Lend-Lease supplies. In effect their requests were accepted at face value.62 This remained the case even when the Americans knew that the Soviets were re-exporting Lend-Lease items for commercial gain, though by May 1945 this kind of behaviour was having a very negative impact on the way Americans assessed the likely direction of development in US-Soviet relations.63 When a leading FEA official acknowledged this difference in treatment in 1943, he only got part of the story correct. In his opinion, the reason why the USA controlled Lend-Lease with the British far more stringently than with the Soviets (or China) and intruded into Britain’s economic sovereignty was because Britain was a traditional strong commercial competitor of the USA, and the Soviet Union was not.64 This was true, but there were other chapters in the story, one of which had to do with the much greater compatibility of the British and US economies: although there were differences of policy the modus operandi of the two was very similar. In the Soviet Union, with its cult of secrecy and the ubiquity of state planning and control, the situation was very different. The Soviet system was just not geared to public disclosure of the kind of economic information that the Americans wanted, and this helped to insulate it from possible US influence. An even more important chapter had to do with the fact that, although Stalin, Churchill and Roosevelt were in an alliance against the Axis, Stalin (and Churchill) recognised it for what it was: a Faustian pact. While Britain and the USA could look forward to competitive co-operation after the war in a context of shared liberal, democratic and freemarket values, the Soviets believed that victory over the Axis would simply be a prelude to the final confrontation between capitalism and communism. With this understanding of the dynamics of the international system, security was paramount, and, as Stalin put it in April 1945: ‘Everyone imposes his own system as far as his army can reach. It cannot be otherwise.’65 Under these assumptions, no amount of pressure from the USA was likely to yield the kinds of concessions from the Soviets that had been dragged out of the British in the Export White Paper, through the manipulation of Lend-Lease and Reciprocal Aid, and later, in the Anglo-American Financial Agreement. With Lend-Lease the USA did not even try during the war. After Pearl Harbor, Roosevelt bypassed the staunchly antiSoviet State Department and dealt with Stalin directly, or through intermediaries such as

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Harry Hopkins, and dictated policy. Roosevelt was convinced that a lasting peace after the war could only be achieved if the Soviet Union could be engaged in post-war security arrangements. He was thus opposed to exerting pressure on the Soviets—pressure that would have been unlikely to yield results in any case—and insisted that agreements about the post-war world should be left in abeyance until after victory, or that those that did go ahead, such as Bretton Woods, should not disrupt allied unity.66 In fact, as we have seen, quite a lot of post-war business was conducted with the British on the economic front, but the relationship there was very different, and the USA had far more leverage and scope to play the game. The situation with the Soviets was by no means so favourable. For, although the Soviets received large quantities of aid from the USA, there was not the same kind of interlocking interdependence that there was between Britain and the USA, and, unlike Britain, the Soviets did not have a vested interest in working with the USA in order to create a liberal capitalist world order after the war. If that were not enough to restrain the Americans from attempting to use economic leverage on the Soviets during the European war, there were two other overriding considerations. The Soviets had engaged the vast majority of Hitler’s military might, and it was important to keep the Soviets fighting. Memories of the Nazi-Soviet Pact and the possibility of a separately negotiated peace between the Soviets and Hitler were always at the back of British and American minds. There were already enough differences between the Western allies and the Soviets without making matters worse by aggressive economic tactics. The second factor was the American desire for Soviet help in defeating the Japanese. Recapturing islands from the Japanese in the Pacific had been costly enough, and calculations of likely US casualties during an invasion of the Japanese islands proper were horrendous. And, of course, until the time of the Potsdam Conference, 17 July to 2 August 1945, the Americans did not know whether the atomic bomb would work. Until then, therefore, Soviet military manpower was seen as highly important in the Asian theatre. After Potsdam the Americans began to see new opportunities in their relations with the Soviets. With the war in Europe over, and victory over Japan now assured without costly American casualties, Truman and his close advisers began to resent Soviet recalcitrance more and more and to urge the use of economic leverage against the Soviet Union in order to exploit what was seen as an imperative need for US help to reconstruct its economy. This had been in the minds of several key people for some time, but Roosevelt’s insistence on trying to co-opt the Soviets into post-war co-operation and wartime strategic considerations had prevented full deployment of such a strategy. Now, differences previously suppressed because of the priority of winning the war came back to prominence. As relations deteriorated, Truman’s inexperience in foreign affairs led him to rely on advice from US ambassador to Moscow Averell Harriman, Secretary of State Stettinius, Acting Secretary of State Joseph Grew and his Chief of Staff Admiral Leahy: all of them hard-line anti-Soviets. The Americans had little fear that there would be an imminent military conflict with the Soviets, as intelligence estimates indicated that the Soviets were too exhausted militarily to risk such a venture for several years, but the USA did not want either its economic plans to be thwarted, or for central and eastern Europe to fall under the total sway of the Soviets. There could be no military solution to this problem, so, as the Soviets became more and more difficult, the obvious strategy was

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to try economic leverage. After all, it had worked, or seemed to, with the British in 1945; why should Washington not have a similar success with the Soviets? The decision to take this route in relations with the Soviets was a portentous one, but also highly predictable, given the US experience in the war with the neutrals and with Britain. The possibility of US post-war financial help for the Soviet Union arose towards the end of 1943 and was considered in various meetings between US and Soviet officials, in a generally positive and optimistic way, through to the summer of 1944. Ambassador Harriman, Donald Nelson, Chairman of the WPB, and Eric Johnston, a leading US businessman and President of the US Chamber of Commerce, expressed optimism in various talks with Soviet leaders and officials in Moscow about the prospects of loans and developing US-Soviet trade.67 Harriman thought that there were great prospects for loans, because the Soviets wanted them badly, and this would give the USA leverage. He wrote to Hull that ‘this question of reconstruction is considered by the Soviet Government as, next to the war, the most important political as well as economic problem that confronts them’.68 Optimism about loans was also reflected in the disposition of the US Treasury, which had woven into the Bretton Woods Agreement provisions to cater for state trading and state-controlled economies specifically to try to attract Soviet membership. Morgenthau and his chief international economic adviser, Harry White, were both keen to extend financial help to the Soviets and were talking of a $5 billion loan in the spring of 1944. However, unlike Harriman and, subsequently, members of the State Department, the Treasury wanted the loans to be without strings attached. On 1 February 1944 Anastas Mikoyan, the Soviet Commissar for Foreign Trade, suggested a 25-year $1-billion loan at 0.5 per cent to Harriman, but neither he nor key officials in the State Department were happy with such generous terms. They were also cautious about asking Congress to make the funds available to the Eximbank,69 and to amend the Johnson Act that prohibited government loans to countries, like the Soviet Union, which were in default on debts to the USA. Elbridge Durbrow, Chief of the Division of Eastern European Affairs, certainly wanted a stiffer line to be taken with the Soviets, and Harriman, who played a key role in the saga of credits and loans for Russia, had become more cautious with the passing of time.70 By early 1944 he still thought that loans would be useful and would help to liberalise the Soviet system and make it more amenable to the West, but he emphasised more than ever the need to use economic leverage to bring the Soviets into line. He was also angered by Soviet misuse of LendLease and saw economic leverage as the only real and effective way of affecting Soviet policy. In March he wrote to Hull: ‘I am impressed with the consideration that economic assistance is one of the most effective weapons at our disposal to influence European political events in the direction we desire and to avoid development of a sphere of influence of the Soviet Union over Eastern Europe and the Balkans.’71 His idea of basing relations on a strict quid pro quo basis was not, however, acceptable in Washington. Roosevelt insisted on continuing with a policy of unconditional aid for the Soviets. Later, in October that year, the same sentiments were echoed in a letter from Harry Hopkins to General ‘Hap’ Arnold, Chief of US Army Air Force. Hopkins now, however, specifically argued that it would be unwise to change the unconditional nature of aid to the Soviets, for fear of alienating them while talks about their possible entry into the war against Japan were being conducted. Harriman had to bide his time and wait for an opportunity to

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press his case. In the meantime, there had also been developments in the Lend-Lease sphere, which began to establish a pattern to US-Soviet economic diplomacy. In late 1943 Oscar Cox suggested to his chief, Leo Crowley, that the Administration should consider a so-called 3c Lend-Lease Agreement for the Soviets, which would give them credit at 2⅔ per cent to enable them to buy pipeline Lend-Lease goods at the war’s end for reconstruction purposes. Crowley, Stettinius and Harriman were not sanguine about this, but Roosevelt was keen to help the Soviets, and negotiations began, though on the understanding among US negotiators that this was not to be a substitute for a reconstruction loan.72 Discussions soon became bogged down, however, because the Soviets balked at the rate of interest proposed by the USA. The Americans genuinely thought that their terms were generous and were rather annoyed by Soviet haggling. The Soviets clearly thought that they could get better terms, and this conviction is an important ingredient in the complex situation that began to emerge. The Soviets thought that the Americans were desperate to develop new post-war markets for their massively increased production capacity. If they did not, then there would be a rerun of the depression of the 1930s. This kind of thinking came naturally from Marxist-Leninist dogma, but it was also reinforced by the evidence of time and energy that the USA had invested in economic planning talks, most notably with the British, and by discussions with US officials and business people during 1943–4. Eric johnston impressed upon Stalin in June 1944 how he would strive to get credits extended to the Soviets to encourage trade.73 So, for their part, the Soviets believed that a waiting game was an effective strategy and that they could combine it with periodic requests for large amounts of aid at extravagantly generous terms, which would hold out a tempting prospect of a burgeoning Soviet market to the Americans. In contrast, the Americans generally thought that Soviet reconstruction needs would be so pressing that they would have to turn to them for immediate help. As the Soviet Union’s behaviour became more recalcitrant, its attitude more truculent and its policies, especially in Eastern Europe, more objectionable, the Americans increasingly thought that they should delay agreement on economic aid, as this would be a means of exerting pressure that would persuade the Soviets to change their ways. Both sides felt that they held key cards and that a waiting game was advantageous: the result was a series of desultory conversations about aid that got nowhere. In late 1944 the Office of Strategic Services estimated that the Soviets had lost $16 billion of its industrial capital and $4 billion-worth of inventories. This was awesome damage to the economy, and its impact was compounded by work-force losses and the destruction of the industrial and communications infrastructure in the west of the country. However, Emilio Collado, monetary and financial expert in the State Department, expressed his department’s view that, by using their gold reserves and reparation receipts, the Soviets could still achieve their pre-war investment levels by 1948 without a US loan and that a $2-billion credit would only speed things up by about two months.74 This assessment was later fiercely contested by Harriman, but as it stood it suggested that perhaps the USA did not have the kind of leverage that it thought it had. The whole question of post-war credits was becoming extremely complicated, and it was unclear what power America’s economic resources might actually afford it in diplomatic affairs.

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It would seem that how to apply power effectively to circumstances was a conundrum that afflicted not just nuclear policy but economic diplomacy as well. The Soviets, unaware of how American thinking was developing, still thought that they were well placed to call for loans. With the 3c talks at a standstill because of Soviet insistence on better terms, Molotov now made a larger demand for US dollars and made it sound like a favour to Washington. Having in mind the repeated statements of American public figures concerning the desirability of receiving extensive large Soviet orders for the post-war transition period, the Soviet Government consider it possible to place orders on the basis of long-term credits to the amount of 6 billion dollars.75 He suggested a 2½ per cent interest rate, with repayment beginning in the tenth year of the loan. The responses in Washington to this development reveal the different attitudes and policy preferences that were developing there. There were those in the State Department and the FEA who were unsure of the wisdom of granting credit to the Soviets, largely because they did not like the Soviet regime, and partly because they did not think that providing aid would give the USA leverage. Harriman’s position was different. He wanted to help the Soviets, but only in return for Soviet concessions. A third group, consisting of the US Treasury and Vice President Henry Wallace, wanted to offer generous unconditional aid to the Soviets. The other implication of the Molotov request was for Lend-Lease, and it is worth concentrating on this for the moment in order to appreciate the nuances of American thinking. By March 1945, largely on urgings from Stettinius and Harriman, the 3c discussions had been terminated, and the focus now switched to the suggestion of a separate loan or credit, the discussions for which would cover all outstanding economic and many political matters between the USA and the Soviet Union. In addition to suspending the 3c talks, Americans had been making pronouncements throughout 1944, particularly in congressional hearings in the spring and summer, that Lend-Lease was a wartime measure, that it would cease at the end of the war, and that it was not intended for reconstruction purposes except under a 3c purchase agreement. There now followed a sad and sorry end to what Churchill once described as the most unsordid act in history. As we have seen in the account of British experience, the Americans savagely cut back LendLease after VE-Day and reneged on commitments made to the British for Lend-Lease stage 2, the period between VE- and VJ-Day. That action made it extremely difficult for the Americans to extend Lend-Lease reconstruction aid to the Soviets, even if they had wanted to, without blatant discrimination against Britain. Finally, the atomic bomb ended the war abruptly and threw both British and Soviet expectations about further Lend-Lease supplies and their plans for economic reconversion into disarray. By April 1945 there were serious problems arising with the Soviets so far as the Americans were concerned. The most serious was in Eastern Europe and especially in Poland, where the Soviets were not fulfilling commitments made at the Yalta allied summit conference, 4–11 February 1945, concerning the role of non-communist members of the new Polish Government. Poland was seen as a litmus test of the Soviet Union’s intentions in Eastern Europe and whether it would allow free governments to emerge

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there, or would impose communist puppet regimes. All these matters were made worse because the allied working relationship between Stalin, Roosevelt and Churchill was broken in 1945, first by Roosevelt’s death and then by Churchill’s electoral defeat. Evidence of strained relations surfaced in a now notorious meeting between the new president and the Soviet Foreign Minister, Molotov. Truman, after taking advice from hard-liners on the Soviet Union, including Harriman, famously berated Molotov on 23 April 1945 for Soviet failures to keep to commitments on Poland. Matters deteriorated further, with growing Soviet truculence over economic issues and Moscow’s failure to ratify Bretton Woods. At the San Francisco Conference, 25 April to 26 June 1945, convened to establish the United Nations, Molotov appeared uncompromising and difficult to Secretary of State Stettinius and Harriman, and there was still no satisfaction for them on Eastern Europe. Now more explicit connections began to be made between Soviet behaviour and US economic assistance. On 9 May, just before leaving San Francisco for talks with Truman, Harriman asked Stettinius what position the Department took on the Soviets and Poland. ‘It is important to know this, Harriman added, because it brought in such questions as lend-lease and post-war credits to Russia.’76 In conversation, he and Stettinius decided that the importance of Poland to the USA should be impressed upon Stalin, but that no pressures should be applied until after the San Francisco Conference had closed. Lend-Lease should be curtailed, with no further mention of a 3c agreement, but post-war commitments should be kept. Harriman reported all this to Truman and he agreed. The next day he signed the order, which drastically cut back Lend-Lease supplies to the Soviet Union. Later Truman was to claim that he did not fully understand the import of the order, and indeed the FEA and General John York, Acting Chairman of the Soviet Protocol Committee, gave a very harsh interpretation of the order, such that for a time it did not reflect the President’s will. Ships at sea bound for the Soviet Union with LendLease supplies on board were ordered to turn back to the USA. Both Harriman and Clayton were appalled at the unnecessarily provocative way that the FEA and York implemented the order; Clayton took steps to correct things, and soon the ships were turned around once again and allowed to sail to the Soviet Union. But the bottom line was clear, and there is overwhelming evidence that Truman understood it and approved: Lend-Lease supplies to the Soviet Union would be drastically cut back, only supplies for use in the Asian theatre, once the Soviet Union entered the war, would be shipped, and there would be no Lend-Lease for reconstruction. This did not mean that the die was cast. Truman’s attitude to dealing with the Soviets still fluctuated. He sent Harry Hopkins on a two-week visit to Moscow to try to sort things out. Hopkins failed, and it was obvious that Stalin was becoming more and more suspicious of US economic intentions. Talking with Hopkins, the ‘Soviet dictator was very careful to raise the question of American economic pressure. If the termination of lend-lease was “designed as pressure on the Russians in order to soften them up then it was a fundamental mistake”, said Stalin. If the Russians were “approached frankly on a friendly basis, much could be done…Reprisals in any form would bring about the exact opposite effect”.’77 It was not the Truman Administration’s intention to exert such economic pressure through an abrupt ending of Lend-Lease that it appeared brutally hard to the Soviets. There were those—such as York, and officials in the FEA, the service

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departments and the State Department—who did want to make an immediate political point and cared little about Soviet sensibilities, but Harriman wanted to take things step by step and certainly keep things on an even keel until, at least, after the San Francisco Conference. Others, such as Clayton, nursed for even longer than Harriman hopes of drawing the Soviets into a liberal multilateral trading system. The Administration did intend that Lend-Lease should be shut down in such a way that it could not be used for reconstruction, and it knew that that would help to perpetuate the Soviets’ vulnerability and hopefully make them court the Americans for other forms of economic help. However, the FEA and York had gone too far, and the character of their actions contrasted starkly with the unconditional nature of Lend-Lease deliveries throughout the European War. For a while the Lend-Lease issue was now dealt with in more comprehensive economic talks, but, with the Soviets defensive and cautious, they made little progress. By the autumn of 1945 Lend-Lease was separated out again, and on 15 October 1945 the Soviets finally agreed to the terms of a 3c agreement that had been offered to them months before. They were granted a credit of $400 million, at 2⅔ percent, and by 26 March 1947, when credit transfers were discontinued, had used all but $19 million of the credit.78 Thereafter, a comprehensive Lend-Lease settlement arose as unfinished business periodically in US-Soviet economic diplomacy for decades to come. While Lend-Lease matters were put on the backburner, the issue of a large credit was now at the forefront of concern in Washington. Harriman’s initial reaction to Molotov’s ‘kind’ offer to take a $6-billion credit was to ignore its unconventional nature and to put it down to ignorance of commercial practices. And, while he still favoured extending credits to the Soviets, he also entered the following observations and caveats. From his [Molotov’s] statement I sensed an implication that the development of our friendly relations would depend upon a generous credit. It is of course my very strong and earnest opinion that the question of the credit should be tied into our overall diplomatic relations with the Soviet Union and that at the appropriate time the Russians should be given to understand that our willingness to cooperate wholeheartedly with them in their vast reconstruction problems will depend on their behaviour in international matters.79 As early as this, in the unfolding of events that led into the Cold War, Americans perceived that economic relations between the Soviet Union and the USA would not just be a matter of dollars, roubles, commerce and clear political objectives. They were to have an important symbolic aspect to them as well. This grew in significance for the Soviets and the Americans as the Cold War developed. On 8 January Stettinius summarised Harriman’s advice for the President. The USA should extend credits to the Soviets, but divorce them from Lend-Lease and make them conditional on Soviet policies.80 But, this was not how Morgenthau and the US Treasury saw things. On 1 January Morgenthau had written to Roosevelt proposing Stage 2 LendLease aid for the Soviets in the same way that it had been proposed for the British: the extent to which the Americans were to renege on their commitment to the British was not yet fully apparent. Just over a week later Morgenthau proposed a $10-billion credit for the Soviets repayable over 35 years. On 17 January, in conversation with Stettinius and

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Harry Dexter White, he called for a 0 per cent 3c agreement and repeated his call for a $10-billion credit at 2 per cent, with the possibility of some repayment in kind through Soviet supply of raw materials that were running low in the USA.81 This was the final time that the Soviets stood any chance of getting something like unconditional post-war reconstruction aid. The State Department’s response was articulated by Under Secretary for Economic Affairs Will Clayton. He thought that new legislation would be needed to authorise Morgenthau’s proposals, which could cause difficulties, but there would also certainly be problems from embarrassing comparisons with less generous loans to other allies, notably the British. The Administration would also look weak, as the Soviets had already been told that standard 3c terms were the best they could expect. If the USA now offered better terms, the Soviets would think that it was desperate for markets, and furthermore this would throw away the ‘only concrete bargaining lever for use in connection with the many other political and economic problems which will arise between our two countries.’82 Joseph Grew, Acting Secretary of State, and Harriman both agreed with his diagnosis. In the face of this opposition, Morgenthau withdrew his proposal for an interest-free 3c agreement, but still favoured a $10-billion loan.83 Harriman, while agreeing with Grew and others in the State Department, that $5 billion was the maximum that they should consider, differed with colleagues such as Collado about the Soviet desire and need for loans. The State Department, we should recall, had accepted assessments by the OSS of Russia’s ability to regenerate itself through its gold reserves and reparations without additional outside credits. Harriman insisted that such analysis overlooked the scale and ambition of the Soviets’ plans to expand rapidly from their prewar industrial base. Once this was taken into account, then it became clear that they would need US credits more than the OSS and State Department estimate suggested. So Harriman’s position remained that the USA should be willing to offer credits, should take advantage of what he saw as Soviet strong needs, and extract concessions from them on a strict quid pro quo basis. ‘Our experience has incontrovertibly proved that it is not possible to bank general goodwill in Moscow.’84 By this point it had been decided that no further moves should be made by the USA until Truman had discussed the issues directly with Stalin and other Soviet officials. However, when Truman met Stalin at Potsdam there was no detailed discussion of loans. Thereafter relations continued to deteriorate, and, even after the October agreement on credit for Lend-Lease pipeline supplies, there was no further progress with the $6 billion request because of the problems that now plagued US-Soviet relations. In 1952 an official report for the President summed things up thus: These obstacles [to a loan agreement] derived from Soviet obstructionism in both the political and economic sphere and were of such a nature as to preclude the US Government’s giving any consideration to the Soviet request unless there should be a fundamental change in over-all Soviet policies. Therefore, no steps whatsoever were taken by the US Government to act upon this request.85 Even though the Soviets did not get their $6 billion, they struck the October 1945 deal for $400 million for Lend-Lease pipeline supplies, and the USA, rather grudgingly, allowed

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$250 million to go to the Soviet Union via the United Nations Relief and Rehabilitation Agency (UNRRA). Thus in January 1946, when the Soviets enquired about a $100million credit to buy US surplus wartime goods, there was a rather mixed response. Under Secretary of State Dean Acheson favoured the credit because the government wanted to get rid of the stuff and it was costly to store and guard. Durbrow, on the other hand, led the charge to deny the Soviets the loan, arguing that they had already received nearly a billion dollars of aid, which was the reconstruction aid sum originally envisaged for them. Despite our many protests and requests for coordinated action regarding the economic blackout in Eastern Europe and other related questions, the Soviet Government has consistently refused to accept any of our views on this point. It has been our firm feeling that the only real lever we had to bring about any semblance of economic and political stability in Eastern Europe was through the withholding of credits.86 By 11 February Soviet and American officials had nevertheless worked out a $100million credit, but the agreement was never consummated: ‘Soviet obstructionism again precluded final agreement.’87 By 1946 attitudes were really hardening towards the Soviets. Their behaviour in Eastern Europe was unacceptable, and they had not shown any inclination to join Bretton Woods. Their attitude seemed to be growing increasingly truculent and aggressive, and under these circumstances the Americans saw economic leverage as even more important to try to rein in Soviet behaviour. This attitude was now almost universal in the Truman Administration. In July 1945 Congress increased Eximbank funding from $700 to $3.5 billion, and later exempted members of the IMF from the scope of the Johnson Act, but these changes were in response to fears of the President and Leo Crowley about the deteriorating position in Western Europe and the need to funnel resources into the economies there. On 9 August 1945 Harriman told the Soviets that the Eximbank now had resources and was willing to receive loan requests from them, but thereafter American officials studiously ignored the matter. When the Soviets lodged a request for $1 billion it was simply not acted upon; the later claim by US officials that the documents had been lost was nonsense.88 When the Soviets formally renewed the request in February 1946, the Americans actively sought means to deny them the loan, though without appearing to be discriminatory. Secretary of State James Byrnes laid down no less than nine issues that he wanted to address with the Soviets and which should become part of a comprehensive settlement of US-Soviet differences. This tactic was exactly the same as the one used with the British in the Anglo-American loan negotiations. However, the intended goals were different: the Americans expected the British to negotiate and give way; the evidence regarding the Soviets is that they intended the conditions to prevent negotiations. Byrnes’ conditions were: i that claims by US citizens arising from the revolution and Soviet liberated areas of Eastern Europe should be met; ii that the Yalta agreements should be implemented, and the economic problems of Eastern Europe should be addressed by democratic means;

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iii that waterways of international concern should be free; iv that there should be consideration of a treaty of friendship and commerce; v that patents and copyright should be respected; vi that matters arising from Article 7 of the Master Lend-Lease Agreement should be resolved; vii that there should be a comprehensive solution to Lend-Lease matters; viii that civil aviation rights should be discussed; and ix that anything else that needed addressing should be addressed.89 The Soviets evinced pleasure initially at the prospect of talks and responded to American urgings to engage with the IMF and the IBRD by sending an observer to their inaugural at Savannah, Georgia. These American conditions were very demanding, but there were still a few individuals in Washington who wanted to take risks with the Soviets in attempts to cultivate better relations. One of these was Secretary of Commerce Henry Wallace. On 21 March 1946 he wrote to Truman saying that he thought that the recent Soviet attitude was largely to do with internal difficulties and fear of capitalist encirclement; he suggested that the new US ambassador to Moscow, General Bedell Smith, should open up trade talks as a remedy for the deterioration in US-Soviet rela-tions.90 Sadly, the time for being generous and taking chances with the Soviets was over: Truman did not act on this proposal. Thus, when the Soviets responded to Byrnes’ conditions and indicated that they would only be willing to consider items iv, vi and vii on Byrnes’ list, because they could not see the rele-vance of the other points, problems soon arose. In fact, the Americans were eager to take advantage of this situation to choke off the negotiations about financial help.91 The Americans were determined not to proceed to substantive talks. As one official put it to Clayton, ‘we will discuss a $1 billion loan only in connection with an overall consideration of economic and financial policies’.92 In fact it is doubtful that they would have done even that unless convinced that the Soviets would capitulate to their demands. In April, money earmarked in Eximbank for the Soviets was used for other purposes. Now, if there were successful talks with the Soviets, the Administration would have to go to Congress for more money. But, the British loan had only just squeaked through on the argument that the loan would help to strengthen the British and enable them to resist the Soviets better; it was going to be difficult to return to Congress and now ask them to strengthen the Soviets with a loan.93 There were thus two alternatives: ‘take advantage that the Soviet reply of May 17th gives to break off gracefully loan negotiations with the Soviet Union’, or liaise with congressional leaders and explain that the Administration would need more funds to be voted for Eximbank if negotiations went ahead with the Soviets and turned out to be successful.94 This decision needed to be taken at a high level. It was. On 13 June Byrnes wrote again to the Soviets reiterating the need for the broad talks described in his letter of 21 February. In short, he was saying to the Soviets, agree to all our demands or no talks.95 Sporadic and desultory correspondence continued over the next few months, but there were no loans. In September 1946 the USA separated a LendLease settlement out from other considerations and tried to get some movement there, but to no avail. From 1943 until Roosevelt’s death, American policy involved unconditional economic assistance to the Soviets largely as a result of cold calculation about Soviet contributions

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to the defeat of Hitler and the promise of help with the defeat of Japan. Underpinning this approach there was also the fond hope that relations with the Soviets would gradually improve to the point where they could be eased back into the international mainstream, with further dollars for post-war reconstruction helping to lubricate things. However, as difficulties in the political and strategic fields were aggravated and turned into serious problems, the USA turned away from that strategy and tried to propel the Soviet Union into the capitalist system through economic leverage. When that failed things turned very sour. The USA then compromised every one of the six reasons it had for pursuing a liberal open-world economy in its efforts to deny the Soviets access to materials that could help them economically or strategically. They discriminated against the Soviets, denied them access to the Western free market, denied themselves access to the Soviet market, denied themselves access to strategic raw materials from the Soviet Union, denied their own companies the chance of making profits in the Soviet Union, and by their policy of non-economic engagement denied themselves influence in the Soviet economy, which could have fathered other forms of power vis-à-vis the Soviets over time. On 5 January 1946 Truman told Byrnes that he was ‘tired of babying the Soviets.’96 By 1947 matters had deteriorated so far that, instead of extending loans to the Soviets, the USA was more intent on mounting a form of cold economic warfare. So much, one might say, for the idea that capitalists should always go around and act like capitalists.

5 The Truman Administration and the development of strategic embargo policy Between 1947 and April 1951 the Truman Administration debated with itself, Congress and allies about a strategic embargo on exports to be directed at the Soviet bloc and later the People’s Republic of China and North Korea. The key question was how extensive the embargo should be in order to reap maximum benefits for the West. Always at the heart of trying to resolve this problem were the economic concept of relative gain from trade and the difficulty of defining a strategic good. During the Korean War the US Commerce Department effectively adopted the position that all goods had strategic value, and therefore advocated a complete embargo, irrespective of the economic consequences for the West. Such a stance flew in the face of the concept of relative gain and was not adopted universally by the USA, though complete US embargos were applied to China and North Korea, where moral, political and ideological considerations were paramount. With the Soviet Union, the USA allowed a small trickle of trade under a tightly limited national regime of trade controls and begrudgingly condoned a more permissive one, governed by multilateral agreement, for allied trade with both the Soviet Union and China.

Establishing containment Soon after the Second World War Americans concluded that generosity towards the Soviets would not be reciprocated, and would in fact be interpreted as a sign of weakness: the appeasement syndrome ran long and deep in the thinking of Western policy-makers.1 From the latter part of the war and into the post-war period US Soviet experts in Moscow, such as Harriman, had recommended applying economic leverage to the Soviets in order to achieve US goals. However, when these tactics were applied the Soviets proved more recalcitrant than the British had been, and by February 1946 there was a standoff with the Americans on economic matters, despite the conclusion of some minor arrange-ments.2 As friction between the USA and its main ally, Britain, on the one hand, and the Soviets, on the other, caused more and more heat, and as economic leverage was clearly not going to move the Soviets into more accommodating policies, Americans began to consider alternative strategies of economic statecraft to deal with them. The architects of containment and those who believed that the Soviets had to be counterbalanced by resolution and force were already gaining the initiative in the West. For some time the British had worried about the projection of Soviet power into central

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Europe and had recognised the need to engage US help in order to achieve a measure of security However, the USA had always hoped to avoid direct long-term entanglement in the security affairs of Europe and initially would have preferred an accommodation with the Soviets in order to complete the tasks of demobilisation and returning American troops home.3 A number of developments involving the Soviets changed this position. Soviet dominance over Poland, confusion about what had been agreed at the 1945 Potsdam Allied war conference about reparations and future treatment of Germany, the Soviets’ refusal to participate in the IMF, their demands for concessions from Turkey, and, in early 1946, their refusal to abide by a wartime agreement to withdraw from northern Iran once the war was over—all this alarmed the USA. When Truman examined the results of the Moscow Foreign Ministers’ Conference of December 1945, he became convinced that the Soviets were now a real problem and a threat to the West. He wrote a note for Secretary of State James Byrnes: I don’t think we should compromise any longer. We should refuse to recognize Rumania and Bulgaria until they comply with our requirements; we should let our position on Iran be known in no uncertain terms and we should continue to insist on the internationalization of the Kiel Canal, the Rhine—Danube waterway and the Black Sea Straits and we should maintain complete control of Japan and the Pacific. We should rehabilitate China and create a strong central government there. We should do the same for Korea. Then we should insist on the return of our ships from Russia and force a settlement of the Lend-Lease debt of Russia.4 With the newly created UN rendered ineffective, because of the great powers’ veto in the Security Council and the ideological divide between the Soviets and the West, it became clear that the USA would have to look after its own security interests. Unfortunately for the prospect of harmonious international relations, American inexperience failed to calculate accurately the geopolitical impact this agenda would have on realist thinking in Moscow. After strong American demands and adverse publicity in the UN, the Soviets finally withdrew from Iran, but Truman was now worried about their intentions. A belligerent call from Stalin for Soviet rearmament, in February 1946, did not help the President’s peace of mind, and it also prompted an analysis by George Kennan, the leading expert on the Soviet Union in the US Moscow embassy. He penned the Long Telegram, probably the most famous diplomatic telegram of all times. In it he warned of the Soviet Union’s tendency to expansion and argued that the USA needed to oppose it resolutely. This articulated many of the inchoate fears and concerns in the minds of Washington officials. Winston Churchill then added to the anti-Soviet momentum in his famous speech at Fulton Missouri on 5 March 1946. Conjuring up apocalyptic visions of danger with his powerful rhetoric, he dramatically called for Anglo-American co-operation to resist Soviet communism and spoke of an iron curtain having descended across Europe from Stettin in the Baltic to Trieste in the Adriatic. The USA still did not commit itself unequivocally against the Soviets, but it acted with less regard for their sensitivities in prudent moves to safeguard Western interests. In

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December 1946 the British and American zones of occupa-tion in Germany were merged to form Bizonia. On 24 February Britain formally informed the USA that it could no longer give military assistance to Greece and Turkey: two key countries where the Soviets were thought to have ambitions. In response to this, President Truman, in a highly dramatic announcement, demonstrated internationalism’s triumph over isolationism in the USA by announcing a peacetime commitment to help Europe and to support Greece and Turkey. The Truman Doctrine pledged help to resist aggression from internal or external sources and, more specifically, provided economic assistance to replace Britain’s. In May 1947 William Clayton, Under-Secretary of State for Economic Affairs, reported that economic distress in Europe was widespread and far worse than anticipated. In his opinion, it would lead to political and social disaster unless action were taken. A month later the new Secretary of State, General George Marshall, who was less conciliatory towards the Soviets than Byrnes, proposed a European Recovery Programme (ERP) in a speech at Harvard University; this became the Marshall Plan. Technically, it was open to Soviet participation, but in fact with its implementation came the economic division of Europe and, most important of all, the division of East Germany from West Germany. This was highly provocative to the Soviets, with the danger of capitalist infection spreading via a newly created Deutschmark into Eastern Europe. They reacted by closing ground access to the Western redoubt in Berlin, thus precipitating the first major Cold War crisis. The Western response was the Berlin Airlift of June 1948 to May 1949. The Soviets also clamped down in the rest of Eastern Europe, removing, most notably in Prague, the last vestiges of pro-Western elements from government. In 1949, after much hesitation and pressure from their West European allies, the USA established the North Atlantic Treaty Organisation (NATO). Ineluctably, lines were being drawn. A sequence of actions and reactions, security concerns and clashing ideologies, economic incompatibilities, difficult personalities and the historical baggage of mutual suspicions were snatching defeat from the jaws of victory. War was to be succeeded by Cold War, not by peace. The immediate threat from the Soviets was not conceived primarily as a military one, but as economic, psychological and subversive (though no one ignored the fact that the Soviet Union was also a serious potential military threat to the West). After Marshall took over from Byrnes as Secretary of State in early 1947, he quickly took steps to respond vigorously to these threats. To improve planning and strategy development in the State Department, he created the Policy Planning Staff (PPS) and appointed Kennan as its first director. Shortly thereafter, in July 1947 in Foreign Affairs, Kennan anonymously published an elab-oration on his Long Telegram entitled ‘The Sources of Soviet Conduct’: ‘Soviet pressure against the free institutions of the Western world is something that can be contained by the adroit and vigilant application of counter-force at a series of constantly shifting geographical and political points.’5 He believed that there were five key industrial centres in the world: the USA; Britain; Germany and central Europe; Japan; and the Soviet Union. Four were in the West and one was in the East, and this was the way things should remain. Elsewhere, the West could afford to be flexible, because points on the periphery were expendable. This became known as containment and, with much help from Kennan, it developed into official US policy.

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Notwithstanding Kennan’s hard line, he did not believe that the Soviets had ever seriously considered a resort to arms against the West, and in April and May 1948 both a report from the US Moscow embassy’s Joint Intelligence Committee and the consensus view of the British Foreign Office concurred with Kennan’s assessment.6 Containment to prevent the spread of communism thus took the form of economic priorities. Both the Truman Doctrine and the Marshall Plan were cast in this mould. And it was not only the Americans who recognised the importance of this economic strategy. The British would not allow the Soviets to endanger the Marshall Plan: the Americans did not explicitly exclude the Soviets, but the British did. This is abundantly clear from a report on the initial planning talks by Foreign Secretary Ernest Bevin for the British Cabinet. Knowing that the Soviets would not supply the information necessary for the ERP, and aware that they could not allow their command economy to be infected by the free market through an integrated plan for European economic recovery, Bevin ‘insisted from the outset on thrashing out the differences of prin-ciple…and making that the breaking point. Any other tactics might have enabled the Soviet Union to play the Trojan Horse and wreck Europe’s prospects of availing themselves of American assistance.’7 There thus emerged a high level of congruence in British and American containment thinking in 1946–7, and this was important when the USA began to call for a multilateral approach to the task of instituting a strategic embargo. This is not to say that there were no differences between the USA on the one hand and Britain and other allies on the other, but it is to indicate some, limit to the differences and to claim that they were of a tactical nature rather than about basic principles. Thus the Americans, with the help of the British, helped to nurture the economic recovery of Western Europe through the Marshall Plan, and thereby honed the economic instruments that were to play a key role in the grand strategy of containment. The economic strengthening of Europe was part of America’s policy to contain any attempt at the further expansion of communism. By March 1948 the US government believed that ‘between the United States and the USSR there are in Europe and Asia areas of great potential power which if added to the existing strength of the Soviet world would enable the latter to become so superior in manpower, resources and territory that the prospect for survival of the United States as a free nation would be slight’.8 On 2 April the Congress approved the Marshall Plan and appropriated $5.4 billion for the first year of its operation. Thus, as soon as early 1948, the USA had a strong tendency to see the disposition of world power primarily in bipolar zero-sum terms, with great emphasis on the control of economic potential and resources: most important of all, it was vital to anchor Western Europe in the free world as a willing and cooperative ally and as a thriving economy. The Americans still discriminated between areas of key and lesser importance, but, nevertheless, global containment strategy developed quickly and soon changed that. Also, it did not take long for thoughts about negative types of economic strategy to take shape to complement the positive economic strategies of aid and assistance to Western Europe fathered by the Truman Doctrine and the ERP.

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From the US national to the multilateral Western strategic embargo Churchill had pointed out in the First World War that in modern warfare it is not possible to distinguish between armies and people. Perhaps more specifically, the distinction between contraband and non-contraband goods cannot be sustained. Nothing may be excluded a priori from the category of strategic goods, because everything can contribute to the national effort in total war: this was very much in evidence in American thinking as the USA struggled to construct its strategies for waging an economic cold war. However, it does not follow that, because all economic activity and all goods contribute to the waging of total war, all trade should be embargoed. The case of Sweden in the Second World War demonstrated in practice that things were never so clear-cut and simple. In peacetime things were even more complex, because the Cold War was not hot war, and the Americans had to work under a number of legal constraints, with domestic and international political factors also influencing policy development. And they could not mount a naval blockade to prevent goods reaching the Soviets, nor could they bomb Soviet industrial plant as they had done Germany’s in the Second World War. They were confronted not by war or peace, but by cold war. Hence, it is appropriate to distinguish between economic warfare and the strategies that the USA began to develop in the Cold War. When policies of economic denial went beyond a pure military-strategic embargo and took the shape of an embargo designed to condemn Soviet behaviour or to convey messages, or if they were designed to weaken, damage, or cause the collapse of the Soviet economy or society, then the term cold economic warfare seems most appropriate. However, it is important to emphasise once again that this term was not used by the policy-makers of the time. They used either the term strategic embargo, or economic warfare. Changes to such usage will not be made in the narrative, but the term cold economic warfare will be used in any commentary or analysis. It is also important to remember that these analytical terms never fully capture the range of the complexity of practice. There are always some policies and events that evade them. Thus, during the missile crisis of 1962, cold economic warfare against Cuba was accompanied by a naval blockade, something one only expects to see in wartime. The use of air power against Iraq in the economic blockade following the Gulf War, and on into the new millennium, is another example.9 In the spring and early summer of 1947 the USA had taken two major steps along the path of developing a concerted economic response to the perceived threat from the Soviet bloc: the Truman Doctrine and the Marshall Plan. Simultaneously, East-West relations continued to deteriorate, and there was growing American concern about exports to the Soviet Union and her satellite states. US exports to the Soviet Union and Eastern Europe in 1947 amounted to approximately $150 million—not a great amount, but, when considered with other factors, they created a serious problem for the USA. Authority to control exports still existed from wartime legislation, but now that measure of control was seen as inadequate by a number of influential groups and individuals in Washington. Pressures from Congress, worries about trading with the Soviets when materials were in short supply in the USA and Western Europe, and fears

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that some exports were directly contributing to the Soviet Union’s war-making potential at a time when it was no longer seen as a friendly power caused much hard thinking. Actions of allies soon to receive US aid also helped to focus attention on strategic exports. In particular, the British sale of jet engines to the Soviets provoked US anger, even though Foreign Secretary Bevin tried to mollify them, professed himself ignorant of the details of the sale, and gave assurances that British export controls over strategic items like this would be tightened up.10 However, moves by Britain to expand trade with the Soviets through a trade agreement in December 1947, and the continuing expansion of trade with the Soviets by other West European countries, worried the Americans and exasperated members of Congress. They found it hard to tolerate the idea that Marshall Aid to Western Europe might help recipients to export what many Americans considered to be strategic items to the Soviets. Such views were expressed ever more vehemently after the coup in Czechoslovakia in February 1948. All this led to congressional criticisms of the Administration for not cutting off trade with the Soviets, and Commerce Secretary Harriman had to speak defensively in response to questions from the House Foreign Affairs Committee. He said sanctions should only be used as a last resort, but in actual fact at that very time he was setting in motion interdepartmental consideration of a strategic embargo policy.11 Quite clearly, a whole range of difficult issues were taking shape, to do with strategic exports, European recovery, US aid and how best to limit the power of the Soviet Union and maximise the strength of the West. Throughout September the Commerce Department, the State Department and members of the newly formed NSC considered these issues.12 By 14 November the Commerce Department had its position worked out, but the State Department was still tussling with problems.13 Its Eastern European Economic Working Party rejected any idea of economic warfare and recommended a free flow of exports apart from controls over those items in short supply or of direct military use. The PPS also developed a paper in which Kennan argued that the level of existing trade did not require drastic action, certainly not of the kind that Harriman and the Commerce Department favoured. Kennan thought that the USA needed to be careful not to fall foul of international agreements with the Soviets, particularly in relation to charges of trade discrimination. At the same time he noted that ERP demand for US goods would result in many more items falling into short supply, which would obviate most of the discrimination problem. However, Kennan did suggest that, if the situation deteriorated, then area controls should be applied to all exports to Europe. This appears to have been misunderstood by some of his colleagues in the State Department, who thought that he was suggesting harsher measures than was actually the case. The Under Secretary of State, Robert Lovett, did not approve Kennan’s paper, and the State Department was unhappy and opposed the proposals from the Commerce Department.14 Nevertheless, on 17 December at the fourth NSC Meeting, after minor amendments and an understanding that the State Department would have a say in what was to be embargoed, members accepted the general proposals from Commerce. Soviet opposition to ERP was deemed to constitute a ‘threat to world peace and, in turn, to US security’ and therefore the NSC recommended, and it was approved: ‘in the interests of economic recovery, world peace, and, in turn, US national security, that Europe, including the USSR, and such affiliate areas as the Secretary of State may designate, should be declared a recovery zone to which all exports should be

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controlled.’15 On 31 December the Commerce Department, under the authority of vestigial wartime legislation, announced destination controls on all goods in short supply in the USA, and on 15 January 1948 it further announced that all exports to Europe must have individual licences after 1 March. The actual formal criteria that were applied involved the following questions: i Was the need for the export justifiable? ii Would the export serve the interests of European economic recovery? iii Would the export of an item adversely affect the position of the USA?16 This amounted to a policy of restricting exports in short supply, or those which could contribute to the military potential of the USSR. But this was by no means the end of the story. The Commerce Department wanted to forge ahead and develop the US embargo as quickly as possible, but others, especially from the State Department, wanted to define policy more clearly ‘regarding possible economic warfare’.17 It was by no means clear what did and what did not contribute to the Soviet military potential: if the line were to be drawn very inclusively, then the State Department feared that this could be provocative and be construed as economic warfare by the Soviets. In the course of discussions on 16 March personnel from State and Commerce agreed that the ‘objective of the US was to inflict the greatest economic injury to the USSR and its satellites and, at the same time, to minimise the damage to the US and the Western Powers resulting from (a) probable Soviet retaliation, and (b) inability of the East to continue exports of certain supplies to the West.’18 Already there was a broad canvas that covered ‘contributing to the military potential of the Soviet Union’, but the Americans were also aware of a central dilemma. How far could they go in weakening the Soviet bloc without risking repercussions that would make the embargo counterproductive? It was this type of consideration that limited America’s express intention to ‘inflict the greatest economic injury to the USSR’: it also complicated the question of whether or not US policy went beyond a strategic embargo and amounted to what many in the State Department termed economic warfare. Both the State and Commerce departments had rather different ideas about where to strike the balance in American policy. At times the Commerce Department did not want to strike a balance at all: it simply sought to stop all trade. In early 1948 the situation was still fluid. In addition to the differing views within the two departments most directly concerned with embargo policy, there was also another perspective that had to be taken into account: the dangers of hasty action from elsewhere on the embargo issue. In particular, the State Department was eager to devise a policy that would pre-empt such action from the Congress and the military establishment. In order to try to move things along an ad hoc subcommittee of the interdepartmental Advisory Committee on Exports19 was set up to help devise policy and look into the possibility of drawing the allies into the embargo enterprise. It did not report until May, but before then the State Department had already taken matters in hand and decisively set the aims of US embargo policy. Those aims were echoed later in the report of the ad hoc subcommittee, though the new Secretary of Commerce, Charles Sawyer, seemed bent on a total embargo (or as near total as he could manage), which was rather different to both the report and the proposals that Secretary Marshall put to the Cabinet on 26 March.

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The concerns of the State Department were broader than those of Commerce and focused rather differently from those of the Defense Department. The State Department was concerned with implementing a strategic embargo, but one that harmonised with other major concerns: the reaping of economic relative gain, the success of the ERP, friendly relations with America’s European allies, and avoiding damaging retaliation from the Soviets. The first of these factors was very evident in the way Marshall’s proposals were put to the Cabinet. He pointed out that ERP trade with the Soviet bloc amounted to $1.5 billion and in consequence: A curtailment of this trade would mean increased demand on the United States, both in terms of money and in terms of physical supplies, much of which could not be supplied without the institution of drastic domestic controls.’20 One of the main reasons behind the need for the Marshall Plan was the dollar shortage in Europe.21 If the embargo forced Western Europe to seek to replace lost supplies from Eastern Europe with alternatives that had to be paid for in dollars, then this would exacerbate the very problem the Marshall Plan had set out to solve. Seeking to avoid this, Marshall’s policy on the embargo tried to meet what he perceived as the three requirements of the situation: ‘1. It does not destroy East-West trade; 2. It limits exports of significant items to the Soviet Bloc; 3. It gives greater assurance that the United States will obtain strategic materials which it wants from the Soviet Union.’22 Having decided on this policy of selective export controls, two important questions still remained to be answered: First, what items were to be selected? Second: How should the USA draw its allies into the programme so that it would be effective? The ad hoc subcommittee of the Advisory Committee soon offered answers to the first question, but the strategy for drawing in the allies took longer to determine. The ad hoc subcommittee reported on 4 May. It reiterated the three objectives of the embargo programme laid out in Marshall’s paper to the Cabinet of 26 March, and went on to suggest four broad categories into which goods should be placed when being considered for export: military items, though broadly construed; economic items that could readily enhance the military potential of the Soviet bloc; items that contributed to the economic strength of the Soviet bloc; and non-essential items. The report acknowledged that currently the Commerce Department had established a virtual total embargo on exports to the Soviet bloc, but that this must change and become more flexible to come into line with the Cabinet decision of 26 March. It suggested that the way forward lay with the adoption of these four categories.23 Two days after the report Sawyer was sworn in as the new Secretary of Commerce to replace Harriman, and for several weeks, despite the professed intention of the ad hoc subcommittee, there was no change in the almost total embargo on exports to the Soviet bloc that the Commerce Department had imposed. Sawyer seemed determined to pursue a more restrictive embargo than the Commerce Department had originally intended under Harriman. He just did not want to trade with communists, but if there had to be trade between East and West, he did not want European companies to be advantaged by operating under less restrictive embargo rules than US firms. Sawyer’s position was buttressed by the April passage of the Economic Cooperation Act in Congress, and in particular the Mundt amendment, section 117(d), which stipulated that recipients of ERP items from the USA were prohibited from reexporting articles to any non-ERP participant ‘which…would be refused export licenses

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by the United States in the interest of national security’. All this led to a number of irritable exchanges between the Commerce and State departments. On 3 June it was noted in the NSC that ‘Commerce is simply not shipping anything to Russia’. Steps were taken to educate the Commerce Department in the need to implement the selective export control policy agreed to by the Cabinet, and by 18 June the problems seemed to have been sorted out. Nevertheless, on 19 June Sawyer suggested to Marshall that trade with the Soviets should be on a strict quid pro quo barter basis for individual export licences. At the Cabinet meeting on 26 March there had been talk of moving to a general quid pro quo basis for trade with the Soviet bloc, but this went far beyond that: Marshall gave an emphatic thumbs down to Sawyer’s proposal.24 Internal disagreements about the restrictions of the embargo continued endlessly within the US Administration. A year later Harriman, who had moved from Commerce to become the US Special Representative in Europe for the Economic Cooperation Administration (ECA), wrote to Paul Hoffman, the EGA Administrator: ‘Have always assumed and continue to believe that US is not engaging in outright economic warfare against the Soviet orbit and that US policy based solely on security factors involving relatively short and precise lists of selected strategic items which are not basic to normal peacetime trade.’25 Quite clearly there were still pressures for a more extensive embargo than Harriman thought appropriate, though one should note that his views on trade had become more permissive than in 1947, when he had engineered the original policy debate.26 By 1949 Harriman and the ECA were close to the State Department position, which was still the most liberal of all centres of embargo policy-making in Washington, and some way down a more liberal road than either Commerce or the defence establishment.27 The reworking of the four categories of exports proposed by the ad hoc subcommittee into what became the 1a and 1b US national lists was a lengthy and complicated bureaucratic process. However, what is clear is that the State Department and the EGA were instrumental in diluting the strength of the embargo programme as it had emerged from the Commerce Department. A technical steering committee that worked with the inter-departmental Advisory Committee on Requirements (the renamed Advisory Committee on Exports)—composed of the ECA, the CIA, the Atomic Energy Commission (AEC), the military establishment and the departments of State, Commerce, Interior and Agriculture—hammered out the final lists, but with input from other agencies, including the National Security Resources Board (NSRB).28 The la list contained items of military or direct military value, which were to be embargoed; the 1b list had items that could contribute to the economic strength of the Soviet bloc, which were to be quantitatively controlled. The lists were substantially shorter than had been envisaged in the ad hoc subcommittee recommendations. On 20 August the la list was accepted by Commerce for the embargo programme against the Soviet bloc. The Truman Administration now moved to deal with the second problem: how to engage others in the embargo enterprise. The Mundt amendment to the Economic Cooperation Act had set a marker for the direction of policy development, but as ‘a matter of government policy, it was decided to go beyond 117(d) [the Mundt amendment]’:29 the Americans decided that a multilateral arrangement for a Western embargo needed to be devised. By the end of August the ECA and the State Department had reached agreement on how they would approach their West European allies and what

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policy they would pursue. They wanted to draw in all participants of the ERP, but first of all they would raise the matter with the British, and that was to be done by Harriman. On 27 August they sent Harriman the following instructions. They are quoted at length because they reveal so much about the overall contours of policy, the identity of sensitive problems, and US intentions regarding the extent to which the Americans were prepared to push rather than beckon their allies. The telegram set out several basic principles: a Effect on Soviet war potential of denial of supplies to Soviet bloc would derive principally from denial of particular critical items. b Security is best served by maintaining and increasing strength of West relative to that of East. Effort to hold down war potential of East should be weighed against necessity of building up defense strength of West. c Political and military strength of ERP countries depends upon their economic recovery which in turn depends upon success of ERP. d Success of ERP as presently conceived depends upon substantial volume of trade between Western and Eastern Europe. Furthermore, measures involving substantial reduction of this trade would raise political as well as economic difficulties in several ERP countries. e Security restrictions upon exports from ERP countries to Eastern Bloc must take account of dependence of ERP on maintenance and expansion of trade between Eastern and Western Europe. f East-West trade policy should be designed to assure continuance of Eastern Bloc exports critical to Western economic recovery and defense potential including strategic materials needed by US to greatest extent compatible with objectives of increasing strength of West relative to that of East. g Primary object of these negotiations must be export control program for which voluntary agreement of ERP countries, based on recognition of common purpose, must be secured. h So far as possible, list of critical items, export of which to Eastern Bloc is totally prohibited for security reasons, should be same for US and ERP countries.30 Harriman was to try to get agreement to the embargo of all 1a goods, and if there were objections they should be referred back to Washington, though the telegram indicated that some changes would be made if they were necessary to secure ‘substantial voluntary agreement by the European countries’.31 The principles embodied in the guidelines given to Harriman established four important characteristics of US policy. First, the embargo was selective. Decisions had to be made about what should and what should not be embargoed, and it is clear from the content of several of the other principles that it was understood that this would involve judgement about the strategic value and economic worth of items, as well as needing to accommodate with America’s allies. Second, the whole programme was couched in language that was sensitive to the concept of relative gain. Holding down the East could only be done at some cost, and it was vital to strike the right balance to maximise the West’s economic strength and acquire strategic materials, while doing everything possible to weaken the East (however, as we have noted before, weakening the East did not always entail embargoing goods to weaken the economies of the satellites). Similarly,

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the military strength of the ERP countries depended upon the success of their economic revival, and that in turn depended upon trade from the Soviet bloc: again it was a matter of weighing up the relative costs and benefits. Third, the embargo list had to be the same for both Europe and the USA, otherwise the embargo would be ineffective for those items embargoed by one but not the other (unless the only source of production were in the USA), and it would create de facto discrimination against US firms if the multilateral were not as extensive as the US national embargo list. Fourth—and the most important in considering the further development of US policy—the multilateral embargo had to be voluntary. The instructions to Harriman not only emphasised this, but also indicated that compromises might have to be made to reach agreement. Harriman worked primarily through the British. In effect, he was a catalyst to get things started; thereafter there was much reliance on the British to organise the European response to the initiative for a multilateral embargo, with only indirect inputs from the Americans. By November it was possible to report: ‘The UK government has assured us that it subscribes in principle to the program and has indicated its willingness to be of assistance in sponsoring this program with other participating countries.’32 British willingness to co-operate with the USA should not be underestimated. It was just as much in Britain’s interests, if not more so, to embargo strategic exports to the Soviets as it was in America’s. The problems arose over what were sufficiently important to the Soviets to merit being embargoed. There was a large degree of common ground upon which Britain and the USA stood. In March 1948 Bevin had produced his own version of the Truman Doctrine in a paper for the Cabinet entitled ‘The Threat to Western Civilisation’, in which he spoke of the need for a partnership of Western Europe, Britain, the Commonwealth, the USA and any other country that could be drawn in in order to oppose Communism.33 So the British were quite ready to take the lead on what they saw as necessary steps to stop strategic goods reaching the Soviets. Furthermore, once committed to this line of policy, they, like the USA, wanted all the rest of Western Europe to adopt the same policy. They no more wanted to suffer trade discrimination visà-vis the rest of Europe than the Americans did. This is not to say that the USA did not apply pressure on Britain and her other allies in Europe, but generally it was selective, muted and restrained—though one obvious threat was that Congress would not tolerate certain kinds of trade with the Soviet bloc, and this was something that did in fact impact on the West European allies. Congressional pressures exerted through amendments to the ECA legislation pressurised the Europeans into a degree of compliance with American wishes, but it was not á diktat by any means. Indeed, the final outcome of the European talks on the 1a and 1b lists and the establishment of COCOM verify that claim. The kind of pressures were often more subtle than a crude brandishing of threats. In fact, the State Department strove hard to achieve American aims without using the kind of crude threats that the Europeans could construe as incursions into their economic sovereignty. A comment by the UK delegation to the OEEC, which was involved in trying to get the Europeans to agree to both an embargo list and an arrangement for implementing it that would be acceptable to the Americans, illuminates the rather complex nature of the relationships involved. Talking about the ongoing attempt to decide policy, the note observed, ‘it would be most important that all the countries concerned should have definitely accepted the policy before the Americans

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come in, since a large part of the discussions of the present stage is inevitably concerned with the extent to which American pressure can be resisted’.34 This gives an insight into the drafting of the multilateral lists and indicates that Britain and the other European allies designed things to meet their own needs rather more than America’s. Alan Milward has suggested that: ‘In the whole context of the ERP,…it is only the limitations placed on trade between western and eastern Europe and the extent of the power which Marshall Aid may have given to get the limitations initially established which seems worth citing as an instance of American “imperialism”.’35 But maybe even this goes too far. The Americans would not exert outright coercion. The State Department felt that if they did it would contradict much of the rationale of the Marshall Plan, which was to revive the self-confidence and strength of the West European states.36 Harriman, even at his most optimistic about the ability of the USA to get its own way in Europe, thought that care needed to be taken so as not to appear to encroach upon the sovereignty of the European states. Also, bearing in mind the overall relationship of the USA to countries like Britain, it is clear that there were limits to what America could achieve in the specific field of the selective embargo. The British worked with the French to draw the West European countries into negotiations to develop an agreement on East—West trade controls. In early 1949 there was progress on several fronts. In the USA, Congress passed the Export Control Act in February, which provided the legislative authority for US embargo policy for decades to come. In Paris and London meetings of the European allies were held, with the British and the French taking the lead. By March the British had agreed to all but 31 of the original 163 items on the 1a list; the ECA thought that this was the best that the USA was likely to achieve. This was endorsed by the State Department, which recommended that multilateral agreement among the ERP states should be sought on this basis. The US Defense and Commerce departments disagreed and balked at the idea of removing items from the 1a list.37 Harriman began to worry that some in Washington wanted economic warfare, which was not now his understanding of what US policy was supposed to be, and he feared that if economic warfare developed it would be opposed by the Europeans.38 In May, William Foster, the Deputy ECA Administrator in Europe, wrote to Hoffman about the impasse that had emerged in trying to reconcile the US 1 a list with what the Europeans were prepared to embargo. He cautioned that ‘further pressure directed primarily at British, who for reasons of mutual security have gone far in cooperating, might be misunderstood’.39 The dilemma was that the Americans had achieved the principle that they had set out to achieve: voluntary co-operation with the ERP countries. They did not want to destroy that by being too coercive with regard to the remaining items on the list. Nevertheless, the ECA and the State Department had to give way to those in the Administration who wanted more concessions from the Europeans, and further discussions took place; but Foster had identified the heart of the problem, and that explains why a gradual compromise emerged over the following months. The Americans backed down and agreed to a shorter list than they had originally proposed. Not all agencies in Washington were pleased with the way things developed. In August, Sawyer complained to the new Secretary of State, Dean Acheson, about the slow progress in Europe on the 1a and 1b lists and wanted to know why Britain had been allowed to lead the negotiations from which the USA appeared to have been excluded.

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Just over a month later Acheson deigned to reply. He claimed that progress seemed to be satisfactory, and that the State Department had never been given the task of negotiating with the ERP states on the embargo issue. Harriman had been given that brief, but Acheson thought it was a wise tactic to allow the British to take the lead in Europe.40 State Department optimism was to waver in October, when talks among ERP participants could only agree on a list that fell short of the US la list by 48 items. ‘Consensus of all US representatives…despite UK and French apparent earnest-ness, results meeting disappointing.’41 Between this disappointment and the agreement that was reached during November 1949 and early 1950, which provided for the creation of a formal Consultative Group (CG) and a working co-ordinating committee (COCOM) for a multilateral embargo, there was further debate among US policy-makers that casts more light on how their thinking and strategy were developing. To many Americans the problems of getting an agreement on an embargo list among their European allies and friends was very much at odds with what seemed to be required because of developments elsewhere. The coup in Czechoslovakia in February 1948, the Berlin blockade and the ensuing war scare, the creation of NATO, the Soviet explosion of an atom bomb, and the loss of China to communism, all raised the temperature of the Cold War and led to a reappraisal of US policy and Western needs. The outcome was a move away from containment by protecting strong points to a more indiscriminate defence of all non-communist states. This is to anticipate developments somewhat, but it is important to note that the challenge of the Cold War appeared to be growing in dimension at a time when there were severe problems in the Western Alliance: this in turn aggravated the difficulties that arose in the discussions about what an appropriate embargo strategy should be. Progress on European integration was deemed to be inadequate by the Americans. The double problem of containing both the Soviets and the Germans (while engaging the resources of the latter for the strengthening of the West) was still far from being resolved. America’s strongest ally, Britain, experienced the humiliation of a major devaluation of its currency on 18 September 1949, which exposed the fragility of its power. European recalcitrance in the face of US desires for more unity, more integration and more resolute opposition to communism was infuriating, but, as the USA now needed friends and allies more than ever, the amount of influence it could exert was limited. This was no less true of the problem of trying to get European agreement on an embargo list that came as close to the US la list as possible than it was of other areas of allied policy, such as European integration. In Paris on 21–22 October and London on 24–26 October 1949 there were meetings of US ambassadors to European states and US chiefs of mission to the Soviet satellites. Admiral Alan G.Kirk, ambassador to the Soviet Union, gave a forthright interpretation of recent events and their impact on his thinking about an allied embargo. He exaggerated the prospective effects of an embargo (or, at least few other people ever expressed such optimism about its possible potency) but he identified a number of important factors. To him, ‘it was apparent that the western counter-blockade did more to bring the Russians to their knees on the subject of Berlin than had the airlift’, and he believed that the counterblockade had exposed Soviet vulnerability and that it was more dependent on the West than vice versa. He also thought that an embargo policy properly managed ‘might bring down the Soviet pack of cards’. Few people ever really thought this a likely outcome, but

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Kennan had offered rather vague ruminations on it in the past, and in subsequent flights of optimism during the 1940s and early 1950s it was periodically raised as a possibility. In response to Kirk’s observations Harriman was quick to point out that the USA could not stop all trade with the Soviet bloc, because it supplied the West with vital materials. Nevertheless, he agreed that a full reappraisal of US embargo policy should be made. Furthermore, he went on: ‘We should have a fresh look at the whole problem of cooperation with our European partners. The mutual security commitments of the Atlantic Pact seem to offer the best basis on which to undertake a concerting of action.’ Compared with the EGA approach that had until then been pursued, the advantages of working within NATO were threefold. It would give appropriate emphasis to ‘security and political factors and the tack-ling of control of industrial know-how.’42 The ambassadors agreed that the USA should explore the possibilities both of making the embargo more effective and of running it on a multilateral basis with the participation of the USA. It should not, however, seek to end all trade with the Soviet bloc, since, as Harriman had pointed out, that would endanger the success of the ERP. The chiefs of mission to the satellite states agreed with this conclusion, and they too favoured exploring the possibility of a tighter embargo policy, because they believed that it could be effective. The London Conferees agreed that the restrictions on East-West trade have contributed to a reduction in industrial output or have prevented the expansion of industrial production in the Soviet orbit and have further had the effect of forcing the satellites to call upon the Soviet Union to supply them, which it has on the whole been unable to do, thus increasing the economic strain between the USSR and the satellites. The London conferees were of the opinion that the fullest exploitation of economic controls should be pushed now and that the US should make a study of the overall problem of East-West trade giving consideration to the need for western Europe to obtain alternative sources of supply for its raw material needs. The development of such alternative sources would not only greatly reduce the dependence of the West on the Soviet controlled area but also might bring about a situation in which the East would become dependent on the West for supplies.43 Some of this was clearly wishful thinking: the combination of wanting to weaken the Soviet economy and to seduce the Soviets with and make them dependent on Western exports at the same time is hard to reconcile. How the West could simultaneously reduce its imports from the Soviet bloc to insignifi-cance (and find the dollars to pay for the alternative sources of supply) and at the same time sell to the Soviet bloc in such quantities that it would become dependent on the West was never satisfactorily explained (indeed any such explanation would defy economic logic). However, these two conferences disclose much about US thinking. The Americans felt that the time had come to participate directly in the organisation of a multilateral embargo—up to this point they had not taken a direct part in the talks among European countries. They wanted to review policy and shift to an even more widespread embargo in order to weaken the Soviet Union. This would also involve fine-tuning their trade policy with the satellites, but that

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would not always mean straightforward denials, because some exports could exacerbate tensions and jealousies between the satellites and Moscow. And, finally, there was the possibility of moving policy-making to NATO. All this came to the forefront of US thinking at a time when the Europeans could not come to a satisfactory agreement, so far as the USA was concerned, on items to be embargoed. However, before the Americans could act on their new sense of urgency, there was a breakthrough on the embargo lists. A compromise was reached that was acceptable to the Americans, and a permanent Consultative Group and the COCOM were established. Multilateral controls were now in place along with the means to implement them. Thus, for the time being (and, in the event, permanently) multilateral embargo policy remained outside NATO. The agreement reached in talks from 14–23 November resulted in the acceptance of almost 130 items on the embargo or List 1, a small number to be quantitatively controlled went on List 2, and about a dozen items on List 3 were simply to be kept under observation. The Americans had made progress with the lists and had achieved their aim of establishing multilateral arrangements to oversee and develop policy further, namely the CG and the COCOM. In many ways all this was a success for the Americans. The aims that they had identified for their embargo policy could be effectively prosecuted under these arrangements, even though they had had to compromise with their European allies in order to engage their co-operation. The restrictions the US exercised over its own exports to the Soviet bloc soon showed their effects: exports fell dramatically from $150 million in 1947, to $6.5 million in 1949, and to under three-quarters of a million dollars for the first nine months of 1950.44 In Western Europe, with multilateral agreement in place the effect was to restrict the rate of growth of Western trade rather than diminish its absolute level; however, one should remember that restricting growth was a very significant achievement at this time, as the West European states were recovering their economic potential and thus, but for the embargo, would presumably have exported far more to the Soviet bloc than they did. West European exports to the Soviet bloc only rose from $622.8 million in 1948 to $626.1 million in 1951.

China and the US strategic embargo Developments soon endangered the allied consensus that had emerged in November 1949. Problems of policy towards communist China, changes in America’s overall strategy that indicated greater emphasis on military containment, lingering doubts and reservations about the existing embargo from the Commerce Department, and criticism from Congress all created pressures for a more restrictive embargo in Washington, and thus endangered the fragile allied agreement. On 1 October 1949 the Chinese communists declared the People’s Republic of China (PRC), which added yet another complication to America’s multilateral embargo programme. The symbolic importance of the loss of China to the Americans can hardly be over-emphasised. It provided fuel for the flames of anti-communism and for the criticisms of the Truman Administration, which was now put on the defensive by charges of being weak towards communism. This made the defence of a selective embargo more difficult and its application to China difficult to resist. The American government soon

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saw and represented the PRC as being not only dangerous in itself, but also a conduit through which strategic materials could pass to the Soviet bloc, which remained the one serious strategic challenge to the USA. American policy moved to close the breach in the embargo, but not in an extreme manner. For a while the Truman Administration had some sympathy with British desires to continue trade with China in order both to seduce it with Western consumer goods and drive a wedge between the Chinese and the Soviets. But an equally (if not even more potent) reason for Britain wishing to continue to trade had to do with its investments in China and commercial interests in Singapore, Malaya and Hong Kong. The last was particularly vulnerable to retaliation if a trade embargo provoked the Chinese to military action: Hong Kong was simply not strategically defensible. For these reasons, the British swiftly recognised the new regime, much to the anger of the Americans,45 carried on trade and were initially even reluctant to consider the merits of applying the embargo to China.46 By the end of 1949, however, the British agreed in principle that export controls were necessary to prevent transhipments to the Soviets and to limit the war-making potential of China. They decided that these issues should be discussed in the newly formed CG and COCOM, but progress was slow, and Western trade with the PRC continued to be a major breach in the multilateral embargo. Commerce Department dissatisfaction with the embargo, critical public and congressional opinion, and the change in US strategy all linked together to create pressure for breaking the existing consensus and pushing the Europeans into a stricter embargo. Furthermore, the opportunity to exercise leverage over allies was provided by their need to rearm and develop NATO, which they could hardly do without assistance from the US Mutual Defense Assistance Program (MDAP, Britain, for example, signed its bilateral agreement on 27 January 1950).47 In early 1950 these interlinked factors had more impact than the China question, but the communist invasion of South Korea on 25 June 1950 was soon to change that and make China of central concern. Long before the outbreak of hostilities in Korea, advocacy for a change of US strategy came from NSC 68, drawn up by Defense and State Department officials under the chairmanship of the head of the PPS, Paul Nitze. It self-consciously responded to the perception that the Soviet Union was embarking upon a more aggressive strategy, involving rearmament. NSC 68 essentially called for a new and more militarised form of containment, and, while it mentioned little about embargo policy, the overall thrust of the document clearly indicated a more central and important place for economic statecraft designed to limit the Soviet Union’s power and damage its interests. The substance was a containment policy by all means short of war to (1) block further expansion of Soviet power, (2) expose the falsities of Soviet pretensions, (3) induce a retraction of the Kremlin’s control and influence and (4) in general, so foster the seeds of destruction within the Soviet system that the Kremlin is brought at least to the point of modifying its behaviour to conform to generally accepted international standards.48 And the style was to exert pressure in a fashion which will avoid as far as possible directly

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challenging Soviet prestige, to keep open the possibility for the USSR to retreat before pressure with a minimum loss of face and to secure political advantage from the failure of the Kremlin to yield or take advantage of the openings we leave it.49 This content and style clearly spoke volumes in favour of embargo policy, and the very next paper from the Council, NSC 69, took up this issue. The Secretary of Commerce, Charles Sawyer, again attempted to close down US and allied trade with the communist world. On 25 April he complained to James Lay, the Executive Secretary of the NSC, about the lack of vigour with which the Europeans were implementing the export embargo. Sawyer claimed that: ‘The sufferers have been American manufacturers and anti-Communist security.’ He wanted to minimise the discrimination suffered by US firms because of tighter export controls in the USA than those applied in Europe, and he was ideologically committed to as vigorous a prosecution of the Cold War as possible: he thus wanted to extend the COCOM lists and get the Europeans to accept the US 1b list of items for quantitative control.50 In NSC 69 he made all this clear and challenged the comparative advantage argument for continuing trade with the Soviets: ‘The strategic advantages accruing to the Soviet bloc from East-West trade are exceeding at an increasingly disproportionate rate, its benefits to western European economic recovery’.51 Furthermore, he wanted to use the MDAP to exert leverage on America’s allies. This amounted to a most serious attack on both the substance of the embargo and the means of applying it. It attacked the principle of relative gain, which had underpinned the embargo all along and was the justification for its selective nature. And the call for the use of direct economic leverage on the West European allies threatened the principle of voluntary cooperation, which was at the heart of the ERP and was the fundamental source of strength of the Western Alliance. In the NSC meeting of 5 May, which discussed NSC 69, it was left to Secretary of State Acheson to deflect Sawyer’s attack. Acheson argued that America could ‘not force the 1B list on the European countries by a threat of withholding MAP or ECA assistance, since we are asking more cooperation among them all in a broad area of activity’. He read out to the meeting a recent cable from US representatives in London: ‘if we were to try to dragoon our friends into accepting the 1B list by unilateral action, we would be seriously jeopardising our unity aims on what is essentially a secondary issue.’52 ECA Administrator Hoffman supported Acheson, and the Defense Secretary Louis Johnson stood with Sawyer. The problems were referred for further study, but in fact Acheson had temporarily won the day. Instead of coercion and making aggressive demands on the allies he was simply instructed to broach export controls at forthcoming meetings in Paris with the French and British with a view to tightening things up.53 Acheson had not succeeded in burying Sawyer’s demands, but at least he managed to contain them in such a way that they could be put more tactfully to the allies. On 10 May Acheson and Charles Bohlen, Counselor in the State Department, raised with Bevin and his Deputy Under Secretary, Sir Roger Makins, the possibility of adding some of the US 1b list to the COCOM 1 list. Acheson acknowledged Britain’s balance of trade problems might be further exacerbated by this, but explained that he thought the two countries should be as close as possible on East-West trade. When Bevin said he thought

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they were, Bohlen pointedly disagreed. Makins then commented that the new US suggestion seemed tantamount to a change in policy. Acheson replied ‘we wanted to get away from words and to real question: How much harm does this control do you? It obviously does some good. Where does balance lie?’54 Bevin agreed to take the matter up with the Board of Trade, but in fact the Americans made no real progress on this during the summer of 1950.55 Exports were too important for the British, and they also wanted to sustain a distinction between security controls and economic warfare, partly to avoid domestic political embarrassment over this (a factor even more important for some of the continental European allies), partly because they thought it was inappropriate, and partly because it could be counterproductive because of possible Soviet retaliation.

The impact of the Korean War The outbreak of the Korean War in June 1950 catapulted both the questions of China and hot wars with communism into prominence. Up to now the prevailing view had been that there would be only psychological and economic conflict between East and West, but Korea was hot war. Americans thus began to reappraise the underlying assumptions of the West’s embargo policy. With war an actuality, and perhaps now of greater likelihood elsewhere with more formidable foes than North Koreans and a limited number of Chinese regular army divisions, there was a definite change of mood about extending export controls. In Cabinet on 14 July Acheson said: ‘While estimates of probabilities of Soviet action vary it is completely agreed that there is not sufficient evidence to justify a firm opinion that the Soviet Union will not take any one or all of the actions which lie within its military capabilities.’56 So far as US policy-makers were concerned, these arguments and facts merited the adoption of a tougher embargo, but the situation in Western Europe was less clear-cut. The important questions to be considered with respect to the outbreak of the Korean War are: To what extent did it change US policy? Which agencies pushed for tighter controls, and which sought more moderate changes? How far did the USA push its allies into adopting tighter controls, as opposed to those allies independently seeing the need for them? To what extent did US interaction with its allies modify its own policies? And to what extent was the Truman Administration pushed into more stringent controls by the Congress and public opinion? Public opinion and the Congress created a critical backcloth that exerted considerable pressure on the Administration to tighten controls and produced a momentum that needs to be borne in mind in what follows, but the important results in terms of legislative requirements did not start to feed directly into the system until the autumn of 1950.57 There was clear water between the position of the USA and its West European allies, even when the US position is taken as that defined by the State Department and the ECA, the two agencies most sympathetic towards the difficulties of the Europeans. As we shall see, the demands of the US Defense and Commerce Departments had to be deflected by forceful interventions by the State Department and the EGA on several occasions, but this fact should not distort the picture of what the Europeans were willing to do of their own accord. It was in their perceived interests, as well as the USA’s, to conduct an embargo

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strategy. Britain sent a contingent of troops to Korea and had been fighting communist insurgents in Malaya since 1948, and France was tussling with Ho Chi Minh and his forces in Vietnam. It was not a question of the USA advocating an embargo and the Europeans opposing: it remained fundamentally a disagreement over where the balance of relative advantage lay. In Washington a strong head of steam for more stringent controls had built up by August. The Commerce and Defense departments led on this, with support from John Snyder, the Secretary of the Treasury. Once again, it was the State Department and the EGA that tried to moderate things, and there were strong reasons and broad grounds for doing so. The situation in Europe was very complex. The USA might undermine priorities there if it alienated allies by using strong-arm tactics. At the same time, there was no denying the fact that the war in Korea required a new appraisal of policy and a tightening up of export controls. The State Department had to weigh these urgent needs against the value of European co-operation, the further integration of Europe, Western rearmament in general and Germany’s in particular, and the interdependence with Britain in the fight against communism. Furthermore, the USA did not want to jeopardise the level of co-operation that already existed on export controls. It could not coerce its allies. There had to be compromise and cooperation, and the State Department was determined to strike a balance in such a way that these needs would be given full value. By late August 1950 there was broad agreement in Washington that the US should seek to get its European allies to extend the embargo to cover items that would make a substantial contribution to the economic growth of the Soviet bloc, but agencies differed on how to achieve this and how hard to push the allies. The State Department opposed both the use of economic sanctions and the withholding of aid to allies. The ECA took a liberal line, in that it did not want to apply the Mundt amendment in a coercive fashion and looked to compromise on the 1b list. The Defense Department, in contrast, thought ‘amount, nature and timing of economic aid to the Western European nations should be conditional on their enforcing export controls comparable to those of the United States’. The NSRB agreed with this goal, but not with the method of using sanctions. Commerce thought that the USA ‘should use every means at its disposal’.58 The British epitomised the problem that confronted the Americans. The British did not want to go as far as the Americans, but agreed that an embargo was essential. The problem was the definition of what was a strategic good. And, as we have seen, this was a difficult definition to draw. The British, like other Europeans, calculated relative cost and benefit differently to the Americans and generally tried to stick to the rule that the item would contribute to the war-making potential of the Soviet Union.59 Generally, the State Department and the ECA understood why this was so, but they believed that argument and reasoning could bring the British more in line with the US lists and the desire to embargo non-military items that contributed to the economic strength of the Soviet bloc. Acheson clearly saw the ‘question of strategic criteria rather than quantitative control techniques is a major issue between us and UK’.60 In the NSC on 25 August, Acheson, while acknowledging the vital importance of getting allied agreement on a tightening of the embargo, also strove to contain the demands of the Commerce, Defense and Treasury departments. He pointed out that if all East-West trade were stopped, the cost of replacing supplies from elsewhere would eat up 33 per cent of all ECA funds. Furthermore, the

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economic disruption would have adverse effects in Europe when European countries were desperately trying to achieve massive rearmament goals. In the light of these considerations, and the fact that no agency at this point was advocating a complete embargo, he suggested a six-month moratorium on further demands for additions to the embargo list until the rearmament programme was well under way. On broad policy issues the meeting decided that at the forthcoming Foreign Ministers’ Conference Acheson should seek to get Europeans to accept the closest approximation possible to the US lists. NATO was to be used to try to get a military consensus on this, which could then be used to pressurise COCOM members into a more receptive line on embargo policy. And the Mundt amendment should be applied.61 Unfortunately, these decisions were open to interpretation, and, as we shall see, the Commerce Department soon came up with an imaginative construction of what had been decided. If we turn to the British reasoning about the embargo immediately after the outbreak of the Korean War, it becomes very clear that the British, too, were concerned about this new development in the Cold War and thought that the balance of advantage under these conditions required a tightening of the embargo. On 10 July the British Cabinet, after Bevin had strongly argued the case, overturned a decision taken only a week before and now agreed to extend stricter export embargo controls to cover the PRC.62 The Americans however, would hardly be content with this, which was the kind of position they had expected the British to adopt before the outbreak of the Korean War, but it soon transpired that the British were not content with this either. By 31 August the Defence Secretary, Emmanuel Shinwell, questioned whether the established British policy ‘to deny or restrict only those key strategic items which would contribute directly to the production of arms and other war material’ was appropriate for conditions of hot as opposed to cold war.63 On 4 September the Cabinet agreed that controls should be tightened, though Britain could not move all the way to meet with the USA—for one thing, it was simply not self-sufficient enough to do so. It could not move to something tantamount to an economic blockade of the communist countries. There was general agreement that the United Kingdom could not adopt a policy of this kind without grave prejudice to the national economy, more particularly since there was no indication that we were likely to secure timber and other materials from America on financial terms which would compensate us for the loss of Eastern European sources of supply.64 The matter was referred to the Security Exports Controls Working Party, and on 11 September the Cabinet agreed to move to tighter controls on the basis of: i Western need for defence materials, ii the need for quantitative controls over certain goods for which a list would be compiled and in the meantime executive action would cover this problem, iii Foreign Secretary Bevin was to discuss matters with the Americans with the possibility in mind of a ‘compromise solution in regard to the extent of the prohibition of exports to Communist countries.’65 By September, therefore, the makings and some of the substance of a compromise were

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already in place, thanks to the way the State Department and the ECA had moderated US demands for the Europeans to adopt US lists, and because the Europeans themselves had seen the good sense in tightening controls. Of course individual convictions within certain US agencies were too strongly held for this to be the end of the matter. In particular, Secretary Sawyer interpreted the somewhat vague resolutions of the NSC on 24 August in such a way as to cause embarrassment to the ECA. Sawyer took the decision in that meeting (which simply reflected the logic of the Mundt amendment) that exports of strategic items to Western Europe should be denied licences where identical or similar items were exported to the Soviet bloc, and referred it to his Advisory Committee on Requirements. The Committee proposed that assurances should be sought in advance that items would not be re-exported, and at the same time the definition of strategic was construed more expansively. As a result, Commerce held up exports of la items and of those high on the 1b list for export to Europe by refusing or delaying the grant of export licences.66 This problem rumbled on despite attempts by the State Department and the ECA to get Commerce to moderate its policy. Commerce was given moral support by the passage in Congress of the Cannon amendment. This gave the President discretionary power, while UN forces were in action, to prohibit the USA from giving economic assistance to countries that traded with the Soviet bloc, the PRC and North Korea in a manner that was found by the NSC to be contrary to the national interests of the USA. Truman, General Bradley, Hoffman and the State Department had all written to the senators sponsoring the amendment, emphasising the desirability of a ‘non-coercive policy’, and Democrats at the committee stage managed to change the power from mandatory to discretionary, but it was clear that pressure for a harder line towards America’s allies in Europe was growing in the Congress.67 Beleaguered on the one hand by Congress and on the other by the stubbornness of the Commerce Department, which refused to carry out the spirit of the NSC decisions taken on 24 August, Acheson, nevertheless, managed to get a solution to what he described as an impossible situation. Working first of all on Under Secretary of Commerce Thomas Blaisdell, and then on Sawyer, he finally rectified the situation and broke the log-jam on export licence requests—but only after Sawyer had insisted that this should be cleared with the President, because he claimed that his actions up to then had been in accordance with NSC Council decisions taken on the 24 August.68 Despite the problems and embarrassment that the Commerce Department created, progress was made with the European allies. At the Foreign Ministers Conference in New York in September ‘The British and the French accepted two basic principles, which the USA has sought unsuccessfully in the past: (a) that strategic considerations should be predominant in selecting items for control; and (b) that controls should be extended to cover “selected items in key industrial areas contributing substantially to war potential”. Now that these principles have been agreed to it should be possible to discuss the items on the 1-B list in a reasonable atmosphere.’69 The format for the embargo was now to be expanded to cover quantitative controls over items that the Europeans had previously refused to accept (items that did not directly contribute to the military potential of the Soviet bloc), and a surveillance list of less important items. However, the relative gain perspective was also retained, because the embargo was still to take into account the Western need to obtain essential supplies from the Soviet Union. The agreement did not

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go as far as the USA wanted, but it was a substantial step forward. Between 17 October and 20 November in tripar-tite Anglo-US-French talks in London 318 items were proposed, of which 74 were subsequently withdrawn and 224 accepted for various types of control. In January COCOM accepted all but 47 items and further technical talks on 22–26 January resulted in more compromise and a satisfactory outcome for the USA, with the exception of disagreement over ball-bearings. Thus, by the closing weeks of 1950 US and allied embargo policy was settling down into a recognisable pattern. There were still differences both within Washington and between Washington and its allies, but an acceptable working system was emerging, and, more importantly, the pattern of US policy was also now more or less clear. It had taken shape through the interaction of the views of several agencies and departments in Washington, influence from the Congress, and through discussions with European allies. Finally, of course, the changing nature of the confrontation with communism also had a major impact, and in December 1950 it was again to influence developments and threaten the emerging allied modus operandi. The intervention of the Chinese in the Korean War and their initial successes in routeing the UN forces recast the embargo problem. Again the Truman Administration had to respond to a changing security scenario and strong demands from Congress and the Commerce Department for tighter controls. On 16 December Truman declared a national emergency and issued executive orders under the auspices of the Trading with the Enemy Act of 1917. They created a more stringent embargo for the PRC and North Korea than for the Soviet bloc, which could be applied extraterritorially to US foreign subsidiaries. The problem of differentiated responses among the USA and her allies to the enlarged threat in Korea, and to the more general ongoing threat from communism, renewed difficulties for American embargo policy. Prime Minister Attlee’s emergency visit to Washington in December 1950 to discuss the Chinese problem illuminates this issue well, but the effect the allies had on US policy in the embargo realm was limited: it was not until the Eisenhower Administration that the Europeans forced a significant reappraisal of US policy. Still, it is important to identify what the European reservations were, as exemplified by the British, because they became important in affecting US policy once the Korean War wound down.70 Attlee’s rush to Washington was prompted by Truman’s vague reference in a press conference that suggested that the USA might use nuclear weapons to retrieve the situation in Korea. Attlee returned somewhat reassured that the USA would act responsibly, but there were clear differences of opinion about the nature of the threat from China, and these impacted on embargo policy. Attlee reported to the Cabinet on his return from Washington that the Americans ‘tended to believe that Chinese policy was dictated by Russia, and they had been considering the idea of a limited war against China by way of an economic blockade and stirring up internal trouble in China’.71 Attlee, for his part, had emphasised the need to avoid general war and that China was not a puppet of the Soviets: indeed, they should be seen as ‘two rival imperialisms’, and the ‘aim should be to separate those two forces.’72 Recent evidence suggests that the Americans were perhaps nearer the mark with regard to Sino-Soviet relations at this time, though the balance was shortly to tip in favour of the British view.73 Underlying the British analysis were two other important factors, which the Americans

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could not discount when weighing up the costs and benefits of urging Britain to adopt stricter controls. The first was explained by Attlee in Washington: ‘If the supply of raw materials from the US is made conditional on restrictions of exports containing such materials, we shall be unable to pay our way, and the stability of our economy will be endangered.’74 The second was laid out for Acheson by Bevin’s successor, Herbert Morrison, in May 1951: ‘It is simply not possible to cut off Hong Kong from China without giving rise to the gravest internal problems of unemployment, starvation and unrest—in other words, without creating for Communism the ideal conditions in which it can flourish.’75 The point was somewhat ironic, because in Iran at this time the two countries’ roles were neatly and symmetrically reversed. At cross-purposes over how to deal with the crisis provoked by the threatened nationalisation of the assets of the AngloIranian Oil Company, the British had applied economic sanctions, while the Americans had continued to aid the Iranians for the same reason that Morrison insisted on allowing trade between Hong Kong and the PRC.76 The differences with the allies about trade with China never went away. When Churchill met Truman in January 1952 they were still there, though now as an irritant rather than a serious problem. Some in the Administration felt strongly about British policy, particularly those who still nursed over-optimistic hopes for the effects of embargo policy. Chief of Naval Operations Admiral William E Fechteler observed to Truman that the British were responsible for 50 per cent of the non-communist trade with China, and that if it were stopped that would ‘have a serious and probably critical effect on the Chinese economy which would, of course, directly affect China’s war making potential.’77 However, the officially approved negotiating paper for the Churchill talks noted: ‘The US Government has been, and will continue to be, genuinely sympathetic towards British interests and problems in this area.’78 In return they expected the British to show sympathy towards US views and to seek maximum co-operation possible on the embargo issue. Later in 1952 Truman thought that the British were not co-operating and threatened to write directly to Churchill about matters. Acheson advised him that the trade figures that he had seen were inflated, and before asking for a further sharp reduction in British trade with China, ‘We shall need to decide exactly what reply we are to make to inevitable question about how Hong Kong is to exist without appreciable China trade’.79 Wrangling continued, and the Americans still sought tighter controls, but the effect of all this on US policy was negligible. These matters were now relegated to bureaucratic disputes over definitions, though no less bitter at times for that. Shortly after Attlee’s visit Secretary Sawyer prepared a memorandum for the NSC which proposed a change that would bring US policy towards the Soviet bloc in line with what the US now aimed to do in relation to the PRC and North Korea. He felt that this was the only way to deal with the dangerous situation now confronting US forces in Korea. Sawyer wanted to stop shipment to the Soviet bloc of ‘commodities which would contribute even in a small degree to their military potential’. He cautioned that ‘great care must be exercised to prevent any export which in any way becomes useful to the armies which are taking American lives’. It was difficult to disagree with this argument. Most importantly, he again proposed the abandonment of relative gain criteria: ‘It is to be understood that this new principle is applicable regardless of its effects on US imports of

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essential commodities from aggressor countries, for we cannot, in a period of active hostilities, rely on strength obtained from the nations which are responsible for such hostilities.’80 The departments of Agriculture, Interior and Defense, the CIA and the AEC all supported this. The Treasury was more circumspect, but wanted a review of policy, and only the ECA and the State Department opposed it. The proposal posed three serious problems: the first was that the Europeans would not go along with it; the second that the US embargo would be so extensive that many ERP items would now fall under the aegis of the Mundt amendment and this would interrupt America’s flow of aid to its allies with inevitable and harmful reactions in Europe; and the third was that the expansion of the lists would increase the extent of de facto discrimination that US firms would suffer and give added ammunition to Sawyer in future to call for the Europeans to be brought into line. As Førland has pointed out, this amounted to an attempt by Sawyer to recapture the initiative that had in fact already passed to the State Department.81 On 28 December Truman wrote requesting Acheson to review embargo policy in the light of recent developments. The President stated: ‘It is necessary to prevent the flow to countries supporting Communist imperialist aggression of those materials, goods, funds and services which would serve materially to aid their ability to carry on such aggression.’ For Sawyer’s position, so far so good. But Truman went on to make two further points, which clearly demonstrated that he was determined to keep the embargo a voluntary, multilateral affair and that it should still embody the criteria of relative benefits. ‘We must enlist the cooperation and support of other nations in carrying out these measures,… Such objectives must necessarily be achieved without materially impairing our collateral aim of increasing the flow, and assuring the sound allocation, of strategic and critical materials to the free countries of the world.’82 The thrust of this was not compatible with the proposals Sawyer made to the NSC; nevertheless, the State Department had to compromise in order to deflect the criticisms laid before the Council. The compromise solution to the differences between the positions represented by the State and Commerce departments was put forward by Assistant Secretary of State Willard Thorp. Acheson had explained to Truman on 10 February that he was opposed to the Commerce position. He believed that the Soviet Union was too self-sufficient to be seriously damaged by a total embargo, and therefore he wanted the embargo programme to remain flexible, but he was prepared to compromise.83 Thorp’s submission did just that. NSC 104/2 was adopted by the Council on 11 April and approved by the President on 12 April. It extended licensing to all exports to the Soviet bloc, but there was no formal embargo of 1b items, which meant that the problems that the ECA had feared, about a blanket embargo that would have brought many items under the aegis of the Mundt amendment, was avoided. However, it was clearly the intention of NSC 104/2 that the Commerce Department should have executive discretion to tighten the embargo. It also proposed the establishment of a 1c list ‘whose export to Soviet bloc destinations should normally be denied in excess of minimum quantities’.84 There were various other proposals generally designed to make the existing embargo more effective, but this is the outline of the main contours of the compromise. In particular, it continued to evince sensitivity to the need for relative gains. Thus, while the US was to seek tighter export controls in Western Europe it should take into account:

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1 strategic significance to the Soviet bloc of the commodity concerned, 2 Political feasibility, 3 Military risk, 4 Economic cost of such action to W.E. countries concerned. Furthermore, in considering the adverse effects on Western Europe the USA should consider: 1 The need for strengthening the W.E. economy and defense programs; 2 The need for maintaining the cooperation of W.E. governments in common defense effort.85 This held in place until March 1953, when the Eisenhower Administration began a review of policy. NSC 104/2 led to further requests to extend the COCOM international lists, in particular in July 1951 when the Americans requested a ban on a further 53 items. The request was not met in full. Instead the now-to-be-expected process of compromise and accommodation took place, with the British and the French largely moulding the European response. In the end COCOM accepted 33 of the 53 embargo items suggested. For the time being the development of policy within the Administration rested on NSC 104/2. However, there were two legislative developments that complicated America’s relations with its allies and yet again increased the pressure to bring them in line with US policy. The Kem Amendment superseded the Cannon amendment in June, and it required the ECA Administrator to terminate aid to countries that exported articles embargoed by the USA or deemed by the Defense Department to be armaments, military material or items that could be used to produce them. Truman was strongly opposed to this, and fortunately, as with the Cannon amendment, Democrats managed to engineer a let-out clause. The Kem and the Mundt amendments were in turn superseded by the Battle or Mutual Defense Assistance Control Act, which came into force on 26 October 1951 and required the government both to publish a list of embargoed exports and to appoint a Mutual Security Director to oversee matters: Averell Harriman was the first to be appointed to this new position. In one sense the Battle Act was the most far-reaching of legislative attempts to control exports, but in a very important way it also allowed more flexibility for defining strategic materials, and it had a provision for the President to waive the provisions of the Battle Act requiring suspension of aid to allies ‘when unusual circumstances indicate that cessation of aid would clearly be detrimental to security of US.86 There were many such waivers. Retaliation against a foreign country under the auspices of the Battle Act was only exercised on one occasion.87 Even so, these acts of Congress troubled America’s allies. In particular, the possible application of the Battle Act to export agreements that had already been made infuriated them. They saw the successive legislative attempts by Congress to tighten the export control programme as overt attempts to interfere in their sovereignty, and they resisted the more extreme American demands. The British repeatedly explained that they would stand by the international COCOM lists, but would be most reluctant to go further, hence they would put their faith in Presidential waivers.88 The Europeans did not want the Battle Act to take them beyond the existing COCOM lists: it did, but not too far. The Americans pressed their allies and looked to the Battle

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Act to help them, while explaining that members of Congress, and not they, were responsible for these new demands. They used the act as part of the bargaining, but still within a framework of compromise and accommodation, and one which recognised the criteria of relative benefit conceived as applying to the West as a whole and not the USA in isolation. And the Administration took pains to explain the complexities of US interdependence with Western Europe and the problems of relative gain in the context of embargo policy. In September 1951 the NSC prepared a paper arguing the case for specific exceptions from the Kem amendment, which it recommended be declassified and presented to the relevant congressional committees. In part that document read as follows: We cannot be secure if Western Europe is insecure; …The primary US objective in Western Europe is…the creation of military and economic strength required to deter aggression and to safeguard and develop the value of the civilization we share…a second US objective is the development of close cooperation and common action on mutual problems among the free nations of Europe and among the countries of the North Atlantic Community…Because we believe that the challenge confronting the North Atlantic countries can best be met by mutual help and common action, we have also encouraged and participated in the development of the agreed controls over the exports of strategic goods.89 The net results were ongoing rumblings of discontent from the Europeans and an incremental tightening of controls. So far as overall policy was concerned no major changes occurred until the Eisenhower Administration. The only further two points to make here are that the hot war in Korea resulted in different restrictions being applied to the PRC and the Soviet bloc. This was administered after Japan joined COCOM in 1952 by a separate committee the CHINCOM. After relaxation of the embargo applied to the Soviet bloc in 1954, the difference became so substantial that it was known as the China differential. The second point is that as the war in Korea diminished in intensity and eventually moved to an armistice, the West Europeans began to look to the possibility of relaxing the embargo, but these matters came to a head during the Eisenhower period. From 1947 to 1953 US policy developed in a rather spasmodic way towards more and more expansive export controls. Initially, the loudest calls for such a policy came from the Congress, but while Congress was a significant factor, particularly with the legislative requirements it laid on aid to America’s European allies, it did not dictate policy. It encouraged the development of a more comprehensive embargo, but the Administration never lost control of policy developments and managed to insert escape clauses into the Kem amendment and the Battle Act. It was recognition of the logical need for a selective embargo that fundamentally drove the Administration’s development of policy, not the Congress. All were agreed, allied as well as American policy-makers, that an embargo policy was necessary. The question was how extensive an embargo. Here there was a major difference between the State Department and the ECA, on the one hand, and Commerce and the defence establishment, on the other. The differences shifted back and forth along

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a continuum as US perceptions of the danger of the threat from communism changed, but generally during this period the movement was linear along the route to a tighter embargo, with the defence establishment and Commerce always ahead of the field. However, the State Department managed to keep the USA wedded to the idea of a policy that sought relative gain from the embargo. Only on two occasions was that central concept challenged, when the Commerce Department proposed a blanket embargo, irrespective of the negative consequences for the USA. On both occasions those challenges fell short of success. The role of allies also impacted on US policy and led the USA repeatedly to modify its policy, even as construed by the State Department. The need for co-operation meant that there were limits to the persuasion that the USA could exert. Success in building a multilateral embargo system meant that the USA had to work with its allies. And working with allies inevitably meant a degree of interdependence that constrained what the Americans could achieve of their ideal goals. However, there is no denying that the general thrust of embargo policy had been set by the Americans. This resulted in the development of a multilateral embargo that broadened in scope as the threat from communism became more challenging, especially after the outbreak of the Korean War. From 1953–4 onwards, with the winding down of hostilities, embargo policy began to change direction, and this was not a result solely of pressure from disgruntled Western Europeans, it also came from within the Eisenhower Administration. In addition, as the 1950s advanced, a more sceptical attitude gradually arose about the effectiveness of the strategic embargo as originally conceived, and new ideas were formulated about the primary purpose that it should serve.

6 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 reassessed, subtle changes occurred in the way that Americans justified their economic defence policy. During the period 1953–61 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 assault 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 attitude towards liberalisation. All these changes were primarily propelled by demands from the European allies, and to a lesser extent from Japan, 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 retarding either the economic growth or military potential of the Soviet bloc or China.l Oddly enough, the Americans did not see such

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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 Førland 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 pronouncements 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 Førland and Spaulding are: the extent to which Eisenhower drove US

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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 Førland’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 assertion 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 circumstance. 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

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made that they were fully carried out. This is not to say that Førland’s criticism of Eisenhower for bureaucratic ineptitude 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 damn 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 assessing 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 document 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

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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 massive 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 massive 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 substrategies: 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 retard 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 warmaking potential, which was in harmony with the New Look, they ran into strong

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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 assumptions, underpinning its policy pronouncements, 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 attitude 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

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in 1954–5 illustrate 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 passed 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,

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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 assess. 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 1953–4 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, 4–7 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

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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 assessment 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 Stassen, 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 Stassen 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

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want to keep these nations on our side in the struggle with the Soviet Union.’ Stassen 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 Stassen’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 passed 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, Stassen’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. Stassen 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

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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, Stassen 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 hell 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.

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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 analysis 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, Stassen, 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 assumption 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’ retard 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 retarding the build-up of the Soviet bloc war potential and of strengthening the free world relative to the Soviet bloc…. The principal 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

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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 Stassen 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 EastWest 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

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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 embassies abroad and when, in September, the US embassy 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 Embassy 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 longhaul 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 Japan 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

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and abandoning both COCOM’s quantitative 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 Embassy in London for preliminary consideration.43 Not unexpectedly, as US Ambassador 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 Stassen 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 assistance 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.

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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 embarrassment 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 circumstances had changed since controls were instituted. 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,

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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, Stassen 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 antiBritish 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

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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 20–25 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 circumstances, 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 Stassen, 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, Stassen was probably not surprised to discover that Eden had been carefully excluded from the talks. But, Stassen 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 Stassen 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 quantitative control and a watch list, but all substantially pared down with a stricter notion about the contribution of non-military items to the war-making potential of the Soviet bloc. Eisenhower was sufficiently impressed with the outcome of the Stassen talks in Britain to advise his colleagues on the NSC ‘to be pretty generous and go along as far as possible with the British requests’.61 Agreement now looked close, but when details were discussed in COCOM on 21–23

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June there was deadlock over 80 items the Europeans wanted to delete and the US to retain on the control lists. Matters were again taken up for discussion in the NSC. When it convened on 1 July it was presented with four options of varying degrees of intransigence by the EDAC. A decision on how to proceed was needed because Thorneycroft was about to start talks with Stassen in Washington in an attempt to reach final agreement. Eisenhower was thoroughly fed up with the whole thing, exasperated with his colleagues and worried about damaging the unity of the West. He had just spent a weekend with Churchill patching up differences, and on 29 June they had publicly reaffirmed their common principles in the Potomac Charter.62 This was the NSC meeting at which he announced 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’.63 Eisenhower was sensitive to the fact that America’s allies were growing economically and needed new markets. And yet the USA was trying to deny access to markets through its embargo policy and had not been forthcoming in reducing barriers to foreign exports entering the USA.64 Others on the NSC professed their commitment to free trade but talked in terms of handing another victory to the Communists if they agreed to free the 80 items in dispute. Both Sinclair Weeks and Charles Wilson vehemently opposed any further concessions (though Wilson inconsistently said that he’d be willing to see the whole embargo programme go by the board once there was peace in Indochina!). Foster Dulles eventually resolved things by taking up the option proposed by EDAC of seeking a moratorium on the disputed items.65 In fact, in the following two days Thorneycroft and Stassen produced further progress, which was then built on in bilateral Anglo-American talks outside COCOM and multilateral talks within it. The Americans agreed that, in return for new transhipment and transaction controls, the embargo list could be reduced to 176 items, with another 24 to be quantitatively controlled, and 55 on a watch list. Stassen clearly thought that this was very satisfactory.66 The British were also delighted: ‘we have secured acceptance by all participating countries of a very substantial reduction in the International Lists. This must be regarded as a major achievement, bearing in mind all the difficulties which we faced.’67 Both sides had made compromises, although there is no doubt who was the driving force behind the change and who got the better of the encounter. But, there were benefits for the USA as well. Western unity was maintained. The embargo programme, which at some points the Americans feared might crumble, remained intact and with better enforcement measures. Also, following the changes in the COCOM lists the Battle Act lists were also revised so that there was a match between the two:68 only the US embargo list operated by the Commerce Department was now more extensive and significantly out of line with the international lists. Some friction between the USA and its allies was thus removed, but not all the potential for such problems. More important for the focus of this study than the actual changes in embargo policy brought about by the British demands were the effects that this whole process of change had on how the Americans thought about the embargo policy and how they justified continuing it. A great deal of literature on the Western strategic embargo has concentrated on answering questions about which statesman or country was primarily responsible for the changes in the COCOM lists in 1954. This study has made a contribution to that debate,

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but there is a more central question of concern here, one which Fungiello touches on, but not fully enough. Summing up the Eisenhower record during the first term of office he wrote: ‘The Eisenhower administration decision to adhere to what in essence was the Truman attitude toward export controls was motivated primarily by political and diplomatic rather than economic or military considerations.’69 The point that the justification of the embargo was no longer economic and military but political and diplomatic is thus made, but its importance and its implications are not sufficiently emphasised. In trying to resist radical change, American policy-makers had themselves initiated a process of radical change in the way they tried to uphold the status quo and justify the embargo. The shift to a different basis of justification was by no means complete in 1954, but it was gathering momentum. In the next debate on embargo policy, occasioned by the allied assault on the China differential, the shift became more marked and obvious, and the arguments were more clearly articulated.

The China differential and its aftermath: 1956–61 By 1954 there was a definite shift away from a straightforward argument about relative economic and strategic gains to more complex forms of justification: some of which seemed to have a definite sophist tinge. These changes became more clearly articulated in the controversy about the China differential in 1957, the general relaxation of COCOM controls in 1958, and the Eisenhower Administration’s response to those changes in its final years in office. The concentration on China here appears to take us away from the main focus on the Soviet Union, which was the prime strategic threat to the USA, but it is justified because debate about the China differential best illustrates how US thinking about the embargo in general changed in the 1950s. Apart from the China differential, matters after 1954 will be dealt with in summary fashion to avoid repetition of arguments, for, although there were changes to the embargo after 1957, there was little development in the thinking about new grounds for justifying it. What in effect happened was that the strategic embargo and cold economic warfare were no longer justified primarily in terms of the economic results that they might produce. Economic benefits to the West and restricting the economic growth and the military potential of the Soviet bloc and of China became minor concerns: the judgement generally adhered to was that the embargo had only very modest impact on these factors. Thus the USA was waging an embargo without expecting modest, never mind substantial, economic or military gains. So what was it seeking? First of all, the very existence of the embargo was a factor: removing it would involve political repercussions. The USA was partly a prisoner of the policy it had established. Reducing the embargo could not be achieved without domestic political repercussions and, more importantly, without sending messages to communist regimes, neutrals and allies as well as the US domestic constituency. These considerations became of overriding importance. In addition, the Americans did not wish to give things away. If they were going to reduce the embargo lists, then they wanted something in return, often from both allies and the communists. All this is not to say that there were no economic aspects left in the justification of the

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embargo. There were worries about Soviet non-market trade distorting Western markets, and about the Soviet potential to abuse copyrights and patents if trade were expanded. There was also a general fear of the political and economic leverage that would come with communist economic penetration into the Free World. Lastly, because estimates of the effects of the embargo could never be exact, precise and definitive, there were always opportu-nities for those hard-line anti-communists in the Administration to argue that the embargo did have effect on the economic growth and military capability of the communist world. The favourite arguments here were communist short supply problems, such as they had with copper, and bottleneck production problems, such as a shortage of wide-diameter steel pipes for the Soviet oil industry. The potential to argue along these lines gave the Department of Defense and the Chiefs of Staff the opportunity to make the case for maintaining strict controls, because, if war came, even a marginal benefit could not be blithely ignored. However, even the military establishment came to emphasise most of all the psychological effects of the embargo as a justification for its maintenance at a high level of control. The switch to psychological, political and diplomatic justifications of the embargo complicated this whole area of activity. No longer was it even plausible to apply economic criteria of costs and benefits to US policy. At least, this could not be done in a crude numerical calculation. For those scholars who have tried to devise a model of economic statecraft that emphasises fungibility and relative gains, these developments pose serious problems. They also caused problems in the Eisenhower Administration. Much of the problem was to do with different political dispositions, from which arguments for and against liberalisation were developed, but the introduction of less objective criteria into the embargo debate added to its complexity and was partly responsible for the sharp divisions and shifts in position that occurred within the Administration on the China differential. Humphrey, from being moderate and at times in favour of the 1954 liberalisation, became the main ally of the Defense Department and Chiefs of Staff in opposing liberalisation in 1957. Officials in the Commerce Department took a more moderate line, on one occasion quite clearly to the surprise of Secretary Weeks.70 The State Department, the CFEP, especially under Clarence Randall who took over from Dodge in July 1956, and the FOA tended to seek moderate liberalisation in order to achieve a compromise with Western Europe and Japan. But, even these departments and agencies were concerned that change should be kept to a minimum, and that advantages should be sought as a quid pro quo elsewhere, by increasing controls on the Soviet bloc and tightening up their implementation, or by gaining diplomatic concessions from the Soviets in other fields. Just how difficult this matter became by spring 1957 is illustrated by Eisenhower’s ambivalence towards even a modest relaxation of multilateral Western controls on China. When it came, not even to a crunch but to a slight impact on China, the President said: ‘there was another factor to be considered, the factor that Admiral Radford was continually emphasising—namely, that if there is a relaxation of the controls on trade with Communist China, then all our friends and allies in the Far East [i.e. the Nationalist Chinese and the South Koreans] will conclude that we are abandoning them…. The President confessed that he was much puzzled as to what we were going to say about this remarkable change in our policy on trade controls, both to our Congress and to our Far Eastern allies.’71 This ‘remarkable change’ as Eisenhower

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put it, was hardly remarkable in terms of the substance of the embargo. It was remarkable because of what the Americans now thought such a minor change meant in symbolic terms.72 After the liberalisation of the COCOM lists in 1954 there continued to be problems: about the few reserved items on which agreement had not been possible, but, most importantly, about British shipments of copper. In the back of everyone’s mind was also the problem of the embargo controls and the now massive differential applied to trade with China, but before that came to prominence Dulles wrote to Eden about vestigial problems from the 1954 liberalisation. He did so in a manner that had a coercive twist to it. Ironically, this was a tactic that Dulles himself was later to oppose when it was used by his Cabinet colleagues (albeit at a different time and under changed circumstances). The germ that brought about that change however, already infected Dulles’ message to Eden, namely the danger of allied disunity disrupting the multilateral control system. For that reason, he urged Eden to be more co-operative in restricting exports that contributed to the potential military strength of the Soviet bloc. He then tried to twist the lion’s tail: ‘There is a further element which I know you especially will appreciate. That is my apprehension that avoid-able, but dangerous frictions in Anglo-American relations could result from delivery to the Soviets of such sensitive items as these to an extent which, frankly speaking, the Executive Branch of my government would find it difficult to justify in security terms to our Congress and people.’73 Dulles raised the spectre not only of damage to Anglo-American relations, but also of the Battle Act putting an end to US military assistance for Britain. The pressure was resented, and it did not work—facts that were not lost on Dulles. Soon the spectre of allied disunity came back to haunt him. Disunity could be caused by either party to an association, and he came to believe that compromise by the USA was important for allied unity, no less so than compromise by the West Europeans. Rapidly superseding the problems that lingered from the liberalisation that had taken place in 1954 was the question of the embargo against China. This was the main focus of the review of policy that the 1954 liberalisation had prompted, and which got under way in early 1955. Throughout the spring and early summer there was a succession of papers and demands and more papers on the export control issue. In one of the earliest intelligence estimates of the effects of the embargo on China, judgements posed problems for the continuation of the embargo at the levels that then existed. On the one hand it claimed that ‘China’s objective of creating an industrialized and militarily powerful state cannot be achieved without extensive imports of capital goods and military equipment’. But on the other it noted that existing trade controls had not significantly hindered the Chinese in obtaining such materials in the past, and the relaxation of controls on trade to the Soviet bloc would enable more transhipments to go to China. It was estimated that the net effect of existing controls would be an additional cost to the Chinese of $200 million a year, which otherwise could be spent on more imports. That, then, was what it was all about in terms of restricting the economic and military development of China. Furthermore, the estimate declared: ‘We do not believe that mainte-nance of trade controls at present levels would produce any significant changes in the basic patterns of Sino-Soviet relationships or of Chinese foreign policy.’74 This raises the question: Why were the Americans prepared to pay such costs and endanger allied unity to the extent

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they did and ruffle feathers as Dulles had done with Britain in order to sustain the highly restrictive China controls? So far as the USA was concerned, the situation in the Far East was very different from the one in Europe. In the latter the containment line was firmly established. In the Far East it was not, and McCarthyism had shown just how politically dangerous it could be in the USA to appear weak or irresolute in opposing communism. Even after the Korean armistice, the situations in South Korea, South Vietnam and Taiwan were all seen as volatile and needing firm resolve on the part of the USA in order to maintain a viable containment line in Asia. Just how much resolve this could require was shown in the two crises over the Nationalist-Chinese-held islands of Quemoy and Matsu in 1954–5 and 1958. On both occasions the possibility of a using nuclear weapons against the PRC was seriously considered if the situation deteriorated and a communist take-over became likely. As Gaddis explains, this strategy was not because the islands were vital to the defence of Taiwan but because ‘if the islands fell to the Communists, morale on Taiwan would crumble, leading to the loss of that more important position’.75 This was the kind of reasoning about the psychology of Cold War confrontation that flowed naturally from the Eisenhower New Look: it is not surprising that such modes of thought should have come to dominate the US justification of maintaining a strict embargo. If getting the right message across involved willingness to consider using atomic weapons to secure Quemoy and Matsu, then it made eminent good sense to use the much less dangerous embargo to put over the message of America’s resolve. In explaining its Asia policy in NSC 5429/5 at the end of 1954, the USA emphasised this very factor: the need to be ‘clear and strong in its resolve to defend its vital interests’.76 A way to do this was to maintain the China differential, at least for the time being until the CFEP could review the entire situation of Western trade with China. In the meantime the USA should urge its allies to maintain the current level of controls on trade with China—though if that were to prove divisive, then the NSC should consider appropriate remedies. In contrast, America’s chief European allies, Britain and France, saw the Far Eastern problem in a very different light. They both favoured expanding East-West trade to benefit their own exporters and to strengthen their economies and the economies of friendly states in the Far East (such as Hong Kong, Malaya, Thailand, India and Japan) and at the same time argued that trade would help to drive a wedge between the Chinese and the Soviets. The Europeans were much more sceptical than the USA about the unity of the communist camp. These were the circumstances that explain both the harder US line towards Asia and the problems that were stored up for them with their allies. But in early 1955 other developments too reinforced American scepticism about the wisdom of liberalising the embargo in general, and about doing so with China in particular. The first problem was that the US Congress started to voice severe criticisms of both the Administration, for agreeing to the liberalisation of the embargo in 1954, and of the Europeans, for the apparent laxity with which they regarded trade with the Soviet bloc. This also had implications for the application of the Battle Act. These criticisms grew as time went by and became a very serious matter in the presidential election year of 1956. The other problem was a change of government in the Soviet Union. With Khrushchev’s emergence as undisputed leader, a change was also wrought to Soviet trade policy. The

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post-Stalinist policy of guns and butter gave way to an emphasis on the domestic production of guns, with Western imports making up for the deficiencies of ‘butter’ production. It did not take long for the fungibility implications to come home to the Americans. Yet again, the whole issue of non-military trade was placed in question. This coincided with the emergence of claims that the communists gained more from trade than did the West. In the light of that, the logical thing to do seemed to be to stop all trade, but as the embargo was incapable of ‘weakening the bloc in any vital way’ it was ‘clearly not worth the candle’, at least according to Samuel Waugh of the State Department, who was initially in charge of the Steering Committee to review embargo policy. Nevertheless, it was clear that a shift of opinion was taking place and there was renewed American reluctance to liberalise. It was conceded that there were problems with the China differential, but the solution favoured by some was to have it marginally reduced and the COCOM controls towards the Soviet bloc increased, in order to reduce the differential from both sides. There were those who expressed scepticism about the likelihood of achieving this in the face of allied opposition, however, others were opposed in principle, such as Vice Admiral Davis, Deputy Secretary of Defense for International Security Affairs, who strongly affirmed his department’s opposition to a relaxation and its hope for increasing the embargo controls.77 During 1955 there was a general reversion to a less tolerant attitude towards trade with the communists, but differences grew between the various departments and agencies concerned about precisely what to do. This was one of the reasons why succeeding task forces that investigated the matter repeatedly recommended keeping the status quo. At the end of March the Steering Committee, now chaired by Thorsten Kalijarvi, who had taken over from Waugh, recommended that: ‘There should be no substantial change in our economic defense programs as of the immediate moment.’78 The Steering Committee continued with its longer-term assessment, which it delivered in July. However, before turning to that, it is interesting to note the reasons Kalijarvi’s interim report gave for upholding the China differential. It is important to keep the Chinese Communist regime under economic (and other) pressures. Such pressures add to the strains which can ultimately lead to disintegration; the Communist regime has undertaken heavy commitments, and it appears probable that it can not under present circumstances increase its resources fast enough to cover all commitments. This kind of dilemma tends to lead to a breakdown…. As long as the United States continues to maintain pressures against the Chinese Communists, the Communists are on notice that a strong and active opponent stands in the path of aggression which they would like to pursue. Continued actions in this field are more persuasive evidence of intentions than are mere statements.79 Again one should remember America’s determination to use force if the Chinese Communists renewed the war in Korea, or took flagrantly aggressive action in Indochina, or made an assault on Taiwan. The USA did not want to have to resort to force, but it would if it had to. The way to avoid war was to deter the communists by trying to

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convince them, through measures short of war, that America would retaliate in kind if the Chinese mounted a further military challenge. Embargo policy was one means of conveying this resolve: actions, it was thought, spoke louder and more effectively than mere words. By 12 July Kalijarvi’s task force had a draft report ready. It recognised that the embargo depended largely on multilateral action for its effectiveness, but, even if controls were maximised, the impact on the Soviet and Chinese ‘economic capabilities for war would be small’, though nonetheless still important. So long as present tensions remained, the report recommended maintaining the status quo, but it was sensitive to the growing problems with the allies, and if the China differential became ‘unduly divisive’, then the NSC should immediately consider what alterations might be appropriate. For the time being, though, decisions had to hang fire, because 18–23 July saw the first post-war four-power summit in Geneva.80 With the problem of German rearmament solved through Germany’s integration into NATO, and with the Soviet withdrawal from a now neutral, but independent, Austria, the Americans no longer had good reason to refuse a meeting. In discussions on 7 July about what position the USA should take on trade at Geneva there had been a sharp difference between the Defense Department and a majority view that countenanced a modest degree of liberalisation. In the end, Eisenhower said that they would have to play it by ear.81 In the event East-West trade was not specifically discussed, though, it was encom-passed by the conference joint statement, which looked to increasing trade. A follow-up meeting of foreign ministers was set for October, but this was then seen as good reason not to change US embargo policy for fear of prejudicing the US bargaining position: embargo policy now entered the realm of diplomatic negotiating tactics.82 The Americans began to consider what they could get from the Soviets in return for reductions, and for a short while they managed to string the allies along with this tactic.83 Before the Western consensus fell apart, there was the foreign ministers conference in October to prepare for. In the course of thinking about the conference US policy began to emphasise the importance of the embargo as a bargaining asset. Dulles had changed his views about the embargo. Now convinced that the allies were about to demand liberalisation, and worried that their demands could not be resisted, he sought to take as much advantage as he could of the Soviets in the process of negotiating away controls for a substantial quid pro quo.84 The new Soviet trade strategy of seeking to maximise imports of Western consumer goods held out all kinds of prospects for leverage, and he even thought that it would be tactically wise ‘to let things go now,…let the Soviets taste how good this is and whet their appetites for more’. He believed that they would play a ‘real political price in Europe to be able to carry on with their new policies’.85 However the main problem with the allies was China, and on this Dulles explained to US representatives to NATO that the US was strongly against changing the China differential. He had several grounds for this conviction. On 18 May 1951 the UN had imposed an embargo on China, and that created a different legal obligation compared with the Soviet bloc. The USA still regarded China as an aggressor because of its behaviour towards Taiwan and in south-east Asia, and the embargo still caused the Chinese delays and inconveniences in acquiring supplies. ‘More importantly, controls are tangible indication that large group countries continue agree treat China as a pariah in

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family of nations. Continuation of this affront to their amour propre constitutes an effective form of pressure.’86 He also expressed the view that: ‘We regard perpetuation of differential as essential for security reasons,’87 but the main justifications for the China differential were now clearly symbolic and psychological, rather than economic and strategic: although the Americans continued to claim economic and military reasons for the embargo, its practical effects were only in the realms of nuisance value, added costs ($200 million a year) and minor delays. Thus the Americans were prepared to at least consider some further liberalisation of controls on trade with the Soviet bloc in return for substantial concessions. The CFEP Steering Committee report for the US negotiators at the foreign ministers’ meeting put it like this: ‘The justification for US actions to reduce or remove barriers to peaceful EastWest trade need not be looked for in the trade field alone, but may be found in the wider field of cultural or technical exchanges, or in the fields of security and East-West political relations.’88 The full CFEP meeting on 11 October actually modified what little enthusiasm there was for liberalisation: the Steering Committee was instructed to ‘tone down’ the phrase that the USA ‘actively favors’ peaceful trade89 as a little too radical. About the China policy there were no qualms: that was to stay as it was. It was not even to be discussed at the foreign ministers’ conference. At Geneva the China controls were not discussed in substance, although Dulles did say to his French and British counterparts that he hoped no changes would be made. British Foreign Secretary Harold Macmillan said in response that the ‘UK felt there should be substantial changes’.90 Just over a month later he wrote to Dulles explaining that in the light of domestic political and commercial pressures Britain would be unable to allow the China differential to remain as it was much beyond the end of the year. If the two lists— Soviet bloc and China—could not be aligned by the new year, then the British Government would announce that it ‘can no longer see any strategic justification for banning the additional commodities for China, and that from January 15 we propose a gradual unobtrusive process, and over a period, to bring the United Kingdom list for China into conformity with the agreed list for the Soviet bloc’.91 These developments caused immense consternation in the State Department, and Dulles informed Eisenhower on 8 December of what he believed should now be the American position. I believe that there is no effective alternative to a voluntary multilateral control system. While bilateral pressures might coerce one or two countries into halfhearted compliance, they would only alienate others—and the effectiveness of the system would be destroyed if one major producing country refused to bow to our pressures. For the foregoing reasons I must report in accordance with the requirement of NSC 5429/5, that our efforts to maintain the current differential export controls towards Communist China have passed the stage of being divisive; they present us with the prospect of total disintegration of the multilateral control system. To salvage this system we must accept a graduated reduction in the China controls to a level which will gain mutual agreement among countries participating in the Consultative Group.92

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Dulles’ hope for a shift in US policy that would bring agreement with the West Europeans and Japan was not to be fulfilled. The only result of the review that his concerns set in motion was that the USA continued to come forward with proposals that were never acceptable to the British or the French, especially after the Suez crisis in 1956, or to the rest of COCOM. In the end, the British unilaterally abandoned the China differential in 1957, but more interesting for the present study are the positions that were developed within the US Administration to defend the status quo or to argue for only modest liberalisation. They are interesting because they disclose just how far the Americans had moved away from justifying the embargo in terms of economic and military criteria. There was a major shift away from the arguments that had been used by the Truman Administration, and by Eisenhower’s in its early days, and this was the really radical change in US policy. The liberalisation of the embargo that took place was the result mainly of changes in European policies that forced upon the Americans a pace of change that the overwhelming majority staunchly opposed and none embraced readily, though Eisenhower was often ahead of the field. The discovery of new ways of justifying the embargo, and the establishment of new aims and targets for it, were the radical developments of the Eisenhower years, and they had direct links with the containment policy of the New Look. They enabled the embargo to go on and on. The Americans managed to persuade the British to hold off from drastic action at least until after the Eden—Eisenhower meeting scheduled for late January 1956. While the British waited, the Americans reviewed their position and decided to try to hold their present ground. Dulles’ desire to be flexible in order to keep the allies from squabbling and destroying the multilateral embargo system ran into a veritable wall of opposition. The Chairman of the CFEP, Dodge, thought that the implications of the Soviet economic offensive merited tighter not more relaxed controls.93 The Defense Department thought that the lessening of any pressures on China would weaken the entire position of the Free World.94 Under Secretary of State Hoover was convinced that Dodge had made a strong argument for not changing controls in any significant way, and the special interdepartmental committee set up under Herbert Prochnow, Deputy Under Secretary of State for Economic Affairs, not surprisingly recommended no change. However, if the USA were absolutely forced to it, then a paltry list of 19 items was to be offered as a sop to the allies. The committee claimed that, as China was still an aggressor (a view not shared by its allies): ‘Reduction of controls would damage Free World interests by prejudicing current Sino-US negotiations [about Korean War POWs], impairing prestige of the US and the Free World in the Far East, and by adversely affecting US public and Congressional opinion so as to impair flexible administration of the Battle Act.’95 No mention was made of any direct impact on China’s military capability, but there was a general claim that the controls resulted in ‘significant economic and political pressures’ on China. It was clear that the USA had decisively switched from arguments about preventing the development of the Chinese military capability—either directly or through embargoing items that would expand the overall economic strength of the country—to other forms of justification. Chairman of the Joint Chiefs of Staff, Admiral Radford, offered the most explicit justification for continuing the embargo in accordance with this new American thinking. Radford thought that the repercussions of abolishing the China differential would be

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‘monumental’ and could be ‘catastrophic’. He based this judgement, not on the increased trade that would come as a result, but on the dangerous consequences that would follow a change of perception as to where the USA stood in the confrontation with communism in Asia. At a minimum, both the Communists and our allies would consider, with some validity, that this action represents a radical change in US policy which clearly facilitates the eventual Communist domination of all Asia.’ This change in perception of what the USA was doing and intended to do would bring about the catastrophe Radford spoke of, because: ‘I consider that such stability as exists in the Far East today rests squarely upon the ability of the United States to convince both friend and enemy that we are determined and resolved to resist further Communist aggression in Asia, even by use of force if need be.’96 These arguments carried weight, even with Eisenhower, who still, if rather erratically, supported liberalisation. On 26 January the NSC met to consider the recommendations of the CFEP. It was a very subdued meeting. ‘There was no disposition in the Council not to accept the position proposed by the CFEP.’ Eisenhower could only comment that he had never got what he had repeatedly asked for, namely a study that would disclose the net advantage or disadvantage of trade with the Soviet bloc countries. He does not seem to have appreciated the fact that the defence of the stringent embargo had moved away from calculating economic costs and benefits into the more abstract realms of psychological impacts, conveying resolution, and negotiating tactics. Only Dulles rather feebly cavilled, at what was going through, when he asked if the CFEP had considered the problems that Japan and Britain suffered because of the embargo. He got no response except comments from Secretary Weeks that he could not understand the British demands at all, as their economy was already running at full capacity and could not cope with more export orders. But at least Dulles knew what was going on. He later commented that ‘the most important factors in this problem of trade controls with China were psychological rather than strictly economic’.97 The meeting with Eden was an even stranger affair. The Americans explained how they saw the problem, but, after listening to Eden’s arguments in what developed into a most congenial atmosphere, Eisenhower abruptly turned to Dulles and said, ‘This is what I want you to do; get in everyone, get in the Defense people and the others, and see what we can do to back away from this thing.’98 Given the NSC meeting, and what had been agreed there, this seems an astonishing development. Eisenhower had either succumbed to his gut instinct to liberalise trade, or else he was playing for time. Time he certainly won. In early February Admiral Delany of the EDAC was given the British proposals for removing items from control and asked to review them. It took a long time and the British grew impatient, but refrained from moving unilaterally. Meanwhile on 15 February the Senate Permanent Investigations subcommittee under the Chairmanship of John L.McClellan began hearings on the 1954 revision of the Battle Act and International (COCOM) lists. It stirred up a hornet’s nest that made the Administration more sensitive than ever to the problem of the China differential. In an election year this kind of thing counted.99 The difficulties confronting the Americans resulted in sharp differences emerging as they considered the British proposals. The Defense and Treasury Departments, supported by Sinclair Weeks, though not his Department so much, took a determined line opposing

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concessions. In a meeting of the NSC on 26 April discussion became heated, with both Secretaries Wilson and Humphrey advocating coercive pressures against the British. Dulles and the President both responded that this seemed to suggest an end to the AngloAmerican alliance. Eventually Dulles offered a compromise. The British could use the COCOM exemptions procedure liberally in order to trade with China.100 The USA would nod and wink at these exemptions, and the formal China differential would remain intact, thus avoiding the appearance of a major change in policy. This was accepted, and for a while the British worked under this arrangement, but these modest efforts at liberalisation would not be acceptable to Britain, France or to Japan for long: they were all now restless under the existing dispensation. In July Dodge resigned from the CFEP and was replaced by Clarence Randall, who favoured a more liberal line than his predecessor. Yet another review of policy began, and in September the CFEP set a schedule to establish a new position on the China differential. Randall was keen to push ahead, but there were problems with the State Department, and also Secretary of the Treasury Humphrey was now dead set against any further talks on the embargo controls for the present. The Suez crisis, occasioned by the Egyptian nationalisation of the Suez Canal and the military response from Britain and France in November, on the eve of the US presidential election, put a new gloss on the whole situation. Nevertheless, before the crisis flared up into armed conflict, Randall tried to press ahead, and he had grounds for thinking that the President favoured this. On 16 October he confided to his diary a second-hand report that ‘the President not only spoke…in vehement terms as favoring a liberalization of the differential to a realistic basis, but said, “If I had my way, we ourselves would arm Red China”’, though not with sophisticated weapons.101 Randall was so exasperated by his inability to achieve progress when he knew that the President wanted change as well, that he considered resignation. But then, on 16 October, Herbert Hoover explained to him that there were several good reasons why the business of the differential should be temporarily suspended. Suez was obviously a problem, but it could give them more leverage with the British later on. There were also sensitive domestic politics to take into consideration. The Presidential election was only three weeks away, and Hoover felt that he had to go and report to McClellan’s committee before long and did not want to say anything about the China differential that would reflect badly on the Republican Party’s election chances.102 After this explanation from Hoover, Randall was somewhat molli-fied, but developments soon brought renewed anguish. The breach between Britain and France on the one hand and the USA on the other over the invasion of Egypt, and the sharp dip in East-West relations as the Soviet Union used the distraction of Suez to take the opportunity to brutally suppress political liberalisation in Hungary made Randall doubt that any progress could now be made. On 14 November he noted: ‘I had intended to go all out in trying to liberalize the China control problem, but I am afraid world events have set me back.’103 Just how serious a setback became clear in the spring and early summer of 1957. When the China differential began to be considered again in the New Year, the mood in Washington had hardened and was now for tightening controls, not relaxing them. The belligerent behaviour of the Soviets during the Suez and Hungarian crises, and the strong support they received from China, had provided the hard-liners with much ammunition for their arguments. When Randall returned from a trip in the Pacific in early January, he

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discovered that their influence was starting to ran away with things. He wrote to Admiral Delany, Chairman of EDAC complaining that in its present review it had adopted a State Department proposal for an overall tightening of controls. In his understanding, this was contrary both to the brief given to the CFEP and to the wishes of the President who had, ‘made it quite clear to me, and to members of the National Security Council, that he believes that controls over trade with the Communist countries should be somewhat liberalized rather than tightened’.104 Randall’s position and that of the CFEP in general was not an easy one. There was considerable resentment in the State Department that the CFEP had been given the job of planning embargo policy and this goes some way to explain the opposition and difficulty that Randall experienced.105 But, there were also some in the State Department wholly opposed to liberalisation: in particular, Walter S.Robertson, Assistant Secretary of State for Far Eastern Affairs. With a faction in the State Department against liberalisation and opposition from the Chairman of the Chiefs of Staff, Admiral Radford, the Secretaries of Defense, and Treasury, and from Sinclair (though his department moved to a slightly more liberal line in 1956), the forces against change were formidable. Dulles wavered, but recognised the need for change, and Eisenhower seems to have remained, in theory at least, always in favour of liberalisation—though in practice even he wavered as well at times, or remained, shall we say, less than forceful in some of the crucial meetings. Nevertheless, despite all these difficulties, Randall managed to steer policy towards modest liberalisation in the spring of 1957. By early March Kalijarvi’s Steering Committee recommended the basic continuation of present policy, but with two significant aspects of liberalisation. The first was to apply the embargo flexibly towards the Soviet bloc in order to encourage ‘their national selfdetermination’. The second was ‘provision for some reduction in the multilateral China trade controls to be accompanied by some increase in multilateral controls on trade with the Soviet bloc’. A tactic that had periodically been discussed, namely to offer some concessions on the China differential as an inducement to get an increase in controls on the Soviet Union, was now to be formally put to the allies. It would, of course, have the added advantage of bringing both lists closer together.106 On 6 March Randall presented the proposals to the NSC emphasising that they ‘would constitute a substantial liberalization of existing controls on the trade of the Free World with Communist China’.107 He explained that after two years of discussion that the CFEP had finally got agreement from all departments and agencies to the new proposals. The reasons for the decision to liberalise trade were threefold: the intense friction with the allies; the need to allow Japan more trade opportunities; and the general policy of the Administration to reduce barriers to trade. In effect, the CFEP had recommended that the governing principle in NSC 152/3, long applied to the Soviet bloc, should now be extended to China: i.e., interference in trade should only take place where a ‘clear advantage to the Free World would accrue’.108 Members of the NSC were clearly still concerned about the impact of these proposed changes, modest as they were. There were worries about congressional reaction, and Weeks and Wilson seemed only just on board. Most surprising of all, and perhaps a good indication of how the factors involved in this whole business pulled and pushed people’s views around and made their actions appear inconsistent (note Humphrey’s shift from being a liberal on controls with the Soviet bloc

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in the early days of the Administration to his opposition to a change in the China differential, and Dulles’ lack of consistency), was the statement by Eisenhower that he ‘was puzzled as to what we were going to say about this remarkable change in our policy on trade controls, both to our own Congress and to our Far Eastern allies’.109 Nevertheless, the proposals were endorsed, and in the slightly modified version of NSC 5704/3 of 16 September 1957 were to be the basis of US policy for several years to come. Randall was delegated the rather unsavoury task of breaking the news to Senator McClellan about the decision, although it was hardly a radical departure from existing policy. Yet, as it turned out, not even this level of flexibility, permitted by the new resolution about policy, was in evidence at the COCOM meeting in Paris. All this proved to be too little, too late. Talks in COCOM followed, but the spirit of the NSC decision on liberalisation was not accurately conveyed. Angrily Randall wrote: ‘Stupidly our delegation, under the pressure from the recalcitrant members of our government who have not accepted the NSC policy in this matter, asked that 55 out of the 207 items to be retained.’110 The result was a violent reaction by the French, backed by a majority of the COCOM, calling for complete abolition of the China differential. On 27 May at a meeting of CHINCOM the British once again took the lead and gave notice that they would unilaterally abandon the differential. Macmillan wrote to Eisenhower to that effect on 29 May explaining that ‘We live by exports—and by exports alone’; 111 the next day the British unilaterally abandoned the China differential. Randall was bitter and angry: ‘The battle in Paris on the China differential is finished, and the United States had had complete defeat.’ While he wept over this with Douglas Dillon, he also thought that the result justified ‘my pressure for the most liberal possible policy, but it also portrays the complete bankruptcy of the policy advocated by Walter Robertson and Admiral Radford’.112 Furthermore, not only was their position untenable, they had been so rigid in their demands that no compromise with the Europeans had been possible, and so the USA had lost everything. Randall thought that, if the USA had moved six months earlier instead of procrastinating, some compromise might have been possible. However, given the determination of the European allies and the unre-lenting recalcitrance of his colleagues, his judgement is probably wrong, particularly in the light of the radical change in the way that supporters of the embargo now justified things. The Americans had embraced new grounds for continuing and strengthening the embargo, while the Europeans stuck with the old grounds, which had been undermined over the years. With the lessening of Cold War tensions and because of the embargo’s inability to significantly restrict the war-making potential or the overall economic growth of communist states, Europeans could see good reason for liberalising the embargo. The Americans could not—not because their judgement of the economic and the war-making potential factors were different, but because they were now playing a different game. Once we understand this, we understand why the differences between the USA and her allies were unbridgeable: in this light the British decision unilaterally to abandon the China differential was a perfectly logical course of action. The remainder of the Eisenhower Administration now followed a rather well established pattern, with the Europeans pushing for radical liberalisation, the USA resisting, and moderate liberals like Randall desperate to compromise to save allied cooperation and strategically important controls. In early 1958, it became clear that both

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Britain and France would push for a wholesale reduction in COCOM’s strategic list. British Prime Minister Harold Macmillan thought that the embargo had clearly failed to restrict the development of advanced technology in the Soviet Union, and the Soviet triumph with the launch of Sputnik 1 on 4 October 1957 gave ample evidence to support that opinion.113 By mid-August the British had achieved their aim, despite the now-usual US opposition: the strategic list was reduced, from the 282 items agreed in 1954 to 155. While the USA accepted this with the utmost reluctance, there were simultaneously more modest moves afoot, set in motion by a letter from Khrushchev to Eisenhower directly asking for more trade. The State Department raised problems to do with outstanding Soviet debts and US inability to grant the Soviet Union Most-Favoured Nation (MFN) status, but Randall pushed a more positive line, and this was reflected in Eisenhower’s response. On 14 July 1958 Eisenhower set a slightly different course for US-Soviet trade relations when he agreed that peaceful trade that benefited the USA should be expanded.114 But, once again, just as the hard-liners prevented an orderly move towards liberalisation on the China differential, they now obstructed the implementation of even this modest liberalisation. The key official involved in the obstructionism was the new Secretary of Commerce designate, Lewis Strauss. He was a notorious conservative, who had pushed ahead with atmospheric atomic tests regardless of the effects of radiation fall-out when Chairman of the AEC. He had also led the assault on the atomic physicist Robert Oppenheimer, when he began to express his moral qualms about nuclear weapons. In 1959 liberal Democrats in the Congress were to get their revenge for Oppenheimer by rejecting Strauss’s nomination for Secretary of Commerce. However, before this happened, he obstructed trade with the Soviets on principle and objected to the new line of policy inaugurated by Eisenhower’s letter to Khrushchev. In one meeting Randall asked Strauss what he thought the impression in the business community might be of all this: ‘Lewis roared at this, and said he did not care at all what the business community thought about it (he being Secretary of Commerce)!’115 Randall, however, got the better of him. Strauss’s objections to trading with the Soviets prompted yet another review of East-West trade policy, but when Randall presented its findings to the President in the NSC, Strauss was on the Hill for hearings on his nomination. His deputy Frederick Mueller stood in for him. The other potential challenger to what Randall wanted to recommend was the new Chairman of the Joint Chiefs of Staff, General Twining. Both, according to Randall were his intellectual inferiors and ‘afraid to take me on in front of the President’.116 As a result Randall presented the case for continuing with the existing policy of modest trade expansion with the Soviets, and that was approved. Soon Strauss was out of the picture and Mueller took on the job as Secretary of Commerce. He too was a hard-liner, but more susceptible to Randall’s powers of persuasion. By March 1960 Mueller had come round to Randall’s point of view, and US exports to the Soviet Union finally began to increase. This was a very small victory for those willing to see a modest increase in East-West trade. And it never got beyond that. Since 1960 was an election year, no movement was possible on the USA’s umlaterally upheld China differential, and the fiasco at the Paris summit—when Khrushchev produced proof that the US U-2 high-altitude spy plane had been operating over the Soviet Union, despite Eisenhower’s denial—soured relations and prevented any further

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movement on the trade front. The scenario that Eisenhower left for his successor John F.Kennedy was fascinating but highly complicated. While the USA had substantially reduced the formal extent of the embargo, though not against China, this change had not come about willingly for the vast majority of American officials and did not result in a significant growth of US trade with the Soviet bloc. Eisenhower and Randall were two out of a small minority that were prepared to countenance liberalisation, but often it came about more precipitously than they wanted, and it often went further than they thought was prudent. The pressure for this came from their allies. In 1960 signs were appearing that the USA really did want to increase trade, but the volume involved was minuscule, and Kennedy would have much to do to change this substantially. Most importantly of all, the USA had begun to justify the embargo with different criteria, which were still being developed and articulated. Ominously, though, these new forms of justification had little resonance in the capitals of Western Europe. Kennedy liked to embrace challenges: he would find them aplenty in the field of economic defence policy.

7 Thinking about change The Kennedy and Johnson Administrations In the long history of the world, only a few generations have been granted the role of defending freedom in its hour of maximum danger. I do not shrink from this responsibility—I welcome it. I do not believe that any of us would exchange places with any other people or any other generation. The energy, the faith, the devotion which we bring to this endeavour will light our country and all who serve it—and the glow from that fire can truly light the world. President John F.Kennedy: Inaugural Address

John Kennedy called upon his country to surge forward and renew itself. Power should not be feared, but embraced and used for the good of the USA, its people and the Western World.1 The West needed to retake the initiative. New goals were to be set. New priorities were to be identified. And throughout, there were to be renewed vigour, purpose and determination to defend freedom. As one of the architects of US Cold War policy in the 1960s put it: The problem lies not in the mysterious East, but in the inscrutable West.’2 America would have to be more flexible at home and abroad in order to meet the manifold challenges posed by the new decade of the 1960s, with which Eisenhower had only inade-quately engaged. Power would be drawn into the White House and away from ineffective parts of the Executive—in particular from the State Department, which Kennedy held in low esteem for its sluggishness and indecision.3 Congress would be asked to grant more discretionary power to the Executive, and then Kennedy, his staff, and a succession of ad hoc committees and task forces would wield that power boldly and decisively. This was the New Frontier at home and flexible response abroad, and on the agenda was the problem of East-West trade. How could this best be handled to promote US interests? What could be wrought here to help consummate the promise of Kennedy’s new vision?

Flexible thinking: inflexible practice The rhetoric promised much: the delivery was modest. Between 1961 and his death in 1963 Kennedy’s efforts to relax US embargo policy had minimal results. When he entered the White House US trade with communists was strictly limited.

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The accepted US and multilateral criteria are based on considerations of strategic importance to the Bloc and provide for the embargo of materials and equipment which (a) are of direct military applicability, (b) incorporate advanced technology not available in the Bloc…[which] affect military production. Items meeting the foregoing standards which the United States is unable to persuade COCOM countries to add to the COCOM embargo list are controlled by the US when they are susceptible of such unilateral US control as will adversely affect the Soviet Bloc war potential.4 These provisions lay at the heart of US policy and had not been changed since 1957. The criteria had wide scope for interpretation, but generally the USA applied severe export licensing standards. They, and overall policy, would have to be altered if the embargo were to be relaxed. In 1961 the crisis over Berlin, insti-gated by Khrushchev, prevented any such changes. On the night of 12–13 August the East Germans built the Wall, cutting off East from West Berlin. This more than anything else prevented liberalisation of EastWest trade during 1961–2. The most Kennedy was able to achieve was to offer subsidised sales of agricultural surpluses to the Soviet European bloc (though this was effectively, if temporarily, rescinded because of the Berlin crisis) and lift the 1933 ban on Soviet crabmeat imports, originally imposed on the grounds that it was a product of slave labour. But this ‘fishy diplomacy’, unlike the ‘ping-pong diplomacy’ and the opening to China of the 1970s, was not a prelude to further and more substantial change. At the end of his presidency, he announced an important decision to sell wheat to the Soviets, but results were not immediately forthcoming. In the meantime, from 1961 to 1963, overall exports to the Sino-Soviet bloc fell from $194 million to $167 million, and imports went up by just $1 million to $85 million. It was not until September 1963 that Kennedy took effective steps to try to change this. He then called for vigorous action, both to explore the possibility of new trade legislation and to expand trade immediately within the existing legal framework. He did not live long enough to see these directives bear fruit. In short, after declaring the need for vigorous and purposeful change, and after indicating a preference for more trade with the Soviets and their satellites, Kennedy achieved virtually nothing. Changes that did take place were minor and often ambiguous indicators of the overall direction of US policy. Towards other communist states, such as China, North Korea and North Vietnam, complete embargoes remained intact. Towards Cuba, policy developed into a punitive attack on the Castro regime, on the grounds that: ‘Trade with Cuba [is] an entirely different matter than with European bloc. Cuba [is] directly related security of this country.’5 In October 1962 Cuba was made subject to the Battle Act. Legislative changes tended to tighten rather than relax the strategic embargo. The relationship with allies was fraught with problems. During 1962–3 the Americans disputed with their closest ally, Great Britain, the wisdom of selling wide-diameter steel pipes to the Soviets, even though steel pipes were not on the COCOM embargo lists.6 The COCOM lists grew, the criteria for embar-going non-strategic items expanded, more emphasis was given to restricting the flow of technological data, and a general tightening up of the implementation of the embargo was sought. So, where was the new flexible response? In terms of actual changes to the embargo, the Eisenhower Administration moved a much greater distance from the position it inherited to the position it bequeathed

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to its successor than Kennedy’s did. It presided over a substantial liberalisation of policy: the Kennedy Administration did not. If we want to identify changes that took place, we need to turn to the thinking about, rather than the substance of, the embargo policy. Here we will find changes, but mainly ones that were the result of developing ideas first formulated during the Eisenhower years. The main focus here, then, is on changing ideas rather than changing policies. Failure to alter the status quo was partly to do with the constraints of Congress and public opinion, partly to do with higher-priority policies elsewhere, but mainly to do with division, indecision and ambiguities in Kennedy’s Administration. Summing things up for President Johnson in April 1964, the National Security Adviser, McGeorge Bundy, wrote: in the last three years no one short of the President has had the authority to make clear cut decisions. The Secretary of Commerce has the immediate statutory responsibility, but the instinct of Luther Hodges was often different from that of others and it became necessary to appeal individual [East-West export] cases over and over again to President Kennedy.7 Hodges just did not want to trade with the Soviets. Although the Commerce Department was primarily in charge of implementing the embargo under the 1949 Export Control Act, there was other pertinent legislation as well, such as the Johnson Act, the Battle Act of 1951, and the Trading with the Enemy Act of 1917, which meant that responsibility had to be shared with the Defense, Treasury, State and other departments. Early on in his Administration, after overlapping bureaucratic responsibilities caused confusion, Kennedy created the Export Control Review Board (ECRB) made up of the secretaries of State, Defense and Commerce.8 Its job was to co-ordinate and drive policy forward, but it did not have notable success, largely because of Chairman Hodges. In its last report to Kennedy in 1963 differences between the senior executive departments that made up the ECRB were still acute and evident. Kennedy never found a real solution to the problem of the bureaucratic divisions and uncertainties about economic defence policy, though it is true to say that by the autumn of 1963, of the three key departments with influence on policy, the State Department, the keenest for reform, had grasped the initiative with the help of powerful figures within the White House. This was too late to change much before Kennedy’s death, and so his overall achievements only amounted to piecemeal and limited moves to relax the embargo, but there was also a plentiful airing of views about what policy should be, or might become. These problems were not the only drag on progress. Although Kennedy wanted to expand trade with the Soviet bloc, he also had other priorities and had to work for them with Congress without a clear mandate from the American people. His victory over Nixon was by a tiny popular-vote margin of 18,500 out of over 68 million, and the divisions that existed within his own party between the socially conservative and sometimes racialist Deep South, and the rest of the democratic coalition—organised labour, the liberal professions, and ethnic minorities—negated much of the effect of the Democrat majorities in both the House and the Senate. Thus progress on civil rights, health care, and federal aid for education was derisory, despite Kennedy’s stated purpose

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of making headway on all three.9 On matters of foreign trade his position was equally difficult: he had to balance different priorities, and until late 1962 his main aim was to get the Trade Expansion Act (TEA) passed. As one of the leading authorities on US trade policy in the 1960s has put it, ‘The statist policy, guided by the TEA, of strengthening the Western alliance, boosting American wealth, and, above all, correcting the payments deficit, was critical to defending US power.’10 The USA could no longer be oblivious to its balance of payments deficit. Not only was this getting difficult to bear (it aver-aged $2.9 billion during the period 1960–3) but the US trade surplus with the rest of the world was also diminishing at a worrying rate. It is an overstatement to claim that: ‘Pervading White House discussions, the deficit purportedly scared Kennedy as much as nuclear war’,11 but it was undoubtedly a major priority of the Administration to try to come to terms and deal with this problem. Walter Heller, Chairman of the Council of Economic Advisers, and George Ball, Under Secretary of State for Economic Affairs, championed the Keynesian and free-trade policies that were intended to remedy America’s ailing economy, but it took time and persuasion before the fiscally conservative Kennedy would go along with this approach. A central feature of its remedy lay in resisting the temptation of protectionism, favoured by many in the Congress, and seeking more power through the TEA in order to bring about export-led growth and freer trade, particularly with the European Economic Community (EEC), which had been established in 1957. There was also a sub-theme to this, namely, the expansion of trade with the communist bloc, but it was very much a subtheme, because everyone realised that the potential for this trade was pretty limited, and, in any case, powerful groups in Washington were still highly sceptical about the wisdom of improving East—West relations. A National Intelligence Estimate just before Kennedy became President stated: ‘This is what the Soviets mean by “peaceful co-existence”—a strategy to defeat the West without war.’ More important than the East-West trade subtheme was a strategy sometimes referred to as the grand design, which was to bring about an Atlantic community, with the help of the TEA, embracing the USA, Canada and an EEC expanded by the entrance of Britain and other non-neutral members of the European Free Trade Area (EFTA).12 The priority accorded the TEA had two important but contradictory implications for US economic defence policy. On the one hand, the need to get it passed by Congress inhibited Administration lobbying for more trade with the Soviet bloc. Members of the government feared alienating possible support for the TEA by pushing for more EastWest trade, which was unpalatable to many members of Congress. On the other hand, failure to liberalise US unilateral embargo lists and bring them into line with COCOM’s caused periodic disputes, such as that over wide-diameter steel pipes in 1962–3, which disrupted allied relations, made the enterprise of expanding the Atlantic community more difficult, and inflamed conservative opinion even about existing US embargo policy. Kennedy’s natural disposition was to be a moderate liberal, but his narrow margin of victory over Nixon and the divisions within the Democratic Party limited his scope for reform. Furthermore, during the election he had tried to assuage fears about his Roman Catholicism with fulsome reassurances to conservative Protestants. Kennedy knew that he had to engage the support of a broad cross-section of American opinion, including many conservatives, and thus among other things he had to present himself as a reliable

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Cold War leader. The last Democrat President, Harry Truman, had left office under a hail of criticisms of being soft on communism and losing China and lacking the strength successfully to conclude the war in Korea. Kennedy was well aware that he had to live all this down in order not only to win the election, but also to continue to carry congressional and popular support with him once in the White House. As a result he gave a number of hostages to fortune, including extravagant campaign rhetoric and the appointment of conservatives to senior positions in his Administration. Secretary of the Treasury Douglas Dillon, National Security Adviser McGeorge Bundy and Secretary of Defense Robert McNamara were all Republican, and John McCone, head of the CIA was a very rightwing Californian.13 Kennedy’s deference to the conservative Cold War constituency was to little avail. After he suffered a series of setbacks during his first year in office, the scep-tics rekindled doubts about his ability to conduct the affairs of the West successfully, and the credibility of his much-vaunted claims about how he would lead the West and regain the initiative, was placed in doubt. The course of international events in 1961 weakened his hand and disinclined conservatives in Congress to liberalise Cold War legislation. Kennedy suffered either setbacks or stalemates at the Bay of Pigs, in the Vienna meeting with Khrushchev, in the Berlin crisis and over the construction of the Wall, and with the running sore in Laos, where communist infection seemed to be spreading.14 These crises had significant effects in the USA, hardening the opinion of the Administration, the public and conservatives against communism.15 The chances for liberalising the trade embargo suffered commensurately. Nevertheless, although the circumstances were difficult, the Kennedy Administration had ambitious plans for changing US strategic relationships with the communist world. In the military field this was known as flexible response, a phrase coined by the Military Representative to the President, and later Chairman of the Joint Chiefs of Staff, General Maxwell Taylor. This was a strategy that demonstrated US willingness to go the extra mile in order to meet the communists at whatever level of challenge they mounted. The text of the Basic National Security Policy, mainly authored by Walt Rostow, head of the State Department PPS, put things in a nutshell. Rostow was the author of Stages of Economic Growth,16 which was a response to Marxist doom-laden accounts and moral condemnation of the West. Rostow was an irrepressible believer in capitalism, its efficacy, moral worth and long-term prospects. A liberal rationalist, who eagerly proposed active engagement with the forces of communism, his was an intellectual reflection of Kennedy’s desire to be vigorous and to seize back the initiative from Moscow and Beijing. It should be noted that we have generally been at a disadvantage in crises, since the Communists command a more flexible set of tools for imposing strain on the Free World—and a greater freedom to use them—than we normally command. We are often caught in circumstances where our only available riposte is so disproportionate to the immediate provocation that its use risks unwanted escalation or serious political costs to the free community. This asymmetry makes it attractive for Communists to apply limited debilitating pressures upon us in situations where we find it difficult to impose on them an equivalent price

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for their intrusions. We must seek, therefore, to expand our arsenal of limited overt and covert countermea-sures if we are in fact to make crisis-mongering, deeply built into Communist ideology and working habits, an unprofitable assumption.17 Flexible response developed a finely calibrated set of possible reactions to whatever aggressive or provocative moves that the Soviets might make. Conventional forces were expanded, possible nuclear responses diversified, counter-insurgency forces developed, and some changes in the economic approach to world problems were crafted, such as the Alliance for Progress in Latin America and the Peace Corps. In many ways the Kennedy Administration saw the main challenge from communism to lie in the Third World, and in the battle for hearts and minds there: a conviction reinforced by Khrushchev’s declaration of support for wars of national liberation on the eve of Kennedy’s inaugural. The capability for flexible response was achieved in strategic, conventional and unconventional warfare, and there were new programmes of economic help. But, although there was much talk of a more flexible response in the field of economic defence policy, this failed to take hold. Or, at least, it failed to take hold in terms of more flexible policy; in terms of the thinking about both the justification of embargo policy and the goals of US trade policy with the Soviet Union there were changes, and they mirrored the Administration’s thoughts on military and strategic matters. By 1961 there was a widespread conviction that the original justification for the strategic embargo no longer applied. The hope that the Soviet bloc would falter and then implode because of economic inadequacies exacerbated by the strategic embargo was no longer plausible. Worse still, the embargo did not seem to be slowing down Soviet ability to develop advanced weapons and delivery systems. Only bottleneck production problems could be exacerbated, and then with only episodic and short-term effects. So, why was the embargo continued, especially when the West Europeans were rapidly expanding trade with the communist world and the American economy was beginning to falter seriously and could benefit from new markets? The Kennedy Administration acknowledged the flaws and sought to refashion policy and make it relevant and meaningful to the Cold War circumstances of the 1960s. It wanted to liberalise the embargo, but only in the process of a flexible response strategy that would produce quid pro quos from the Soviets ranging from commitments to good (i.e. free-market) behaviour in trade to settlement of old debts. The result of these reflections, however, was a paradox. To take the first step and change embargo policy unilaterally might weaken the position of the USA through psychological losses that would not be recouped by gains from flexible response trade policies. In other words, if the Americans were to take the first step, the communists might interpret it as a sign of weakness. Right-wing allies might see it as a betrayal of US leadership responsibilities, and Western Europeans and the Japanese as a sign of waning resolution to wage the war against communism. But, for the USA to reap maximum rewards from a continuation of embargo policy, it needed to change, to react flexibly to circumstances, and expand trade. Thus flexibility held out the prospect of substantial gains for the USA, but the Kennedy Administration was hoist on the petard of psychological warfare that its predecessor had championed and which the Kennedy team now also pursued with renewed vigour. As

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Kennedy commented on the Cuban Missile Crisis, appearances contribute to reality.18 And it was fear of these psychological factors that inhibited the Administration from adopting flexible response in the realm of economic defence policy. There was also a further complication in that even some of the strongest advocates of relaxing trade could never bring themselves to abandon the idea that a broad embargo, however ineffective, had to be kept going so long as it caused even minor problems for communism. The Kennedy Administration thus engaged with flexible thinking, but failed to implement flexibility in embargo policy.

The Ball Report: the argument for flexible response On 31 December 1960 George Ball, Chairman of the Foreign Economic Policy Task Force set up by the President elect, sent the findings of his research group to Kennedy. Consultants for the report included John Kenneth Galbraith and Robert R.Bowie of Harvard and Walt Rostow of MIT, all of which were later to be influential members of the Administration. The report redrew the agenda for America’s embargo policy. The diagnosis was straightforward: the USA had been too passive and had hidden behind its moral disapproval of trading with communists, erroneously believing both that the embargo could inhibit the growth of Soviet military power and that the USA could persuade its allies to share that belief and act accordingly. The previous Administration, in fact, did not labour under such delusions (or at least Eisenhower did not), but Ball did not have the benefit of access to a detailed historical reconstruction of previous policy. Ironically, Ball himself ultimately failed to break away entirely from the shibboleths about the military and economic damage that an embargo could inflict on the Soviet bloc. His paper observed that while the USA followed a fruitless policy of self-denial, its allies expanded their trade with the communist bloc and found it beneficial. The coercive arm of the Battle Act was ineffectual. Indeed, when allies traded in prohibited commodities the ‘President…found it necessary to exercise his power of forgiveness’.19 Repeatedly, presidents waived the provisions of the Battle Act in favour of allies who traded in proscribed goods. The net result was the growth of trade largely on terms about which the USA had no say. In the 1950s the low trade potential of the Soviet bloc countries limited East-West trade, but now, Ball argued, they ‘have the ability to export surpluses, which they are beginning to use in furthering their external commercial and political objectives’.20 Thus the strategic economic terrain had changed, and the USA needed to take this into account. Current United States trade policy offers no adequate response to the Communist Bloc’s world-wide trade and aid activities. The challenge of the Soviet economic offensive is no longer the narrow one of whether or not the United States should expand its commercial relations with Communist countries. It has begun to affect our economic and political relations with both industrialised and under-developed countries.21 The USA needed to act while the West still had a massive economic lead, to devise policies that would protect the integrity of multilateral trade, and to force the communists

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to act in the world market like Western countries—pay their debts, observe the rules of the market, respect patent and royalty rights, and abjure politically inspired bilateral agreements. (The implication here was that free-market bilateral agreements were not underpinned by politics!) The West should extract trade advantages from the Soviet bloc, counter the advantages the Soviets had in economic warfare techniques, due to their command economies, and prevent their penetration of weaker less-developed countries (LDCs), where they sought political as well as economic benefits. Finally, the USA should work with the rest of the industrialised West to provide aid programmes for the Third World. In order to achieve these goals, the Ball Report made several proposals. These amounted to: developing a common Western strategy by working through the Organisation for Economic Co-operation and Development (OECD; formed in 1961 as the successor to the OEEC); changing various pieces of US legislation, including the Battle Act, to give the US government more discretionary power to use carrot-and-stick methods to obtain concessions from the Soviets; and liberalising the embargo policy so that its provisions applied only to ‘products likely to contribute to the Soviet military potential in an important, direct, and immediate way’.22 Cuba and China were left out of account. They were to be treated solely as political problems, and trade policy would only be changed when it was deemed politically right to do so. The agenda was ambitious, and steps were taken to propel things along. Two weeks after his inauguration Kennedy sent a note to Secretary of State Dean Rusk suggesting amendments to the Battle Act, and as a result proposals were laid before Congress.23 The Administration reviewed the embargo criteria and decided to reassess items on the denial list. The State, Defence and Commerce departments agreed to ‘move from the List of Presumption for Denial to the Presumption for Approval list only items which are no longer strategic as a result of the changing needs for material for military purposes’.24 This in fact did not amount to much progress. Neither the Commerce nor the Defense Department had their heart in the project of liberalisation, and Commerce became even more inhibited after an embarrassing difference with Defense over the export of ballbearing machinery: after Senate hearings, Commerce had to revoke export licences it had previously granted. Political sensitivity to its domestic constituency now made the Commerce Department even more reluctant to seek trade liberalisation, and the Defense Department still nurtured fond hopes that the embargo would negatively affect Soviet military potential, even though it was acknowledged that such effects would not be very substantial. Moves by the Defense and Commerce departments to review the criteria that governed exports thus only envisaged piecemeal and very modest changes by the exercise of executive discretion. The State Department, in contrast, had more ambitious ideas. George Ball reworked his original task force report in a new paper entitled ‘Review of United States Economic Relations with the Soviet Bloc’. In this paper, dated 25 May, there was a classic version of economic flexible response. The basic objective of US policy and actions in East-West economic relations should be to enable the US to use economic tools to make more effective our direct relations with the USSR and other Bloc countries, and to cope with the growing competition from the Soviet Bloc economic power. Effective use of

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economic relations with the Bloc requires flexible power and authority in the hands of the President, particularly in dealings with the European satellites. Increasing Executive Branch flexibility means improving our freedom of maneuver by getting rid of current rigidities which prevent exploitation of opportunities to further US interests.25 This lengthy paper took, or at least appeared to take, the arguments of the Task Force Report a step further down the road of liberalisation. On closer inspec-tion, however, we shall see that the position advocated was not quite so straightforward. The theme of flexibility to promote US interests was still there, and strongly. Goals included cultivating a more positive image of the USA and help for LDCs. The hope of using trade to increase the centrifugal forces within the Eastern bloc also reappeared. This had been an idea long nurtured by Eisenhower, even though intelligence assessments had been pessimistic about success. Still, the situation had changed, and the Khrushchev regime was now perceived as being more vulnerable to this tactic than it, or its predecessors, had been. The USA should thus: use our economic policy with respect to the dominated countries of Eastern Europe to support US objectives of strengthening their capabilities for independent national determination, increasing US ties with these countries, and affording them an opportunity to loosen their dependence on the USSR.26 A number of specific proposals were made to enhance executive power and enable the Administration to engage in active negotiations with the Soviets. There should be Presidential discretion for the granting of MFN status; PL 480 should be amended to allow subsidised farm surpluses to be bartered with the Soviets;27 and the Johnson Act should be amended to allow the granting of credits on a case by case basis, though the Battle Act was not to be amended further than the proposals presently before the Congress. Notes of caution appeared frequently with regard to this expansion of trade, particularly over the need to safeguard copyright, preventing dependency on the Eastern bloc, and the disruption of markets by dumping or other non-market behaviour. Most importantly of all, the State Department worried about how best to protect LDCs from communist trade penetration. This was a rather difficult problem: almost as if the USA wanted expanded trade without accepting the expansion of Soviet influence into the Free World. If it had to happen, then the USA would try to ensure that the USSR abided, as far as possible, by free-market rules. Clearly the State Department was not viewing this issue through liberal, rose-tinted spectacles. But a serious ambivalence arose in the paper between, on the one hand, what appeared to be a most radical recommendation, namely that the USA should come into line with the COCOM lists, and, on the other, both the insistence that some ad hoc way be found multilaterally to embargo exceptional non-COCOM items, and recommendations about how to counter the expansion of Soviet civil aviation. The paper suggested that the US embargo list ‘should be made identical with the international COCOM embargo list’. This would liberalise US policy and help solve a series of problems that had arisen because of the differential between the two lists. The existing policy was causing friction with America’s allies, creating de facto

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discrimination against US companies vis-à-vis other Western countries, which traded in goods denied to US exporters, gave scope to the Soviets to exacerbate the divisions within the West, and created uncertainty about what could and could not be exported from the USA. However, having said all that, the paper reintroduced a justification of controls by another route. There would now be a general rule of approval for licensing exports: except in those special cases covering equipment or technology closely related to military items or to the production thereof where denial by the US would effectively prevent Soviet bloc acquisition from any free world source of that equipment or technology substitutable therefore. For those commodities which do not meet the COCOM strategic criteria, but whose export would constitute so significant a contribution to Soviet economic development and to Soviet potential for economic penetration as to be damaging to broad consideration of Western defense planning, the United States might propose that NATO consider such special situations and, if it agrees that multilateral control action is or might be desirable, request COCOM to develop a program for the institution of controls when judged necessary.28 In other words, notwithstanding the Task Force report’s identification of the erroneous assumption about the embargo being able to limit Soviet military development, the State Department continued to offer the criterion of limiting economic growth and denying military equipment and technology as relevant to the embargo, even though this was to be effected now in an ad hoc way. How it thought it could persuade the Europeans to embargo in this ad hoc manner items that were not seen as suitable permanent candidates for the COCOM list is rather baffling. The tactic of going via NATO would add clout to the US case among COCOM members—but when this route was actually tried, in the 1962–3 wide-diameter steel pipe crisis, it failed.29 There is a tone of desperation in American policy-making here, fathered by fear of, and determination to counter, Soviet economic potential to penetrate the Free World. A more specific matter taken up in the State Department paper concerned the expansion of Soviet civil aviation. Just how dangerous Soviet commercial activity was conceived to be is amply demonstrated in judgements about aviation. Civil aviation provides a useful means for the Soviet Union and other Bloc countries to extend their influence in distant countries…. It assists Bloc countries to appear ‘respectable’ and tends to dispel the concept of an Iron Curtain. It helps demonstrate Soviet technological prowess to Free World countries; it contributes to Bloc capabilities for espionage, sabotage, and subversion; and it facilitates control over the travel of Bloc citizens.30 Once again, the way to handle this problem was to persuade the Soviets to abide by freemarket rules, but, because LDCs were so vulnerable to political demands, the USA should also try to ensure that Soviet air transport agreements ‘are kept to a minimum.’31 Quite clearly the State Department, which was well disposed towards liberalising the embargo, did not favour such a policy primarily because of trade and the balance of

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payments, or because of the cost and ineffectiveness of the existing regime. These factors had some impact, but the main thrust of the argument for relaxing the embargo was to do with developing a flexible response capability, which would enable the USA to wage the Cold War more effectively. The danger was inaction. The Soviets were taking the initiative and, in particular, were making inroads in the Third World, and that was exacerbating problems with both industrialised countries and LDCs. The State Department wanted to use the lure of expanding trade to help it bargain with and extract concessions from the Soviets, regain the initiative in the Cold War, and move in a constructive process towards détente. Overall, this policy offered many advantages: more trade to help the balance of payments; better relations among the Western allies by bringing US embargo lists into line with COCOM’s; the elimination of de facto discrimination for US exporters; the blunting of Soviet political penetration of LDCs; the protection of the free market by getting the Soviets to abide by a code of good conduct; the weaning away of satellites from the USSR; greater exposure to Western technological achievements and consumer goods in the Soviet bloc; and a gradual easing of tensions through détente. At the same time the Administration wanted to capture the initiative and win more Cold War battles, continue the embargo, and include within its scope, on an ad hoc basis, items that they knew would not be agreeable to their allies without extreme persuasion. And, finally, it wanted to continue to wage a form of cold economic warfare to prevent legitimate Soviet commercial expansion, such as in international civil aviation. It hardly needs to be pointed out that this overall policy was not entirely coherent: political gains through trade were sought by the USA, but were to be denied to the Soviets. In addition, the Administration would have to square the liberalisation of trade with the conservatives in Congress and with public opinion, especially in those areas where legislative reform was needed for liberalisation. It was from these latter two sources that the State Department proposals received their initial setbacks.

Marking time Between the summers of 1961 and 1963 little happened on the embargo front. The crises over Berlin in 1961 and Soviet missiles in Cuba in October 1962 both interrupted the Administration’s plans to tackle the problem of how best to trade with the Soviets. Its initial inclination to liberalise trade only produced an opening of the crabmeat market and an announcement by the Commerce Department in June 1961 that it would sell subsidised agricultural produce to the Eastern bloc. Even then the effect of this modest gesture was tempered by an ‘expression of the sense of Congress’ in the Agriculture Act of 1961, which opposed the sale of subsidised agricultural commodities to ‘unfriendly nations’.32 And this was not the only problem that emerged from the Congress. The attempt to amend the Battle Act passed in the Senate, but after being referred to the House on 15 May 1961 it was left to languish unattended. The House failed to take action on it. Just over a year later, the three-year extension of the Export Control Act passed in July 1962 included amendments, which the Administration eventually felt obliged to act on and tighten the embargo criteria. And the passage of the Trade Expansion Act, which

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came into effect in October 1962, denied the use of MFN for Yugoslavia and Poland despite Administration pleas that the hard-liners should relent on their determination to deny the President this tool of statecraft. There were also hearings and investigations by Congress, the tone of which was sometimes interpreted differently by those in favour and those opposed to liberalising trade, but on the whole an impartial observer would have to conclude that the overall gist was critical and generally directed towards a tightening of the trade embargo.33 But it was not domestic pressures that halted the (admittedly sluggish) momentum towards reforming trade policy with the Soviet bloc: it was the impact of foreign developments. In July 1961 the Berlin problem came to a head with the building of the Wall. In effect the Wall solved the crisis, but it was not widely perceived like that at the time, and tensions mounted. In August the Soviets also resumed atmospheric nuclear tests and two months later detonated a massive 50-megaton atomic bomb. The reaction to all this in Washington was very negative. On 15 August an unofficial meeting of the ECRB consisting of Kennedy’s NSA, McGeorge Bundy, Agriculture Secretary Orville Freeman, Defense Secretary McNamara, and Hodges ‘decided not to license the export of subsidized agricultural commodities to the Soviet bloc and not to announce the decision. They also decided to exercise extreme care in granting licenses for exports to the Soviet bloc in order to be certain that exports would be clearly non-strategic.’34 This was just what Hodges and his department needed. It cut back on licences ‘with the knowledge and approval of the President’ and looked to ‘keep on being very critical of export licenses unless and until the international situation greatly improves, or the Review Board and the President decide otherwise’.35 In fact, Commerce went further than the President had intended. With public opinion and the Congress highly critical of the Soviets, and with major priorities such as passage of the TEA seizing the attention of senior officers of government, the drive for trade liberalisation with the Soviets faltered. Jack Behrman, Assistant Secretary of Commerce for International Affairs, spoke in January 1962 of the dangers for East-West trade liberalisation from a ‘whiplash of an ignorant public and a vacillating Administration’.36 Just how vacillating and divided the Administration was is evident from the Interdepartmental Committee of Under Secretaries, which met on 10 January. The key players at the meeting were Behrman, Assistant Secretary of State for Economic Affairs Martin, the Under Secretary of State George Ball, and Under Secretary of the Treasury Henry Fowler. There was a clear division between the Treasury and Commerce on one hand and the State Department on the other: it also has to be said that neither side’s position was entirely consistent or clear. Behrman began by expressing his department’s aim of trying to get agreed Western rules for East-West trade, trying to get the Soviets to comply with them, and trying to maximise agreement in COCOM. The State Department officials thought that this was unrealistic and that Commerce’s other objectives appeared contradictory, namely, extending controls ‘across the board’ and hoping to ‘trade more with the bloc’. Behrman clarified this by saying that he had not meant an ‘across-the-board’ expansion of controls, but only an expansion to some items not ‘directly related to strategic uses’ and a tightening up on ‘technological data’: trade in consumer goods could be expanded. Commerce thought that the Soviets had no interest in commercial trade as such, but only

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in plant, machinery and technology that they could pirate and use to enhance both their own manufacturing base and their offerings to LDCs. Fowler’s position was even more hard-line: When we sell Russia packaged know-how in a non-military area, Russia will pull its people off this research and put them to work on missiles. Moreover, our trade enables the bloc to penetrate the LDCs more successfully. They use our prototypes to manufacture plants which they can offer to the LDCs.37 The contrast between the position of the Commerce and Treasury officials and Martin and Ball from the State Department was substantial. Ball argued that Soviet trade policy had a variety of components: the Soviets had commercial objectives: they wanted to build up their war machine; they had economic warfare aims; and they wanted to penetrate the LDCs. What the USA should do was to counter the non-commercial components of Soviet policy and encourage the expansion of the commercial. He declared: ‘Unilateral action by the US is hopeless.’38 And both he and Martin explained that the position of the West Europeans was very different from that of the USA, and that there was no hope of obviating the problems of de facto trade discrimination for US firms, or of reducing friction with the allies by getting them to tighten the embargo as Commerce and the Treasury seemed to favour. Behrman, seeing that his department’s views were at odds with those of the State Department, later sent the minutes of the meeting to Hodges with the observation that he might ‘be interested in the comments of Ball and others’.39 With such differences between the departments it was little wonder that no progress was forthcoming. By mid-January Rusk and Under Secretary Ball felt that Hodges had gone too far in tightening up the embargo, and that he had gone beyond what the President had intended when he authorised more stringent controls in response to the Berlin Crisis. On 23 January the ECRB went along with this view, and three days later the NSC requested Rusk to review US economic defence policy as set out in NSC 5704/3. Some irritable exchanges followed between Hodges and Ball. The Commerce Secretary claimed that Ball had put an unreasonable construction on a meeting with the President in order to justify State’s desire to ease the embargo to pre-Berlin Crisis levels. Hodges reprovingly commented to Ball: ‘George, you know this meeting, which was not over one minute’s duration, did not lay any facts before the President.’40 State Department officials were exasperated with Hodges and fearful of serious ructions in the alliance if America did not at least make some gesture towards liberalisation. Late in February it became clear that the British wanted to press for a 50 per cent reduction in the COCOM strategic embargo list.41 There was also a bureaucratic problem in March 1962, because Hodges, fed up with the whole business of export controls and preoccupied with nursing the TEA through Congress, tried to off-load responsibility for the politically sensitive embargo issue onto the Treasury. The proposal to transfer authority was opposed by Douglas Dillon and others in the Administration, but the decision to leave responsibility with the Commerce Department was not finalised until 30 April. In the meantime policy development languished, as State and Commerce continued to disagree about how it should be conducted. It was not until the three-year extension of the Export Control Act was passed in July that further debate took place, which substantially

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changed things. The act was passed, with amendments, in a context of considerable hostility towards trade with the Eastern bloc that had been voiced in several congressional committees and hearings. The act raised three issues: the problem of multilateral Western action; the development of a co-ordinated set of trading rules to be applied to East-West trade; and the demand that assessment of the economic significance of export items should be taken into account in licensing policy. The attitude of the Commerce and State Departments to these matters and the policy implications that they drew from them once again highlighted the problem of trying to reach an agreement on how to develop policy in this area. From a letter to Kennedy on 10 July, it is evident that Luther Hodges believed that the Act urged ‘maximum agreement on expanded controls by the Allies’.42 Even though he presented the problem and its solution in a rather confused form of conditional either/or options, everyone involved knew that the Secretary of Commerce did not want to trade with the Soviets. Hodges asserted that the central questions had to do with US national security and how the export control system could contribute to that. His conclusion was that present policy fell between two stools: it neither maximised negative impact on the Soviet bloc, nor garnered maximum benefit from trade for the USA. Furthermore, it left allies, Congress and much of the American public with grounds for dissatisfaction and complaint. If trade enhanced the Soviet ability to threaten the West, either through increased penetration of LDCs or through a more rapid expansion of its military capability, then the ‘objective should be the maximum delay of growth of the Soviet bloc at the least cost to other objectives’.43 The West should clamp down on anything that could transfer technology and the ability to increase Soviet production, and only expand trade in consumer goods. Hodges acknowledged this would cause difficulties with allies, but he believed that the West European business community was not enthusiastic about ‘uncontrolled expansion of trade’. He suggested: ‘We need considerably better intelligence than we have to determine the type and weight of tactics needed to persuade our Allies to become more restric-tive.’44 The alternative put by Hodges depended upon a determination that ‘controls by the United States which are not concurred in by its Allies and which are over and above the current military-oriented controls have no appreciable adverse impact on the economic potential of the Bloc, [in this case] balance of payments and other considerations would suggest we abandon all controls other than those imposed under multilateral arrangements (COCOM)’. This would then be followed by a vigorous export drive that would put the USA competitively on a par with Western European countries. Hodges felt that until one of these basic approaches had been adopted, and the ineffective present policy abandoned, cases requiring export licence decisions should not be taken.45 The State Department’s position was expressed to the NSC by Rusk, who read the congressional runes in a more favourable light than the Commerce Department: he did not think that there was a ground-swell of opinion in favour of tightening controls. In any case, he explained that there was little point in embargoing material that the Soviets could easily acquire from other Western sources, and he felt that there should be ‘no illusions’ about the fact that the Allies were ‘entirely opposed to an increase in the severity of existing controls at this time’.46 Rusk believed that the decisive point was to use trade to

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influence the Soviets to be ‘more peaceful and responsible’.47 That objective would be compromised if they were now to tighten export controls. It would send the wrong message to the Soviets at a time when there was some easing of tension after the Berlin crisis. He described this as a decisive point. Furthermore, he felt that it was important to recognise that the trade with the Soviets was minute. This presently gave the USA little leverage to influence the character of that trade, but nevertheless, the Soviets placed a psychological importance on it out of all proportion to its size—this was something to exploit. Thus the main thrust of the State Department’s argument was to concentrate both on embargoing items of direct military use to the Soviet Union and on retarding its warmaking potential. Trade should be expanded as a means of increasing US influence and as a tactic for encouraging fragmentation in the bloc. The USA should strive to coordinate policy as far as possible with the allies by only embargoing items of ‘reasonably clear and direct military significance…. This fact rules out economic warfare except at a time of high crisis.’48 The overall message was clear: the State Department wanted to relax controls and expand trade. It did not get its way. Hodges agreed with Rusk that US trade was not quantitatively important, but that made it all the more vital to assess its qualitative impact. In other words the USA was not getting much dollar benefit because the trade was so limited, but the Soviets were able to pirate its technology and gain disproportionately. (A quip Kennedy made to Khrushchev in Vienna illuminates this danger. When Khrushchev asked if he would sell him a new American tractor Kennedy responded: ‘I won’t sell you one, Mr Chairman, but I will think seriously about selling you 1,000.’49) Hodges declared that: ‘The evidence available to me is overwhelming that the Soviet bloc is interested primarily in obtaining machinery, technical data and technically advanced commodities’.50 However, he agreed with Rusk about trying to influence the Soviets, although such trade should be solely in consumer goods. Even goods falling into the grey area between consumer and strategic should only be exported on the basis of a ‘reasonable possibility’ of influencing the Soviets to more peaceful and responsible behaviour, and not on the basis of a ‘mere expression of hope on our part’.51 While he recognised that this would create problems, he was against setting ‘our export controls at the lowest level represented by our allies’.52 Hodges described the above arguments as the substance of the issue: by this he meant the position that he felt the USA should adopt on its merits, before taking political considerations into account. These considerations were the attitude of the Congress and public opinion and the requirements of the Export Control Act, all of which he believed strengthened his arguments about the substance of the issue. Finally, he feared a congressional backlash that would undermine other objectives of the Administration. Most notably, the TEA had not yet gone through the Congress. In the light of these arguments the State Department had to give way. There was no liberalisation. Existing policy was brought more into line with the amended Export Control Act, particularly with regard to the ‘economic potential concept’. As a result, a fourth criterion was added to US licensing policy, in addition to those covering arms, war material, military industrial technology and military-industrial capabilities. Now there was also to be consideration of: ‘Materials, equipment and particularly technical data making a significant contribution to Soviet bloc activities which disrupt essential free world economic arrangements in such a way as to prove detrimental to the national

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security and welfare of the United States.’53 Among other things this would cover widediam-eter steel pipes, which were soon to cause such controversy with Britain and expose the difficulty of trying to craft a more co-operative Western embargo policy. In the NSC, after further extensive discussion of policy, the President summarized matters by ‘directing that the existing Economic Defense Policy paper be revised to the extent necessary to reflect recent changes in the law made by the Congress’. However, no major review of the 1957 policy paper NSC 5704/3 was necessary, and nothing further should be done until the situation with regard to Berlin had become clearer.54 Hodges was not content even with this, and tried to prompt new efforts to persuade America’s allies to increase the COCOM embargo lists. Rusk responded vigorously: ‘I realize that the National Security Council on July 17 discussed the idea of a determined effort to get our Allies to agree to a higher level of multilateral export controls, but I am not aware of any agreement having been reached that a special attempt along those lines should be made, nor does NSC action 2455 [from the 17 July meeting] record any such agreement.’55 Rather than pushing forward with liberalisation, the Kennedy Administration might best be characterised by saying that it was engulfed in departmental battles over what to do between 1961 and 1962, and that the liber-alisers ended up fighting a fierce rear-guard action to try to salvage what they could of East-West trade in the face of a determined effort to extinguish it by the Commerce Department and its allies in the military establishment.56 After the Kennedy Administration had been eighteen months in office the COCOM lists were getting longer; the implementation of the regulations was being tightened, particularly with regard to technology transfers; the Americans were on the verge of a major row with Britain over wide-diameter steel pipes; the Congress, with the collusion of the Commerce Department, had pushed the Administration into adopting new criteria for controlling any exports that could help the Soviet bloc penetrate the LDCs; and trade with the communist world had diminished. In the autumn of 1962, hopes for liberalisation were frustrated further. The House and Senate, in June and September respectively, passed the TEA, and Section 231(a) directed the government to suspend ‘as soon as practicable’ MFN treatment for communist states. At this time only Yugoslavia and Poland were so treated, and the executive branch contrived to continue with that practice, but any further use of MFN was prohibited.57 Where in all this was the capacity for flexible response? Kennedy so far had failed lamentably to realise that goal in the realm of economic defence policy. Hopes for a new initiative were quashed by the Cuban Missile Crisis of October 1962, but in its aftermath came the shoots of détente, most notably the Partial Test Ban Treaty agreed in Moscow in July 1963. The thaw in EastWest relations moved Kennedy to request another review of East-West trade policy.

Kennedy’s last chance By early 1963 changes in international circumstances meant that a relaxation of the embargo was both more desirable and feasible. After Kennedy’s strong performance in the Cuban missile crisis he had less to fear from conservative critics. The thaw in EastWest relations offered an opportunity for promoting US political interests through trade.

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And, as well as yielding political benefits, more trade would help the balance of payments and possibly open new markets for huge US agricultural surpluses. This was becoming an ever more acute problem. It explains the decision to authorise sales of subsidised agricultural products to the Soviet bloc and was one of the reasons why the USA supported the British attempt to enter the EEC. It hoped that Britain would move the Community, America’s main foreign food market, towards freer trade and away from the protectionism of the Common Agricultural Policy, which threatened to exclude US farm exports. On 14 January 1963 de Gaulle vetoed Britain’s application and dashed American hopes. A concerned Kennedy asked Rusk about West European agricultural exports to Eastern Europe and the potential market there for the USA. Rusk’s reply highlighted difficulties created by credit and other existing embargo restrictions.58 These factors, combined with Kennedy’s moderate liberalism (which had favoured some relaxation of the embargo right from the start of his Administration), now produced a more positive drive for change. But, ironically, the final prompt for a policy review appears to have come from Hodges. On 8 May Hodges wrote to Kennedy yet again about embargo policy, expressing fears about Soviet intentions and the need to abide by the strictures, as he saw them, of the 1962 Export Control Act. On 16 May Kennedy replied. He explained that American businessmen were fully conscious of the dangers of Soviet technological piracy, and if they were prepared to strike deals he saw few grounds upon which to base opposition to such transactions. Nevertheless, he had requested that the ECRB review the situation with specific reference to the two questions that Hodges had raised: Was the USA receiving adequate compensation for her technology sales when the Soviets disregarded patents and copyright? And, should the USA reconsider its embargo policy in the light of West European trade with the Soviet bloc?59 In the meantime, he favoured construing the ‘economic potential’ clause of the 1962 Export Control Act ‘as narrowly as possible’. For Kennedy it was the potential political pay-offs from a more flexible trade policy that really counted, though undoubtedly commercial benefits were not entirely discounted by him. He explained his position to Hodges in no uncertain terms. It is not my judgement that the gains to our national security which can be achieved by denying the Soviets access to American machines and factories of the kind we are discussing, many of which they can get in Europe in any event, balance the cost to our national security of making it more difficult to deal with the Soviets on vital military and political issues.60 The tone and substance of Kennedy’s request for a report from the ECRB within ninety days tipped the balance in favour of action to relax controls. He wanted to know ‘How much possibility is there for a significant broadening of trade that is consistent with our security interests?’ And was it significant enough to warrant general trade talks with the Soviets?61 The debate that this generated within the Administration provides a fascinating insight into the type of thinking that had developed about the embargo. The position of the hardliners in the Commerce and Defense departments (but, it should be noted that Secretary McNamara was not a hard-liner on this)62 had largely been pre-empted by the way that

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the President had formulated his request for a review. However, strong notes of caution were sounded on two grounds. The first, reflecting reasoning long evident in the Commerce Department (the USA should not shift its position until the Soviets had), was loudly sounded by Walt Rostow. The second concerned problems with Congressional and public opinion, if changes to US control legislation were sought; this was sounded by McGeorge Bundy’s aide David Klein, the senior member for European affairs on the NSC, who had previously been on the State Department Soviet desk. The report requested by the President was eventually produced in the form of a paper prepared by Rostow and his PPS in liaison with others, dated 26 July and entitled ‘US Policy on Trade with the European Soviet Bloc’. ECRB recommendations for action came later, on 15 August. The Rostow paper was a veritable intellectual tour de force and deserves to be quoted at length. For Rostow, the essential problem was how to use trade policy most effectively in the conduct of US affairs with the Soviet bloc. To maximise effectiveness, context had to be appreciated. For a number of years now, we have attempted to maintain, virtually in isolation, a posture tantamount to economic warfare. A change in this stance would therefore carry considerable meaning…. The major issues in our trade control policy are political not strategic, economic or commercial. Neither full access to, nor complete denial of, trade with the US can affect Soviet capabilities to wage war—either hot or cold war. Nor can either trade situation affect in any meaningful sense the performance or potentialities of the Soviet economy. And from the US side, the economic and commercial significance of trade with the USSR, whether free or restricted, is negligible.63 The key for Rostow was the psychological fall-out that might occur if changes were not timed carefully, because the system ‘has become intricately interwoven into our overall strategic thinking’.64 In a static Cold War situation, which is what Rostow believed the USA to be in, ‘there can be no question of giving quarter, psychological or otherwise, to the enemy’.65 But in a fluid situation he believed that the USA could move to a position where only the strategic items on the COCOM list would be controlled. Everything else could be bargained away for concessions from the USSR. These bargaining chips, Rostow explained, were largely psychological in nature. Trade denial has come to be an important symbol of our cold war resolve and purpose and of our moral disapproval of the USSR. The trade controls issue has an important place in our continuing efforts to arouse the free world to common action and policies against the Communist threat. We have sought to induce non-communist states to hold trade to a minimum, not only on grounds of denying help to the Communists to build their power, but on the grounds that increased trade would carry real and immediate dangers to free world participants in that trade.66 For their part the Soviets had also invested the trade issue with significant psychological importance. They saw trade with the USA as important out of all proportion to its actual volume, because the embargo was a symbol of the USA’s refusal to treat the USSR as a

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legitimate and equal nation state and evidence of America’s audacity in discriminating against it. Among East Europeans the embargo was perceived differently, but there were gains for the USA here as well, because it was seen as an obstacle ‘to creating new alternatives to total economic reliance on the USSR.’67 Thus the prevailing conditions provided many opportunities for the USA to exchange intangibles for solid gains from the Soviets, but this process could not begin until the Soviets raised the trade question in the course of serious negotiations, and until they made concessions as proof of their good intent. Any shift in policy by the USA under static Cold War conditions would ‘impair US ability to hold up its end in the Cold War’, and it would be difficult to justify such moves to the Congress and American people.68 The appearance of Rostow’s paper did not end the debate about what was to be done. This continued for over a month and drew in the White House staff, namely Klein and McGeorge Bundy. The latter favoured a more immediate pro-activist line than Rostow, but he also had some reservations about the ECRB recommendations. The recommendations of 15 August, by Hodges, McNamara and Rusk, were not surprisingly a compromise between Commerce, Defense and State department positions—indeed, the analysis accompanying the proposals acknowledged that there was still ‘a clear disagreement within the Executive Branch’ about what policy to adopt, because the data available could not conclusively indicate a right course of action. Nevertheless, the report recommended a more positive policy, in line with Kennedy’s clearly expressed preference. It made seven proposals: 1 ‘as a matter of urgency’, a review of the compensation for US technological exports; 2 the Commerce Department should keep existing licensing policy under review so as not to weaken the USA’s future negotiating position; 3 guidelines for trade with Eastern Europe should be revised within the existing legal framework in order to expand trade; 4 possibilities of a bilateral trade deal with the Soviets should be explored ‘on an urgent basis’; 5 the best means of exploiting an expansion of commercial relationships either on a step by step or bilateral agreements basis, including the possible creation of a commercial corporation, should be explored; 6 a study of a new legislative basis for East-West trade that would give the Executive more discretionary power should be conducted; and 7 the State Department should explore with allies the feasibility of modifying the COCOM regime without endangering ‘the substance of mutual security’.69 The analysis that accompanied the proposals acknowledged the difficulties of assessing the impact of policies on US interests: ‘a precise assessment of what was not done is always difficult’.70 Also Rostow’s argument, about waiting for the Soviets to demonstrate their good faith before any moves on trade policy by the USA, was addressed, but essentially the analysis took the line, later to be argued by Klein in a memorandum to McGeorge Bundy, that the USA should move now to accelerate what were already perceived as moves in the right direction by the Soviets. Klein was particularly keen to exploit what he saw as opportunities in the East European bloc.71 During the next month discussion continued. In particular, Klein produced comment on

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both the report and the recommendations for McGeorge Bundy. In those commentaries he exposed some of the problems that might arise if either Rostow’s ideas or the ECRB’s recommendations were implemented. Klein thought that Rostow’s position was fatally flawed because it was ‘unrealistic’ to expect the Soviets to move and make concessions first: ‘it is in the give and take process that the intention of the other side can be ascertained.’72 So far as the ECRB recommendations were concerned, Klein judged that the time was not politically right to alter the legal framework of controls in the USA. On the other hand, the thaw he detected in US-Soviet relations, while amounting to something well short of détente, warranted the use of executive discretion to increase trade. Attorney General, Robert Kennedy had recently expanded presidential discretionary power by conveniently ruling that the Johnson Act did not prevent the extension of short-term credits to the Soviet Union. It was this kind of discretion that Klein wanted the President to wield to expand trade through hard bargaining. His analysis of the ECRB recommendations for McGeorge Bundy took a similar line. Thus he recommended acceptance of proposals 1–3 and 5, but suggested that 4, 6 and 7 should be shelved because they involved political dangers with Congress and the public that would ‘get in the way of domestic politics, [and] get in the way of negotiations with the Soviets’.73 In short, Rostow wanted to be adventurous in pursuing a new trade policy, but only after the Soviets had made a clear demonstration of intent to improve their ways. The ECRB proposals were less radical in that they only recommended action within the existing legal framework and studies to explore the possibility of legislative changes. Klein thought it was unrealistic to expect the kind of shift in policy from the Soviets that Rostow had set as a precondition for change, but he was unhappy with the ECRB’s proposals because he felt that they would occasion political repercussions that might negate any attempts at liberalisation. He favoured using the discretion that the Executive already had to engage the Soviets in trade talks and exchange liberal licensing decisions for Soviet concessions. McGeorge Bundy did not take Klein’s advice to shelve the politically sensitive recommendations. He forwarded them all to Kennedy. The President endorsed the ECRB’s proposals, but wanted to give an even more positive gloss to them. This becomes very apparent when one compares the draft memorandum with the final version he sent back to the ECRB. In the draft of 12 September Kennedy approved the further studies recommended by proposals 1, 4, 5 and 6. He also approved the second and third recommendations, though he broadened the spirit of the third recommendation so that a less restrictive licensing policy could be applied immediately to the satellites, and not just after new guidelines had been drawn up. All these decisions remained in the final note from the President to the ECRB, but he added a sense of urgency for liberalisation, and there is circumstantial evidence that this derived not just from his own inclinations on East-West trade policy but also from pressure from Rusk and the State Department. The President said that he was: strongly in favor of pressing forward more energetically than this report and its recommendations imply, in our trade with the Soviet and Eastern bloc. The course of events of the last two months, including particularly the test ban

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agreement and the evidence of greater trade by our allies…, persuade me that we must not be left behind. I believe also that one person within the Government should have central responsibility for setting this program into action.74 The State Department was given the authority to direct the new studies, and eventually the person designated to be in charge of co-ordination was George Ball.75 In early October an announcement of intent was made to sell US wheat to the Soviet Union, though the details still had to be finalised. The announcement prompted a widespread public debate about East-West trade, and to the surprise of some it was generally even tempered and well disposed to trade expansion. Both public and congressional opinion had shifted to a more favourable view of this issue. Now at last there appeared to be real opportunities for change and for developing economic flexible response. Driven by the prospect of positive gains, developing détente and the ‘fear of being left behind’ by its allies, the Kennedy Administration was now poised to negotiate a relaxation of the embargo. It is interesting that, as in the Eisenhower years, alliance consid-erations encouraged US embargo liberalisation: they were not as powerful as in the 1950s, but still had some effect, and they were to count even more in the near future, as consideration of West Germany’s position helped to mobilise Johnson’s ‘bridge-building’ policy. Tragically, shortly after announcing the intention to expand East-West trade, John Kennedy was assassinated in Dallas. After a thousand days the Kennedy Administration had only meagre results to show for all the reports and papers it had commissioned on the problem of East-West trade, and for its attempt to translate the commitment to flexible response into practice in the field of economic defence policy. It remained to be seen what its successor could do to carry forward the intellectual framework that had been constructed, and whether it would have more success with the translation of ideas into practical policies.

Lyndon Johnson and the Cold War our guard is up, but our hand is out Llewellyn Thompson

the whole question of trade with the Soviet Union has become a focal point for political and emotional hesitations George Kennan

The East-West trade bill became a victim of the war in Vietnam Lyndon Johnson76

These three quotes capture much of the tone, feel and frustration of the Johnson Administration’s approach to, and problems with, East-West trade.

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When Lyndon Baines Johnson succeeded to the presidency in November 1963 there was discernible momentum towards a relaxation of US East-West trade. An official history later claimed: ‘By the time of the change of Administration…the debate on EastWest trade policy within the Executive Branch had finally been resolved in terms of a definite action program. The major thrust of the program was towards increased nonstrategic trade and towards greater flexibility of trade control policy.’77 Not only was this evident with the prospect of wheat sales, but there were also moves to extend credits through the Export-Import Bank to several East European countries. In 1963 the Kennedy Administration had persuaded Congress to relent over denying MFN trade for Yugoslavia and Poland.78 The power to negotiate under those terms was granted by the 1963 Foreign Assistance Act, and Johnson managed to keep MFN treatment for Yugoslavia and Poland despite some later opposition from Congress. More innovatively, the USA exploited the rift between Moscow and Bucharest: in the summer of 1964 a commercial accord was signed, Export-Import Bank guarantees were authorised for non-agricultural sales, and export licensing was liberalised. However, Johnson’s position on East-West trade on entering the White House is not entirely clear. George Ball recalls that, as Vice President, Johnson declared that the ‘wheat deal was the worst political mistake we made in the foreign policy of this Administration’, and other sources corroborate this.79 In April 1964 there was much controversy within the Administration about East-West trade, and in particular about advanced-technology beet harvesters and fertilisers. It was in this context that McGeorge Bundy advised the President to ‘approve industrial licenses much more broadly than Commerce wishes to…I do not agree that we can or should try to negotiate political cases in return for straight commercial deals…I think our restrictive policies hurt us without hurting the Soviet Union. I have heard you speak of your general support for peaceful trade, and I think these are cases in which that principle can safely be allowed to govern.’80 Despite this forthright advice, Johnson was not persuaded. At an NSC meeting he ‘expressed the view that at this time and under present circumstances we would preserve our self respect more effectively by requiring some quid pro quo before issuing further licences to the bloc in this field of advanced agricultural equipment and technology’. Johnson also thought that ‘broad trade negotiations with the USSR should be deferred at this time’.81 The politics of an election year were on his mind, and that deterred him from pushing ahead immediately with trade liberalisation; however, he did not abandon the issue entirely. On 23 May 1964 the President flew to Lexington Virginia, where he pledged himself ‘to “build bridges”—bridges of trade, travel, and humanitarian assistance—across the gulf that divided us from Eastern Europe’.82 By June Commerce was prepared to step onto the bridge and sell beet harvesters to the Soviets without a specific quid pro quo over and above their normal price.83 These developments seem somewhat at odds with the President’s attitude about the wheat trade and his early caution about trade with the Soviets, but three factors persuaded him to pursue bridge-building and expand trade, at least, after the election. The first factor was a change of public and congressional mood in favour of expanding trade. Evidence of this came from hearings on East-West trade by the Fulbright, Senate Foreign Relations Committee in the spring of 1964 and again in February 1965. An

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assessment of the hearings in March 1965 claimed that: Although opinions and recommendations ranged widely, they found a common meeting ground in the general view that the Soviet Union and countries of Eastern Europe should be considered separately, with a marked preference for trade expansion with the latter balancing a reluctance to trade with the former.’ A preference for expanding trade was also expressed at the annual meeting of the US Chamber of Commerce in April 1964.84 Johnson’s understanding of foreign policy was superficial, but he registered public and congressional opinion like a sophisticated barometer. The second factor was the relationship between East and West Europe. The most difficult issue that Americans had to deal with during the 1960s was Vietnam, but there were also massive problems in Europe. The early 1960s was a worrying transition period in West Germany, as Chancellor Adenauer finally stood down and was replaced by Ludwig Erhard in October 1963. With its self-respect renewed and its economy flourishing, West Germany became more assertive. Among the worries that this occasioned were the possibility of unilateral moves to close the gap with Eastern Germany and fears that it might want to follow in the path of Britain and France and develop its own nuclear capability. To counter the latter danger, and also bring French and British nuclear weapons under US control, Washington proposed a NATO Multilateral Nuclear Force. As Johnson explained to the British Prime Minister, Harold Wilson, in December 1964, this would ‘keep the Germans with us and keep their hand off the trigger.’85 In the end the idea fizzled out, as neither the French nor the British were prepared to give up control over their national deterrents, and the possibility that the Germans might demand a nuclear capability of their own never materialised. The other problem, West German desire to close the gap with East Germany with an eye to eventual reunification, was much more substantial. In any circumstances, the position of West Germany in the Cold War confrontation was of vital importance, because of its geographical position, its economy, and potential military power. But the circumstances in the early 1960s were not just any circumstances. The integrity of the Western Alliance was under pressure—the Campaign for Nuclear Disarmament, America’s growing preoccupation and involvement in Vietnam, and French unilateralism (culminating in the announcement of the French withdrawal from NATO’s military structure in March 1966, and de Gaulle’s independent overture of friendship to the Kremlin three months later) all threatened it—and the USA did not want cohesion further undermined by West German overtures to the Soviets for a rapprochement in order to improve relations with East Germany. Washington realised that it could not quash West Germany’s legitimate aspirations for closer links with East Germany: it was a matter of keeping them under control. Bridge-building was seen as a means of meeting West German aspirations and keeping them in line. The Johnson Administration’s main contribution to the development of the embargo policy was to emphasise the role that trade could play in breaking down barriers between East and West Europe, and how those barriers might be bargained away for concessions that would enhance the chances of success for détente.86 A third factor which explains Johnson’s pursuit of liberalising trade was the very fact that the Kennedy Administration had finally come out in favour of relaxing the embargo and that some momentum had developed, in particular for cultivating trade relations with Eastern Europe. He relied much on his foreign policy advisers for, by all accounts, he had

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little knowledge of foreign affairs. One scholar describes his appreciation of foreign affairs as ‘shallow, circumstantial, and dominated by the personalities of heads of state he had met.’ Johnson fully and uncritically shared the assumptions, axioms, dogmas, and doctrines that composed the American Cold War mindset.’87 But, by October 1963 that mindset believed that the initiative in the Cold War could be retaken, at least partially, via a flexible-response economic defence policy. He may have refused to take Bundy’s counsel in May, but after the election, as the weight of opinion grew, Johnson swung behind the idea of relaxing trade controls. In late November the Task Force on Foreign Economic Policy88 was referred to him by McGeorge Bundy. Members of the Task Force included Robert Roosa, Under Secretary of the Treasury for Monetary Affairs, Philip Trezise, Deputy Assistant Secretary of State for Economic Affairs, and Francis Bator, Deputy Special Assistant to the President, who was an influential White House insider. The Task Force’s brief was wide, and, while its most dramatic proposals concerned foreign aid, the President’s advisers suggested that he should give attention to the section on East-West trade as well. The Task Force found that ‘experience has shown that we, and even the west as a whole, have little capacity to affect the viability of communist countries by denying trade’, and unified western action had been difficult to achieve except in crises.89 In the light of these considerations and more optimistic assessments of the likely volume of US trade with Eastern Europe and the Soviet Union—possibly $500–700 million by 1970—the Task Force recommended three positive steps. Trade should be actively encouraged; the government should offer export credit guarantees; and an East-West trade act should be passed to give the President power to negotiate trade agreements whenever he found them to be in ‘the public interest’.90 Encouraged by this, Johnson reaffirmed the commitment to bridge-building. In his 4 January 1965 State of the Union Message he said: ‘In Eastern Europe restless nations are slowly beginning to assert their identity. Your Government, assisted by leaders in labor and business, is exploring ways to increase peaceful trade with these countries and the Soviet Union.’91 In February Johnson announced that he would appoint a Special Committee on US Trade and Relations with Eastern European Countries and the Soviet Union. This became known as the Miller Committee after its chairman, J.Irwin Miller of the Cummins Engine Company.

The Miller Committee In retrospect it is tempting to dismiss the Miller Committee as little more than a consensus-building operation. However, that would undervalue the importance of achieving a consensus in this fraught area of policy-making and overlook an important result of the committee’s work. Although the Johnson Administration never achieved the substantial changes that were recommended, because of congressional opposition, the underlying goal proposed by the committee of making US trade policy more flexible was not lost completely. Executive action did moderate existing policy. More importantly, something approaching a consensus on a number of previously highly contentious issues can be detected in the papers, reports and discussions that the Miller Committee

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occasioned. This consensus had several components. There was a broad acceptance that US embargo policy was ineffective both in retarding the Soviets’ military capabilities and in slowing down its economic growth. It was agreed that Soviet trade policy with the LDCs and the industrialised West had not produced major political pay-offs, and certainly not ones that could have been prevented by the embargo policy. Also, trade had not given the Soviets significant political leverage except in one or two cases.92 There was little evidence of Soviet malpractice in terms of abusing the market, except over patents and copyrights, and hence expanding trade could help improve relations and ease tensions. The USA could not create a united front on a Western embargo beyond a strict military end-use criteria, which made a nonsense of embargoing items that Western Europe and Japan freely exported to communist states. Most significantly of all, East European countries should be targeted for trade expansion through a flexible-response strategy in order to encourage their disengagement from the Soviet Union.93 The core position of the CIA, the State and Defense departments was that the USA was no longer reaping relative gains from its embargo policy. It was thus nonsense to pursue it as presently constituted. The CIA thought: ‘Freer industrial trade with the West might have reduced the costs and perhaps improved the effectiveness of some of these [Soviet military] systems, but the fact remains that the USSR now has an established, effective base for the development and production of such systems…a base relatively independent of the type of Western technology which could have been acquired through trade with the West.’94 Ironically, given its consistent preference for expanding trade, the State Department Bureau of Intelligence appeared to be more cautious than the CIA, at least in a report of June 1964 that saw Soviet aims as pernicious and felt that, while implementation of its political trade policies was inept and largely ineffective, the ‘bloc’s aid program has had a role in inducing neutralist sentiments and policies’.95 Nevertheless, the impotence of present US policy, the loss of relative advantage from it, and prospective pay-offs from expanding trade still meant that senior State Department officials clung to their determination to relax the embargo. The State Department did not believe that US trade would help Soviet potential for aggression. The embargo could not stop Soviet infiltration into LDCs. It could not prevent the Soviets from off-loading surplus weapons onto the Third World. And the USA did not have the wherewithal to stop Soviet trade with the LDCs. The alternative to the present embargo was to open up trade, which could yield $300–400 million with the Soviets and $600 million with Eastern Europe by 1970. ‘The advantage does not, however, relate only or even primarily to the achievement of any higher level of United States exports. From the policy standpoint, the important consideration is that the amount of the trade, whatever it is, be substantial enough to make it available as a tool of United States foreign policy in advancement of United States objectives towards the Communist countries.’96 The USA should not expect to accomplish a basic change in Soviet policy or cause the East European states to sever their links with the Soviet Union, but a relaxation of the embargo and a flexible-response trade strategy ‘represents a good and effective instrument to advance United States interests’.97 George Kennan caught the mood that pervaded much of the Miller Committee deliberations. ‘The significance of these export controls…has probably lain more in the

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subjective satisfaction they have afforded to American opinion than in such objective effect as they may have had.’ He believed that ‘the overriding values here involved are political rather than economic’. A policy designed to throttle trade between East and West would not succeed and would increase the ‘autarkic tendencies within the bloc as a whole…and slow down, to a minor and undecisive extent, the advance of the Soviet economy’. To tighten controls would ‘run directly counter to the development of a healthy political and economic polycentrism within the bloc’, but, because of continuing differences over embargo policy within the USA, ‘a major relaxation of our export controls…has to be regarded as…unfeasible’.98 With Rusk in favour of a more flexible trade policy, with McNamara of a similar mind and convinced that ‘Past restrictions on trade with the Soviet Union have been unrealistic’,99 and finally with the new Secretary of Commerce John Connor (who succeeded Hodges in January 1965) not interested in playing the denial game that his predecessors had, it was not surprising that a form of consensus emerged in the Miller Committee. The lonely dissentient on the committee was Nathaniel Goldfinger; otherwise it was unanimous that the embargo should be relaxed, though not unilaterally and not wholesale. Instead, there should be a flexible strategy that responded to political circumstances and the conditions of each Eastern bloc country. The committee wanted to encourage the independence of the East European countries and promote concerns with standards of living throughout the Bloc as a means of moving towards a more stable and peaceful world. With rhetoric reminiscent of Kennedy’s inaugural address it declared: ‘In sum, trade with the European Communist countries is politics in the broadest sense—holding open the possibility of careful negotiation, firm bargaining, and constructive competition. In this intimate engagement men and nations will in time be altered by the engagement itself. We do not fear this. We welcome it. We believe we are more nearly right than they about how to achieve the welfare of nations in this century. If we do our part, time and change will work for us not against us.’100 Controls on strategic items would remain. Although they were not carefully defined, the understanding was that they were of the military kind accepted by COCOM. But, decisions to release or withhold non-strategic items for trade should be placed under the discretionary power of the President. In particular, he should be granted legislative authority to extend MFN status where he deemed it to be in the national interest. Restrictions on trade were not to be removed wholesale: they were to be relaxed in vigorous trade negotiations, and broader political quid pro quos were also to be sought where possible. The Soviet bloc should be urged to adopt a free-market code of conduct, and the American public needed to be educated into supporting the expansion of EastWest trade. Long-term commitments should not to be made, so that trade restrictions could be relaxed and tightened as the overall Cold War situation demanded. Trade should not be subsidised, and credits were to be kept to a five-year limit. All this would result in a flexible process of hard bargaining in which the USA could gain advantages and avoid some of the problems that the previous embargo policy had caused. The President approved and published the recommendations. Consensus within the Administration had been achieved, though McGeorge Bundy and (especially) Rusk were sceptical of the wisdom and likelihood of extracting significant political quid pro quos from the Soviet bloc. Nevertheless, a hard-nosed flexible-response strategy was to be

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pursued. The USA would move forward, prepared to relax trade restrictions where it decided that there were good grounds—either commercial, political or both—for doing so.101 All that remained was implementation, including getting legislative authority from the Congress.

The Kennedy/Johnson era—the results of flexible thinking Like Kennedy, Johnson had a list of political and legislative priorities, and in 1965 an East-West Trade bill did not come at the top. In 1965 the Miller Report was widely circulated in Congress, and the education of the public on this issue continued, but Johnson did not want to further overload his current legislative agenda. Action on an East-West Trade bill was postponed until 1966: this was a fatal delay. By the spring of 1966 Senator Fulbright was holding televised hearings on the war in Vietnam. From the Bay of Tonkin Resolution in August 1964, when the Congress gave the President authority to take whatever measures he deemed appropriate to protect American lives and deter further aggression in Vietnam, Johnson had been drawn ineluctably into a pattern of escalation. In February 1965 he mounted a bombing campaign code-named Rolling Thunder. The following month he committed the first combat ground troops to safeguard US air bases. But guarding the guardians of South Vietnam was an ever-expanding role. General Westmoreland, the US commander in Vietnam, was soon requesting 150,000 more troops. It became clear that this was not a support operation any longer: this was an American war in all but legal language. In these circumstances, when GIs were fighting communists in South East Asia, the White House recognised that a bill to relax East-West trade would not succeed. During March, April and May 1966 there was extensive debate about whether or not to send a bill to the Congress. Johnson had committed himself to a bill in the State of the Union Message, and there had to be some substance to bridge-building, otherwise Eastern Europe would see it as simply empty rhetoric. Also, all key figures in the government except Secretary of the Treasury Fowler favoured such a bill (though with varying degrees of enthusiasm, ranging from Secretary of Agriculture Orville Freeman up to Rusk). So something visible had to be done. Johnson’s closest domestic aide Joe Califano advised the President to send a bill via the State Department, so as not to put his ‘personal prestige too much on the line’.102 Johnson agreed with this, then had second thoughts, only to return in the end to the idea of Rusk sending the bill up to the Hill. It went on 11 May.103 But the bill did not progress, and the following year the President decided not to resubmit, as the circumstances in the Congress were clearly inauspicious. The Vietnam War closed the window of opportunity for East-West trade that the consensus within the Administration had created. On 14 April 1968 ‘Secretary Rusk expressed regret that so many of our policy tools had been withheld by the Congress. In particular it is a pity the East-West Trade bill was not passed earlier. A drive to pass the East-West Trade bill now might be a mistake.’104 The Congress blocked any hope for broader powers and more discretion to develop a flexible-response trade strategy, but the process of trying to educate public opinion and use what flexibility already existed continued. Between 1964 and 1968 executive actions

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removed over 700 items from export licensing controls; the most dramatic move came in October 1966, when Johnson announced that over 400 items were to be taken off the licensing list. Restrictions on the export of computers were eased; machine tools were exported in connection with the construction of the Fiat-Vaz automobile factory in the Soviet Union; and Eximbank credit guarantees were extended to Poland, Hungary, Bulgaria and Czechoslovakia. In early June 1966 the old Cold War warrior Dean Acheson was invited to prepare a paper on how to improve relations within NATO in the light of crises over finances and the French withdrawal from the military structure. He recommended among other things a ‘better environment for a step-by-step approach to ending the division of Europe’. The result was NSAM 352, 8 July 1966, advocating more peaceful co-operation with Eastern Europe.105 Developments in the spring of 1968 had ambiguous impact on the issue of East-West trade. On the one hand, the Tet Offensive, while a military disaster for the Vietcong and Vietminh forces, was a tremendous political victory. For the Americans it snatched defeat from the jaws of military victory—to paraphrase General Westmoreland. That reinforced the coalition against relaxing trade controls. On 13 March 1968 Johnson signed into law the Eximbank Act, which prohibited the extension of export credit guarantees to those countries that ‘continue to aid Vietnam’.106 On the other hand, Czechoslovakia’s move to liberalise its economy and its overtures to the World Bank and the IMF prompted liberal Democrat Senator Walter Mondale to propose that the President be directed to conduct trade negotiations with Czechoslovakia and offer MFN.107 The other factor that was now so pressing was European desire for more trade with the Soviet bloc. In April 1968 a position paper on US thinking on the COCOM annual review, observed: The US believes that the USSR and the Warsaw Pact countries of Eastern Europe continue to constitute a potential threat to the security of COCOM participating countries and that continuation of COCOM controls on exports to this area is therefore justified. However, the growing self-sufficiency of some of these countries may permit relaxation on some items. On the other hand, the significance of imports as a factor contributing to Communist China’s advanced weapons programs warrants giving priority attention to strengthening COCOM controls. In view of Sino-Soviet differences, the risk of transhipment from the USSR and Eastern Europe to East Asia is less than it was a few years ago. If other participating countries agree with this rationale COCOM might wish to provide for more liberal treatment for certain items to Eastern Europe and the USSR than to East Asia.108 In August the uncertainty about whether or not to liberalise further was resolved when the Soviets, along with Polish, Hungarian, East German and Bulgarian soldiers, invaded Czechoslovakia and removed the liberal leader Alexander Dubcek. The Cold War was renewed. NATO was saved from internal bickering. The East-West Trade bill was abandoned. But, the European inclination for more trade abided. Shortly before Johnson left office, a State Department memorandum noted this and the European suspicions that some US embargo demands were directed just as much at preserving US commercial advantages as at restricting the power of the Soviets. ‘The Europeans attach [to East-West

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trade] the highest priority not only to export and balance of payments considerations, but also to building strong computer industries, and both General de Gaulle and Prime Minister Wilson have shown tremendous sensitivity to United States dominance here.’109 From 1961 to 1969 thinking about the strategic embargo changed greatly. Fungibility, relative strategic gain and agonising over what was and was not a strategic good faded into the background as Americans acknowledged that the embargo had little effect on either Soviet military or economic capabilities. The achievements of the Kennedy Administration were to establish the pre-eminent importance of the psychological aspect of the embargo, and to emphasise flexibility in East-West trade policy, which could be used to gain advantage in the Cold War through a hard-nosed process of bargaining. That process would also construct a dialogue and a means of interchange, around which better relations would develop. During Kennedy’s time in office that dialogue did not happen, because of both public and congressional opinion and a series of political difficulties that the Administration had to deal with inside the Washington bureaucracy. Then, just as Kennedy appeared to be getting some momentum for change under way, he was assassinated. Johnson inherited that momentum, but also the problem of Vietnam and growing disarray in the Western Alliance. As the Johnson Administration tussled with its alliance problems in Europe, especially the fear of West German overtures to the East, and as it genuinely sought to improve relations with the East and ease Eastern European states away from their Soviet orbit, the idea of increased East-West trade grew in importance. This shift of focus to bridge-building in Europe, the creation of a Washington consensus that East-West trade should be expanded, and the public as well as private emphasis on the potential to draw the East European countries towards the West and away from the Soviet bloc—these were the real achievements of the Johnson years. In addition, but not publicly stated, there was the aim of pre-empting unilateral West German initiatives to draw closer to the Eastern bloc, because they could have altered the disposition of power in the Cold War and disrupted NATO.110 While both the Kennedy and Johnson Administrations achieved substantial changes in official thinking about the embargo and crafted new tactics and strategies, actual changes to the embargo were very limited. The Vietnam War permeated all. Johnson, the domestic politician par excellence, was sucked into a foreign-policy vortex of which he had inadequate understanding and about which he accepted the then current Cold War axioms and panaceas of falling dominoes, nation-building, economic take-off, and the efficacy of counterinsur-gency warfare. In the end, Johnson got it all horribly wrong, and, furthermore, the great consensus-builder in domestic politics could not reconcile fighting communists in South East Asia and building bridges of friendship and commerce to them in Eastern Europe, especially after the overthrow of Dubcek. Vietnam and the Czech invasion prevented any dramatic growth of US trade with the East. Although flexibility of thinking triumphed in producing a broad-based consensus that US trade should be expanded and in adopting, in principle, the notion of more active bargaining strategies, a recalcitrant Congress placed limits on the deployment of a flexible economic defence strategy. The heating up of the Cold War in 1968 and the intractable problem posed by the hot war in Vietnam damaged the shoots of détente and suggested that there might even be a

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return to a stricter embargo policy. It was left to President Nixon and Henry Kissinger to rise to these challenges.

8 Economics becomes high politics Constructing the base and building up détente, 1969–74 The Soviet Union will always act in its own interests; and so will the United States. Detente cannot change that. All we can hope from détente is that it will mini-mize confrontation in marginal areas and provide, at least, alternative possibilities in the major ones. Richard Nixon1

However fashionable it is to ridicule the terms ‘credibility’ or ‘prestige’, they are not empty phrases; other nations can gear their actions to ours only if they can count on our steadiness. Henry A.Kissinger2

For over a decade successive US administrations tussled with economic defence policy. They tried to develop a strategy and justification for it that had more connection with contemporary reality than the strategic embargo’s original rationale of damaging communist states, restricting their development of high-technology weaponry and slowing down their economic growth. Gradually, during the 1960s, a new strategy took shape, at least in theory. It subsumed some of the old dispensation, but also introduced radical changes. This new formulation of economic statecraft for dealing with communist states involved five main characteristics: a gradual liberalisation of trade; tactical bargaining for various kinds of political and economic benefits; the retention of the capability to convey messages and moral opprobrium in response to communist misbehaviour; a determination to keep the highest forms of military and dual-purpose technology out of communist hands; and a deep concern that economic controls should not be reduced in such a way that they incurred heavy psychological costs for the West. However, because of public and congressional opinion, and the problems thrown up by the Vietnam War, it was not possible to implement these new ideas in any substantial way in the 1950s and 1960s. For Eisenhower and Rostow, and other key decision-makers during this period of unconsummated change, the fear of sending out the wrong psychological message, if the USA were drastically to liberalise trade with the communists, also held things back. Initially, it looked as if Nixon would repeat the history of his three predecessors. In many respects the two architects of policy, the President and his National Security

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Adviser, Henry Kissinger, were more, not less, obsessed than they had been with the vital importance of credibility and prestige. And those factors depended upon nurturing the right state of mind among people in the USA as well as in allied, unfriendly, and hostile regimes. The psychology of perception was seemingly of paramount importance for the success of US Cold War diplomacy, and hence for the well-being of the West as a whole. On 15 April 1969 a US Navy EC-121 reconnaissance plane was shot down by North Korea. Nixon, as he later saw it, succumbed to the counsel of his advisers and decided on a diplomatic response. His comments about this in his memoirs reveal the homage he paid to the importance of psychological perceptions. ‘After the EC-121 was shot down I knew that we should have moved in and bombed North Korea. When we didn’t, everybody figured we were pushovers, and we’ve been paying for that ever since.’3 The astonishing and paradoxical thing for US economic statecraft was that Nixon and Kissinger managed to break free from the psychological constraints in the economic realm that had so stringently limited the policy options of their predecessors. They engineered an expansion of trade and commercial relations. This culminated in the gradual easing of trade restrictions on the PRC, and the signing of a comprehensive USSoviet trade treaty on 18 October 1972. Between 1970 and 1973, US-PRC trade rose from $5 million to $900 million a year, and between 1971 and 1974 the USA signed a series of major industrial contracts with the Soviets, for plants to make fertiliser, ammonia, trucks, processed iron and ball-bearings, amounting to just under $1.1 billion. At the same time it sold them over $1 billion worth of grain. After signing the trade agreement, the US Commerce Department’s unilateral list of controls fell from 550 to 73 in a matter of months.4 Western trade grew so rapidly during the 1970s that COCOM could not keep up with the changes and came to rely more and more on granting exemptions from the embargo lists. In 1962 the USA had requested two exemptions. In 1978 the figure was 1,050, which was well over 60 per cent of total requests. As a percentage of the twelve leading Western nations’ trade with the Soviet Union, that of the US rose from 3.5 per cent in 1970 to 9.8 per cent in 1975.5 No longer was the USA held back by worries about the psychological impact that relaxing trade controls might have on its allies and on the communists. How this came about, the impacts it had in turn upon the USA domestic political constituency, allied and communist states, and the way those impacts fed back into the policy-making process are the main issues to be addressed in this chapter. The foreign policy of Nixon and Kissinger is unique in a number of ways, and nowhere more so than in economic statecraft, at least compared to what normally went on during the Cold War. However, in some respects, this statecraft may be seen as a precursor of post-Cold War developments. In particular, it anticipated the later emergence of major intermestic issues: that is to say, issues that could not be categorised as falling into either the domestic or international arenas, but overlapped them. During the Cold War, strategic priorities generally overrode economic considerations, and, in any case, the nature of US economic defence policy until 1972 meant that there was not much economic intercourse with communist states to challenge policy-makers, or to arouse specific domestic US economic constituencies. After the Cold War, economic priorities were dramatically elevated, and were symbolically recognised as important and effectively addressed when President Clinton created the National Economic Council on 25 January 1993 as a

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counterpart to the NSC. Things never went that far under Nixon, but the conscious development of what was termed ‘linkage’—connecting different areas of diplomacy in order to maximise US leverage and benefit—not only helped to elevate economic issues to high politics, it also, by doing so, drew domestic economic constituencies further into foreign policy-making. This, in turn, meant that juggling with different interest groups in Congress became more complicated for the Administration. Ultimately these developments increased the Administration’s vulnerability to pressure from Congress, as forces there played on the new intermestic agenda in order both to attack détente and promote their own domestic political ambitions. From 1945 to 1972 public and congressional opinion had always to be taken into account in the development of US economic defence policy, but more as a brake on, rather than a propellant of, policy.6 This was particularly so in the mid-1960s, when fear of public and congressional backlash inhibited Johnson from realising his hopes for EastWest trade liberalisation. For a period in the early 1970s the situation changed, and domestic politics came to play a more positive role in setting the foreign-policy agenda and in liberalising East-West trade. But this did not last long. Soon powerful domestic forces turned against the foreign policy of Nixon and Kissinger and undermined détente. Ironically, after its collapse, US foreign affairs then returned to a modus operandi that again downgraded economics and domestic politics in importance, relative to strategic and defence concerns, and so diminished the very thing that had temporarily empowered domestic pressure groups in foreign policy. The domestic forces that attacked détente in the USA were, however, by no means the only reasons for its fall. Nixon’s hope of bringing more stability to the strategic periphery by relaxing tensions in the balance of world power was not realised. In fact, the hope for stability on the periphery was actually destroyed by other features that were an integral part of US détente policy.7 Under Nixon, official US thinking about the US strategic embargo, and more generally about economic statecraft towards communist states, harmonised with practice more closely than under the two previous Administrations. A temporary consequence of this was that the strategic embargo and economic statecraft in general became central elements in the game of East-West international diplomacy. Economics became high politics. However, before looking at the details it is important to develop two important perspectives. First of all, both changes in the international system, and the overall contours of the way US foreign policy responded to them, need to be examined. An outline of Nixon and Kissinger’s grand strategy, which led to the development of détente, needs to be drawn to see how and why economic relations became so important, and an integrated part of the high politics of US relations with communist states. Secondly, the reasons why Nixon and Kissinger developed détente as grand strategy have been subject to various interpretations and, while the purpose of this chapter is not to analyse détente per se, it is important to understand the character of their thinking to appreciate what they intended to do, through détente, with strategies of economic statecraft.

Tectonic shifts in the world order and US grand strategy In the late 1960s the structure of international relations was shuddering from numerous

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tectonic shifts. Many of the tremors fed off and exacerbated each other. In traditional strategic terms the most significant changes were the relative decline of US military power vis-à-vis the Soviet Union, which was approaching nuclear parity, and the opportunities presented to the USA because of the Sino-Soviet split. This was most dramatically illustrated by serious border clashes during 1969, which were not brought under control until Soviet Prime Minister Alexei Kosygin’s talks with Chou En-lai in Beijing in September. Well before that, the Chinese had begun to reassess their world position. One indicator of Mao Tse-tung’s desire for a change in relations with the USA was signalled by his order that Nixon’s January inaugural address should be published in the PRC. An even more significant development came on 11 July 1969, when four Chinese marshals stated: ‘The Soviet revisionists have made China their main enemy, imposing a more serious threat to our security than the US imperialists.’8 It was this kind of reasoning—replicated in Washington, in the sense that the Americans saw the Soviets as a greater threat than the communist Chinese—that opened up so many possibilities for the restructuring of the architecture of Cold War relations. The loss of military superiority over the Soviet Union forced the Nixon Administration to reconsider not only its military strategy, but also its overall relations with Moscow. US thinking was much influenced by the Sino-Soviet split, ructions within the Soviet bloc (such as the 1968 invasion of Czechoslovakia by Warsaw Pact forces), and tensions within the Western camp. During the 1960s the West became ill at ease with itself: the French withdrew from the military structure of NATO in 1966, and there was widespread criticism of US Vietnam policy, and a general weakening of alliance ties. Such developments in both Eastern and Western camps enabled, or maybe obliged, the Americans to dilute the ideological content of their foreign policy analysis—communism and liberal capitalism could no longer be characterised as mono-lithic forces—and return to more traditional images of balance of power. This necessarily involved negotiations with the Soviets in the course of the shift from a US posture of strategic superiority to what Nixon called ‘sufficiency’. It also meant playing the China card in order to bring the Chinese into the power equation in a way that would benefit the USA. To negotiate, however, did not automatically entail reviewing the role of economic relations between the USA and communist states. Other things determined that. Five factors pushed economic issues to the forefront of US relations with communist states, and most of them were seen in a different light to the way they had been viewed since the end of the Second World War. The first factor was a consequence of US relative economic decline. In 1945 the USA had about 40 per cent of the entire world’s wealth and throughout the 1950s and 1960s was able to devote 9–10 per cent of its GNP to defence expenditure without suffering any noticeable pain.9 At the end of the war it had also emerged as the main architect of a new economic world order, which it intended to manage firstly through the IMF, which sought stable and convertible monetary exchange rates, and secondly through the GATT, which was to promote liberalisation of trade in manufactured goods. World-wide economic disruption, the recalcitrance of Western partners, and the priorities of the Cold War delayed the implementation of this new economic order, but by 1958 the free world was able both to adopt the convertibility of currencies according to the Bretton Woods IMF system and to embark upon the Dillon Round of negotiations, 1960–2. The latter

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inaugurated a new series of tariff reductions that was subsequently carried forward in, successively, the Kennedy, Tokyo and Uruguay GATT Rounds. However, this rebirth of liberal economic multilateralism coincided with the emergence of serious economic difficulties in the USA. Its long period of vast expenditure on overseas defence and aid programmes and the emergence of efficient competitor economies in West Germany and Japan all began to tell. Also, the creation of the European Economic Community (EEC) in 195710 and, more specifically, its intention to create a Common Agricultural Policy (CAP), which threatened to stop the continuation of vast US agricultural sales to Europe, worried leaders in Washington and in the US farming community. Throughout the 1950s the USA had a balance of payments deficit, though its trade balance was always in healthy, if steadily declining, surplus. By 1960, foreign held-dollars exceeded US gold reserves, and this led to a loss of confidence and heavy selling, which turned into a run on the dollar. These developments deeply disturbed President Kennedy, but he was able to bring only inadequate remedies to bear on the malaise. Throughout the Kennedy and Johnson years, the US economy continued its tendency to over-stretch. Commitments exceeded resources. Johnson’s escalation of the Vietnam War and his costly Great Society domestic reforms exacerbated the structural problems already evident at the start of the decade. In 1971 the USA ran a trade deficit for the first time in the twentieth century; inflation and unemployment were high, at 3.8 per cent and 6.1 per cent respectively (tame by the standards of the late 1970s and the 1980s, but nevertheless deeply disturbing at the time); and the USA could no longer sustain the Bretton Woods system. As in the strategic field, circumstances had changed radically, and President Nixon and his Treasury Secretary, John Connally, determined on a dramatic adjustment of US economic policy. On 15 August 1971 the President announced a domestic wages and prices freeze, imposed a 10 per cent import surcharge, and disengaged the dollar from gold. Soon it was allowed to float on the foreign exchange market to find its own level of value.11 This was the new economic policy. Nixon had begun to confront the USA’s economic shortcomings, but his remedies fell short of solving them: they were bromides to ease the pain. The harsh fact was that there was nothing available to replace the old Keynesian dispensation. Instead the USA had embarked upon a most turbulent sea of troubles with the economic ship of state righted, but its navigational equipment needing drastic repair. All that was forthcoming over the following years was a series of ad hoc remedies and policies, which, among other things, included attempts to reap the benefits of expanding trade with communist countries. The second factor, which highlighted the importance of economic issues, was the drive for détente in Western Europe. In the 1950s Western allies, and particularly Britain, had pushed the USA into more liberalisation of East-West trade than, left to itself, it would have been willing to accept. By the early 1960s the gap between US and European export policies was getting even wider. In April 1963 the British Foreign Secretary, Sir Alec Douglas Home, was briefed: ‘Our stated policy is an expansion of trade subject to the embargo [COCOM] list, no excessive dependence on Soviet supplies and no dumping. With these qualifications, we see both political and commercial advantage in expansion.’12 Later that same year the British President of the Board of Trade was advised that ‘détente helps the prospects of evolution within the bloc and provides more fruitful ground for the West to increase its contacts and so further the process’.13 This

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kind of attitude put clear water between Europe and the USA. The consequences for trade were immense. In 1965 the USA exported $139 million of goods to communist states while Western Europe exported over $4 billion worth.14 When British leadership of the ameliorist approach to trade with the Soviets was relinquished to the West Germans under Willy Brandt in 1969, there was an even more dramatic shift in policy. ‘Brandt argued that East-West trade should not be linked to political negotiations; he considered trade a way to leaven the Soviet system.’15 The West German Chancellor’s Ostpolitik, a policy that sought détente with the Eastern bloc, and thus closer relations with East Germany, threatened to create a serious gulf between the USA and Western Europe unless the Americans followed in Brandt’s wake. As Richard Crockatt has pointed out, Brandt’s European version of détente was very different to that developed in the USA by Nixon and Kissinger. European détente differed in fundamental respects from superpower détente in that it was concerned in large part with territorial and specific political disputes such as the status of Berlin. In effect European détente represented the conclusion of unfinished business left over from the Second World War. This gave European détente a clarity of focus which was not evident in US-Soviet détente, even in the field of nuclear arms.16 The most obvious consequences of Ostpolitik were three important bilateral treaties, involving West Germany and the USSR, Poland, and East Germany respectively, and the Quadripartite Agreement, 3 September 1971, between the USSR, the USA, France and Britain. These agreements ratified post-war borders, stabilised the situation of Berlin, and improved relations between East and West Germany. Brandt’s initiative also led, on 1 August 1975, to the signing of the Helsinki Accords and the establishment of the Conference on Security and Co-operation in Europe (CSCE). The former had important implications later for human rights in the Eastern bloc. No less important than these developments, however, was the general improvement in relations that Ostpolitik détente brought about between Eastern and Western Europe. At the centre of this was a massive expansion of trade. Initially, the USA was wary of Brandt’s Ostpolitik (Kissinger more so than Nixon), but, realising they were impotent to stop it, they opted for constructive engagement. The short fact was that if America was intransigent, we risked being isolated within the Alliance and pushing Europe towards neutralism. Similarly, within America we would be pummelled for our bellicosity, and hysteria over Vietnam would spread to other areas of policy. For all these reasons we came to the conclusion that we could best hold the Alliance together by accepting the principle of détente but establishing clear criteria to determine its course.17 Whether Washington determined its course is still debatable, but it is clear that European détente pushed the USA into following a similar policy pattern, which, among other things, involved liberalisation of trade. Furthermore, worries about de facto discrimination against US companies, denied economic opportunities open to America’s

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allies because of the more stringent US embargo policy, now became more forceful than ever. This was partly because of greater trade opportunities that were opening up and partly because, once some US companies began to trade in a substantial way in the Eastern bloc, that had a snowballing effect on their suppliers and on the desire of others to participate. The third factor that impelled economic matters to the forefront was the deliberate building of a consensus in favour of liberalising East-West trade within government by the Kennedy and Johnson Administrations. This gradually infected members of Congress, the business community and the general public in the USA. How far this had gone became clear in the first year of the Nixon Administration, when in December the Congress passed the Export Administration Act (EAA) 1969, to replace the Export Control Act.18 It was framed in more liberal terms than Nixon and Kissinger wanted, and for the first time in the Cold War the Congress led the Administration in promoting liberalisation of East-West trade. The very name of the new act was suggestive of its more liberal content, which indeed mandated the Secretary of Commerce to expand trade in non-military items. The Senate Banking Committee, reporting on export controls for the new act, noted that circumstances had changed since the ECA had been enacted, and that trying to control Soviet economic growth was now unviable. The Soviets could either make the goods, or freely acquire at least 1,100 of the 1,300 items on the unilateral US non-military list from other Western countries. This did not make any sense, and it badly disadvantaged US companies. Furthermore, while the USA could happily deny itself economic advantages on the margin during the 1950s and 1960s, its balance of trade deficit now made such self-denial unacceptable. The EAA operated under two benchmark judgments that: ‘the unwarranted restriction of exports from the United States has a serious effect on our balance of payments’, and that US export licensing policy had been so wayward that companies had been discouraged from opening new markets in the East because of uncertainties about what they could legally export.19 The clear intent of the act was to liberalise the embargo, and, importantly, it stipulated that no longer would economic significance on its own justify controls; this criterion, which had been introduced in 1962, was abandoned. Nevertheless, the President could still control trade in items in short supply domestically, or which had a military potential that would endanger the national security, or which were important for foreign-policy reasons. The President still had plenty of discretionary power to control exports tightly, if he so wished. For a time, he did so wish, and the response from Congress was to amend the EAA further in 1972, in order to try to push liberalisation along.20 Later the tone in Congress changed and caused problems for US economic statecraft in détente, but initially the favourable consensus that had been built up over the years in the Washington bureaucracy and in the Congress was another force that moved the USA to expand East-West trade. The fourth factor, recognised since the early 1960s, was to do with the communist ability to enter free-world export markets and to offer aid to developing countries. The USA felt that it had to develop a more purposeful strategy to deal with these developments. Finally, there were economic, as well as political, reasons in the Soviet Union that

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inclined key figures within the Politburo, most notably Prime Minister Kosygin, to favour expanding trade with the West. Military developments and economic difficulties within the Soviet Union, according to at least one eminent scholar, would have resulted in some form of détente and the development of economic links with the West, irrespective of who had been in the White House.21 A more recent study also identifies the economic attractions of the West, but adds some nuances: The promise of technology transfer to generate innovation at home was one of the factors pushing [Soviet President] Brezhnev towards détente with the United States. Although serious economic reform was not on the agenda of the regional Party leaders and national government officials who controlled the Central Committee, economic performance was a central concern.22 Détente and co-existence became both the government and party line at the 24th Party Conference in March–April 1971. As détente began to pay off for the Soviets, particularly in terms of West European trade, they became increasingly wary of endangering things. The fear of losing the progress made with West Germany was one of the reasons why the Soviets went ahead with the May 1972 summit in Moscow, despite the intense bombing of North Vietnam and the US mining of its harbours.23 By May 1973 trade had moved along so far and so fast that Brezhnev, talking about the growth of links with the West on West German television, repudiated economic autarky. Also, according to US intelligence, he was busy purging the Politburo of opponents of détente.24 So, not only were there dynamics within the USA and the free world that propelled the Americans towards a more liberal East-West trade policy, the Soviets and the Chinese were also inclined to be receptive. What the USA should perhaps have noted, however, was that Soviet détente with Western Europe developed a life of its own. If détente collapsed between the USA and the Soviet Union, it would not necessarily bring down the détente relationship in Europe. Furthermore, if this, the strongest web of EastWest interrelationships could survive, irrespective of what happened between the Soviet Union and the USA (short of open hostilities), then détente in US-Soviet relations could not exercise the kind of influence over Moscow that Nixon and Kissinger expected and hoped for. If pressed too far, the Soviets could opt to dismantle détente with the Americans, play an aggressive unilateral geopolitical game in the Third World, and still get most of the benefits of détente from Western Europe.25

Nixon, Kissinger and détente The strategic thinking of President Nixon and his National Security Adviser (NSA) Henry Kissinger (who, as of 22 September 1973, was also Secretary of State) largely determined how US foreign policy developed. Without doubt, they were its main architects because, to an extraordinary extent, they concentrated power in the White House—in the end this resulted in what Arthur Schlesinger jr. called the Imperial Presidency.26 Most of the time, Secretary William Rogers and his State Department were kept in the dark as Nixon and Kissinger hammered out policy, which Kissinger then executed through diplomatic ‘back-channels’. Even new agencies, created supposedly to

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co-ordinate and make policy-making more effective, languished unused. Such was largely the fate of the Council on International Economic Policy (CIEP), created by Presidential order on 18 January 1971, partly as a sop to State Department whingeing: it met only twice in its first sixteen months of life.27 The President and his NSA were able to work effectively together, though Nixon adhered more closely to the traditional balance of power than Kissinger. He was also more of a hard-liner: for example over the April 1969 EC-121 incident; over restricting East-West trade before the 1972 US-Soviet summit; and in terms of his willingness to sacrifice that summit if the Soviets refused to tolerate his harsh military retaliation against North Vietnam. Kissinger, a self-professed realist, did not depart radically from Nixon’s overall policy line, though he gave more emphasis to the beneficial effects of entangling the Soviets in an interrelated web of arrangements that would give them vested interests for modifying their behaviour. Both saw opportunities in opening relations with the PRC, though the academic consensus now sees this as largely Nixon’s initiative.28 Having said all this, there is still controversy over how best to explain the Nixon-Kissinger foreign policy, partly because of the passionate likes and dislikes that the two men generated, and partly because of partisan preferences for the diplomacy of one over the other.29 More dispassionate views, while recognising some differences of emphasis, see Nixon and Kissinger as being largely in harmony on policy. For Robert Litwak and Joan Hoff, the Nixon Doctrine, enunciated in its basic form on Guam, 25 July 1969, and later elaborated in Nixon’s foreign policy report to Congress on 25 February 1970, illustrates Nixon’s basic approach. The doctrine reasserted the USA’s willingness to uphold its existing obligations and to sustain the main Western nuclear deterrent. These commitments were no different from policy under Kennedy and Johnson. The departure from preceding policy was Nixon’s emphasis on the need for allies and countries under threat from communism to carry more of the burden of their own defence and to accept the primary responsibility for providing their own military manpower. This harked back to the Eisenhower New Look. According to Hoff, the Nixon Doctrine, along with détente, showed how Nixon recognised the multipolariry of the international situation and, in particular, that the key power groupings were the USA, the Soviet Union, the PRC, Japan and Western Europe. Within this understanding, the Nixon Doctrine ‘allowed the United States to begin to resolve the contradiction that had plagued its foreign policy throughout the Cold War: how to maintain regional commitments abroad while reducing direct military involvement in a pentagonal world.’30 Robert Litwak has a similar, if rather more sophisticated, interpretation. He believes that the main problem confronting the USA after 1969 was ‘the ongoing dilemma of reconciling continued (indeed revitalized) military bipolarity with the new conditions of global pluralism’.31 To address this, Kissinger talked of a ‘stable structure of peace’, and just before entering service at the White House wrote that ‘the world is bipolar militarily, multipolar politically, and fragmented economically’.32 Meanwhile Nixon in his inaugural spoke of entering a new era of negotiation. Both men wanted a more intimate accommodation with the Soviets for the simple but frightening reason that a nuclear war was no longer winnable. However, neither of them ever lost sight of the need to safeguard the USA against the threat of Soviet military parity by continuing to deter the Soviets, and by seeking more stability on

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the periphery to prevent a situation running out of control and escalating onto the superpower bilateral level. the twin strategies of détente and devolution were defined as being not only compatible, but symbiotic. To varying degrees each was to serve as the instrumentality of the other. Within this context, superpower détente (‘linkage’ policy, etc.) was regarded as a means of creating the stable regional conditions which would facilitate an orderly devolution of power to emerging ‘middle power’. Likewise, a superpower managed stability along the periphery would maintain the political atmosphere and the structure of trust upon which new functional agreements (e.g. SALT, grain sales, MFN trade status between the United States and the Soviet Union) could be based.33 It is questionable whether Nixon and Kissinger saw the symbiotic relationship as so direct and tight, but Litwak captures here an important characteristic of the NixonKissinger strategy as it took shape in 1971–2. Like Litwak and Hoff, Garthoff and Ambrose see no major rift (at least on the strategic rather than the personal level) between Nixon and Kissinger, but they do give more emphasis to the gradualist development of US strategy. Furthermore, they both claim that ‘the dominant foreign policy assumption of Nixon and Kissinger in 1969, and indeed for the entire period through 1972, was not détente…with Moscow, but finding an honourable exit from Vietnam. Improvement of relations with the Soviet Union, and a possible parallel rapprochement with China, were…seen as much as means to that end as they were ends in themselves.’34 The difference might seem small, but it is important. Garthoff and Ambrose see the Administration as gradually feeling their way towards a grand strategy that does eventually involve détente with the Soviet Union and some devolution of power, or at least responsibility, to regional allies. Détente, they claim, was not clearly visualised at the outset, and that claim gets further backing by the findings here about the development of economic defence policy. John Lewis Gaddis also gives a strong sense of Nixon and Kissinger gradually evolving policy from largely shared premises. Nixon might have associated himself more explicitly with the idea of a pentagonal balance of power—the USA, the Soviet Union, Western Europe, Japan, and China—than Kissinger ever did, but both sought…a strategy that would combine the tactical flexibility of the KennedyJohnson system with the structure and coherence of Eisenhower’s, while avoiding the short-sighted fixations that had led to Vietnam or the equally shortsighted rigidities of a John Foster Dulles.35 And they both had an acute sense of the opportunities for creative diplomacy in the current world situation, of the limitations of US power, and that US diplomacy had to be truly global. In his memoirs Kissinger approvingly quotes from Nixon’s letter to Secretary of State Rogers, CIA Director Helms and Defence Secretary Laird of 4 February 1969: ‘I do believe that crisis or confrontation in one place and real cooperation in another cannot be long sustained simultane-ously.’36 Although the following two quotations were written well after the events in question, they nevertheless illustrate

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the similar understanding of détente held by Nixon and Kissinger. Writing of the May 1972 summit Nixon said: This was the first stage of détente: to involve Soviet interests in ways that would increase their stake in international stability and the status quo. There was no thought that such commercial, technical, and scientific relationships could by themselves prevent confrontation or wars, but at least they would have to be counted in a balance sheet of gains and losses whenever the Soviets were tempted to indulge in international adventurism.37 For his part, Kissinger explained: ‘The idea was to emphasise those areas in which cooperation was possible, and to use that cooperation as leverage to modify Soviet behaviour in areas in which the two countries were at logger-heads.’38 Both men understood the power and the impotence that nuclear weapons had delivered to the superpowers. They were aware of the relative decline of the USA and knew that they must extricate the USA from Vietnam to prevent the war from further draining US resources and, more importantly, from debilitating the political will to exercise international leadership from Washington. Interests, assessed more objectively and without the colouring of ideology, had to be central to the rethinking of US foreign policy. Interests would now define commitments, and not vice versa. As Kissinger put it, the aim was to ‘free our foreign policy from oscillations between over-extension and isolation and to ground it in a firm conception of the national interest.’39 Power had to be reconceptualised in a pluralistic fashion. The old concept of power over others had to be replaced by power over outcomes, because nuclear weapons so often negated the force of ideas about power over others.40 In the new foreign policy, the use of power would be subtle. The carrot of political and economic divi-dends and strategic restraint would be offered in return for helpful Soviet and Chinese behaviour. The stick of force against their acolytes and the threat of force against the Soviet Union and China would be used whenever US vital interests were in jeopardy. Clear messages of resolve would continue to be sent. In this sense, Nixon and Kissinger did not depart from previous practice with their ‘tactical escalation and strategic retreat’ in Vietnam and a threatening strategic posture towards the Soviets in the 1973 Yom Kippur War.41 And all the while it was hoped that détente would stabilise relations both between the superpowers and on the periphery, as the Soviets modified their behaviour there in order to retain the benefits that flowed from the central structure of détente. It was this type of thinking that liberated economic defence policy from the psychological constraints that had so limited the freedom of action of previous administrations. In the end détente did not work, or at least not for long. Kissinger blamed Watergate and the weakening of Presidential leadership, thus brushing aside allegations that the policy, and his development of it, was fatally flawed.42 Nixon was more circumspect. He acknowledged the difficulties caused by Watergate, but pointed to other factors, such as the growing unease among the military on both sides, and the domestic US opposition to détente, which would have had impact irrespective of whether or not Watergate happened.43 Like Kissinger’s account, this, too, acts as an apologia, dismissing the self-

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inflicted wound of Watergate and hence his crumbling authority, as less significant than other factors in the failure of détente. Not surprisingly the collapse of détente was a little more involved than either Nixon or Kissinger allow for in their memoirs. On the domestic front the Administration ran into serious difficulties on two counts. First, there was the linking of US credits and MFN status with demands for improvements in Soviet emigration policy. This was championed by a powerful faction in the US Congress, which ended up infuriating the Soviets and preventing the USA from fulfilling its commitments in the 1972 trade treaty.44 According to Garthoff, détente ‘foundered on domestic political considerations in the United States as much as on any other factor’.45 But, in addition to the MFN/emigration issue, there was also a broader problem to do with sustaining public support. ‘Congress and the American public can understand and support a policy which clearly discriminates friend from foe. They can accept a policy of non-intervention and reliance upon allies. But they can neither understand nor fully support a policy which switches back and forth; now balancing for one state and now for another.’46 In fact Nixon and Kissinger themselves found that the logical requirement of flexibility for détente was beyond their abilities to deliver, not only because of the lack of public support, but because of strategic imperatives they clung to concerning the importance of conveying to the Soviets their continuing resolve to defend Western interests. These problems become very evident when the focus shifts to the international front. Litwak lists three serious problems that led to the failure of détente.47 He claims that Nixon and Kissinger were over-optimistic about the use of carrots and sticks through linkage. On the economic front this was certainly the case, as the Soviets made effective use of reverse linkage to get what they wanted from the West. Secondly, the creation of a stable structure of peace required a dialogue on values and notions of legitimacy, but this was not possible with the world suffering from the Manichean divide between capitalism and communism. Kissinger appreciated the limits involved in détente and argued ferociously to separate Soviet international and domestic actions. He fulsomely condemned the idea of linking MFN and Soviet emigration policy. In his first book he had praised Metternich for his ability to create an international order, which was legitimate in the sense that the great powers of the nineteenth century accepted it, even though they differed about their domestic politics. They had the sense to separate order from justice, and thus kept the peace. However, in the democratic dispensation of the late twentieth century, and with the blurring of the distinction between domestic and foreign policy, Kissinger’s position was always going to run into severe difficulties.48 And, thirdly, Nixon and Kissinger grossly underestimated the importance of actors on the periphery. Both the Soviets and the Americans took to détente to stabilise superpower bilateral relations, ensure that hostilities did not break out through misunder-standings, and limit the spiralling costs of the arms race. But, as Coral Bell put it, ‘Détente should not be mistaken for peace.’49 At times one could be forgiven for thinking that Soviet and American leaders overlooked that caution, but at other times they clearly did not. Nixon and Kissinger both saw détente as another tool of geopolitics for managing the greatest challenge of contemporary times: the containment of Soviet power. And the Soviet leadership had an equally realist appreciation of what was going on. The fatal ambiguity,

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or paradox, of détente was to do with the periphery. Part of the achievement of the 1972 summit was the acceptance of twelve ‘basic principles of mutual relations between the United States and the USSR’, which among other things, recognised ‘the security interests of the parties based on the principle of equality and renunciation of the use of the threat of force’ and ‘that efforts to obtain unilateral advantages at the expense of others, directly or indirectly, are inconsistent with these objec-tives’.50 Washington hoped that this would bring stability and confirm the status quo. Moscow valued the principles for their recognition of Soviet equality with the USA, and it also saw them as creating more favourable conditions for national liberation movements. In the mid- and late 1970s much was made of Soviet breaches of the rules as they helped communist and radical regimes in Africa and later invaded Afghanistan, but the Americans also sought to advance their interests on the periphery whilst promoting détente. The Yom Kippur War exposed the contradictions of détente when the Soviets asked the Americans to join with them in sending forces into the Middle East to enforce a ceasefire between the Arabs and the Israelis; if the USA did not agree to this, the Soviet Union threatened to act unilaterally. This exposed some truths about American policy. Nixon and Kissinger were not prepared to treat the Soviets as equals in the Middle East. They plotted and manoeuvred to diminish and, if possible, expel Soviet influence from the region so as to gain unilateral advantage, both in the overall struggle with world communism and in the struggle to balance the military power of the Soviets. At this point the Americans decided that they had to send a strong message of resolve to deter the Soviets. Lebow and Stein have savagely criticised Kissinger for what followed, because they allege that the USA was obsessed with deterrence at the expense of diplomacy and that he misread the situation. The Americans told the Soviets that their proposed unilateral action was unacceptable, then put their forces on a world-wide DEFCON 3 alert and made sure that the Soviets were aware of this. Kissinger’s justification points to a problem, which is given insufficient weight by Lebow and Stein. Speaking of the Soviet declaration that they would send military forces unilaterally into the Middle East, Kissinger explained: I did not see it as a bluff, but it made no difference. We could not run the risk that they were not [bluffing]. If we remained passive in the face of the threat, the Soviet leadership would see no obstacle to turning it into reality. We had no choice except to call the bluff, if that was what it was, or face reality if it was serious.51 Kissinger believed that, even if it were a bluff initially, if the USA did not respond firmly then the bluff could turn into real policy simply because of the weak US response. Once again the paramount importance of sending the right messages to one’s opponents determined US actions. Whether one agrees or disagrees with what Kissinger did depends on guesses as to what the Soviets might or might not have done—not just in the Yom Kippur War crisis but also in future tense and confrontational situations—if the USA had not made a firm deterrent response. From this perspective, then, the judgement of Lebow and Stein seems to be based on an oversimplified view of both the dynamics and diplomatic complexities of the situation. It was also made with the benefit of hindsight:

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i.e., knowledge that, at the time the Soviets issued their declaration, they were bluffing.52 For many, the Yom Kippur War exposed the limitations of détente and marked a turning point in its fortunes. Unilateral pursuit of advantage could still be successfully pursued, and if that resulted in costs to détente then they had to be paid. Whereas détente somehow implied the mutual acceptance of a structure of international politics (Kissinger’s ‘legitimate order’), superpower behaviour remained unswervingly committed—despite the affirmation of May 1972 and June 1973 summit meetings—to alter favourably that very structure through the pursuit of unilateral advantage on the periphery.53 The Soviet Union was infuriated by the failure of the Americans to treat it as an equal in the Middle East, and its leaders bemoaned the lost ground there. It was clear that both sides still intended to fight for advantage on the periphery where the dividing lines between capitalism and communism could neither be clearly drawn nor easily held. As Nixon had so perceptively noted at the start of his presidency: ‘I do believe that crisis or confrontation in one place and real cooperation in another cannot be long sustained simultaneously.’54 His and Kissinger’s détente policy, ironically, proved him all too correct. It is in this complex interplay of strategy and high politics that US economic statecraft took its place, gradually at first during the early months, and then in an evergrowing and important stream of activity from late 1971 onwards.

Phase One: from inauguration to the breakthrough on SALT, 1969–71 Explaining how economic policies fitted into the Nixon and Kissinger grand strategy, and in particular how they were used in linkage, is not easy. Partly because they became an integral part of high politics and partly because of Kissinger’s back-channel diplomacy, and the general secretiveness that shrouded the workings of the Nixon Administration, piecing the full story together through primary sources is not possible. They either do not exist, or have been destroyed, or edited and changed, or removed, or are still under national security restrictions. Anthony Lake, one of Kissinger’s staff, put things thus: ‘The levels of knowledge and duplicity were like a Mozart opera in complexity…One reason I quit was because I kept finding myself writing misleading memos’.55 Even when NSC and CIEP documents are available and prima facie appear reliable the discussions and decisions they record are often simply going over ground already trodden by Nixon, Kissinger and their closest advisers. In short, decisions were taken in the White House, and only thereafter were the bureaucratic and institutional processes activated in order to confirm and ratify those decisions. However, bearing these points in mind, by focusing on Nixon, Kissinger and close associates such as Peter Flanigan, and successive Secretaries of Commerce, Maurice Stans (1969–72), Peter Peterson (1972–3) and Frederick Dent (1973–5), some of the story and some of the reasoning behind the policies of economic statecraft can be teased out. Furthermore, even for the outsider looking in, there are clear phases of policy evident from its public face. After an initial period of no movement, the first phase of change during the Nixon Administration moved from a conservative and restrictive attitude towards East-West trade to preparing for substantial

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liberalisation talks in the May 1972 Moscow summit. The second phase offered a cornucopia of economic possibilities before, during and immediately after the summit. The third phase heralded the decline of détente and is epitomised by both US domestic obstruction of the economic plans negotiated with the Soviets and growing doubts about the military balance. How to get out of the war in Vietnam and how to link issues in order to maximise US power and leverage in obtaining that goal were the fundamental foreign-policy priorities at the start of the Nixon presidency. The Americans wanted to break down Soviet selective détente, whereby the Soviets tried to compartmentalise issues and pursue them when they felt that they had an advantage, for example in Western Europe. Kissinger and Nixon wanted to garner advantages from the USA’s strength across the board and link issues together. In April 1969 there was an attempt, through the good offices of Cyrus Vance, to link strategic arms limitation talks (SALT) with progress in Vietnam, but this failed. Kissinger later commented: ‘The two issues were far too incommensu-rable; the outcome of the strategic arms discussions was too uncertain, the Hanoi leadership was too intractable, and the time scale required for either negotiation too difficult to synchronise.’56 It is doubtful that he actually saw the problems of linkage in such stark terms in 1969, because, as a policy, he was still trumpeting it as the way forward. During the first year of the Nixon Administration, the Soviets were repeatedly regaled with American disappointment that they had not done enough to help find a solution in Vietnam. Characteristically on 20 October 1969 Nixon said to the Soviet Ambassador Anatoly Dobrynin: I hope that you will not mind this serious talk…If the Soviet Union found it possible to do something in Vietnam, and the Vietnam war ended, then we might do something dramatic to improve our relations, indeed, something more dramatic than could now be imagined. But until then, I have to say that real progress will be very difficult.57 With this kind of message coming directly from the White House, it is not surprising that the Administration’s initial policy inclination on East-West trade was highly restrictive and at odds with the movement for liberalisation in the Congress. In 1969, the mood in Congress was easing the EAA along towards liberalisation of East-West trade. Within the Administration, Rogers’ State Department and Maurice Stans at Commerce favoured this kind of change, but Nixon and his ‘Mr Fixit’, White House Assistant Peter Flanigan, were much more cautious. Henry Kissinger was also reluctant to give anything away, except in return for a substan-tial quid pro quo from the Soviets. Peter Peterson also ably supported these tactics, first as a White House Assistant on International Economics and later as the Secretary of Commerce. East-West trade was a difficult policy area. It became highly complicated once the Administration considered communist states other than the likes of Cuba, North Vietnam and North Korea, which were beyond the pale. For other communist states differentiated treatment was prescribed. Nixon wanted to exacerbate differences both between the Soviet Union and its East European satellites and between the Soviet Union and communist China. With an eye on exploiting Soviet-Chinese differences, on 21 July 1969 the USA took the first

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small step towards an accommodation with the PRC. The State Department announced that there would be some easing of trade controls of minor significance. Four days later, responding to reporters while on Guam, Nixon said: ‘As a matter of fact suggestions for relaxing restrictions vis-à-vis Communist China—incidentally, suggestions going considerably beyond those that I adopted—have been before the National Security Council for the past three months.’58 Later that summer there were moves on Eastern Europe. On 2 August 1969 Nixon became the first US president to visit a communist state; he went to Bucharest for talks with the Romanian leader Nicolae Ceaucescu and intimated to the Romanian leader the kind of linkages he thought would be necessary for substantial improvements in East-West relations. He confided in Ceaucescu (though all the time hoping he would convey his thoughts to the Chinese) that he doubted that any real détente could be achieved with the Soviets until there had been some kind of rapprochement with the PRC, and that that would in turn depend upon a resolution of the Vietnam War.59 After Nixon’s return to Washington several initiatives were mounted to expand trade between the two countries, and, while there was little immediate change elsewhere in the Eastern bloc, in November 1970 Stans was told: ‘With regard to sales of US products to countries in Eastern Europe other than the USSR, the President indicated that Stans was free to encourage sales to any of those countries.’60 This was Nixon’s version of bridge-building, but it had a broader pattern of intent than Johnson’s. Nixon was trying to raise trade with the satellites and the PRC into high politics. He wanted to make the Soviets feel vulnerable by cultivating better relations with the communist Chinese and by fraying the ties that bound the satellites to the political control of the Kremlin. Simultaneously, he wanted to communicate to the Chinese the priority the USA placed on ending the war in Vietnam. If the Chinese would help the Americans extricate themselves, they could expect an improvement in USA-China relations and more trade. While trade policy changed with the PRC and became more adventurous with the Eastern satellites, Nixon’s intention was that it should remain rigid with regard to the Soviets. There, trade was to follow politics, not the other way around—at least so Nixon professed and hoped. The early months of the Nixon Administration were fraught with an overload of serious issues and the usual difficulties that any new executive faces upon taking office. While Nixon and his close advisers struggled to take control, identify priorities and make them clear within the executive branch, the bureaucracy, encouraged by moves in Congress with the EAA, continued on the path towards East-West trade liberalisation that had been established by Kennedy and Johnson. Stans, in particular, was keen to use executive flexibility in the export control system in favour of granting export licences. The Administration was soon confronted with a number of opportunities to expand trade in both industrial and agricultural products. In many ways it was in the latter category that the tactics and reasoning of the Administration are best revealed. In the spring of 1969 the Soviets indicated to the US Continental Grain Company that they wanted to buy 300,000 tons of grain for $15 million as the first in a programme of ongoing purchases. But, before making a firm offer, they wanted assurances that they would be treated like any other foreign buyer. In effect, this meant that the 1963 condition that at least 50 per cent of any grain sales to the Soviets must be carried in US bottoms would have to be lifted. Also at issue was the symbolism of this condition and

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the way it bore on the Soviet desire to be recognised and treated as an equal by the USA in international relations. Secretary of Agriculture Clifford Hardin was keen to go ahead with the sale and simply replace the provocative condition with ‘assurance…that every effort would be made to insure that 50 per cent of the shipments be made on US flag ships’.61 Stans agreed, but he was aware that such a move would antagonise US labour, particularly the notoriously anti-communist longshoremen, who could mobilise the whole AFL-CIO trade union organisation. Although public opinion had shifted over the years to become better disposed towards trade with the communists, there were still vested interests that caused problems for liberalisation, for example because of ‘loss’ of contracts for the US merchant marine, and there were also very influential swathes of opinion that either were still opposed to liberalisation or could easily be swung against it, for example, much of organised labour. It was in the light of these considerations that Nixon’s chief domestic adviser John Ehrlichman questioned ‘the advisability of making these sales because of adverse public reaction’.62 Even the seemingly innocuous sale of foodstuffs to the Soviet Union could not pass muster at the departmental level within the Nixon Administration. On the advice of Kissinger and Arthur Burns, at that point a Cabinet-level counsellor to the President, matters were referred to the NSC for review.63 Prompted by the movement of the EAA through the Congress and by requests for export licences for the Soviet oil industry, machinery for the Kama River Truck Plant, and for grain, the NSC discussed the whole issue of East-West trade on 14 and 21 May. The Administration, or rather Nixon, took benchmark decisions for US trade policy with the Soviet Union on the 21st.64 In preparation for these decisions, Kissinger summarised for Nixon the views of the various agencies that were involved and offered his own counsel. My own view was not to oppose but to acquiesce in a new law granting the President discretionary authority to expand trade, while exercising this authority only in return for a political quid pro quo. I also recommended bringing the United States export control list into line with the somewhat more liberal COCOM list, since otherwise we merely lost business to our allies without affecting communist conduct. Finally, I favored issuing a license for the oil extraction plant because the long lead time for its construction would give us continuing leverage. I opposed licenses for the foundry and the corn sale.65 The nature of Kissinger’s political thinking about trade with the Soviets is very evident in his reasoning here. Any idea, so far as he was concerned, that there would be trade liberalisation for its own sake was clearly without purchase. Nixon’s attitude was even more hard-line. Blithely unaware of contradictions between his attitude towards the USSR on the one hand and the PRC and Romania on the other, Nixon pronounced: ‘I do not accept the philosophy that increased trade results in improved political relations. In fact just the converse is true. Better political relations lead to improved trade.’66 The President was unwilling to grant what he saw as trade concessions until the Soviets became more accommodating and helpful on a range of issues, including arms control and Vietnam. He thus rejected all the licensing requests and declared the Administration’s opposition to any legislative liberalisation of East-West trade. Garthoff

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was later to declare it a tragedy that the Administration did not ask for the power to grant MFN status to the Soviets in the EAA, but that would clearly have been contrary to the whole thrust of the Nixon-Kissinger strategy of sending the right messages to obtain the right outcome from the Soviets.67 An indicator that the USA was willing to grant MFN in 1969 would have been totally premature. It was not a missed opportunity because it was never an option. Nixon did agree, however, to a process of readjustment by which the US unilateral embargo list would be brought in line with COCOM’s, except for hightechnology items over which the USA held a monopoly. On 28 May a presidential directive was issued, indicating the possibility of increased trade if improved political circumstances warranted it. Over the following months it seemed to Kissinger that the momentum for trade liberalisation had developed a life of its own and was difficult to brake within the State and Commerce departments. On several occasions, he had to intervene in order to prevent give-away licensing concessions. In the autumn of 1969 Stans tried executively to decontrol 135 items on the embargo list and was pushing for more liberal trade with the whole Eastern bloc along lines achieved with Romania. Kissinger had opposed what he and Nixon saw as selective détente by the Soviets, most notably with respect to Ostpolitik, but wanted to pursue identical tactics himself. He thus moved to prevent the breakdown of differentiated US responses to Eastern Europe. He prevented Stans’ decontrol initiative and blocked liberalisation of trade with Eastern Europe, at least for a time. However, Kissinger was going against the flow. In December the Congress passed the EAA. Pressures were mounting for more trade, and the gambit of holding out inducements in order to draw the Soviets into co-operating on arms-control talks and helping with the Vietnam situation were not producing tangible results. Indeed, Ambrose goes so far as to claim that there is ‘no evidence [that the]…attempt to link progress in making a settlement on Vietnam with détente with the Soviet Union ever paid off in any direct way.’68 Lebow and Stein comment that neither the US public nor the Soviets would countenance linking vitally important SALT talks with the Middle East situation and Vietnam, and that by 1971 Nixon and Kissinger had to decouple links between these policy areas.69 It is hard to make definitive judgements about US linkage policy when so much depends upon the intangibles of assessing its impact upon Soviet and Chinese thinking. Ambrose is correct when he says that it is difficult to point to direct pay-offs, but there is evidence to show that the Soviets were not unmoved regarding the North Vietnamese and that they offered some support for US peace strategies. Furthermore, circumstances surrounding the May 1971 breakthrough on SALT and the lead-in to the May 1972 summit might not have had very evident linkages with the Middle East and Vietnam, but linkages were at work. In his memoirs Nixon wrote: ‘A US-Soviet summit was at last possible because of two achievements: progress in the Strategic Arms Limitations Talks before the China overture was revealed, and progress on a Berlin settlement after the China announcement had been made.’70 He clearly wanted to prove that linkage had worked, but whether it worked precisely in the way he suggested is another matter. Significantly, economic incentives offered by the Americans were not mentioned, and neither Nixon’s pronouncement that there would be no radical change in Soviet-US relations until there was progress on Vietnam, nor his declaration that political must

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precede economic change, could be fully upheld. The year 1970 came and went with little discernible movement on trade policy. Stans continued to press for liberalisation, but was reined in by Kissinger, and, in any case, Nixon was unwilling to develop trade with the Soviets unless there were improvements elsewhere in Soviet-US relations.71 In the autumn that looked unlikely, as tensions mounted because of the arrival of a Soviet naval flotilla in Cuba, which resurrected the fears of a Soviet nuclear presence there. Gradually, effective diplomacy solved the problem, and on 22 December Nixon sent a message to Dobrynin, via Kissinger, proposing that they should nurture a more constructive relationship. By January 1971 both sides were making positive noises, and there was progress in SALT, which was closely interconnected with trade. Both sides were keen to reach an arms agreement, but their different needs had caused a standoff. The Soviets only wanted limits on antiballistic missile systems (ABMs), whereas the Americans wanted that to move in tandem with limitations on offensive missiles. On 26 March and 12 May changes in the Soviet position made it possible for Nixon to announce a breakthrough on 20 May 1971. It looked as if the strategy of political change first and economic change second was being held to and was succeeding. In fact the situation was more fluid than that. Three features of US policy provided fluidity: vagueness about the agreed position on arms talks, which allowed them to proceed; relations with the PRC; and trade prospects. On 18 January 1971 Nixon established the CIEP, which, in itself, was indicative of the growing importance of economics in US diplomacy. Peterson was appointed its executive director and on 12 April, two days before Nixon’s announcement of a review of US-PRC trade relations, he sent Nixon some talking points for a meeting with Time-Life editors. They included statements that it was not Nixon’s intent to antagonise the Soviets by opening trade with the Chinese, but that ‘economics becomes next major thrust of American foreign policy’, and in the absence of diplomatic relations ‘tourists and trade become key avenues of building bridges’.72 Several days earlier, on 6 April, the Chinese had made a friendly gesture by inviting the US table tennis (ping-pong) team, at the world championships in Japan, to visit the PRC: it accepted. Things were now in place for a more substantial development. On 14 April Nixon announced: ‘I have asked for a list of items of a nonstrategic nature which can be placed under general licence for direct export to the People’s Republic of China. Following my review and approval of specific items on this list, direct imports of designated items from China will then also be authorised.’73 Public reaction was overwhelmingly favourable. On 7 May the various economic departments implemented Nixon’s new policy, and on 10 June the President formally ended the 21-year export embargo and lifted import controls.74 Meanwhile on 27 April a message from Chou En-lai, delivered via the Pakistanis, indicated the possibility of a really dramatic change in relations. After further cautious moves, and a secret trip to the PRC by Kissinger, it was announced on 15 July 1971 that Nixon would visit China before May 1972. All these moves with China had several layers of intent and meaning, but one was clearly to make the Soviets uneasy and more willing to repair relations with the West as their communist rival in the east edged towards an accommodation with the USA.75 ‘There was another part to the new policy [of 10 June],’ as Ambrose points out, ‘hardly noticed by the press, and not connected to China [in fact my view is that it was]. It was a

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further sweetener to the Russians in anticipation of a SALT agreement and a summit in Moscow: Nixon ended the requirement in force since 1963, that called for half of all grain shipments to the Soviet Union to be carried on American flag vessels. This opened the door to a grain deal with the Soviets secretly promised by Kissinger in his backchannel talks with Dobrynin.’76 Hersh explains that on 23 April 1971 the Soviets dropped their condition that an ABM agreement must precede an agreement on offensive weapons, in exchange for a secret US promise to liberalise the export of grain and industrial machinery.77 Although Garthoff and Ambrose accept the idea that economic inducements were offered to the Soviets to create a SALT breakthrough and note that other rewards, such as contracts for the Kama River Plant, quickly followed, they do not go as far as Hersh. They are right to be more reserved, because the evidence indicates that it was the vagueness of the strategic understanding that enabled further progress with the SALT, and that US economic undertakings were of a general nature, and were later the subject of difficult negotiations with the Soviets. They were not a tight secret exclusively held within the back-channel, as Hersh suggests, and any impression that the economic side was well on its way to being sorted out, and therefore constituted the key to the SALT breakthrough, is probably misleading. However, equally misleading was the impression given by Kissinger that everything had linked in the right way for the USA.78 The Soviets had been after a grain deal since the spring of 1969, and during the late spring of 1971 moves were afoot to facilitate that and remove obstacles such as the requirement for at least 50 per cent of shipments to be carried in US bottoms, which the Soviets found offensive. Hersh, Garthoff, Ambrose and Lebow and Stein all emphasise that the secret promise of a grain deal by Kissinger and Nixon was part of the reverse linkage that led to the SALT breakthrough.79 On 10 May Peterson explained: ‘My opposition to Communism is a matter of record. I certainly do not desire to strengthen the Communist bloc nations through this policy.’ However, he went on to say that past experience of embargoing non-strategic items simply penalised US farmers; so he favoured such trade for cash or on hard credit terms.80 Commitments were clearly made, but in a general way and as part of overall shifts in policy rather than as a key which opened the door to détente. Furthermore, it was one thing for Kissinger and Nixon to make secret economic commitments to the Soviets: it was another to deliver them. There were always going to be domestic opposition and problems with labour organisations. Initially, Kissinger unsuccessfully attempted to smooth over domestic labour opposition to a grain deal with the Soviets, but shortly after announcing the Moscow summit for May 1972 (nicely timed for his presidential re-election bid), Nixon asked Chuck Colson to ‘take the lead’ with labour, towards the end of October 1971.81 The matter was so sensitive because of the secret undertakings prior to the 20 May announcement. Ambassador Dobrynin may even have threatened that ‘there would be no SALT agreement unless the grain deal was worked out’.82 A short time after Colson took over and cut various deals with labour, including an expansion of US merchant ship construction, a White House press conference announced that the unions now favoured grain sales and shipments to the Soviets. That same month a $136 million grain deal was announced, and in December Secretary Maskevitch went to Washington to negotiate details with Secretary of Agriculture Earl Butz. However, on the export of industrial equipment there was more heavyweight opposition. After the 20 May announcement of

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the SALT breakthrough, Kissinger reversed his 1969 position and authorised the export of some manufacturing items for the Kama River Truck Plant. That did not go down well with the Secretary of Defense Melvin Laird. Approval for exports was not quite as automatic as some authors have suggested The NSC Under Secretaries Committee had been at the coalface of reviewing EastWest trade, but the creation of the CIEP and the fact that Defense was not a full member of it worried Laird. On 29 June he wrote to Nixon successfully pleading for the enlargement of the CIEP to include Defense. But it was not just bureaucratic matters that worried him. I believe that there should be an interdepartmental review through the CIEP, if not the NSC system, of where the US is going in exports of heavy truck manufacturing equipment and similar items to the USSR, and the type of quid pro quo that might be expected in return. From a military standpoint, I object to helping the USSR to build trucks while they are replacing North Vietnamese truck losses in Laos. From an economic standpoint, I believe that the USSR is now strong enough to reduce non-tariff barriers to trade, modify its rigid bilateral state trading arrangements, and move to become a member of GATT, the IMF and other international economic institutions.83 This was like expecting the Soviets to become decent free-marketeers. That did not happen, but, after a fashion, Laird got his review. There was a potential embarrassment here for Nixon and Kissinger. They thought that Laird did not know that the quid pro quo for exporting items for the truck plant had already been, at least partly, exchanged.84 Trade problems were reviewed, but not surprisingly, especially after the summer breakthrough on Berlin, on 23 September US firms were authorised to bid for further contracts for the Kama River Truck Plant.85 By January 1972 decisions were effectively in the political decision-making hands of Henry Kissinger. One of his assistants wrote: Stans has a list of items worth $380m, including $250m for Jervis Webb Co. for Kama Truck Factory. On economic grounds issuance of these licenses after the usual interagency clearances…would normally be a routine matter. But, because of the present political climate, [Helmut] Sonnenfeldt [assistant to Kissinger] believes it is up to you to determine at what point the release of some or all of these licenses will provide the appropriate political return.86 By the spring of 1972 linkage had impacted on US-Soviet relations. The manoeuvrings with the PRC brought pressure to bear on the Soviets, and the hints and offers of trade, especially in grain, helped to draw the Soviets to a breakthrough on SALT, to an accommodation over Berlin, and to a summit meeting, which was announced in October 1971 and scheduled for the second half of May 1972. But, while linkage worked, it was also a two-way street, and Nixon found himself offering and promising economic incentives prior to political moves by the Soviets. Furthermore, even when initiatives of this sort were decided and acted upon by Nixon and Kissinger, departmental and bureaucratic problems remained (notwithstanding all the centralisation of power in the White House), most notably from Laird with his ‘undisguised distrust of the notion of

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détente’.87 By the late fall of 1971, however, opposition was beginning to fall away. It was then that Soviet Foreign Secretary Gromyko formally raised the question of trade with Nixon. Ambassador Dobrynin followed up by suggesting an exchange of economic ministers. As a result Stans visited the Soviet Union in November and talked with Kosygin and Minister of Foreign Trade, Patolichev.88 He returned ‘enchanted by Soviet hospitality and with great expectations of a boom in Soviet trade’.89 Kissinger was less enthusiastic, and both his later manoeuvrings and the Indo-Pakistani war crisis in December 1971 caused further problems. Regarding the latter, Nixon ordered a slowing down of economic talks with the Soviets because of the crisis, but the momentum for economic progress nevertheless continued, albeit with frequent fluctuations of pressure on the accelerator, as Kissinger assessed and reassessed the political situation. The first phase was now over and Nixon and Kissinger could look to the forthcoming summit and plan the economic harvest of détente.

Phase Two: the economic fruits of détente, 1972–3 In response to the concerns expressed by Laird, the CIEP and NSC personnel reviewed East-West trade policy, and the entire study was submitted to the President on 2 February 1972. It was largely a bootless enterprise. Crucially, the people working on the review were ignorant of some of the decisions already taken by Nixon, Kissinger and their close associates, or else were not informed of ongoing developments. The draft report from the CIEP recommended reductions in US lists to the COCOM level, except for a few items ‘deemed by the US to contribute significantly to the development, production or use of military hardware’. It suggested that the licensing system should be expedited in order to make US companies more competitive, that the same controls should apply to the Chinese as to the Soviets, and that the Administration should seek the authority to grant MFN. Importantly, the report cautioned: ‘We should not use MFN as a political tool.’90 This hope was dashed twice, once by Kissinger, and once by a powerful faction in the US Congress led by Senator Jackson. After Stans’ visit to Moscow in November, Kissinger saw three remaining difficulties in the commercial realm: the Soviets’ settlement of their wartime Lend-Lease debt; MFN; and linkage. Disingenuously, in his memoirs he asserts that his caution was because of White House ‘determination to have trade follow political progress and not precede it’.91 As we now know, the USA had already committed itself, albeit in vague terms, to some liberalisation of trade, and Kissinger was directly involved in that. He identified to others in the Administration the potential for trade in agricultural products and, after the submission of the review by NSC/CIEP, he sent NSDM 151/CIEP-DM-6 requesting, from the Agriculture and State departments respectively, negotiating scenarios for the sale of grain to the Soviets with dollar credits and that the Lend-Lease debt be dealt with.92 There is no doubt that Kissinger wanted to wring further political benefits out of the Soviets, and that the economic negotiations were still unresolved and somewhat openended. Sometime in March 1972 a paper prepared jointly by the CIEP and Kissinger on a ‘pre-Moscow visit’ read in part as follows:

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Negotiation long-term grain sales commitments. Action Required Soviet response to Ambassador Beam’s [US ambassador to Moscow] February 22 initiative. Presidential decision on extent of Commodity Credit Corporation financing. Probable April visit to Moscow by Agriculture representatives.93 By the end of March at least some of these issues had been decided. In a telephone conversation with Secretary of the Treasury John Connally, Flanigan described to him the ‘grain sales financing’ terms agreed with Butz. Connally approved them.94 Even though part of the US economic hand had already been played and US negotiating positions were being established, there was still considerable room for manoeuvre. To this end, Earl Butz’s trip to Moscow was delayed until April 1972 and, more significantly, there were further moves to do with MFN and linkage. Kissinger insisted that the granting of MFN status should depend on a satisfactory Lend-Lease settlement. He also wanted to postpone any US-Soviet energy deal, for example about Siberian natural gas, until after the end of the Vietnam War. ‘We would in short, make economic relations depend on some demonstrated progress on matters of foreign policy importance to the United States.’95 One can only speculate that in his memoirs, Kissinger wanted to defend détente against his critics of the late 1970s and avoid the embarrassing admission that economic inducements had been offered before a political breakthrough and that linkage had already been turned back on the Americans by the Soviets before the main economic talks got under way. On 30 March a further complication for the forthcoming summit dramatically spilt onto the international chessboard when the North Vietnamese mounted a full-scale invasion of South Vietnam. Developments there had now to be watched even more closely to see how diplomatic linkages might be reforged. In the meantime, between 20 and 24 April 1972, Kissinger held talks about the pending summit with Brezhnev. Kissinger worked out a charter for détente,96 which was later signed at the summit and known as the Basic Principles Agreement, but the talks ranged widely and covered economic issues as well. The Soviet President talked urgently about MFN, suggested that co-operation on natural gas developments would benefit each side equally, but never mentioned, according to Kissinger, his real need: i.e. grain.97 Of course, that could have been because Brezhnev expected the grain to flow because of commitments made by the USA the previous year. Kissinger responded that if all went well at the summit, then they could work out the economic arrangements over the summer.98 How this squares with what was actually going on emerges from two reports about US-Soviet trade talks. Flanigan was now very much at the centre of things. His views are important because he was an insider and had taken over as executive director of the CIEP after Peterson’s elevation to Commerce Secretary in February 1972. It is apparent from his reports that, whatever commitments the USA had made before the SALT breakthrough, they did not guarantee the success of trade talks, even on grain, and that, contrary to the claims of several writers, the Americans did not have a set policy that there would be no major economic agreements before or at the summit in order subsequently to get further political concessions from the Soviets. It is also important to note that Flanigan’s assessment comes after the launch of the offensive by the North Vietnamese and, despite that, he still

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thought that economic agreements could be reached at the summit. His first memorandum reported the views of John Connally. He was both an influential figure and a hard-liner in the Administration. Much respected by Nixon, he was always his own man. Connally went along with the idea of a grain sale and of settling LendLease on reasonable terms. He thought that $0.5 billion would be a good deal and ‘money for old rope’ so far as Congress and the public were concerned. He was also content to see an agreement on Eximbank credits ‘if…granted in linkage with these other negotiations…He [recognised] the desirability of consummating all these negotiations in Moscow.’99 By late April three sets of talks were under way: on grain, which included a US delegation headed by Butz in Moscow 9–12 April; on Lend-Lease; and on natural gas. Flanigan wryly observed: ‘In all three negotiations the Russians have taken positions that reflect either extreme financial naïveté or unreasonable demands.’100 On grain there was a standoff because the Soviets insisted on wildly generous credit terms and would not consider US Commodity Credit Company rates. Similarly, on natural gas, which could involve $5.5 billion of investment from the USA over fifteen years: ‘The [Soviet] proposal is so one-sided from a financial point of view as to be totally unrealistic.’101 And then, ironically, just as Kissinger wanted to link Lend-Lease to MFN, and Treasury Secretary Connally wanted to link Lend-Lease and Eximbank credits, so the Soviets wanted linkage connecting all three issues, though obviously imagining a different direction for leverage. Flanigan commented: We are willing to implicitly grant these conditions in a general statement. [But] Explicit acceptance of the Most Favored Nation treatment as a condition would indicate the Administration’s willingness to make this proposal to Congress before completing the broader range of trade negotiations, which I believe would prejudice both our other negotiations and our position with the Congress.102 It could very well have been for this reason, rather than hopes of extracting further political concessions from the Soviets, that economic agreements were not concluded at the summit. Flanigan concluded that, if these talks were anything to go by, ‘the Russians are not anxious to be in a position to sign substantial commercial agreements during the Moscow visit’.103 As an afterthought, he observed that Patolichev was to visit Washington on 7 May and that the Lend-Lease and grain discussions could then be reopened and might provide a basis for some positive action at the summit.104 What transpired from those talks was reported to Kissinger by Peterson on 17 May, just before the summit. Before looking at that, though, it is important to emphasise the actual nature of this diplomacy, as opposed to what Kissinger and Nixon claimed it to be, and also to nuance some of the findings by Hersh and Garthoff. First of all, the manipulation of linkage by Nixon and Kissinger did not work as cleanly and effectively as they both suggested in their memoirs. The runes cast on the table by linkage were ambiguous to say the least, and never more so than in May 1972. Détente did not stop the Soviets from providing much of the equipment for the North Vietnamese invasion of the South, but that did not prevent Brezhnev from writing a letter,

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which Nixon received on 1 May, asking the USA to refrain from any further military action in support of the South that might jeopardise the summit. The Soviets had been taken aback by the ferocious US response to ward off the collapse of South Vietnam. Nixon stood firm: ‘we’ll just have to let our Soviet friends know that I’m willing to give up the summit if this is the price they have in mind to make us pay for it.’105 Here, there seems to have been little moderation of behaviour on either side engendered by détente. On the other hand, the Soviets and the Americans proceeded to the summit.106 Kissinger claimed that ‘the holding of the summit was the culmination of our four years of insistence on linkage’.107 One could comment with equal plausi-bility that the summit occurred not because of linkage, but despite it. The course of détente from the mid-1970s onwards occasioned savage criticism of its two main architects, and they both tried to deflect that in their explanations of policy. It was evident from the public steps that they took that neither of them upheld the principle that economics should follow politics in Eastern Europe and in relation to the PRC, but, despite repeated claims to the contrary both at the time and later, economics also led (or at least moved in parallel with) politics in relations with the Soviets. Kissinger and Nixon made some general commitments on grain and export liberalisation before they publicly admitted they did. On linkage, Kissinger and Nixon trumpeted their successes in tying MFN and credits to a satisfactory Lend-Lease settlement, but this, according to Flanigan, was also precisely the linkage that the Soviets wanted to make in order to exert leverage in exactly the opposite direction to which the Americans were pushing. And finally, both Nixon and Kissinger claimed that the USA sought to delay economic agreements until after the summit in order to give them further leverage on the Soviets in other political areas, such as Vietnam. In fact, it seems that this was not a strong line in US policy at the time. Delay, if it was contrived, might have been because of political complications with the MFN and the Congress, rather than a tactical move to do with the Soviets. Furthermore, the Soviets seemed uninterested in finalising economic agreements at the summit, so just how much leverage was at issue is unclear. The discovery by Hersh and Garthoff that economic concessions had been promised before the SALT breakthrough in the summer of 1971 is of great significance in any analysis of the nature of US economic statecraft in this period. However, their case (particularly Hersh’s) is overstated. Primary sources from the Nixon Project show that the nature of these commitments was more general and vague than he allows, and thus they could not have had the strength of inducement that he imputes to them. There was still room for negotiation and manipulation by both sides. Having said that, it is also important to weigh in the balance the effect of a growing bureaucratic involvement in talks, and thus the emergence of a more complicated and less easily controlled scenario. For all their centralisation of power in the White House, Nixon and Kissinger could not control everything. When Flanigan was sucked into back-channel diplomacy, it was necessarily an enlarged channel, and so it was more difficult to control the flow. On 13 April Flanigan wrote to Bob Haldeman, Nixon’s Chief of Staff: ‘Because of the substantive need regarding economic negotiations, he [Kissinger] feels that I should be included on the Moscow trip. As you know, there will probably be several economic agreements to be buttoned up during the visit. In response to his question, I told him you concurred in this judgement.’ Kissinger also agreed that Flanigan should discuss

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economic issues with European leaders. Flanigan’s remark about that was: ‘It is obviously not my plan to discuss my involvement in the Moscow trip with any other agencies at this time.’108 So, the back-channels continued, but grew wider, and the vague economic commitments made by Kissinger and Nixon were delegated to others to negotiate in the detail. Flanigan played a key role in negotiating the economic understandings reached in Moscow with Kosygin and Patolichev.109 The overall effect of ‘giving away’ economic counters prior to the SALT breakthrough was thus made even more difficult for the Soviets to cash in, though that of course does not detract from the important principle at stake here, namely that economics had become high politics in the SALT breakthrough, and economic inducements were offered in order to gain political benefits. In his report of talks with Patolichev on 17 May, Peterson was much more optimistic and positive than Flanigan had been three weeks earlier. He believed that agreements could be made at an early date on a Joint Commercial Commission that could work out the final details of a comprehensive deal, which would include understandings on MFN, credits, Lend-Lease, a $750-million grain deal over a three-year period, and possibly on a maritime agreement. Peterson noted and accepted the two-way nature of linkage involved in the talks. I recognize the Soviet view, as set forth in the letter between Deputy Minister Alkhimov and Assistant Secretary Armstrong, that Lend-Lease settlement must in some way be related to Congressional granting of MFN for Soviet goods entering the United States and to the availability of export credits. As the letter suggests, we have tried to make clear in our discussions that for different reasons we believe that Export-Import Bank credit is linked to settlement of the Lend-Lease issue. Our differences as to the role of Lend-Lease issue are, I believe, now well understood by both sides and the importance of their early resolution has become abundantly clear.110 The summit turned out to be a great success, but, while a joint US-Soviet Commercial Commission was established to carry economic negotiations forward, nothing of economic substance was decided except on Lend-Lease. Dobrynin recounts how Nixon and Kosygin bid against each other, as in an auction, for an agreed price. ‘It took them half a minute to reach a compromise for a dispute that had lasted for a generation. They met each other about halfway and settled for a payment of $722 million.’111 Other economic issues were referred to the commission for resolution. Much of the general wisdom of scholarship has attributed this delay over other economic matters to a deliberate ploy on the part of Nixon and Kissinger. However, the Soviets were in no hurry to finalise things, even though it was now widely known that they had a crop disaster on their hands, only partly ameliorated by a 3.5-million-ton purchase of Canadian grain in February 1972. It is clear in retrospect that Kissinger was still not being fully candid about things, for he spoke of his ‘perfect astonishment’ at the ‘vast importance’ the Soviets placed on a grain deal when we now know that he had been involved in arranging such a sale for many months. The newspaper reporter who wrote about Kissinger’s ‘astonishment’ added: ‘Because of the Soviet crop failure, there will surely

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be a big immediate grain deal.’112 And there was. Key insiders such as Flanigan were still talking about sewing various economic agreements up only days before the meeting. Talk like that seems incongruous if Nixon and Kissinger were really determined to stall things. On balance it would seem that the complexities involved, particularly with MFN, and genuine difficulties in the early negotiations with the Soviets, caused by their naïveté about commercially acceptable terms and their intransigence, simply stretched out the timetable, and it was not possible to conclude things in Moscow. Soon after, however, things moved quickly in various US-Soviet negotiations, and by October it was possible to sign a comprehensive trade agreement. The first deal to be consummated was over grain. Building on Butz’s April visit, the Soviets soon agreed to normal commercial Commodity Corporation credit terms (6.125 per cent) in order to purchase no less than $750 million of grain over three years. The Soviets might have shown some naïveté over acceptable credit terms early on, but they made up for that in the following weeks by quietly purchasing virtually the entire US grain surplus stock at rock-bottom prices. When prices rose for US consumers as a result, there was considerable outcry against US subsidies for the Soviets. This was the first serious public reaction against détente. It was known, in a playful twist on the British Great Train Robbery, as the Great Grain Robbery.113 In July Peterson went to Moscow, and there was rapid progress on MFN, credits and the final formulation of the Lend-Lease arrangements.114 On 18 October a comprehensive trade agreement was signed, with MFN for the Soviets. In a separate agreement the Soviets formalised the understanding reached by Nixon and Brezhnev and agreed to repay $722 million for Lend-Lease ($222 million more than Connally had thought acceptable) over thirty years. General credit facilities were extended to the Soviets, and on 14 October the vexatious maritime relationship was addressed in another agreement, in which the Soviets acknowledged the substantial domestic problems the Administration had with this.115 The Soviets did not get equal treatment compared with other trade partners of the USA, but the requirement that 50 per cent of all grain shipped to the USSR should be in US bottoms was reduced to 33 per cent.116 At the White House Nixon asked Patolichev to tell Brezhnev that ‘he would personally follow-up in the economic field and hoped that the Chairman would also. He stated he saw the political differences diminishing and economic relations becoming more and more important, and that therefore he would follow it personally.’117 On the economic front everything seemed to have fallen into place; however, even within the Nixon Administration there was still caution in relation to certain projects, most notably, energy co-operation over oil and gas. In response to Kissinger’s suggestion that Nixon should throw his weight behind such co-operation, Flanigan pointed out: ‘While US government has been receptive…to date, nothing so formal or impressive as Presidential support has been forthcoming.’118 The costs involved in developing Soviet oil resources would be higher than similar developments in Alaska, and so, in the future, the President might have to back away from this. It was not until the Yom Kippur War and the oil price hike it occasioned that energy co-operation with the Soviets became more attractive.119 Despite these reservations, the October agreements, along with executive action to relax the strategic embargo, resulted in a trade boom with the communist world. However, the granting of MFN was still only on paper. To become

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effective it had to be approved by the Congress.

Phase Three: problems with premature growth, 1973–4 Over the following months a series of interrelated issues undermined détente. On the US domestic front, Democrat Senator Henry ‘Scoop’Jackson, a Norwegian-American from the State of Washington, seized the initiative. Jackson was a powerful figure in the Senate whose presidential ambitions in the 1972 campaign had been thwarted early on, but he then set his eyes on the 1976 campaign, and what followed had much to do with his personal political ambitions. Jackson worked in conjunction with Charles Vanik, a House Representative from Ohio, and was ably assisted by Richard Perle, who shared Jackson’s distrust of détente and of SALT in particular. They were strongly supported by organised labour, which had its own reasons for distrusting both détente and trade with the Soviets. After August 1972 there was another issue with which to attack détente: the Soviets introduced an education tax on exit visas, purportedly to recoup the cost of state education. This obstructed the emigration of dissidents (and, most importantly of all in terms of the political support to be garnered from the powerful US Jewish lobby, large numbers of Jews). It was targeted by Jackson, who, over the next two-and-a-half years, made it into a high-profile issue in US domestic politics, insisting that, unless the exitvisa tax were lifted, Congress would not grant MFN or credits for the Soviets. Soviet attacks on celebrity dissidents Sakharov and Solzhenitsyn in the summer of 1973 greatly helped the Jackson cause. All this was bad enough for Kissinger and Nixon, but worse was to come. A further complication, partly of their own making, cropped up in early 1973. Ever since the announcement of the new economic policy in 1971, the Administration had known that, in order to change things in the trade sphere, it was vital to have the authority of a comprehensive trade act to empower the USA in a new round of GATT talks. These talks would have wide-ranging implications for the future performance of the US economy, now substantially dependent on foreign trade, and for improved economic and political relations throughout the Western Alliance. But Nixon made the mistake of tying MFN for the Soviets into Title 4 of what became the 1974 Trade Act when he sent the bill to the Congress on 10 April 1973. As things developed over the following months, the issue became polarised between, on the one hand, détente, Soviet trade and MFN, and, on the other, no MFN for the Soviets, the comprehensive trade bill and trade liberalisation in the Free World. The pursuit of the first option could defeat the entire bill and break commitments to Western allies about trade liberalisation. Pursuit of the second could destroy the 1972 US-Soviet comprehensive trade agreement and seriously damage détente. The Administration did not handle the MFN/emigration problem effectively. Kissinger did not seem to appreciate that raising economics into high politics did not sever connections with domestic political constituencies. At a crucial point in the handling of the issue there was also a reshuffle of economic responsibilities at the start of the second administration in 1973. Peterson resigned and was replaced by Frederick Dent, and George Shultz at the Treasury was given overall responsibility for economic policy,

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including East-West trade. During the turmoil of changeover, Flanigan and the CIEP seized authority over the Soviet MFN situation from William Eberle at the Special Trade Representative’s Office. Flanigan always tried to give the impression that he had things under control, but it transpired that he, as well as Kissinger and Nixon, badly miscalculated the size of the threat posed by Jackson and his allies. In the wider international sphere, the Yom Kippur War demonstrated that stability on the periphery could not be guaranteed by détente and that the basic principles of the 1972 summit were hardly worth the paper they were written on. The USA, no less than the USSR, would seek unilateral advantage on the periphery as and when opportunity arose. And finally, there was the unravelling of the Watergate Affair, which undermined Nixon’s authority across the board and—crucially, when it came to garnering support for détente against the forces mustered by Jackson—in the Congress. Nixon’s first mistake was to compromise with Jackson at the time of the SALT signing ceremony in the fall of 1972. He spoke at length with Jackson. The senator promised not to make the Jackson-Vanik amendment, linking credits and MFN with Soviet emigration policy, into a political issue in the run-up to the presidential election, provided Nixon would release Republican members of Congress and allow them to co-sponsor JacksonVanik. He agreed, but he was later to rue it. The amendment did not fade away as he expected. Quite the opposite happened: it grew in strength over the following months. The fact that quiet diplomacy by Nixon and Kissinger managed to get the Soviets to modify their policy and allow a very substantial increase in emigration numbers had no impact on Jackson. He could always demand more and he did. Administration dealings with Senator Wilbur Mills, Chairman of the Ways and Means Committee, and one of the most powerful men in the whole Congress, did not in the end help matters either. Mills made a principle of never being on the losing side, and when Jackson-Vanik looked unbeatable he made sure that he acted accordingly. The Nixon White House tended to fluctuate between compromise and highly aggressive intransigence. In September 1972, before the presidential election, there was a ground-swell in favour of compromise and accommodation with Jackson. By 19 April 1973, after the Soviets had made substantial concessions and Wilbur Smith had been temporarily won over to support the Administration’s line, attitudes hardened: ‘there is no need for further requests by the President and his staff for co-operation or compromise from anti-MFN leaders such as Jackson, Ribicoff, Javits and Vanik.’120 Sadly for the Administration, things did not turn out as it had hoped, and soon further pleas for moderation and compromise were being sent to Jackson and his ever-growing band of supporters. By October 1973 the situation for the Administration was desperate. On 24 October Flanigan warned Nixon that there was danger of a full Jackson-Vanik amendment being accepted, which would deny the Soviets MFN and credits. The strategy we are following is to try to get Title IV (the MFN title) dropped from the Bill entirely. The rationale for this position is that, considering the current Middle East negotiations [in the aftermath of the Yom Kippur War], now may not be the time to grant Soviets concessions, but it certainly is not the time for the House to vote to deny them credits and MFN…. Only through this strategy can we avoid a bad House vote, leave time to negotiate with Jackson

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and the entire Congress prior to the Senate vote and the Conference next year, and still preserve the Trade Bill.121 Kissinger was now angry and fearful that the Trade Bill, MFN and credits for the Soviets were going to seriously damage the Middle East talks as well as détente in general. In November Shultz and Flanigan agreed to delay the movement of the Trade Bill through Congress for fear that action on Title IV might inflame US-Soviet relations and ‘endanger the Middle East cease-fire and follow-on peace talks’.122 But, along with Eberle, they remained strongly committed to the bill and ‘would support floor action now despite the risks vis-à-vis the Soviets’.123 Importantly, Laird believed that further delay would kill the trade bill. Kissinger on the other hand wanted to take that risk. The choices open to you [Nixon] at this time are thus distasteful. On the whole, in view of the delicacy of the Middle East situation, it is probably wisest to seek a further postponement and make a major effort to keep the coalition behind the trade bill together. Such postponement should not be cast in terms of decision ‘for’ detente and ‘against’ our major trading partners in Europe and Japan; rather, it should be explained as required by your efforts to achieve a settlement in the Middle East.124 Nixon did not take Kissinger’s advice. The trade bill was too important. It proceeded and was passed in the House by 272 to 140 votes with the entire Jackson-Vanik amendment intact.125 By this time there was also deep concern within the Administration about defence policy under détente. On 10 January 1974 the old-style Cold War warrior, Defense Secretary James Schlesinger,126 revealed the worries expressed by NSDM-242 when he publicly ruminated about the dangers of the Soviets achieving a counterforce capability if they continued with technological improvements allowed under the SALT interim agreement on offensive missiles. He set in motion a new development for US strategic defence based on ‘meaningful symmetry’.127 A renewal of high-profile concerns for US security lent new support to those who wanted to restrict technology trade with the Soviets. During 1974 Kissinger, Jackson and the Soviets took up a trilateral form of diplomacy to try to resolve the trade problems. Nevertheless, an agreement still proved elusive, and by the summer both Jackson and the Soviets were biding their time until Nixon bowed out because of Watergate. The MFN and credits/Soviet emigration issue continued through the opening months of the Ford Administration and into 1975, but well before Nixon resigned in August 1974 the writing was on the wall for détente and further US-Soviet trade expansion. Nixon and Kissinger expanded trade with communist states, and that helped the balance of payments as the EAA had said it should. Another concern of the EAA, the waywardness of US licensing policy, was never adequately met because of Kissinger’s insistence that political calculations should determine the flow of exports. The Administration broke free from psychological constraints that afflicted previous administrations, but not without paying costs. Kissinger’s linkage policy was overcomplex, introduced domestic influences into foreign policy-making, and effectively invited the Soviets to engage in reverse linkage. In the end, this was not controlled as

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effectively or as efficiently as either Kissinger or Nixon would have us believe. US policy also upset its allies. After preaching the merits of a tight embargo policy for so long, the US now took the lead in requesting exceptions from COCOM. By the end of Nixon’s reign US grand strategy was in disarray and, because economics had become high politics, it now also included US trade policy with communist states.

9 Ford and Carter The decline of détente and the approach of the second Cold War 1974–9 Was détente worthwhile, or just another Soviet trick? President Gerald R.Ford1

Yet if war is too important to be left to generals, surely commerce is, in this context, too salient to be left to bankers and businessmen. Samuel P.Huntington2

President Ford harboured doubts about détente and suffered from deep worries about the US economy. These doubts and worries, shared by many in his Administration, combined in a way that led to changes of policy and a reconfig-uration of power within government.3 Well before Nixon resigned, there were serious problems with a longstanding ambiguity within US economic defence policy. Were policies to be devised on the assumption that the Soviets could be drawn into a network of economic cooperation that would lead to ever-improving superpower relations, or were they supposed to restrict Soviet economic and strategic capabilities and help with tactical manoeuvring in the Cold War? The strategies of engagement and seduction, on the one hand, and denial, restricting economic and strategic capabilities and weakening world communism, on the other, had always been mixed in varying proportions in US policy since the onset of the Cold War. Up to 1971 the proportion had been so heavily in favour of weakening communist states that there was little tension within the USA between the two strategies. From 1971 to 1973 the proportions had changed in favour of engagement, but now the scales were tipping back again; as they did so, evenly balanced forces vied to take control of policy, and serious tensions arose. In terms of the imagery Litwak uses, the reasons for this tipping back were to be found in both the central structure of détente and on the periphery. In the central structure two factors were at play. The first involved complications, arising from domestic US politics, which prevented Presidents Nixon and Ford from delivering MFN and credits promised in the 1972 US-Soviet Trade Agreement. The second had to do with a ground-swell of concern that the Soviets were benefiting from SALT 1. There was fear that a Soviet window of opportunity for a nuclear first strike

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capability could soon appear, if they could marry the massive throw-weight of their missiles with the kind of cutting-edge technology that already existed in the USA. This made the Americans wary of SALT 2, prompted Carter to expand the military budget, and turned thoughts once again to export controls, particularly on technology transfers. On the periphery, any idea of a consensus on restraint had been broken by US action in the Yom Kippur War. However, when Congress refused the Ford Administration’s demands for financial assistance for the beleaguered South Vietnamese regime in 1975, and thus accepted its inevitable defeat, another message was telegraphed to Moscow: that the USA would now be severely inhibited in making military countermoves against communism outside the western hemisphere. This seemed like an invitation to the Soviets to act in pursuit of their own interests on the periphery, just as the USA had done in the Middle East. From the US perspective, the net result over the next few years was: ‘From Angola to the Horn of Africa to Afghanistan, whether directly or through Cuban proxies, the Soviet Union demonstrated a willingness to intervene in local and regional conflicts on a hitherto unprecedented scale.’4 Where were the restraints provided by détente in all this? What function were the economic links between the USA and the USSR now supposed to play? The tipping back of the scales was already well under way before Ford took office, but they tipped ever more dramatically after he entered the White House. These changes had important implications for the use of economic instruments of statecraft, especially when they coincided with a relative US economic decline and a domestic recession. Gerald Ford was sworn in as the 38th President of the USA on 9 August 1974. Months later, after bitter partisan wrangling, the Congress ratified Nelson A.Rockefeller as his Vice President on 19 December. The greatest democracy in the world now had a President and a Vice President, neither of whom had been voted for by the American people. These circumstances posed questions about both the legitimacy and the authority of the new Administration. This would have been bad enough in normal times, but the times were not normal. The nation was in crisis because of Watergate, the economy was stumbling badly, détente was in sharp decline, and US economic defence policy was in disarray. In foreign affairs, while Ford was more conservative and less enamoured of détente than Nixon, he wanted continuity and kept Kissinger as Secretary of State throughout his period in office, and as NSA until November 1975. Some claimed that this was because of his lack of knowledge of foreign affairs, but in his memoirs Ford scoffed at the idea of such ignorance: ‘Like so much of the wisdom in the capital, it was totally inaccurate.’5 Ford had experienced foreign issues through various committees that he had served on during his long career in the House of Representatives. It is not self-evident that this was adequate preparation for being chief diplomat, but, whatever his reasons for keeping Kissinger on and trying to move seamlessly from Nixon’s to his own reign over foreign policy, he was always going to have difficulties because of the tainting of Nixon’s foreign policy by domestic corruption, and the growing public reaction against détente. Trying to sustain the authority of foreign policy in the face of all this was no easy matter, and in the end Ford was only partially successful. Economic constituencies and the Congress proved recalcitrant. It was difficult to make Congress follow the Administration’s line, and it took initiatives that often cut directly across Ford’s expressed policy preferences.

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During the Ford and Carter Administrations, US economic statecraft became preoccupied with America’s ailing economy and its vulnerability to volatile international economic dynamics. After the abandonment of the management tools provided by the Bretton Woods system in 1971, the oil crisis and price rises inaugurated by the Yom Kippur War prompted the leading industrial countries to new efforts to co-ordinate macro-economic policies. They met in a series of rather ineffectual economic summits at Rambouillet 1975, Puerto Rico 1976, London 1977 and Bonn 1978.6 Meanwhile, the success of OPEC encouraged demands from the Less Developed Countries (LDCs) for a New International Economic Order (NIEO). This posed additional problems for the world economy in general, and in particular for the highly conservative Ford Administration, which viewed the NIEO agenda as nothing less than socialist demands for an international redistribution of wealth. In this broad context of economic developments, the USA addressed the question of how its economic defence strategy, including EastWest trade policy, should be changed. However, it was not just the broad economic context that had a bearing on the review of policy. Problems associated with the decline of détente, bureaucratic and legal changes in the structure of US economic policymaking, and troublesome allies, all played a role as well, and need to be examined in order to paint the full picture. Once that has been accomplished, then the details of economic defence policy can be explained in terms of the dénouement of the fate of the 1974 Trade Bill; of talks with the Soviets about oil, the maritime trade, and a long-term wheat agreement; and of the interrelated matters of technology transfers, critical reports about US economic foreign policy, and the renewed influence of the US Department of Defense on East-West trade.

The new context The Yom Kippur War catapulted the price of a barrel of oil from under $10 to the stratospheric height of just over $30 a barrel in a matter of days. Over the following six years prices stabilised at about $28 a barrel until the second oil crisis, occasioned by the 1978 revolution in Iran. The impact on the US economy was traumatic: from being in the black in 1973, the balance of merchandise trade slid into a $5-billion deficit in 1974.7 The USA was paying $16 billion more for its foreign oil in 1974 than it had in 1973. One of Ford’s first statements to the nation after becoming President was: ‘The nation needs action not words…We must not let last winter’s energy crisis happen again.’8 The American economy was in serious trouble. Declining competitiveness, unemployment, inflation and an increasingly hostile view of US capitalism from the LDCs all conspired to compound its problems. Jobs and the threat to domestic prosperity now became issues in the USA in a way that they had not done since the Great Depression. All this aroused domestic constituencies to greater sensitivity to any aspect of foreign policy that had a bearing on economic prosperity. On one level this strengthened the case for expanding trade with the Soviets. On another it weakened it, because of fears of cheap, non-market competition. In particular, the position of organised labour was highly complex. There was both strong ideological antipathy against trade with the Soviets and a fear of being swamped by cheap communist products. On the other hand, organised labour was not

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adverse to East-West trade arrangements that would help ailing US industries, for example merchant shipping. In contrast, farmers were all in favour of food trade, and big business in general could see much to be gained—and much to be lost to their European and Japanese competitors if the USA did not take effective steps to facilitate US trade with non-market economies (NMEs). Here, credits were the main obstacle to expansion. Before the January 1975 Stevenson amendment, Eximbank had extended $648 million to NMEs in 1973–5, compared to $5 billion by its five main Western competitors. To the Soviets alone, the USA had extended $470 million of credits, compared to $2 billion by West Germany. After the USA suspended credit allo-cations, its allies granted a further $7 billion, a substantial portion of which would probably otherwise have come from the USA.9 The political decision to suspend credits clearly damaged US business and Kissinger’s hopes for détente. However, even when economic forces were allowed to operate more freely, they imposed new perspectives on foreign policy under Ford and diminished the power and influence of Kissinger. Illustrative of this was Kissinger’s abortive effort to link US wheat sales to oil supplies from the Soviets, primarily for political pay-offs. In the event, the maritime industry, rather than Kissinger, extracted a quid pro quo for the wheat sales, and this had more to do with domestic economics than foreign-policy linkage. Economic issues directly involved with détente will be considered later; for the moment the focus is on the decline of its political fortunes because of SALT 1, and growing concern about vulnerability in US defences. Ford thought that: ‘Our new ties with the Soviets were possible,…only because the Soviet leaders were becoming concerned about developments within the People’s Republic of China.’10 He was less sanguine about détente than either his predecessor or Kissinger. Perhaps more importantly, he had less invested in its success and maybe a presidential election to lose if he tried to buck public opinion and the advice of his Defense Department and the JCS, all of which were critical of détente. Eight months before Ford took the reins of power, Defense Secretary Schlesinger warned of deterioration in the strategic position of the USA and set in motion a gradual shift in US defence policy in an attempt to achieve ‘meaningful symmetry’. In 1974 the eminent scholar Albert Wohlstetter voiced similar concerns to Schlesinger’s, albeit in a more academic vein, in two important arti-cles.11 Unlike in many other countries, in the USA such academic arguments have purchase on government. Over the following years the debate continued and became even more critical of the dangers of détente. By 1976 Paul Nitze, author of NSC-68 and one of the founding members of the 1950 Committee on the Present Danger, helped to revive that committee as a pressure group to argue, not for ending negotiations on arms control, but for reversing the concessions and the advantages for the Soviets that had flowed from them.12 In Congress, Senator Jackson, from his influential position as Chairman of the Senate Armed Services Committee, continued his attacks upon détente and the SALT 1 agreement. In 1973 he had forced the resignation of Gerard Smith, the Chairman of the Arms Control and Disarmament Agency, and reduced the agency’s size and its finances. Fred Icklé took over, and he was sceptical of détente, more hard-line on arms control, and worked closely with Schlesinger’s successor, Donald Rumsfeld, in preventing moves on SALT 2 during 1976.13 Jackson was going from strength to strength, and yet still the Administration did

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not seem to have got the measure of the man. It was largely because of Jackson that the Trade Act of 1974 had to be passed with the effective denial of both credits and MFN for the Soviets. The result was the repudiation of the US-Soviet trade agreement by Brezhnev. Despite these setbacks, actual or imminent, Ford and Brezhnev held a summit meeting in Vladivostok in November 1974. Kissinger had laid the groundwork for this in an October visit to Moscow, when he received the impression that the Soviets were willing to move on SALT 2. This proved correct. At Vladivostok, Ford and Brezhnev agreed to limit ICBMs to 2,400, with a further limit of 1,320 on multiple independently targeted reentry vehicles (MIRV). It looked as if only the fine details had to be worked out, and even Schlesinger acquiesced in the deal, albeit somewhat reluctantly. However, problems soon arose about how to slot the Soviet Backfire bomber and US cruise missiles into an arms-control system. While SALT 2 stalled, events elsewhere moved rapidly and endangered the whole project. In July, on the advice of Kissinger and his NSC deputy, Brent Scowcroft, Ford decided that he would not be available to receive the renowned Soviet author and dissident Alexander Solzhenitsyn in the White House. One historian described this as the largest public relations disaster of détente.14 Both liberals, concerned with human rights, and conservatives, worried about defence and always ideologically disposed to exploit any anti-communist propaganda opportunity, had a field day with the hapless President. The conservative Republican governor of California, Ronald Reagan, now prepared to cast his hat into the presidential ring for the 1976 election. Worse was soon to follow. At the end of July Ford left for Europe to attend the conference that produced the Helsinki accords. Much to Ford’s anguish, the Right, Senator Jackson, Solzhenitsyn and expatriate east Europeans in the USA condemned American participation, characterising it as yet another détente disaster orchestrated by Kissinger, and castigated Ford for allegedly legitimising the Soviet empire in Eastern Europe. The irony of all this was that the Helsinki Accords, and particularly Basket Three, concerning human rights, became a subversive force for change within the Soviet empire. By the autumn of 1975 the economy was moving out of recession, but Ford was still under attack from critics of détente, and the Right was growing more and more restless. Exactly a year before the November 1976 presidential election, Ford decided on a major reshuffle in his Administration. The ‘Halloween massacre’, as it was dubbed, was prompted by difficulties with Defence Secretary Schlesinger, but the changes went far beyond the Defense Department. And, despite Schlesinger’s departure, there was a clear swing to the right and away from Kissinger as the centre of foreign policy-making. The most important move was Donald Rumsfeld’s to Defense. He was a close friend of Ford and someone who was both more conservative and more anti-détente than Schlesinger. Brent Scowcroft took over as NSA, which left Kissinger with the State Department as his only bailiwick. Rogers Morton stepped down because of ill health and was replaced by Elliott Richardson as Secretary of Commerce. These moves were important. Soon an alliance of economic, defence and national security forces squeezed Kissinger’s détente policies into a political wilderness. Kissinger had lost his ready access to the President, and only had the State Department from which to fight his corner.15 Ironically, the swing to the right and away from détente did little to salvage Ford’s

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political fortunes, and it did not stave off the danger of a presidential challenge from Reagan, who telephoned Ford on 19 November to announce his candidacy for the Republican presidential nomination. At the same time, problems on the periphery, primarily in the form of a crisis in Angola, also adversely affected the Administration. The overthrow of Portugal’s long-serving dictator Antonio Salazar by a left-wing led coup in 1974 precipitated a rapid decolonisa-tion of the Portuguese empire in Africa. Instability and civil war followed in Angola, and in the summer of 1975 Kissinger authorised CIA support for anti-communist forces there. In November the situation escalated dramatically with the introduction of substantial numbers of Cuban troops airlifted in by the Soviets to support the communist faction. The Cubans were seen as Soviet proxies by much of public and congressional opinion in the USA. To its detractors, this was another sign of détente’s futility. For Kissinger, it was a problem that had to be contained by deploying US resources: if the situation were not contained, then détente really would be under pressure. For Kissinger, sticks as well as carrots were an integral part of détente. The US Senate took a different view and on 19 December 1975 voted in favour of the Clark amendment to remove the stick of further US assistance to Angola.16 Kissinger’s foreign policy had received yet another setback, but even more were to follow. At Helsinki, Ford and Brezhnev had failed to break the impasse on SALT 2, caused by the problem of how to treat the Backfire bomber and cruise missiles. By December another visit to Moscow had been scheduled for Kissinger, but the situation in Angola forced a postponement until the New Year. Kissinger eventually went to Moscow in January with two negotiating positions. The first the Americans rightly expected the Soviets to reject, but they hoped to do business with the second. It proposed that the Soviets should be allowed 275 Backfire bombers by 1981, with restrictions on their deployment. In return, the USA would exclude long-range cruise missiles from submarines, but keep medium-and short-range missiles on up to 25 surface ships. There would also be a cut of at least 10 per cent in ICBMs on both sides. According to William Hyland, one of Kissinger’s assistants in Moscow, Brezhnev ‘responded favorably, without accepting…outright’ the second option. However, back in Washington the JCS, led by Chief of Naval Operations Admiral James Holloway and Secretary of Defense Rumsfeld were about to pull the rug from under Kissinger. A meeting of the NSC was convened on the insistence of the Defense Department, and the navy representative declared that they ‘had no interest in…[the] plan to protect their right to put some cruise missiles on surface ships; on the other hand, they might have such an interest in submarines—in other words, the exact opposite of what…had [been] proposed to Brezhnev.’17 Hyland later wrote: To hold a high level policy meeting in the midst of negotiations with Brezhnev was in itself unprecedented. It seemed to us that we were close to being repudiated, though this turned out not to be the case. Ford was outraged at the confusion in the Pentagon. At first Kissinger exploded, but then he became strangely resigned. I think he realized that this was the beginning of the end for him; his role would never be the same as in the old days.18

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This was actually a bit further on than the beginning of the end for both Kissinger and détente. When he returned to Washington, Kissinger was confronted by a sustained attack from Rumsfeld and the JCS on the proposals that he had put to Brezhnev. In the end, Ford ‘reluctantly concluded we would not be able to achieve a SALT agreement in 1976’.19 He backed Rumsfeld, retreated from détente and abandoned Kissinger. By the time Ford came to give a speech in the American heartland at Peoria on 5 March, he had even rejected the term détente in favour of ‘peace through strength’. Kissinger later blamed Ford for inadequate foresight and vacillation. He told Soviet ambassador Dobrynin with a touch of bitterness that: ‘He was sure…if Ford had made a firm decision after [my]…return from Moscow in January with a compromise, and if he had then made the Pentagon respect his opinion, the [SALT] agreement could have been signed as early as March.’20 Kissinger’s position had been under threat—though not intentionally so—from Ford from the moment that the President took over in the White House. Ford’s style of operation was different from Nixon’s and not to Kissinger’s advantage. Ford was much more of a conventionalist than Nixon, and so he wanted to draw back into the main bureaucratic flow the various departments of state that Nixon had so pointedly excluded: a situation which Kissinger had benefited from in terms of power and influence.21 Law, reports and bureaucratic changes all affected the content and the way that the USA formulated its economic statecraft during the Ford years. Overlaying everything in the economic field, including committees such as the CIEP, was the Economic Policy Board (EPB), created by executive order on 30 September 1974. The EPB, chaired by Secretary of the Treasury, William Simon, was ‘to provide advice to the President concerning all aspects of national and international economic policy…oversee the formulation, co-ordination and implementation of all economic policy of the United States [and] serve as the focal point for economic policy decision-making’,22 and, unlike in the Nixon Administration, such formal language meant something. William Seidman, Assistant to the President for Economic Affairs, was appointed Executive Director. Seidman was a key figure in the Ford Administration: a co-ordinator and broker of policies, and someone who had the respect and confidence of the President. A further development came with the 1974 Trade Act, which mandated the establishment of a committee to monitor trade to ensure that it was conducted in the national interest.23 The result of that was the creation of the East-West Foreign Trade Board (EWFTB).24 It was soon decided that the EWFTB should not have a licensing role, but should have both powers of ex post facto review and of input into general policy formulation.25 As with the EPB, the chair and deputy chair went to Simon and Seidman respectively, with Gerald Parsky, Assistant Secretary of the Treasury for International Affairs, as chairman of the Committee’s Working Group. At first neither the Department of Defense nor the NSC had full membership of the EWFTB, which could be read as a sign that the forces in favour of foreign policy détente and trade liberalisation were still in command. That was to change by the end of 1975. The contrast between the administrative styles of the Nixon and Ford Administrations becomes clear from these changes. The balance of power was shifting. It was moving away from the White House and back to the traditional departments and agencies, away from the existing foreign policy-making nexus of power to the economic branches of

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government. These changes would cause Kissinger difficulties. Furthermore, when the balance began to shift again, in late 1975, it was to favour Defense rather than the State Department, and this again diminished the power of Kissinger and the forces of détente. Although Ford set out to restructure the bureaucracy and refashion the conduct of government affairs, he could not pre-empt the outpouring of advice and recommendations for reform that followed in the wake of both Watergate and disillusionment with détente. No less than three reports emerged that bore on government foreign policy-making and the issue of US economic statecraft towards NMEs. In June 1975 a report for Congress was released: the ‘Murphy Commission on the Organization of the Government for the Conduct of Foreign Policy’. This was followed in February 1976 by both the Bucy Report, An Analysis of Export Control of Advanced Technology: A Department of Defense Perspective’, and a General Accounting Office (GAO) study, ‘The Government’s Role in East-West Trade—Problems and Issues’. Some of the details of these three reports will be considered later. Here all that it is important to note is that they questioned the conduct of foreign policy and its co-ordination in general, and that between them they raised three important matters to do with foreign economic policy. The first was about promoting the advancement of the Department of Defense in export control monitoring; the second raised yet again the issue of the importance of hightechnology transfers to communist countries; and the third identified US lack of faith in COCOM and dissatisfaction with its current operation. The problem of diverging attitudes towards the Cold War on the part of the USA and its major allies in Western Europe and Japan became more and more obvious as the 1970s progressed. The divergence showed in contrasting European and American attitudes to the CSCE and the Helsinki Accords. Americans in general, and even the détente factions in the Nixon and Ford Administrations, thought that the Europeans were moving too far too quickly. They recognised that West European interests were not identical to America’s, and that in some respects the interests of the allies cut directly across those of the USA. Part of the problem with Europe was to do with US neglect because of Vietnam, part of it was to do with lack of appreciation of Europe’s newfound sense of pride and importance (the latter badly slighted by Nixon’s and Kissinger’s patronising audacity in declaring 1973 the Year of Europe without even consulting the Europeans about it first). But it was not just pride that was at stake; there were also substantial interests as well. After the invasion of Czechoslovakia in 1968 and the promulgation of the Brezhnev Doctrine, asserting the right of the Soviet Union to intervene directly to help its fellow socialist states, it became evident to West Europeans, and particularly Willy Brandt, that a new framework for relations between East and West Europe had to be devised. They had to find some way to reassure the Soviets and to make them more tolerant of reform in Eastern Europe and allow détente relations to prosper, progress and expand. In particular, the Soviets needed reassurance about the status quo on post-war European boundaries, and that, among other things, is what Ostpolitik, CSCE and the Helsinki Accords aimed to provide. Under Ford further efforts were made to mend fences and reintegrate US and West European policies on relations with the Eastern bloc. In June 1976 Kissinger called for concerted Western policies on East-West trade at a ministe-rial council meeting of the OECD. In preparation for the economic summit in Puerto Rico later the same month, a

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US briefing paper stated that a major aim was to get the allies to recognize ‘the gradually expanding Soviet and Eastern European role in world economic and financial activities as constituting an issue that warrants regular monitoring, evaluation, and possibly consideration of joint measures’.26 This was symptomatic of growing unease about the operations of COCOM, but many of the problems there had been spawned by US inconsistency and lack of clear policy. After twenty years of insisting on stringent controls, from 1972 to 1975 the USA had practised something different. For the first time since the onset of the Cold War there was a significant and important level of trade between the USA and communist states, and, all of a sudden, US practice was repudiating a quarter-century of US rhetoric. In COCOM serious anomalies arose, which angered and frustrated the allies. The USA, after vetoing the majority of exception requests from the members of COCOM, became the most frequent claimant for exceptions. That might not have been so bad, except that the USA continued to veto other members’ requests for exceptions, caused the longest delays on requests, and was the only member that operated a double-standards system for other countries’ exports and for exports by US subsidiaries from other countries. Scholarly studies of the workings of COCOM in the 1970s all seem to agree that the USA caused disarray among its allies by its inconsistency and its arrogant actions within COCOM.27 For twenty years its selfdenial had carried at least some authority in the organisation. But, once it began to trade actively with communist countries and to seek repeated exceptions for its own exports, that authority dwindled. The Western alliance and the necessarily co-operative system of the multilateral embargo were seriously compromised. When the USA started to turn away from détente and began to have serious doubts about relations with the Soviets and exports of high technology know-how, then difficulties with Western Europe and Japan were compounded: bad enough during Ford’s tenure of office, they were to burgeon into crisis proportions in both the Carter and Reagan periods. This broad context influenced the way US economic statecraft, and more specifically its economic defence policies, developed during the Ford period. Domestic economic forces became more influential, and, although they still favoured expanding East-West trade and backed détente, they were primarily concerned with sales and profits; exchanging economic advantages for political foreign-policy gains had little appeal. Thus, they began to erode the foundations of Kissinger’s vision of détente. Détente was also hit badly by the rising tide of criticism from Jackson, Nitze and Ronald Reagan. Political ineptitude such as that displayed over the Solzhenitsyn affair did not help matters, neither did the flagging commitment generally within the Ford Administration. Angola was an adventure too far for many on the Right. And when Rumsfeld took over as Secretary of Defense in November 1975, it soon became apparent that his department, in alliance with the JCS and the NSC, would not tolerate a SALT 2 agreement that conceded anything further to the Soviets, no matter how much Kissinger might protest. By this time Kissinger’s bureaucratic position had been substantially weakened. The EPB oversaw international economic policy decisions, not the State Department, and his loss of the office of NSA diminished his personal input at the White House. While Kissinger still wanted to develop relations with the Soviets, official reports and changes in the law cautioned the Administration about the dangers of high-technology transfers. This issue was to damage the whole idea of trade with the Soviets. And finally, with a good dose of

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irony involved, America’s allies in COCOM were now again a serious cause for concern because of their more permissive trade policies, especially over technology exports and reluctance to follow any lead from the USA. America’s erratic and often hypocritical and self-serving policies in COCOM in the mid-1970s alienated the allies. This, too, was a major problem, once the USA became obsessed with the problem of controlling hightechnology transfers. It was within this complex interaction of forces that the East-West trade and economic defence policies of the Ford Administration developed.

The 1974 Trade Act On 14 August 1974 Ford had his first meeting with Ambassador Dobrynin, and there was much talk of the vexed question of trade. Ford persuaded the ambassador that ‘there never could be a trade bill unless the Soviets accepted some version of the Jackson-Vanik amendment’.28 ‘Dobrynin conceded that the Soviets would give an oral assurance, but nothing more formal, that 55,000 or so Jews would be granted exit visas each year.’29 The following day a White House meeting with Jackson and his allies produced the basis of an agreement with the Administration. Over the following weeks a complicated series of moves was worked out. Jackson was supposed to accept Soviet informal assurances that emigration from the Soviet Union would be eased (a figure of 60,000 was used) and agree to an exchange of letters with the Administration acknowledging that this would meet the conditions of the Jackson-Vanik amendment. This would then allow MFN and credits to be extended to the Soviets. The Soviet understanding was that all this would be low-key, so as not to embarrass them with suggestions that their internal affairs had been interfered with. There were two serious problems with all this. The first was the Eximbank reauthorisation bill, containing the Stevenson amendment restricting new credits to the Soviets to $300 million. This, which was progressing independently of the Trade Bill, was a problem not specifically addressed by the arrangements with Jackson, and one to which the Administration appeared to be paying inadequate attention. The second was the different interpretations of what was going on. On 18 October, when the letters were signed and exchanged, Jackson immediately released copies to the press and publicised what he wanted to see in the agreement, namely a Soviet climb-down and capitulation to his demands. The Soviets were furious with both his performance and the claim that at least 60,000 emigrants would be allowed to leave the Soviet Union. Soviet anger and their sense of betrayal were evident a few days later when Kissinger went to Moscow to prepare for the Vladivostok summit. Brezhnev was infuriated by the emigration/MFN fiasco. He made that clear in no uncertain terms, and on 26 October Foreign Minister Gromyko personally handed a letter of complaint to Kissinger. It read in part: I believe it necessary to draw your attention to the question of publication in the United States of materials, including correspondence between you and Senator Jackson, which create a distorted picture of our position as well as of what we told the American side on this matter.30

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In thinly disguised language the letter charged the Americans with duplicity and ignoring Soviet judgements, and told them that emigration figures were likely to fall away rather than expand to 60,000. This was partly to do with the impact of the Yom Kippur War on the attractiveness of Israel as a new home for Soviet Jews. Kissinger now compounded the Byzantine series of moves, countermoves, feints and dissembling by keeping the letter to himself. At Vladivostok nothing further transpired on the trade and emigration issues, and in December Kissinger testified in the Senate on the Trade Bill, which went forward with the Jackson-Vanik amendment intact, but with provisions for its waiver on the basis of the ‘agreement’ embodied in the October exchange of letters between the Administration and Jackson. This, as the letter handed to Kissinger by Gromyko on 26 October indicated, was completely unacceptable to the Soviets. If the Soviets needed further convincing that the 1972 trade agreement was not worth the candle, then the Stevenson amendment, irritation over US manoeuvrings, a temporary suspension of grain sales, and the fact that, in contrast to all this, they themselves had scrupulously upheld the spirit and intent of the 1972 agreement, including repayments of the Lend-Lease debt instalments ($154 million by July 1975 when they were stopped) were enough to provide it. On 18 December the Soviets released the text of the Gromyko letter, and Dobrynin indicated that the Soviets could not accept the conditions for MFN treatment. On 10 January the Soviets reiterated the unacceptability of the conditions officially, and on 14 January a deeply embarrassed Kissinger announced that the 1972 Trade Agreement could not be brought into effect at this time. The combined effect of the Eximbank legislation and the Trade Act denied MFN for the Soviets and savagely restricted credits to them. The Stevenson amendment restricted new credits to $300 million, made credits over $50 million subject to Congressional scrutiny, and prohibited credits for mineral extraction projects, including oil and gas.31 According to Daniel Yergin, it was the Stevenson amendment that was ‘the decisive reason for the Soviet refusal to implement the trade agreement’.32 With that agreement abandoned, the poten tial for the USA to offer carrots in its détente diplomacy was severely restricted. The Administration now set about trying to overturn this reversal during 1975. By April 1975 the Administration had taken stock, and Ford told the Congress on the 10th that remedial action to repair the situation that Jackson-Vanik had created should be considered. The same month, Simon told the Soviet representatives in the Joint USSoviet Commercial Commission that new proposals would be put before the Congress by ‘mid year’. Ironically, Kissinger was wary of these proposals. According to a memorandum for the EWFTB there were ‘sharp differences on this issue between the State and Treasury: Kissinger basically feels that we cannot take any new initiatives on new legislation until later this year and prefers not to discuss the subject.’ In contrast with that position, Simon had publicly committed himself to action by ‘mid year’.33 The reasons behind Kissinger’s position are, unfortunately, not disclosed. He might have been unwilling to reopen a fiasco that had so recently caused him embarrassment. There was also the crisis in Angola, which could have made attempts to extend economic benefits to the Soviets look like appeasement at best and, at worst, as trying to buttress détente when many Americans already viewed it as a lost cause. And, finally, Kissinger was considering the possibility of a deal involving Soviet oil for US grain, and he may have thought that the chances of achieving this would be compromised if more normal trade

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relations were to be established.34 At a full board meeting of the EPB/CIEP on 14 May something of a compromise was struck. It was decided not to take direct action immediately, but to see what could be devised in order to prepare the ground for legislative amendments later in the year. Kissinger and the State Department refused to concur with the suggestion that ways to amend Title 4 of the Trade Act should be explored by the EWFTB, but even on this they were overruled.35 Gerald Parsky set up a sub-group to consider the way forward. On 3 June he distributed its findings to members of the Board, The report found that if trade relations could be normalised ‘major benefits would result’, but, while there was favourable movement outside Congress, the Jewish lobby and labour were holding firm, so the report reluctantly concluded that the chances of congressional action to modify Jackson-Vanik were ‘negligible’, unless there were a significant move by the Soviets.36 The Soviets in fact looked to the Americans to make the next move on this. Peter Flanigan, returning from Moscow, reported that both Patolichev and his deputy Akhimov expected action to try to restore credits to the USSR. They would not understand, according to Flanigan, if the Ford Administration did not try to lift the restrictions on credits, though they would understand if it tried and failed.37 Ford was now at least prepared to try to move on the Trade bill. He instructed Kissinger to draw up letters for members of Congress giving notice that remedial action would be taken after July. He sent a letter to Al Ullman in the House on 27 June arguing that the 1974 Act ‘has proved to be both politically and economically harmful to our national interest and has not achieved the objective which its authors intended’.38 On 11 July Simon reported that a party of senators recently returned from Moscow was unanimous that remedial action should be taken on the Trade Act. The EWFTB now decided that moves should be made after the congressional recess, round about Labor Day in September.39 During Ford’s time in Helsinki that same month, ‘The emigration-trade problem was touched on only briefly. The Soviets gave no new signal, and no indication that they would be forthcoming on this matter.’40 So it looked as if the ball were still in the American court. However, by now, Angola was beginning to affect matters, and Kissinger was pessimistic of being able to do anything during the fall. In fact, the situation deteriorated even further.41 In the new year ‘The Secretary of State testified before the Senate Finance Committee on January 30, 1976, that the situation in Angola made the present time inappropriate for immediate movement on remedial legislation.’42 Hope of rearranging the formal trade relationship was now abandoned.

Grain, oil and the maritime trade Grain, oil and shipping were to prove just how important the domestic economic constituencies could be in foreign policy once economics is elevated to high poli-tics.43 In 1975 the Soviets again appeared vulnerable to leverage, because of poor harvests and their vast grain import needs. To Kissinger this was an opportunity not to be missed, and one that could revive the virility of détente and provide a means to keep the Soviets on the straight and narrow for at least a year or two. It would provide a degree of interdependence, which the Soviets would be foolish to ignore when making their

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calculations about the costs and benefits of any new scheme of international adventurism. However, there were economic benefits to play for on the US side as well as on the Soviet, and a Pavlovian pain-avoidance lesson to learn from the 1972 Great Grain Robbery. Economic instruments of state could not be wielded solely for political advantages in the foreign-policy circumstances that had been created (not least of all by Kissinger) by the mid-1970s. The economic interests of both the agricultural and maritime domestic constituencies would, in the end, have the decisive say, not Kissinger and his foreign policy ambitions. Signs that the Soviets were buying large quantities of grain appeared in the autumn of 1974. In October the USA took precautionary measures to prevent the price inflation that the Soviets had caused in 1972–3 by their heavy purchasing and imposed a priorapproval system for Soviet contracts. This was lifted in March 1975 and replaced with a simple requirement that notice had to be given within twenty-four hours of any contract struck for the sale of over 100,000 tons of grain. Furthermore, at a speech in Sioux City, with his eye on the 1976 presidential election, Ford had pledged that there would be no restrictions on grain exports and encouraged farmers to expand production. When farmers responded with increases over the previous year’s output of 22 per cent for wheat and 30 per cent for corn, and with the Soviets in the marketplace for large purchases, the Americans faced a dilemma. They had an array of incompatible interests. They wanted to export grain for the benefit of both the balance of payments and American farmers, and Ford had given public commitments on this. At the same time, Ford wanted stability in the grain market. The last thing he wanted was another Great Grain Robbery and food price inflation: to avoid repetition of these eventualities a long-term grain deal with the Soviets seemed to be the solution. Kissinger and the State Department looked to use a grain deal for leverage on the Soviets in order to impress on them anew the importance of restraint in international affairs. They also specifically wanted to land an oil deal. Farmers wanted maximum wheat sales immediately. And, finally, the maritime industry, with its influential International Longshoremen’s Association, wanted a new maritime agreement that would help to expand the US merchant fleet. The 1972 agreement stipulating that 33 per cent of all grain shipments to the Soviet Union should be in US bottoms (reduced from the 50 per cent of the 1963 arrangements) was not working: the percentage of US shipping involved was well below the minimum. In the light of this, it seems prima facie most apt that the GAO Report on ‘The Government’s Role in EastWest Trade—Problems and Issues’ should have criticised the different agencies of government for creating confusion because of their conflicting views. ‘Commerce seeks to promote American exports, Defense to protect US security interests, and State to enhance diplomatic objectives.’44 However, this was all a little naïve: democratic governments work on the premise that departments are supposed to fight for their own interests—that is an important aspect of open government. What the GAO report, and others produced at this time, failed to see was that in the very process of improving the co-ordination of domestic and foreign policies, something they were all keen to see, matters would necessarily became more complicated. The ever-increasing blurring of the ‘water’s edge’ created more priorities to be weighed against each other. Economics was high politics, and that, above all else, injected domestic interests and priorities into foreign policy-making. No wonder then that policy-making at times looked chaotic, with

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all the different positions of agencies and departments jostling each other for position. Nevertheless, out of this apparent chaos, there emerged a clear and cogent policy, though it was not one that pleased Kissinger and the proponents of foreign-policy linkage and détente. In July 1975 the issue of grain sales to the Soviets gained increasing attention. Policy development was in the hands of an EPB/NSC Commodities Policy Coordinating Committee, which delegated direct responsibility for the negotiation of a long-term grain deal with the Soviets to an EPB/NSC Food Committee. At several EPB executive committee meetings in mid-July, there was discussion of papers on problems to do with assessing Soviet needs and the conditions of supply in the USA. It became clear and desirable that substantial sales should be effected, but how, when and in return for what were all uncertain. Furthermore, the final quantities involved could not be determined either, at least not until there were accurate figures for the US harvest. On 18 July the whole matter was brought before Ford. The meeting began as a discussion of the likely impact of large grain sales to the Soviets on US domestic food prices. It developed into an issue ‘involving foreign policy interests and US maritime interests’.45 Four key matters arose. First, prompted by Kissinger, the meeting agreed on the need for a better monitoring system for grain sales, and that no further contracts should be made without explicit authorisation. This resulted in a temporary suspension of sales to the Soviets, but the reasoning behind it also pointed towards a long-term grain deal.46 Second, Ford placed the power to authorize grain exports not with the NSC or the State Department, but with the EPB. Third, the link between food sales and foreign policy was emphatically pointed out by Kissinger, who argued: that ‘the US grain crop was a tremendous asset,…Merely pouring out the grain for “gold” was “very painful” when appropriately managed sales could buy a year or so of good Soviet behavior.’47 Kissinger was laying down a marker for what he wanted to do with grain sales, but the fourth issue would ultimately compromise his hopes. In discussing the Maritime Agreement of 1972, Secretary of Labor John Dunlop explained that US tonnage was well below the 33 per cent prescribed. Ford, ominously for Kissinger’s ambitions, stated that he ‘considered the maritime issue as important as the grain export issue’.48 It was indeed to prove so. The overall nature of Kissinger’s ambitions regarding a grain deal was revealed a few days later in Helsinki. As the conference concluded, Ford, Brezhnev, Kissinger, Gromyko and their close advisers met again to see if they could resolve the problem of the Backfire bomber and cruise missiles for SALT 2. They failed, but after their aides left the four senior men discussed Kissinger’s ‘brainstorm of trading American grain for Soviet oil’. ‘Kissinger reasoned that we could accomplish two objectives: create another link with the Soviets and teach the Arab oil producers a lesson. Soviet oil would be instantly competitive and there would be the added symbolism of the two superpowers combining to deal with the oil crisis.’ Brezhnev indicated that the Soviets wanted to buy 15 million tons of grain, and he ‘offered to sell twenty-five million tons of oil over a five year period’.49 The idea of a long-term deal was gaining currency. Ford was cautious, because US grain prices were already rising, and Brezhnev was also cautious when he heard that Kissinger was looking for a 20–25 per cent discount on world oil prices from the Soviets. Nevertheless, the meeting ended amicably with a decision that these matters should be taken up again privately with Kissinger.

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By now the Soviets had already contracted to buy nearly 10 million tons of US grain, and everyone was becoming concerned about the effects that this, and the expectation that the Soviets needed a further 10 million tons, would have on US prices. The President’s Council of Economic Advisers deemed it prudent not to enter into further contracts until the size of the US harvest could be determined in August. In the meantime, Paul MacAvoy of the CEA circulated a memorandum informing, among others, Butz, Dunlop, and Under Secretary of State, Charles W.Robinson, of the alternatives that were now under consideration by an interagency task force. These were that the Soviets should provide crop forecasts and purchasing intentions earlier than they had in the past, agree to ‘longer-term purchase commitments…so as to stabilize their export demands on world markets’, and ‘a long-term tie-in agreement involving Soviet sales of petroleum to the United States in exchange for a long-term commitment of US grain sales’.50 After digesting this, a meeting on 6 August decided that information about the US harvest was still not complete enough to risk ending the suspension of sales to the Soviets until after the 11 September crop review. As the Soviets appeared desperate to buy, and as there were no other suppliers who could come up with such quantities, it appeared that the USA had nothing to lose by delay and much to gain. And, in any case, the longshoreman’s union had threatened to go on strike and refuse to load grain bound for the USSR. They eventually did strike on 18 August. They had substantial grievances, as well as ideological antipathy towards the Soviets: they wanted the terms of the 1972 agreement, guaranteeing 33 per cent of the shipping of grain to the USA, to be honoured, or even improved upon. So, irrespective of what the government did, no grain would go to the Soviet Union for the time being. Moreover, according to Robert Porter, Executive Director of the EPB: many State Department officials felt that the Soviet predicament provided the US substantial leverage. Some State Department memorandums [sic] during this period envisioned a grain—oil deal structured to provide the US with clear-cut price advantages both for grain (higher than market prices) and for oil (lower than OPEC prices) as well as securing longer-term grain market and oil supply assurances. Furthermore, they felt that the mere process would provide implicit linkages to general foreign policy objec-tives.51 The EPB confirmed the policy of wait and see until September, and Ford approved the idea of seeking a long-term grain agreement, but during August and September things went badly wrong for Kissinger and the State Department. Problems arose because of a triangle of difficulties that developed between the farming community, organised labour (in the form of the longshoremen) and the Ford Administration. The farm constituency was roused to anger by two things: first the (albeit temporary) restriction that Ford had imposed on grain sales contrary to previous commitments, and, secondly, the fact that the Secretaries of State and Labor seemed to be having more say about grain sales than the Department of Agriculture. When it transpired that the US harvest was strong (though not quite so strong as initially thought) and that the Soviets were eager to buy, the pressures on Ford to agree to sales mounted. He could not repudiate his previous commitment to grain sales, and so it was only a matter of time

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before large sales would have to be agreed (and the Soviets were well aware of this). Organised labour was also given an important stake in the consummation of a deal. Dunlop came up with a simple six-point plan to appease the unions, get grain shipments moving and allow the negotiation of a long-term grain deal. The incentive for the longshoremen was a commitment to get a new deal with the Soviets that would ensure that at least one-third of grain shipments would be in US ships. Ford explained these proposals to labour leaders personally on 9 September, and the longshoremen’s strike soon came to an end. The Administration, having squared things with the unions, could now only square things with agriculture, and with Ford’s conscience, by consummating a grain deal with the Soviets. If it did not, there would be savage political repercussions within the USA from both agriculture and labour, and the Soviets were well aware of that too. The USA had lost its bargaining leverage. On 11 September Under Secretary of State Robinson took a negotiating team to Moscow to try to get a five-year grain deal that would guarantee the Soviets between 5 and 8 million tons of grain a year, in exchange for which the Soviets should give earlier indications of their actual needs and the state of their own harvest, increase storage facilities, and agree to a let-out clause for the USA in years when it had a poor harvest. The Soviets were receptive to the overall structure of such an agreement, but they balked at a parallel oil deal. Back in Washington, only the State Department urged the importance of the oil agreement, other departments and agencies did not believe that the Soviets would grant the price discounts necessary to make it attractive to the USA, and there was concern in the Treasury about both the kind of selling agency and the form of economic regulation that would have to be devised to dispose of what amounted to a relatively small quantity of Soviet oil. The day after these discussions took place Robert Blackwell, Assistant Secretary of Commerce for Maritime Affairs, returned from talks in Moscow with a new maritime agreement. It transpired that he had already used grain to get a quid pro quo for the US merchant marine. He reported that Soviet grain needs had ‘materially strength-ened his negotiating position’. The Soviets had agreed to a new ‘shipment rate…$16 a ton through December 31, 1976, coupled with an escalator clause’.52 Blackwell was confident that this would substantially increase the use of US merchant ships. In the light of renewed pressure from the farming community for a grain deal, the Soviets began to procrastinate, knowing that the Ford Administration was losing its bargaining leverage. By 8 October Robinson was again in Moscow reporting that the Soviets ‘were not willing to sign a letter of intent obligating them to conclude within thirty days a deal to sell the US 200,000 barrels of oil a day at prices discounted 15 percent from world market prices. The refusal came from the highest Soviet levels.’53 Ford hung on for a few more days, but on 20 October he announced a long-term grain deal with the Soviets for 6–8 million tons a year. There was also a new maritime agreement, but no deal on oil. Kissinger had been outvoted by the representatives of the domestic economic constituency on the EPB: Simon, Butz, Dunlop, Rogers Morton, and James T. Lynn, Director of the Office of Management and Budget. Roger Porter later commented that Ford’s ‘interest in and commitment to an oil deal’ were never very apparent. He added: ‘It is unclear what benefit, if any, Kissinger obtained in the SALT talks, Africa, or the Middle East, but the ploy to get an oil agreement at discounted prices

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failed.’54

The Department of Defense and high-technology transfers The policy of using economic linkage with the Soviets to promote the political aspects of foreign policy under the guise of détente was in retreat by 1976. It was pushed back by the re-empowerment of the economic agencies of government, the impact of domestic economic constituencies, and the political manoeuvrings of right-wing critics of SALT 1 in Congress and in the presidential election campaign. A further factor that removed even more of what little flexibility remained for détente stemmed from Department of Defense concerns about high-technology transfers; these were reflected in three formal reports in 1975–6. The first two, the Murphy Commission Report and the General Accounting Office (GAO) Report from the Comptroller General, were published in June 1975 and February 1976 respectively.55 The Murphy Report expressed general concerns about poor coordination of foreign policy-making. It proposed that the jurisdiction of the NSC should be enlarged to encompass international economic policy, and that the Department of Defense should become a full member of the EWTB in order to assess the problems of technology transfer more effectively. The EPB managed to resist the enlargement of the NSC, and the position it took on this was hardly surprising: it had been established to deal with this very problem of integrating foreign and domestic economic policy-making into the political mainstream of the Administration. The matter of Defense Department membership of the EWFTB proved a more drawn-out affair that was not resolved until January 1976.56 The GAO report was specifically about East-West trade and was highly critical of government for what it characterised as ill-thought-out policy plagued by interdepartmental conflict. The Administration was deemed to be ignorant of the problems of trading with NMEs and was called upon to play a more supportive and constructive role to help US companies. Particular concern was expressed about export controls and technology transfers. Some rationalisation of policy-making was suggested by giving Commerce more authority generally, but with the State Department having more say and developing more expertise in the field of technology transfers. In addition, the responsibilities of the Department of Defense should be clarified. As a GAO official testified before the Senate, within the Administration there was an ‘absence of agreement on criteria and standards for determining which goods should be controlled and whether foreign policy, commercial or defense considerations should determine export control authority’.57 Furthermore, even if US officials could get policy-making right, there was a problem with putting it into effect. ‘US officials directly concerned with export control issues have little confidence in the multinational Coordinating Committee’.58 There was concern that COCOM’s exemption policy was not in harmony with the US’s, and the report added that the Administration should ‘Ensure that the necessity and value of a multilateral consensus on export controls is carefully weighed against US national security interests.’59 Not only was there a lack of confidence in the way policy was decided, there was also little faith in the way that it was implemented.

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An interdepartmental task force chaired by the CIEP responded to the report in a complacent and dismissive way. After 33 pages, it summed up: The role of the US Government in relation to private US firms does not need to be significantly altered to accommodate trade with the NMEs.’60 The problems were just not significant enough to warrant such action. The Comptroller General’s comments on this were that ‘although the Board indicated concurrence with some recommendations, they were not identified and the response offered no indications of any implementing actions. The Board argued that realistic and effective East-West trade policies and procedures were in existence’.61 While the public face of the Administration appeared complacent in the face of criticisms from Congress and the GAO, in fact things were changing, and the balance of power within government was shifting away from those favouring détente and towards tightening up on certain types of trade with communists. The great fear was that the Soviets would pirate US technology and match it up with the massive throw-weight capability of their offensive missiles to open up a strategic first-strike capability. This was what was behind the renewed concern with high-technology transfers. As the position of the Defense Department strengthened in the trade control sphere, so the situation of technology transfer controls also changed. Pressure for enhancing the role of Defense in monitoring East-West trade came from various quarters. Both the Murphy and the GAO reports thought that, at the least, the role of the Department of Defense should be clarified. Russell B.Long, Chairman of the Senate Finance Committee and one of the main movers behind the Trade Act section that created the EWFTB, wrote in June 1975 demanding that the Secretary of Defense should be made a full member of the EWFTB, because that was the intent of the act.62 In July 1975 at the urging of Acting Secretary of State Robert S.Ingersoll, a compromise was agreed: the Secretary of Defense would be invited to attend whenever it was appropriate, but he should not be made a formal member, in case that sent the wrong message about the state of détente to the Soviets. By December 1975, after another letter from Long, and with Angola now a serious issue in US-Soviet relations, there was less compunction about how such an appointment might look in Moscow:63 on 3 January 1976 Presidential Executive Order 11894 added the Secretary of Defense to the Board as a full member.64 This more or less coincided with the submission of the Bucy Report, which had been commissioned by the Department of Defense and was to mobilise more concern about technology transfers. The Bucy report was produced by a Defense Science Task Force set up in 1974 and chaired by Fred Bucy of Texas Instruments.65 It explored how controls over hightechnology transfers could be improved, and it published its findings in February 1976. A memorandum to Seidman in July explained: The main distinction is between sales of final items versus transfer of pure know-how, production equipment, and the teaching of those who will operate the equipment; these latter elements carry the most national defense risk. The main recommendation is for Commerce and Defense to put more effort into the analysis of export licenses requiring the transfer of know-how and less into hardware requests.66

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Mastanduno has suggested that the report was ambiguous because it failed to distinguish between civilian and military technology, but such ambiguity was and is endemic to these kinds of endeavour.67 Fungibility means that no hard and fast distinctions can be drawn in general, though—as argued in Chapter 1—fungibility takes time to be effective (whereas direct-use military technology can take effect immediately), and time and circumstance determine what is military and what is civilian technology. The impact of the Bucy report carried over into the Carter Administration, but even in Ford’s last year in office there was an evident cumulative effect both from the criticisms of these various reports and the gradual move by the Department of Defense into a more central role in export monitoring. The Department was also advanced in this respect by legislative changes. The 1974 reform of the EAA was prompted largely by frustration with delays in making licensing decisions that were seen to inhibit East-West export growth and detract from the competitiveness of US companies. In an attempt to remedy these problems, a deadline of 90 days was set for licensing decisions, except for exceptional items. However, as well as concerns directed towards expanding trade, there was also growing concern about the strategic and military implications of trade expansion with the Soviets.68 To address this, at least in part, there were two significant legal changes to export control procedures in 1974 and 1975. The EAA now ‘permitted the Secretary of Defense in consultation with the Department of Commerce to determine types and categories of export applications to be reviewed by the Department of Defense’.69 In the 1975 Department of Defense Appropriation Authorization Act this was strengthened, and there was now a requirement ‘that applications to export to controlled countries be reviewed by the Department of Defense’.70 Congress was trying to get the best of both worlds: to expand trade and protect US strategic national interests. Gradually, but perceptibly, East-West trade controls were once again being drawn under the aegis of those departments and agencies primarily concerned with national security, rather than with expanding trade and using it for foreign-policy linkages. Writing at the time, Daniel Yergin posed what he took to be three crucial questions for East-West trade and détente. How far would the Soviets move towards interdependence with Western trade? How would they pay for it? And would Americans perceive EastWest trade to be generally in the US national interest?71 In the years that followed, it became clear that the Soviets were prepared to continue to expand trade, primarily with Western Europe and Japan, but only under conditions that were commercially and politically acceptable to them. So far as trade with the USA was concerned, the answers to the last two questions would determine how things developed. Limits on US credits, and the fact that American companies did not develop a major stake in the Soviet oil and gas industry (which would have provided an alternative means for the Soviets to pay for US exports), meant that US-Soviet trade was severely limited. Equally damaging, if not more so, was the renewal of US concerns about technology transfers to the Soviets. This was to become the key issue for the USA in East-West trade from 1976 until the end of the Cold War. Even before Ford left office, to be succeeded by Jimmy Carter, official reports, lobbying by groups such as the Committee on the Present Danger, disillusionment with COCOM, changes in the law, and the advancement of the Department of Defense to a more prominent role in export control management—all

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these came together to focus on the danger of technology transfers. This would prove not only to be the issue for US Administrations in East-West trade, but also to be a highprofile and deeply troubling issue between the USA and its Western allies.

The Carter years: before Afghanistan ‘From the beginning, the Carter Administration was a house divided against itself, and it did not stand.’72 Such a Biblical epitaph for the Carter presidency has an appropriate ring, given Carter’s devout Christianity, but just how accurate is it? Carter tried to be a forthright leader in a complex world, and it did not always work. He was sickened by the enormous expenditure on weapons of mass destruction, yet he presided over the greatest increase in the defence budget since the height of the Vietnam War. He led a crusade for international human rights, and yet had to compromise his principles for the sake of national security interests in his dealings with countries such as Iran. He made his support for Soviet dissidents abundantly clear, but expected that it would not affect his dealings with the Soviet leadership in the SALT 2 negotiations.73 He tried to isolate SALT 2 from other issues in US-Soviet relations and ended up forging links between them. He supported the Jackson-Vanik amendment, but for much of his Administration he was keen to promote East-West trade. He offered a collegial system of government, but included within it irreconcilable differences of perspective, most notoriously those between his Secretary of State Cyrus Vance and his NSA Zbigniew Brzezinski. The existence both of contradictory patterns of behaviour and forces within his Administration were largely to do with the nature of Carter’s convictions. ‘To me, the demonstration of American idealism was a practical and realistic approach to foreign affairs, and moral principles were the best foundation for the assertion of American power and influence.’74 His dilemma was how to reconcile the pursuit of the liberal values associated with individualism, the free market and human rights with the exercise of power in the defence of US interests of state in an unruly world where others played by different rules. In this sense we can see that all US Administrations are divided against themselves. All leaders have to strike a balance between these two priorities, which are often expressed as idealism versus realism. The more effective criticism levelled against Carter is that, in juggling the two, his Administration became confused, its policies muddled and ineffective, and that idealism tended to prevail at the expense of US interests. On the whole Carter’s foreign policy has generally been perceived as unsuccessful, even though there were major achievements such as the Panama Canal Treaties and the Camp David Accords, which began the Middle East Peace process. However, in many ways, Carter fell victim to difficult circumstances that afflicted US policy. He knew that the world was changing rapidly, that US power was diminishing in relative terms, and that major readjustments had to be made. For these reasons, as well as to distance US policy from the discredited course taken by the previous Republican administrations, he strove to produce something different and more in tune with what he took to be the tenor of the times. He wanted the USA to adjust to a post-hegemonic age and give more attention to the problems of its own economy. This accurately reflected public opinion,

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which placed the domestic economy at the head of its concerns from the mid-1970s onwards.75 He believed that in foreign affairs, while SALT remained a top priority, complex interdependence (relations between the industrial North and the developing South) and trilateralism (relations between the great industrial blocs of the USA, Western Europe, and Japan) should generally take precedence over relations between the superpowers.76 Above all, he wanted to inject a new sense of morality into US foreign policy. This took the form, primarily, of calls for human rights. Carter publicly supported the Jackson-Vanik amendment during the election campaign, and that alone ensured that human rights would be a high-profile issue in US-Soviet relations, but in his inaugural he went further and made an absolute commitment to human rights. However, he also wanted détente and a further arms-limitation agreement. Secretary of State, Cyrus Vance, caught much of the dilemma that this generated in his memoirs. We [Vance and Carter] both believed in the necessity of continuing détente, but we agreed that it must be reciprocal—the Soviets must understand that political, economic, and trade cooperation with us entailed obligations that they act with restraint. But Carter made clear that one of his highest priorities would be to conclude a new SALT agreement, and without linking it to other aspects of USSoviet relations.77 For over eighteen months Carter tried to compartmentalise the sympathy he displayed for Soviet dissidents and his general pronouncements about the evils of human-rights abuses, on the one hand, and attempts to develop détente through SALT 2, on the other. This task was not easy, and Brzezinski complicated matters with his aggressive views about the Soviet Union. Brzezinski believed that détente, if it were to be practised, had to be comprehensive and reciprocal. He approved of linkages, but wanted them to yield more for the USA than they had done under Kissinger. These views were shared by his Coordinator of Security Planning in the NSC, Samuel P.Huntington, who, as we shall see, tried to translate such views into a commensurate form of economic statecraft. So far as Brzezinski was concerned, US military superiority was necessary to prevent Soviet blackmail, but such superiority had been slipping away, and it was self-evident to him that the Soviets did not want to ‘preserve the status quo, but to transform it’78 in their favour and to the detriment of the USA. To prevent that final transformation from coming about, Brzezinski believed that the USA might even have to abandon hopes for a SALT agreement.79 He saw human rights as a stick to beat the Soviets with and, along with one of Carter’s key domestic advisers, Hamilton Jordan, as a means to build a foreign-policy consensus within the USA. It was a human-rights issue that enabled him to shift US policy to a more hard-line stance. In the early months of the Administration, Vance and Carter managed to hold to a kind of balance and restrict the effect of Brzezinski’s aggressive anti-communism. However, Carter’s proposals for deep cuts in offensive weapons for SALT 2 inadvertently closed that window of opportunity for nurturing détente. The Soviets distrusted his intentions and could not understand why he wanted to abandon what had been agreed with Ford at Vladivostok. In any case, his proposals did not cover cruise missiles, which was now the

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major concern of the Soviets. In the words of Anatoly Dobrynin: ‘The basic line was that the United States was seeking reductions in existing Soviet systems in exchange for marginal cuts in future American systems.’80 By the summer of 1978 little progress had been achieved, and now things changed for the worse for détente and for keeping SALT separate from other issues. The arrest and trial of Soviet dissidents such as Anatoly Shcharansky prompted Carter to condemn the Soviets publicly for not upholding the human-rights commitments they had made in Basket Three of the Helsinki Accords. Now Brzezinski managed to get his own way both through the strengthening of NATO and through playing the China card. The process of strengthening NATO was part of an ongoing empowerment of the US military posture that began in the spring of 1977, but, even so, US reaction to the treatment of Soviet dissidents gave hard-liners like Brzezinski more opportunity to push their policies, and that gave it more impetus. When Carter entered office, one of the first sweeps of his new broom was to get rid of the incumbent Director of the CIA, George Bush, and replace him with Admiral Stansfield Turner. But, before going, Bush left a report that painted a worrying picture of US military decline relative to the Soviets. Its findings were also echoed in the outgoing Secretary of Defense’s last report to Congress. The conclusion was that the Soviets were involved in ‘a drive for military superiority, although as a goal not yet achieved’.81 There was deep concern because of suggestions that the main US land-based deterrent, Minuteman ICBMs, was vulnerable to a Soviet pre-emptive strike. Some have seen this as having such vital implications that it had a decisive effect on the whole panoply of the Carter Administration’s policies.82 This is an exaggeration—for example, if Carter had been so disturbed by America’s alleged weakness and vulnerability, why did he cancel the B-l ‘stealth’ bomber? Nevertheless, these findings did have an effect and in turn helped to father the first major strategic report of the Carter years: set in motion on 20 January, authored and influenced mainly by Brzezinski and his aide Samuel Huntington, and issued in June 1977. The ideas developed therein greatly influenced the tone and content of Presidential Directive 18 (PD-18), 24 August 1977. Brzezinski and the Defense Secretary, Harold Brown, overrode State Department hopes for a less aggressive stance involving the notion of assured destruction and the possibility of reducing US forces in Europe and Asia. PD-18 declared that the USA should maintain ‘“essential equivalence” in strategic forces, reaffirm NATO’s strategy for forward defense, and maintain a “deployment force of light divisions with strategic mobility”’.83 Security policy during the remainder of Carter’s presidency developed in rather erratic spurts. In the light of increasing Soviet activity in Africa and well-publicised Soviet human-rights abuses, the US hardened its policies and in May 1978 persuaded NATO to adopt a programme of modernisation and strengthening. The following year, even though Carter and Brezhnev had scheduled the Vienna summit for the summer of 1979 in order to complete SALT 2, Brzezinski persuaded the President to authorize the development of both the MX missile (to replace the vulnerable Minuteman) and long-range theatre nuclear weapons, Pershing 2 ballistic missiles and cruise missiles.84 In 1980 the Rapid Deployment Force was established, and PD-59 of July 1980 was the culmination of the Administration’s shift towards a more aggressive posture ‘concerned with mobilization, defense, command and control for a long conflict, and with flexible use of air forces,

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strategic and general purpose, on behalf of war aims that we would select as we engaged in conflict’.85 This was not just deterrence according to the long-standing doctrine of mutual assured destruction (MAD): it was deterrence by projecting the possibility of the USA being ready, willing and able to fight a protracted nuclear war. Also, as the main author of PD-18 later observed: The directive also posited that American policy in the economic sphere should reflect the mixed co-operative-and-competitive nature of the US-Soviet relationship and the distribution of economic and technological resources between the two countries.86 The implications of this will be considered shortly, when the focus shifts to the formulation of the Carter Administration’s economic defence policy. In order to create a new balance of power in Asia and help restrain the Soviets, the USA played the China card. Brzezinski had pushed for this all along, but, in the early months of the Administration, Vance had restrained him, so it took time and circumstance as well as his energies to build up momentum.87 Eventually, the USA normalised relations with China in January 1979, negotiated a trade agreement that extended MFN treatment as of 1980, relaxed the strategic embargo, and sold the Chinese military useable equipment that was still embargoed to the Soviets. Nevertheless, in June 1979 Carter and Brezhnev held their one and only, and much delayed, summit in Vienna. There they signed the SALT 2 agreement. Despite all the problems of the Carter years from 1977 to late 1979 the door of détente remained ajar. Indeed, in terms of US-Soviet trade the relationship appeared to be flourishing. There were growing worries throughout the Carter years about high-technology transfers, but until December 1979, although Brzezinski fought for tighter controls and the Administration succumbed to such arguments periodically, trade policy did not change dramatically. One reason for this was the growing importance of US exports to the general health of the economy and the continuing difficulties of declining competitiveness and productivity—all of which were exacerbated in 1978 by the Iranian revolution that toppled the Shah and caused a second large oil price rise. Another was a sense of futility at the effort to restrict exports if other Western allies would not follow suit.

Economic defence policy: the debate As one approaches the present, primary sources for this kind of study become sparse. This makes it particularly difficult when trying to reconstruct both the thinking about economic defence strategy and the reasoning behind specific policies. Fortunately, during the Carter period two of the key actors, Fred Bucy and Samuel Huntington, published several essays about economic defence policy more or less contemporaneously with their own involvement in its development. This is as good as it gets without large amounts of primary material, and allows one to tease out the seminal arguments in US thinking. Fear of the growing military strength of the Soviets, the dangerous contribution that could be made to that by high-technology transfers from the West, and disillusionment with détente, all combined to prompt a review of US economic defence policy by the new

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Administration. There were three identifiable positions in the debate that took place. First, there were those who wanted to continue with economic détente, such as Carter, Vance, Secretary of the Treasury Blumenthal, Secretary of Commerce Kreps, and Secretary of Agriculture Robert Bergland. But within this group there were fluctuations between an accommodating and a more aggressive line on strategic problems and difficulties with communism in the Third World, which compromised its overall position and in particular its desire for continuing with economic détente. That was always the most difficult position to maintain. Fred Bucy articulated the second position. He warned against the dangers of hightechnology transfers. He wanted to tighten US controls, limit inter-Western trade if there were serious dangers of technology leakage to the East, and address weaknesses in the COCOM. Mastanduno rightly points out that Bucy was not prepared to engage in structural linkage: trading high technology for political quid pro quos from the Soviets. He thought that this was too dangerous. The quid pro quos could just never be valuable enough, and, in any case, such a policy would mean a continuation of the erratic policy Bucy discerned in the Nixon-Ford years, and it would also antagonise allies. However, whether Mastanduno is also right in calling the programme Bucy recommended economic warfare is debatable. Bucy echoed the well-established position of conservative Cold War warriors, epitomised by the members of the Committee on the Present Danger, when he asserted: ‘The United States and its Western allies…rely on America’s technological superiority as an offset to the Soviet’s quantitative military power.’88 This was an imperative for Bucy. The USA had to sustain Western technological superiority and prevent its marriage to Soviet ability to produce missiles with massive throw-weight. So, US controls should be redesigned and ‘based on a precise definition of technology, a clear insight into the mechanisms which most effectively transfer technology, and an informed grasp of those technologies which directly affect military systems’.89 He dismissed the idea of the USA gaining advantages through linkage, because the Soviets would not become interdependent with the West: they would use Western technology to drive for autarky. And even in the interim, the Soviets could resist Western economic leverage because of the ability of their authori-tarian regime to impose consumer austerity upon their people. Bucy summed up what he thought the intent of the USA should be: It should be understood that the purpose of this policy is not to interdict trade, but to delay an adversary’s acquisition of commercial technology of military significance for as long as possible.90 This recommendation positioned US policy on the cusp between a strategic embargo and cold economic warfare. It was a strategic embargo more broadly construed than before and unavoidably involved the intense ambiguities of the fungibility of dual-purpose technology. Huntington developed a third position that, despite his arguments to the contrary, largely amounted to a recasting of the Nixon-Kissinger strategy of linkage, now to be developed through a more muscular use of executive discretion, and with the determination to gain more substantial quid pro quos. This policy was embodied in PD-

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18, and, according to Huntington, meant that US ‘economic capabilities and economic relations must serve the basic US foreign policy objectives of encouraging East-West cooperation, containing Soviet expansion, and promoting American values’.91 These objectives certainly seem no different to Kissinger’s. Huntington rejected both the strategy of trying to limit Soviet economic and military capabilities in the crude way that they had been pursued at the height of the Cold War and the seduction strategy involving a laissez-faire approach to trade. The former approach had unravelled with détente and was presumably not now viable because the allies would not co-operate in pursuing it—and, in any case, the underlying assumption that war was imminent had now changed. Nor was the laissez-faire approach suitable, because it failed to take into account that the Soviets had a centrally controlled economy that gave them advantages that needed to be counteracted with a more pro-active US policy: failure to do this in the past had resulted in a scenario from which the Soviets ‘clearly benefited more…than has the United States’. Détente had not kept them from building up their nuclear arsenal, exporting arms to Third World countries, and interfering in Africa. The Soviets had also been able to ease the problems caused by deep-seated structural flaws in their economy with the $ 18 billion of machinery imports primarily for the auto-motive, petrochemical and energy industries between 1965 and 1973. ‘What is needed…is a new approach of conditioned flexibility in which changes in the scope and character of US-Soviet economic relations are linked to and conditioned by progress in the achievement of US political and security objectives…détente must be comprehensive and reciprocal.’92 Huntington believed that the Soviets were vulnerable to economic leverage, particularly in the oil industry, and wanted to devise US policies so that they could take advantage of these vulnerabilities more effectively.93 He believed that economic carrot-and-stick diplomacy worked, and cited the 1972 wheat and SALT deals and the coincidence of liberal Soviet emigration policy and the extension of generous US credits in 1973 as examples. But the Carter Administration had inherited a position in which neither carrots nor sticks were available—there were legal prohibitions on credits and MFN, and there were no effective controls over high technology except for items of direct military use. Huntington was astute and well aware of the difficulties in implementing the policy he was advocating. Harnessing economic power to foreign policy goals presents formidable obstacles: bureaucratic pluralism and inertia; congressional and interest group politics; the conflicting pulls of alliance diplomacy; and most important, in dramatic contrast to military power, a pervasive ideology that sanctifies the independence, rather than the subordination, of economic power to government.94 Huntington believed that inflexibility was at the heart of US problems in its economic diplomacy with the Soviets. He wanted the President to be granted more discretionary power, particularly to use credits in economic relations with the Soviets. The USA should centralise its control of East-West economic relations and review the existing embargo lists and reintroduce the 1962 criteria of economic significance to deny high technology items to the Soviets on foreign policy grounds. It should reinvigorate COCOM and build

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on the allies’ 1976 ‘gentlemen’s agreement’ to abide by agreed rules for extending credits to the Soviets. Huntington summed up the overall nature of his argument: ‘I am saying that we should be prepared to engage in economic diplomacy.’95 There were good reasons why the Carter Administration wanted to present itself as different to its predecessors, but in fact Huntington and his boss Brzezinski only differentiated themselves from Kissinger’s linkage policy with their rhetoric. Instead of using the term linkage, they adopted the term ‘conditioned flexibility’. In practice, what they wanted to do was simply to execute linkage policy more effectively. There was no clear outcome to this debate before the Soviet invasion of Afghanistan, and thereafter the situation was transformed so dramatically that a further rethinking of strategy took place within both the Carter and Reagan Administrations. In the meantime, policy developed rather erratically. Aspects of all three positions flourished at varying times and uneasily coexisted.

Economic defence policy: developments 1977–9 During the first year of the Carter Administration trade policy was permissive, largely by default. Carter gave priority to matters other than to relations with the Soviets, except with regard to SALT. However, even here he was determined to keep SALT isolated. In September 1977 both he and Soviet Foreign Minister Gromyko ‘agreed that we did not want to link SALT 2 to any other issue’.96 As we have seen, détente did not prosper through SALT, largely because of Carter’s deep cuts proposal, but neither did trade change significantly. PD-18 and the reasoning of both Huntington and Brzezinski, not to mention the Bucy Report, took time to take effect and needed a catalyst to really get things moving. In the meantime worries about the overall trade deficit and suspicions that any further restrictions on US trade would simply provide Western allies with more opportunities to replace American suppliers left US policy on trade with the Soviets unchanged. With the existing credit restrictions and lack of MFN for the Soviets, that already meant substantial slippage in US-Soviet trade volumes. In June 1977 Secretary Kreps was told by the Soviets that US imports were down 50 per cent and overall trade down 25 per cent because of the lack of MFN and credit restrictions. But, the Soviets were not going without. They had simply transferred to Western European and Japanese suppliers.97 For Huntington this was the worst of all worlds. US trade needed to be used more effectively: more trade and profits needed to be made out of the Soviets, and that trade could also be used as leverage in the political relationship. In particular, controls over equipment for the Soviet oil and energy industry, or some items of which the USA had an effective monopoly, could be used or threatened to be used to good effect. These convictions were the result of intelligence reports in 1977, which indicated grave problems for the Soviet oil industry and its dependence on Western technology.98 They were further confirmed by the December 1977 Plenum of the Soviet Central Committee, which created an emergency commission on the economy and gave special attention to the problems of the oil industry.99 Despite having a more pro-active policy formulated, despite recommendations still under consideration from the Bucy Report, despite evidence of Soviet vulnerability, and

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despite continuing fears of Soviet military build-up and activity in the Third World, Brzezinski and Huntington were unable to shift US policy to a more aggressive line. From January 1977 to July 1978 exports of energy equipment were freely permitted, and a report from the Administration to Congress on International Transfer of Technology set its face firmly against suggestions implicit in the Bucy Report that the USA should seek to tighten up on technology transfers within the West. However, Brzezinski’s frustration with this state of affairs was alleviated in the summer of 1978. The Soviet involvement in Ethiopia and the threat of destabilising the whole Horn of Africa became of greater concern to the USA as 1977 passed away Brzezinski wanted to link Soviet behaviour with SALT and trade, but Vance, Kreps and Blumenthal conspired to resist this tactic, at least temporarily. Nevertheless, pressure within the Administration mounted for more positive and possibly more forceful US responses. In March 1978, over Vance’s objections, Brzezinski finally persuaded Carter to allow him to visit China in May and build on the relationship that had been initiated by Nixon and Kissinger and quietly developed by Brzezinski, as a way to balance Soviet power effectively in Asia.100 This was the first move towards a more assertive policy towards the Soviets. Soviet behaviour in Africa and renewed persecution of dissidents finally moved Carter to action. In speeches at Wake Forrest University on 17 March and at the Annapolis Naval Academy on 7 June 1978, he warned of the stark international options that the Soviets must face. The President raised the spectre of linkages, the dangers of US-Soviet competition and, in the clear and unmis-takable language of Brzezinski, the imperative that ‘détente must be broadly defined and truly reciprocal’.101 Tensions were clearly mounting. The USA was becoming more assertive, and the drive for new linkages—or, as Huntington put it, for ‘conditioned flexibility’—was gaining momentum. In mid-May, at a meeting to discuss Brzezinski’s pending visit to China, Carter recorded: ‘We all agreed that a better relationship with China would help us with SALT.’102 Linkage was back on the agenda, and economics was again about to enter high politics. The key development was the campaign against dissidents in the Soviet Union. Evidence suggests that even in 1978 the Soviet leadership was still insen-sitive to just how important human rights were—not just to Carter, but to the American public in general, and as a tool for promoting the policies of Brzezinski, the Defense Department, and of the hard-liner John Schlesinger, now Secretary for Energy.103 In July 1978 the Soviets announced that Anatoly Shcharansky and Alexander Ginsberg were both to go to trial. There was a popular outcry in the USA that influenced Carter’s domestic advisers, in particular Hamilton Jordan, his White House Chief of Staff, and convinced them that it was politically necessary for the USA to make a strong response. This provided Brzezinski, Schlesinger and Defense Secretary Brown with powerful allies to help overcome the softer line preferred by Vance and the economic departments. On 8 July Brzezinski chaired an interdepartmental meeting, attended by Marshall Shulman for the State Department, and it was resolved that the USA should take action to tighten up on transfers of high technology items. The following day Vance overruled his own deputy and declared that the State Department did not agree with the proposed action. There now developed a confrontation between Brzezinski, Brown, Schlesinger and Carter’s domestic advisers, led by Jordan, on the one hand, and Vance, Blumenthal, Kreps and Bergland on the other.104 On 18 July Carter came down on the side led by

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Brzezinski. He denied the Soviets a Sperry Univac computer needed by the Tass news agency for the 1980 Moscow Olympic Games, re-established controls on oil production technology, which had been abandoned in 1972, and deferred a decision on a contract for Dresser Industries to supply a drill-bit factory and an electron-beam welder to the Soviets. Brzezinski later smugly observed: ‘Cumulatively, these steps meant that our highly permissive attitude towards technology transfer to the Soviet Union was now being reversed.’105 In fact things were not so clear-cut. Oil production technology was not automatically embargoed; it was simply put back on the Commercial Commodity List and subject to licensing. And in fact no licences were refused, partly because the Western allies were not prepared to take parallel action, and partly because of bureaucratic inertia and disagreement within the Administration about the appropriateness of such action.106 The State and Commerce departments subsequently tried to conjure up new trade initiatives, but they were thwarted by Brzezinski and the Defense Review Board, which suspended an August decision by the Commerce Department to allow the Dresser contracts to go forward. These contracts then remained in limbo until the Soviet invasion of Afghanistan, after which they were revoked, losing the USA $144 million.107 Brzezinski, in his memoirs, gives the impression that the final move in this game came in November, when Vance, Blumenthal and Kreps tried to initiate a new review of US embargo policy. Brzezinski successfully stymied that effort by persuading Carter that US-Soviet relations did not warrant it. He concluded: ‘the firm principle that there was linkage between politics and trade was finally established.’108 The reintroduction of oil-industry equipment to the control list may have had more immediate effect than Brzezinski expected. The Soviets soon changed their tactics for dealing with dissidents and switched to letting them emigrate, rather than putting them behind bars. The Soviets issued over 31,000 exit visas in 1978, which was a massive turn-around and something like the volume achieved at the height of détente. Without effecting any substantive changes to US-Soviet trade, the Americans had managed to get the message across by re-categorising certain items, but continuing to license them. By the winter of 1978–9 relations had improved quite dramatically, and the Americans continued to pressurise the Soviets by developing their relations with China. Furthermore, the revolution in Iran made Soviet oil look very attractive. On 9 January it was decided to suspend export licences, pending a review in four to six weeks time. There was still pressure to develop a new denials list and revoke some existing contracts, but there was also concern about the effect of this on world oil prices; in short, impairing the Soviet oil industry might not be in US interests if one result were higher prices. Also, the Soviets supplied oil to NATO countries such as Italy, and if the USA were to clamp down on technology exports it might seriously aggravate relations and give the Soviets ‘even greater incentive to move into the Middle East’.109 The Americans were increasingly concerned about the growing Soviet involvement in Afghanistan. Nevertheless, on balance, the auguries for US-Soviet relations seemed more favourable than for some time and reinvigorated plans for a Carter-Brezhnev summit. It was now scheduled for Vienna in June 1979. On the US economic front things were still very seriously amiss: 1978 witnessed a $42-billion trade deficit, and the disruption of oil supplies because of the Iranian

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revolution was all set to raise oil prices and add to America’s trade deficit burden. On 26 September 1978 Carter announced several export initiatives, but they were palliatives at best. Under such difficult conditions trade with the Soviets and Eastern Europe was important, and from the autumn of 1978 the USA again began to promote rather than restrict energy-industry exports. In 1978 overall US-Soviet trade amounted to $2.8 billion, and in December Kreps and Blumenthal went to Moscow to try to bolster that trade even more. By March 1979 it became public knowledge that Carter wanted to move ahead with developing trade with the Soviets. The Washington Post reported his intention of moving in tandem on MFN for both the Soviet Union and China. The reason given was the improvement in emigration practices, which impressed Carter and resulted in a softer line from Charles Vanik. Jackson on the other hand was still adamantly opposed to any change. He argued that the Soviets had only changed because of US pressures, which he believed should be sustained.110 Nevertheless, on 27 April Vance and Blumenthal met Dobrynin and told him that there were signs that Vanik would withdraw his objections to US-Soviet trade after the summit in June and that Stevenson had new legislative proposals that would give the President discretion to extend credits up to $2 billion.111 In May the Washington Post reported: The Carter administration has decided to push toward resumption of US trade and tariff benefits for the Soviet Union and has launched a diplomatic initiative aimed at taking action by the time of next month’s summit meeting.112 At the summit Carter and Brezhnev signed SALT 2, and the President told Brezhnev that he intended to seek MFN authority for both the Soviets and the Chinese.113 Developments outside his control prevented him from making good that commitment. Although problems still severely troubled relations with the Soviets, the US relationship with China was forging ahead, and full diplomatic relations with the PRC were established on 1 January 1979. There followed a number of developments, pushed on by Brzezinski in his desire to develop relations with China as a counterbalance to Soviet power. This became ever more important for him as the Soviets continued their aggressive action in the Horn of Africa and, ominously, involved themselves in Afghanistan. In January 1979 Carter and Teng Hsiao-ping signed an Agreement on Cooperation in Science and Technology, and at the Guadaloupe Conference that same month Carter informed Western allies that the USA would not object to a more relaxed attitude to arms sales to China. The following month Blumenthal went ahead with his trade talks visit to Peking despite the Chinese invasion of Vietnam. By April Brzezinski had persuaded Vance to allow the British to sell arms to China, and London was told that it might be better not to submit their sales to COCOM for approval. On 7 July the USA signed a trade agreement with China, and on 1 January 1980 it came into effect, with MFN and $2 billion of credits over five years. By this time the USA and its allies were either negotiating for or already delivering high-technology goods with clear dualpurpose use and weapons that were embargoed for the Soviets.114 The tandem approach to MFN had broken down, but this rapid expansion of trade with the Chinese was consistent with the pattern of policy championed for so long by Brzezinski, of aggressively seeking to drive a wedge between the Soviets and the Chinese and engage

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the latter in the business of power-balancing the former. In November 1979 his triumph was not yet complete. There were still possibilities of institutional and legal changes that would help foster better relations with the Soviets and expand trade. In 1979 US-Soviet trade rose to over $4.5 billion with a US surplus of $2.7 billion, and there was an increase of close to 100 per cent in US oil-technology sales to the Soviets, amounting to total sales of $164 million.115 The US Congress, while not willing to repeal Jackson-Vanik did alter the legislative framework in which trade took place. With trade still flourishing, with increased US interest in the prospects for energy trade with the Soviets, and the SALT 2 agreement signed, there was still hope for détente despite all the criticisms from Jackson, Nitze and their allies and the ongoing problems with the Soviets in Africa and the Middle East. In 1979 the 1969 EAA was due for renewal, and some significant changes were made reflecting the concerns and ambitions of the Carter Administration and members of the Congress. Effects of the act were more wide-ranging than just matters to do with EastWest trade. As we have noted on several occasions, the overall economic situation of the USA created a very great concern that exports should not be unnecessarily restricted, and that legislative controls should not be such that US exporters suffered from de facto discrimination vis-à-vis their counterparts in Western Europe and Japan. Action to establish a uniform Western policy on credits to the Soviet Union had borne some fruit in 1978 with the ‘Arrangements on Guidelines for Officially Supported Export Credits’, but it was only a gentlemen’s agreement, and, contrary to US wishes, the allies insisted that the Soviet Union should be classified under the less restrictive category of a middleincome country, rather than as a rich country. Although this removed some of the disadvantage US exporters worked under, before any real benefit could be felt the Stevenson credit restrictions would have to be removed.116 At the same time as legislation edged towards encouraging a growth in US trade, additional control powers to combat international crime and terrorism and high-technology leakages to the communist world were also given high priority. The act thus tried to develop policy in two rather contradictory ways. It tried to facilitate and promote US exports by specifying more precisely the grounds upon which controls should be based, thus reducing—or at least questioning—the President’s discretionary power, but it also addressed problems raised by the Bucy Report on technology transfers, which gave more strength to the voice of the Defense Department and its desire to tighten up on technology transfers.117 The act specified four categories of reasons for controls: national security; foreign-policy goals; short supply; and countering terrorism. It also ‘for the first time in the export control context, clearly addressed the President’s authority to impose embargoes and the relationship of the authority for foreign policy controls to economic sanctions’.118 It is the first two categories of reasons that concern us here. The act treated national-security and foreign-policy grounds for embargoing exports under two separate sections, highlighting the different criteria that should be applied. The national-security criterion remained unchanged and depended on whether it was judged that export ‘would make a significant contribution to the military potential of any other country or combination of countries which would prove detrimental to the United States’.119 However, important procedural changes were made which would create a

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potentially more restrictive policy on technology transfers. The Bucy Report recommendations were followed in that the Department of Defense was mandated to draw up a critical technologies list by 1 August 1980.120 This in itself gave the Defense Department more say in the content of policy, and it was to continue to make decisions on licences in conjunction with the Commerce Department.121 The Defense Department was now clearly positioned to take a more restrictive line on technology exports if it so wished, or if events unfolded in such a way as to persuade it that a tighter policy was justified. The story of foreign-policy controls is rather different. Initially the Congress tried to insert severe controls on Presidential discretionary power and set limits to the kinds of justification allowable for imposing controls. The White House lobbied hard against the imposition of such limiting criteria and was largely successful. One scholar has described the new requirements placed on the President as ‘nothing more than procedural nuisances’.122 The act confirmed that, as in the past, controls were justified ‘to restrict the export of goods and technology…to further significantly the foreign policy of the United States or to fulfil its declared international obligations’.123 These nuisances consisted of requiring the President to assess foreign availability and to try to get other Western countries to co-operate. He had to gauge the impact on the US economy, assess his ability to enforce controls, whether they would succeed, and their impact on other US foreign political objectives. But, when all is said and done, these were indeed simply nuisances: they did not in effect restrict the President’s freedom of action. However, another provision of the act did have the potential to do so. It stipulated that export controls, introduced under the rubric of foreign-policy grounds, could be repealed by a concurrent resolution in both houses of Congress. This was to cause considerable concern within the Administration in January 1980, when Carter imposed the grain embargo as one of his measures of retaliation against the Soviets for their invasion of Afghanistan.124 In the late summer and early autumn of 1979, US economic relations hung in an uneasy balance. Brzezinski had not won the day outright. Vestiges of détente remained, and there were still strong forces pushing for more trade and the development of the Soviet oil industry to offset oil price rises in the Middle East resulting from the Iranian revolution and the on-going impact of OPEC. The repositioning of the Department of Defense in the bureaucracy of export licensing had still not been fully exploited, and the signing of SALT 2 had rekindled hope among those not adamantly pitted against détente; the treaty was now before the Senate. At the same time troubles with the Soviets intensified in other spheres. The USA kept up pressure through its rearmament programme and its development of relations with China, but, the Soviets continued not to respond, at least in a favourable way, to US arguments and pressures. They continued both their activities in Africa and their development of relations with Afghanistan. Of most immediate concern was a crisis in relations between the two countries caused by the ‘discovery’ of a Soviet brigade on Cuba. Domestic politics combined forces with the media to make such a serious issue out of this that it delayed ratification of SALT 2 in the Senate. Later Washington conceded that the Soviet military presence on Cuba was no different from that agreed upon by the Kennedy Administration shortly after the Cuban Missile Crisis in 1962.125 That discovery came too late to help SALT 2, or what was now a very frail process of détente. A conversation between Brezhnev and the East German

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leader Eric Honecker on 4 October revealed just how frail. The Soviet leader explained: It is our impression that until recently those who supported ratification of this treaty [SALT 2] had the upper hand. Now the situation has become more complicated. The hysterical clamor in the United States—in which the Carter Administration directly participated—over the stationing of a Soviet brigade in Cuba has become a serious impediment, [also]…Washington is increasingly actively playing its China card.126 The Soviets were no longer sanguine about détente. They increasingly saw the Americans as wishing to abandon it for political reasons, and thus they calculated that they had less to lose from aggressive action on the periphery: for example, in Afghanistan. After the murder of their protégé President Taraki in Kabul in October and the coming to power of Hafizullah Amin, the Soviets began to consider military intervention in Afghanistan. Their growing involvement there did not go unno-ticed by the Americans. Furthermore, when Iranian revolutionaries seized 53 members of the US embassy in Teheran on 4 November 1979, US views about the instability of the whole Middle Eastern region became even more pessimistic.127 Their inability to take effective action to end the humiliation of the hostages also created a credibility problem for the Carter Administration. These problems were vastly compounded on 25 December when troops from the 103rd and 105th Soviet airborne divisions flew into Kabul. Two days later Soviet ground troops crossed the Afghan border. Meanwhile, Soviet troops and KGB officers stormed the presidential palace, executed Amin and installed Babrak Karmal as the new President.128 This changed everything for Carter: the Soviets had miscalculated the extent of likely US retaliation. Soviet Ambassador to Washington Anatoly Dobrynin later rhetorically asked, ‘Why was the American reaction to the introduction of Soviet troops in faraway Afghanistan so disproportionately strong when compared, for example, to the reaction in Europe in 1968 to the Warsaw Pact’s invasion of Czechoslovakia, where much more vital interests were involved?’ The answer to that question has much to do with the prevailing view within the USA of its own new-found vulnerability. The disproportionately strong response was communicated largely in economic terms, which leads the story of modern US economic defence strategy literally and figuratively into its last chapter.

10 Through the second Gold War to liberation unless the Soviets recognize that it [the invasion of Afghanistan] has been counter-productive for them, we will face additional serious problems with invasions or subversion in the future. President Carter, Diary 3 January 19801

Many people at the top of the Soviet hierarchy were genuinely afraid of America and Americans. Maybe this shouldn’t have surprised me but it did. Ronald Reagan2

The fact that most embargoes are considered failures is largely explained by the decentralised decision-making of the market economies. Unless there is state trade or perfect cooperation between exporters and importers, trade flow accommodation eventually occurs. This favours the target country and makes the embargo inefficient. There are other effects which also contribute to inefficiency, but trade flow accommodation is the major one.3

The Carter Administration responded promptly to the Soviet military action in Afghanistan. It was determined to convey to the world at large its moral outrage at the invasion, to make the Soviets suffer, and to draw its allies together in order to take stronger precautionary measures against the dangers of both the strategic build-up in the Soviet Union and its expansive tendencies. On 2 January Carter recalled the US ambassador from Moscow for consultations, as a public sign of disapproval; others followed. On 3, 4, 8, 11, 20 and 21 January announcements came in staccato succession: the President asked the Senate to suspend consideration of the SALT 2 agreement; he boycotted US grain exports to the Soviet Union above the guaranteed 8 million tons stipulated in the 1975 agreement; he restricted Soviet fishing rights in US waters and Aeroflot landings in the USA; all validated export licences were suspended pending a 4–6 week review; the USA would not take part in the Moscow Olympics; and computer licences for the Kama River truck factory were revoked—even this list does not exhaust the range of responses. US rhetoric directed at the Soviets hardened dramatically. The China card was played with even more gusto. A

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range of measures to strengthen the West’s military position in the Persian Gulf and the Indian Ocean included taking steps to provide military aid both to anti-Soviet forces within Afghanistan and to the government of Pakistan. And diplomatic efforts were made to persuade allies to support the US stance and to tighten the strategic embargo through a reinvigoration of COCOM. On the evening of the 23 January, in his State of the Union Address to Congress, the President pronounced what became known as the Carter Doctrine. Let our position be absolutely clear; an attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.4 The first Soviet invasion of a non-communist bloc country, fears that it could be a preliminary to others, and the Iranian revolution (which transformed a client state into a mortal enemy) plunged the whole Middle East and US policy for the region into turmoil. Western oil supplies, communications, the US strategic position, and its allies were all under threat, and there was fear of more possible Soviet adventurism. On 3 January the President noted in his diary that the Soviets ‘might be tempted toward further aggression’.5 Carter and his advisers judged resolute action to be vital. New and higher defence spending targets were set, the Administration pushed ahead with the Rapid Deployment Force, and progress along the path towards PD-59 was accelerated: it was promulgated in July 1980. These military steps simply followed the direction that had already been set by those who were dissatisfied with détente and fearful of the deteriorating US strategic position. The clearest departure points from immediate past practice were in the economic and political spheres. Here the actions might be characterised as symbolic, punitive and longterm strategic measures.6 The most important symbolic action was the Olympic boycott, but this was not as powerful as it might have been, because many US allies either would not follow suit or, for legal reasons, could not. The grain embargo was meant to be the key punitive measure: ‘an analysis of possible sanctions revealed that this was the only one which would significantly affect the Soviet economy.’7 And yet during 1979–80 the Soviets managed to increase their imports to a record high of 30 million tons, and their livestock levels were higher at the end of 1980 than at the start of the year; this was achieved by paying more for their imports in the short term, but the Soviet consumer did not suffer. Meanwhile, grain and rice contracts with Argentina, Brazil, India and Canada exposed divisions among the free-world countries, strengthened the Soviet position in the long-term through supply diversification, and lost US farmers much of the Eastern bloc market.8 The long-term US goal of reinvigorating the Western multilateral embargo and expanding its scope had only limited success, and this also exposed differences and caused much friction among the Western allies. On the basis of these consequences one might be tempted to agree with those who, like Lundborg, conclude that sanctions and embargoes are extremely difficult tools to wield effectively, and that Carter might have done better to adopt a lower-key approach, like Johnson had done at the time of the 1968 Soviet invasion of Czechoslovakia. However,

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this would be to fall into error: it would oversimplify the kind of response that Carter wanted to make by using inappropriately narrow criteria to analyse the goals of his actions. Such an appraisal of the situation would overemphasize quantifiable observable consequences, rather than weighing in the balance the ‘inside’ meanings of these three forms of action. My objective here is not to pass judgement on whether what Carter did was morally correct, appropriate or effective; it is to explain what actions his Administration thought were necessary, and to point out that some of them were not dependent upon strictly defined instrumental results. It is also important to note that the Administration’s decision-making power was not totally autonomous: at least on the margin, domestic political pressures were significant in decisions about how the USA should respond. What Carter and his associates did cannot be reduced to neat calculations in simple instrumental terms about the effectiveness of the grain embargo or the longerterm strategic measures. Here, no less than in the symbolism of the Olympic boycott, the Administration was determined to convey messages to the Soviets, to allies, to the rest of the world, and to its own domestic audience. Only by appreciating these factors can one fully understand what Carter did. The grain embargo was not just a sanction to hurt the Soviets, nor were the longer-term economic defence measures solely intended to restrict their military capability; like so many other measures embodied in US economic defence policies over the years, these were multi-faceted instruments of economic statecraft, and they had an inner dimension as well as aiming for visible and quantifiable instrumental effects. These complexities are revealed in the way the members of the Administration discussed what actions to take and why they should take them. Another way of emphasising the point is to suggest that—even if Carter could have been fully aware of just how limited the immediate economic effects the embargo would be on the Soviets, and if he had calculated that in the longer term his actions would have strengthened Soviet economic autarky and weakened US agricultural exports—he would still have gone ahead with the embargo.9

Sanctions, economic defence policy and the Soviet invasion of Afghanistan The distinction between sanctions and economic defence strategies is not easy to sustain. The grain embargo was meant to send out a clear message of disapproval to the Soviet Union and of resolve to Western allies. It was designed to hurt or sanction the Soviets and communicate a deterrent effect, warning the Soviets of how seriously the USA took their aggression. These aspects of the grain embargo are classic characteristics of sanctions: sending messages, punishing and affecting the target state’s policy, either to try to reverse it or to deter further developments. Here, it was a case of deterrence against further aggression, as no one in the Administration believed that the grain embargo would cause the Soviets to with-draw.10 However, the grain embargo was also instituted for other reasons that were directly connected with broader issues to do with both affecting the Soviets’ overall mind-set (in terms of how they perceived US resolve and intentions) and strengthening the US and allied economic defence policy. The Americans concluded that the allies would be unlikely to respond positively in COCOM to proposals for tighter controls on high-technology items if the USA were not paying a price itself, such as the

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one involved in the grain embargo. And fungibility, too, came into the calculation: imposing costs on the Soviets by embargoing grain would force them to reallocate resources that could otherwise have been deployed for military or strategic purposes. For these reasons the grain embargo (sanctions) and moves to tighten technology transfer controls (economic defence policies) are dealt with together, albeit with an awareness that different emphases are applicable with regard to their respective main purpose. The key meetings that formulated US policy were held between 30 December and 3 January. At these meetings—as Carter, Brzezinski and others have noted—the State Department officials were uncharacteristically hawkish, while the NSA was equally uncharacteristically quiet and cautious. This was partly because of Brzezinski’s concern to strike the right balance in the US response (it had to be firm but not over-provocative) and partly because he was effective behind the scenes. He quickly saw that his long-held views were in the ascendancy among key members of the Administration. Most importantly of all, Carter favoured a more aggressive response than either the embittered State Department officials or even his NSA. There was thus little need for Brzezinski vociferously to champion a position that had already won the day. His reticence in the meetings was certainly not due to lack of concern, as a lengthy memorandum to Carter on 26 December reveals. Brzezinski had already expressed his anxieties about the regional crisis in the Middle East because of the collapse of the proWestern regime in Iran and growing Soviet influence in Afghanistan. Now, with a prospect of Soviet military control of Afghanistan, he feared for Pakistan and dreaded the eventuality of the Soviets gaining direct access to the Indian Ocean and a ‘presence right down on the edge of the Arabian and Oman Gulfs’.11 He also feared that the Chinese would compare Soviet decisiveness in Afghanistan unfavourably with US impotence in Iran. He knew that similar judgements among the US public would arouse critics on both the Left and the Right, and damage the prospects for SALT 2. He was also concerned that general instability in the Middle East would make it more difficult than ever for the USA to act effectively there, especially in trying to resolve the hostage crisis in Teheran. He took some consolation from the facts that the Western allies would probably see more need to tend to their own defences in the light of blatant Soviet aggression, and that Afghanistan could turn out to be the Soviets’ Vietnam.12 In the meantime, he suggested that the USA should work with China and Islamic countries to support the Afghan resistance movement, give support and aid to Pakistan, and consider taking the issue to the UN as a threat to world peace. Throughout, Brzezinski was deeply concerned that the Soviets should receive the right message from Washington. Unless we tell the Soviets directly and very clearly that our relations will suffer, I fear that the Soviets will not take our ‘expressions of concern’ very seriously, with the effect that our relations will suffer, without the Soviets ever having been confronted with the need to ask the question whether such local adventurism is worth the long-term damage to the US-Soviet relationship.13 The question of how the USA should get its message across to the Soviets became even more acute after the overthrow of Amin and the installation of Karmal. Carter was determined to appear strong and resolute. ‘I [Carter] sent Brezhnev on the hot line the

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sharpest message of my Presidency, telling him that the invasion of Afghanistan was “a clear threat to the peace” and “could mark a fundamental and long-lasting turning point in our relations”. On 28 December he rang his closest ally, Margaret Thatcher of Britain, and sought to engage her support in getting a consolidated and strong Western message across to the Kremlin. While a number of analyses in the 1980s and early 1990s concluded that the USA only got lukewarm support from allies,15 Thatcher’s account in her memoirs certainly gives a different impression. Although Britain had felt unable to support US policy towards Iran, Thatcher ‘was determined that we should follow America’s lead now’ and she assured Carter accordingly.16 However, words without actions would not, as Brezezinski had observed, impress the Soviets. The Americans knew that they must back up words with both US and allied actions, but without dangerously escalating the crisis out of control and into the realm of a direct military confrontation. These considerations were why economic responses were deemed to be so important and appropriate as they were non-military forms of punishing, of low-level coercing, and of expressing moral outrage. Like scorned lovers, those who had strongly supported détente now reacted with outrage at Soviet aggression. At the NSC meeting on 30 December Vance proposed registration for a military draft and deep cuts in grain shipments to the Soviet Union.17 Both were political dynamite. The proposal for the draft was never acted upon, and a decision about a grain embargo was postponed for further consideration after Vice President Mondale pointed out its political dangers for the 1980 presidential election campaign. Embargoing grain was a highly charged issue for several reasons. First, Carter had declared in his 1976 campaign that he would not embargo grain except for national security reasons: how he would get round that without political damage as he entered the 1980 election year was a real problem. Secondly, if he did embargo on national security grounds, he would have to make a case that selling grain to the Soviets threatened US security—an argument that did not have immediate plausi-bility. On the other hand, invoking foreign-policy grounds for an embargo would breach his 1976 campaign promise, and his action would be vulnerable to a concurrent veto vote in Congress. Such a reversal would severely undermine US foreign policy and suggest to the Soviets that the USA was incapable of taking decisive action. Thirdly, the Iowa caucus was about to take place, and Carter did not wish to damage his popularity in that great corn-producing state by embargoing grain sales to the Soviets.18 In particular, Carter’s domestic policy advisers were worried that a grain embargo would transfer more support to Senator Edward Kennedy’s challenge to Carter’s bid for reselection as the Democrat Party presidential candidate. Fourthly, as always on this issue, while the farming community would cry foul at a grain embargo, organised labour (particularly the longshoremen) would cry foul at the Soviet invasion and might once again take to instituting its own embargo, irrespective of what the President decided to do. The domestic political situation was therefore of real significance here. Garthoff goes so far as to claim that ‘The risks he [Carter] saw were not so much in terms of future relations with the Soviet Union, as in terms of domestic US politics.’19 The overall character of the US response was decided in two NSC meetings on 2 and 4 January. At the 2 January meeting there was lengthy discussion, and, according to

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Brzezinski, no less than 26 specific measures were agreed.20 However, three crucial issues still remained unresolved: the possibilities of a grain embargo and of an Olympic boycott, and relations with China. Carter ‘was not sure that what we decided today will deter the Soviet [sic] from going into Pakistan and Iran’.21 Everyone in the meeting was clearly looking for positive actions, but differences arose about how severe and how extensive they should be. The meeting meandered around. Then, after considering various possibilities, the issue of a grain embargo surfaced, and Secretary of Labor Dunlop warned that the longshoremen were already considering a strike, which would impose a de facto grain embargo upon the Soviets. This sparked off a number of concerns. Presidential Chief of Staff Jody Powell pointed out that the government would have to buy and store US grain if the Soviet market were closed. Mondale worried about confrontation between the longshoremen and the farmers, and was in fact strongly against the whole idea of a grain embargo. One of the leading hawks was Lloyd Cutler, Legal Counsel to the President. He took a strong line throughout and advised that it would be better for the President independently to impose a grain embargo rather than have it thrust upon him by the longshoremen. At this point Carter asked his domestic adviser, Stuart Eizenstat, to look into the position of the longshoremen and report back as quickly as possible. However, this was not before Secretary of State Vance had made his position clear, and it was a position that rather surprised both Brzezinski and Carter by its resolve and firmness. The Secretary of State said he thought that we have to cut back on grain shipments to the 8 million tons [guaranteed]…Without such action we do not believe our allies would do anything in the way of economic restrictions or penalties to the Soviet Union. He knew this would be a high price to pay but it would be necessary.22 The meeting gradually moved on, with Brzezinski mentioning the possibility of an Olympic boycott. While the State Department’s position on the grain embargo had been surprisingly hard-line, discussion on the Olympic boycott revealed a less combative position. Vance and his deputy Warren Christopher opposed a boycott, claiming that it would be unnecessary if a grain embargo were imposed. ‘Lloyd Cutler took a contrary view. He felt we could only boycott the Olympics if we took strong economic sanctions, otherwise we would trivi-alize our actions by only focusing on the Olympics.’23 Cutler was supported by Defence Secretary Brown, who then led the discussion on into the question of allied support on trade and credit restrictions. This issue again showed that, while State was prepared to take strong action, it was by no means the most hard-line exponent of sanctions, as Brzezinski and Carter have implied in their memoirs. Christopher commented that he thought the allies might be supportive and, for example, refuse to renew credit agreements with the Soviets, providing that the USA took strong measures itself. Christopher clearly thought that the ‘strong measures’ condition could be met by the grain embargo. Cutler and Brown had a more comprehensive view about how to fulfil the ‘strong measures’ condition. This was also a matter of deep concern to the President who said that the USA should ‘make a maximum effort to get our allies behind us’.24 In short, one of the factors pushing those who sought a hard line was fear that, if

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they failed to be resolute and implement harsh policies, then the allies would fail to cooperate. Carter favoured a tightening of the multilateral embargo on a case-by-case basis and was prepared to widen the gap between the USA and the COCOM embargo list so long as it did not damage US companies. Brzezinski later instructed the Defence and Commerce departments to explore this. By now the meeting had been in progress for some time, and Carter became agitated by the fact that they did not appear to have decided much. Asserting a more decisive tone: ‘The President said that we ought to explore with our allies the possible curtailment of both grain and industrial shipments.’25 Eizenstat and Cutler were delegated the responsibility for putting things on paper for the President to help him decide these matters. The meeting closed with the President still clearly unhappy that the USA was not going to appear as strong and decisive as he wanted it to. As things came to a close he mused that ‘he was inclined to go ahead on a grain embargo in order to give the Soviets a signal on their behaviour’.26 This comment both summed up the main preoccupation of the meeting and gave an indicator of what was eventually to come. Apart from Mondale, there was surprisingly little opposition in the NSC to the idea of a grain embargo. Indeed, on 4 January it became apparent that Agriculture Secretary Bergland was actually prepared to restrict grain shipments to below the 8-million-ton guarantee of the 1975 agreement.27 However, Stuart Eizenstat, presidential adviser on domestic affairs and policy, and someone whose judgement was much trusted by Carter, shot a vehemently argued critique across the bows of the pro-embargo consensus on 3 January. Eizenstat had been requested, along with Cutler, to put things on paper for the President concerning the grain embargo. Whether the following memorandum to the President was Eizenstat’s response to that request or whether it was a separate letter of counsel is unclear. What is clear is Eizenstat’s vehement opposition to the grain embargo: ‘I would like to recommend strongly against your proposing such action.’28 His memorandum is important because it spelt out clearly the dangers and risks involved, and in doing so he made Carter fully aware of them. Eizenstat essentially thought that the embargo would be politically damaging for Carter. It would repudiate commitments he had previously made, when, in Eizenstat’s view, there was no national security interest to justify that. He was worried that if the action were justified on foreign-policy grounds that there would be a congressional veto. The USA would also be in breach of contract and acquire a reputation for commercial unreliability. The overall impact the embargo might have on the Soviet Union was unclear, but he was convinced that the impact of the embargo in the USA would be ‘very severe’.29 Carter remained unmoved. The next day the President decided to go ahead with both the grain embargo and moves to tighten up on high technology transfers. A decision on the Olympics was still left in abeyance: it was not until 20 January that Carter announced a boycott. On playing the China card, Carter resisted the pleas from Brzezinski and Brown to initiate a formal defence relationship, which was also strongly opposed by Vance, Christopher and Cutler, but he said that Brown could offer the Chinese over-the-horizon radar and more favourable trade arrangements during his forthcoming visit to Beijing. For the time being, however, there were to be no arms sales.30 These meetings disclosed that, while the State Department favoured a vigorous response, it was actually Carter who pushed for the widest range of strong measures, with

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Cutler, Brown and Brzezinski close behind him in their support. Carter announced the range of measures that the USA intended to implement against the Soviets on the evening of 4 January. His diary of that day discloses precisely what he intended: We discussed how far we wanted to go with economic measures against the Soviet Union. I want to go the maximum degree—interrupting grain sales, high technology, cancelling fishing rights, re-examining our commerce guidelines, establishing a difference in COCOM…between the Soviet Union and China, cancelling visits to the Soviet Union, restricting any sort of negotiations on culture trade and so forth…possibly withdrawing from the Olympics.31 The next day Jordan advised Carter of the public response in terms of White House phone-ins, which were 2:1 in favour. Those against were split between those opposed to the grain embargo and those who wanted even firmer action. In Iowa support for Carter had slumped from 66 per cent to 45 per cent, but there was comfort in the news that most of those who had swung away were now undecided, rather than falling in with Carter’s main Democrat opponent, Edward Kennedy.32 The idea of linking the grain boycott with measures to restrict industrial/high-technology exports seemed to have worked. Public opinion was generally very supportive, but there was still a serious domestic problem to be resolved: how to justify the grain embargo under the provisions of the EAA. On 10 January the Attorney General’s Office urged Cutler to rely on the foreign-policy grounds of Section 6, rather than national security under Section 5—otherwise the President would provoke opposition in Congress and it would be difficult to justify grain as being important to Soviet military potential. Joe Onek, Deputy Counsel to the President, provided Cutler with some arguments to counter that advice, indicating that the wording of the EAA was susceptible to an interpretation that the President had discretion to use national-security grounds to control non-military goods.33 Subsequent expert judgement on that interpretation found it to be contrary to the clear intent of the 1979 EAA.34 After the removal of items of significant economic potential from the embargo scope of the EAA, and in the light of Congress’s wish to draw a clear distinction between foreignpolicy and national-security grounds for an embargo, one could only conclude that the use of Section 5 was stretching discretionary Presidential power beyond its strict legal limits. Nevertheless, Cutler argued strongly that Carter should justify the embargo on the grounds of both Section 6 and Section 5 of the EAA. There is at least one strong reason. If the action is taken under section 6 alone this would increase the chance of a significant effort to organize a two-House veto as the statute permits in the case of section 6 actions. As you know, the statute does not permit a legislative veto of section 5 actions…. A serious veto effort, of course, would be most unfortunate. It would put in question this government’s determination to convince the Soviets that we will impose a cost for invasions of neighboring countries, and encourage them to believe that we are too divided to make any such action stick.35 By 18 January, despite the arguments from the Attorney General’s office, the decision had been taken to justify the grain embargo on the grounds of both Sections 5 and 6.

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Cutler reiterated to the President, ‘we hope that reliance on both grounds will diminish the chances of a serious effort to veto.’36 The Administration’s strategy was never seriously challenged, and the grain embargo went into operation.37 It was accompanied by measures to cushion US farmers against loss of income from unsold grain,38 and a search for new markets. The volume of US grain exports actually rose 22 per cent in 1979–80 and continued to rise the following year.39 The other main factor in ensuring the success of the embargo was to prevent grain getting through to the Soviets. Secretary Bergland had led Carter and the NSC to believe that only the USA could supply the quantities of grain the Soviets were seeking to buy,40 and restricting US exports to 8 million tons would leave them 17 million tons short on what they had contracted for with the USA. However, it soon became clear that Bergland had not got this right, and that it was now necessary to secure the co-operation of other free-world grain producers. The USA tried to capitalise on the reaction against the Soviets’ use of blatant aggression. Britain at least gave verbal support, culminating in Prime Minister Thatcher’s strong anti-Soviet stance in the House of Commons at the end of January, of which Brzezinski later commented: ‘Frankly I consider this to be the best statement on this subject.’41 But, unfortunately for Carter, tangible support from the freeworld grain producers was not so forthcoming. At a meeting called by the USA in Washington on 12 January, the EC, Australia and Canada initially agreed to keep grain sales to the Soviets to normal levels. However, Argentina would agree to no such thing, and only attended the meeting on the understanding that it would not boycott grain to the Soviets. A joker in the pack made it all the more difficult to keep the others in play. The Americans now considered the possibility of controlling US sales to all free-world destinations in order to prevent leakage—or trade flow accommodation, as Lundborg more technically terms it. But the conclusion sent to Carter was: ‘Your advisers all agree that attempting to limit Soviet imports from other sources by controlling US grain exports to all destinations is unworkable, unwise, and likely to have no significant effect on the USSR.’42 As Argentine sales rose quickly from 1–2 million tons up to 8 million, and rumours spread of a long-term contract, Canada became increasingly restive. Only a personal telephone appeal from Carter directly to Canadian Prime Minister Trudeau forestalled accelerated Canadian grain sales.43 However, in October, when the USA announced a deal to sell 6 million tons of grain a year to China, one of Canada’s main markets, Trudeau’s loyalty gave way. Canadian sales were no longer held in check, and the following year a long-term Canadian—Soviet grain deal was struck.44 As early as June 1980 the view of key Carter advisers was that: ‘Unless we have a high degree of international cooperation or the Soviets have a poor crop, both of which seem unlikely, the suspension will lose much of its effectiveness…. [however] total abandonment of the suspension is probably not advisable.’45 Once instituted, it was always going to be difficult to change the embargo without looking weak and irresolute. Such considerations were now more significant than ever for the Carter Administration, not just because of the presidential election campaign or for generally maintaining credibility in Carter’s foreign policy, but because of yet another specific setback to US standing in the world. On 24 April a helicopter-borne special-forces team set out to rescue the American hostages in Teheran. It failed. The whole episode was a humiliating fiasco, and, among

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other things, the rescue plan prompted the resignation of Vance on 21 April and his replacement by Edmund Muskie. Despite evidence that the embargo was only having a marginal economic effect on the Soviets, that the free world had broken ranks on grain exports to them, and that, justified or not, the US farming community was politically restless about the embargo, Carter continued with it until the end of his presidency. Even after his defeat at the polls by Reagan, he stuck firmly to the embargo. On 12 November Eizenstat, in response to a letter from Senator Pressler, explained that only two things would change the President’s mind, a Soviet withdrawal from Afghanistan, or the embargo becoming ineffective.46 However, he did not elaborate on what ‘becoming ineffective’ actually meant. Many assumed an effective embargo was one that economically hurt the Soviets by denying them grain, but, as we have seen, the issue was far more complex. The embargo was always largely an exercise in sending messages to the Soviets and to allies. It was a deterrent message, an expression of American moral condemnation, and it was deemed to be necessary to show the allies that the USA was prepared to accept costs in restricting its economic relations with the Soviets if it were to have any chance of convincing them to take effective action in controlling high-technology transfers. Dismantling the embargo in late 1980 would have damaged all these objectives—indeed, dismantling it then would have been more damaging for Carter, both politically at home and for his foreign policy abroad, than if the embargo had never been instituted in the first place. It was not until April 1981 that the embargo was lifted by Carter’s successor Ronald Reagan. ‘The US negotiated a new grain agreement with the USSR in August 1983, which included the humiliating provision that the US would not impose export controls for foreign-policy reasons. Even that has done little to boost grain sales to Moscow.’47 Although new grain sales may only have been possible by accepting ‘humiliating’ provisions, nevertheless, Carter’s main objectives were furthered by the embargo. It helped to shift US policy towards a more restrictive strategic embargo, gave the Soviets grounds to pause for both thought and more caution, and went at least some way towards raising a modicum of allied support for changes in COCOM. While the grain embargo and the Olympic boycott were the Carter Administration’s most visible responses, moves to tighten controls on technology transfers were important and had longer-term effects. Once it had been decided that the USA ought to act in conjunction with its allies to restrict technology transfers, Carter instructed the Secretary of Commerce to suspend licensing and review those recently granted ‘particularly those involving oil and gas production goods and technology’. ‘Finally, I direct you, in consultation with the Secretary of State and other appropriate officials, to conduct a comprehensive review of all commercial transactions with the Soviet Union, including those now not subject to validated license requirements, to determine whether further action is appropriate.’48 The Secretary of State and the Department of Defense were given the job of following this up in COCOM. The determination of Cutler and Brzezinski to implement new and effective controls was clear from longhand written advice on an 8 January memorandum to Carter: ‘It is important that the bureaucracy not dilute your publicly announced posture.’49 While the publicly announced posture indicated the President’s strong line, it did not encompass everything. That was only revealed by the comprehensive reforms that the Administration wanted to effect in

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COCOM. The agenda for a meeting on high-technology transfers on 9 January clearly indicated the full ramifications of what the Carter Administration was now after. It aimed to reverse COCOM’s exemption policy and sought support for US proposals for new denials and the revoking of licences recently granted, a review of the COCOM lists, and the selection of new embargo items on the basis of foreign-policy criteria, rather than the narrower security criteria.50 With regard to the more restrictive technology transfer policy the USA wished to promote, there are two significant matters of interpretation at issue. The first concerns the extent to which the Americans wanted to change existing policy. Did this, as Mastanduno claims (along with others), amount to a switch from a strategic embargo to (cold) economic warfare? Second, just how responsive were the allies to America’s proposals? While these can be posed as separate questions, we shall see that they are not separate issues. Mastanduno’s judgement on the response from allies seems apt enough: ‘[it] demonstrated both their willingness in principle to bolster the strategic embargo and their sentiment that Afghanistan did not justify allowing security concerns to be given overriding priority in the export control system.’51 But even this disguises the differentiated responses from the West Europeans. Prime Minister Thatcher was keen to be supportive, and Britain did not renew the Anglo-Soviet credit agreement when it expired in early 1980, was willing to see technology transfer rules in COCOM tightened, and did its best to mobilise support in other European countries.52 Carter later described Britain, along with a clutch of other friendly countries, as staunch and helpful, but ‘others were a constant source of trouble. Helmut Schmidt [criticised] the British for supporting our position, and opposed any kind of sanctions against either the Soviet Union or Iran. The French position was a shifting one.’53 In a note to Vance and Brzezinski, Carter added that West Germans ‘privately and in the press are very critical of us’.54 (Carter’s relationship with Schmidt was notoriously bad: he thought him ‘unstable, egotistical and unreliable’.55) Nevertheless, while West Europeans, including Britain, were unwilling savagely to reduce their trade or degrade the quality of their relationship with the Soviets to the extent the Americans wanted, they were prepared to compromise. And, as had happened so often in the past, it emerged that the Americans were as well. Deputy Secretary of State Christopher was dispatched to Europe to discuss the Afghanistan crisis, and eventually the allies did move some way towards the Americans. They agreed both to adopt a no-exceptions policy for COCOM and to make modest additions to items that came under the rubric of high technology, but they refused to accept restrictions on the transfer of know-how processes for militarily relevant industries. Lisa Martin has suggested that the relative success of US policy in 1980, compared with the US attempt to tighten COCOM controls in 1978, was due to a bandwagoning effect driven by ‘the role of credible commitments...and the role of selfimposed costs and international institutions in sending signals about such commitment’.56 There is little doubt that there was some band-wagoning effect at play among the Western allies—after all they still needed each other and were concerned by the Soviet strategic build-up—but Martin overstates her case. The no-exceptions policy could have been implemented by the USA unilaterally through the right of veto in COCOM, and, although Schmidt may have been highly critical of US policy, nevertheless, there was widespread

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European unease about Soviet actions, especially in Downing Street. Invading Afghanistan was of a different order of significance to mistreatment of Soviet dissidents, which had been the motive for tighter controls in 1978, and it was this, not a bandwagoning effect, that primarily moved the Europeans. The question of how radically Carter tried to change the strategic embargo is not so easy to answer. There is no doubt that there was more than just a short-term response, and it did shift the US to a more aggressive economic defence policy. It was not just an expressive kind of short-term punitive sanction. But has Mastanduno captured the nature of the change when he talks of a ‘return to economic warfare’, as if the changes amounted to a major qualitative change in policy, carrying it over the threshold between a strategic embargo and cold economic warfare? Thresholds are notoriously difficult to define in this area of analysis. It is far preferable to conceive of things on a continuum running from a tightly restricted strategic embargo, with the emphasis on restricting the strategic military power of the potential adversary, to all-out cold economic warfare designed ultimately to cause the collapse of the target state. It is movement along this continuum that is at issue both here and with the later policies of the Reagan Administration. Hence, before reaching a final conclusion on the nature of the changes to US economic defence policies in the 1980s, we must wait until the policies of the Reagan Administration are fully appraised. In the meantime, it seems rather to overstate the case to suggest that the policies adopted by Carter in early 1980 amounted to cold economic warfare with a long-term intention for policy to remain that way. Opinion in the Administration was still divided. Brzezinski writes with some anger of how some officials wanted to explore the possibility of US participation in the Olympics on the basis of unsubstantiated intimations that the Soviets might later pull out of Afghanistan.57 That same month Marshall Shulman, Vance’s main Soviet affairs adviser, echoed Carter’s conviction when he wrote to the Secretary of State that ‘It is…crucial to maintain Alliance solidarity at all costs’.58 That in effect meant that it would be impossible to go to the extent of waging all-out cold economic warfare, because the allies would not go along with it, and without their co-operation it would be ineffective. He added, ‘Further punitive measures would be counter-productive in terms of our relationship with the Allies as well as the Soviets.’59 This certainly does not sound like an Administration imbued with the conceited intent that would be necessary to shift policy to a cold economic warfare footing. Furthermore, the USA was careful to differentiate between the Soviets and Eastern Europe, and avoided any indication that it was punishing the latter,60 and how it could wage all-out cold economic warfare against the Soviet Union without also radically altering its trade with Eastern Europe is a puzzle. Finally, the Pentagon, which had been pushing for the Bucy recommendations to be implemented without great success, now saw a chance to move in that direction. However, as we observed before, Bucy’s recommendations themselves did not lay out policy in such a way that it could unequivocally be dubbed cold economic warfare. When Defense Under Secretary William Perry defined the two main objectives of the new policy they were to sustain the US lead-time in the application of high technology to military uses and ‘to avoid the facilitation of [Soviet] industrial modernization related to significant greater defense produc-tivity’.61 This was clearly a shift back to greater emphasis on the dangers of fungibility and dual-use technology, but it did not amount to all-out cold economic

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warfare. US exports to the Soviet Union declined sharply from $3.6 to $1.5 billion, but those of its Western allies rose sharply. While overall imports and exports from the USA to the Soviet Union halved in terms of a percentage of the Soviet Union’s main trading partners, the percentages for all West European countries rose, with the French increase from 9 to 13 per cent of the total being the highest.62 If the Carter Administration’s intent was to inflict severe economic pain and damage to the extent of waging cold economic warfare, one can only conclude that it was so ineffective that it fell far short of the mark. The measures taken by the Carter Administration were triggered by renewed Soviet aggressiveness and the Soviet strategic build-up. They were also important in sending a deterrent message to the Soviets and as a means of trying to mobilise and rally the allies to a greater sense of danger and of responsibility for meeting that danger. It is doubtful that Carter and a majority of his Administration thought that these measures would stay in place in the long-term. They were there until there was a change of heart in the Kremlin such that a new form of détente could be brought on stage. Carter’s main motives for implementing the changes were to send messages to various actors in the Cold War game. His intent was not to wage cold economic warfare, although on the continuum between strategic embargo and all-out cold economic warfare the policy went beyond a strategic embargo. However, in the twilight of his presidency another crisis arose: this time in Eastern Europe, where the Solidarity trade union and its charismatic leader Lech Walensa were effectively channelling popular discontent against the communist regime. The instability that resulted deeply worried the Kremlin. Fearing Soviet intervention, on 12 December 1980 Carter and his NATO allies threatened to respond as the situation required if the Soviets were to move on Poland. Unfortunately, this did not resolve the crisis, and the Reagan Administration inherited the problem. The way Ronald Reagan chose to play the Cold War game during the major part of his first administration was to give new emphasis to the economic defence policy of the USA. However, as we shall see, Reagan’s own intent was little different from Carter’s, though the same cannot be said of some of his lieutenants. It is this pluralism of views within the Reagan Administration that, along with other factors, has caused so much confusion in the interpretation of its policies and exactly where they stood on the continuum line between a strategic embargo and all-out cold economic warfare.

Understanding the Reagan Administration President Reagan and his administration’s Cold War strategy, economic defence policies and overall legacy are all fraught with difficulties of interpretation. Some see Reagan primarily in terms of political symbolism or as an agent in the politics of decline, others see him as incompetent, wayward and too much influenced by his wife. There are those who celebrate his revival of American values and strength, and those who revile his politics as chauvinism and his economics as exploitative capitalism. Yet another view is that he was a pragmatic and consummate politician, who did what he set out to do in relations with the Soviets.63 He improved the position of the USA, at least militarily, and, perhaps more importantly, established a trend of renewal, which involved the Strategic Defense Initiative (SDI, or Star Wars) programme, designed with the intention of making

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the USA immune to nuclear attack. Once he had achieved his position of strength, he negotiated. However, some saw the military strength Reagan developed as just another symptom of terminal superpower overstretch. Reagan’s time in office gave new impetus to the great debate about US decline, fostered greatly by Paul Kennedy’s Rise and Fall of the Great Powers.64 Ironically, the most influential voice rejecting that thesis, Joseph S.Nye’s, still blamed Reagan for temporarily weakening the USA through profligate defence spending and thus adding to the national debt.65 No wonder, then, that controversy about Reagan, his policies and his legacy still continues. Hyland captures some of the dilemma of appraising Reagan in the following: Reagan lifted the grain embargo against the USSR without denying the principle of economic sanctions, which was invoked in the case of Poland less than nine months later. He denounced arms control, but in less than a year his administration was involved in negotiations. He denounced SALT 2 as fatally flawed but lived up to its provisions for five years. He attacked the Helsinki conference but continued to participate fully in the follow-on meetings at Madrid, Stockholm and Vienna.66 The dilemma of interpretation is compounded by the impossibility of disentangling the general strategic policy from the Reagan Administration’s more specific economic defence policies. Further problems lie in the general disjunction between Reagan’s rhetoric and actions, in the different motives that can be (and have been) ascribed to the same policies, and in the tendency to identify the Administration with a powerful and highly ideological group committed to hard strategic and economic defence policies. In order to unravel this tangle one must judge the balance between the doctrinaire and the pragmatist in Reagan; distinguish between groups and individuals who had different reasons for supporting the same actions, to see what this tells us about the overall character and meaning of policies; and measure the extent to which the hard-line ideologues managed to determine policy. In the realm of economic statecraft, there are two major and complex questions of interpretation to be addressed. First, to what extent was the policy of the Reagan Administration meant to be, and to what extent did it actually approach becoming, all-out cold economic warfare during 1981–5? Second, to what extent was the policy of economically ‘squeezing’ the Soviets instrumental in pushing them into arms talks and ultimately in accelerating the collapse of the Soviet Union? Did the USA intend to force a Soviet collapse, or was the ‘squeeze’ primarily designed to push the Soviets into meaningful negotiations? In short, what was the dominant thinking behind economic defence policies? In many cases the problem of interpretation has arisen because explanation has been cast at too high a level of generalisation and in static snapshot pictures of the Reagan Administration. The USA was rarely a unitary decision-maker, and a unitary executive force did not propel the government. Actors changed their positions over time, key personnel came and went, and circumstances altered. The interactions between the President and what may be loosely corralled into two factions within his administration—the ideological hard-liners and the more pragmatic Cold War warriors—largely determined the contours of policy Reagan’s position becomes clearer

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through a three-stage analysis: first, of his general policy line; second, of his response to the developing crisis in Poland; and, third, of his change to a more accommodating line with the Soviets during 1983–5. There is little doubt that Reagan intended to renew what he saw as America’s failing strength both economically and militarily, reinvigorate the Western Alliance with more positive US leadership, and challenge the Soviets more effectively. Precisely to what end and with what economic tactics is less easy to establish. During the 1980 election campaign, after criticising SALT 2, he commented of the Soviets: They know our industrial strength. They know our capacity. The one card that’s been missing in these negotiations has been the possibility of an arms race. Now the Soviets have been racing but with no competition. No one else is racing. And so I think that we’d get a lot farther at the table if they know that as they continue, they’re faced with our industrial capacity and all that we can do.67 Reagan wanted to compete in the Cold War more vigorously, but he took it for granted that ‘the Russians, like ourselves, considered it unthinkable that the United States would launch a first strike against them.’68 This conviction created room for aggressive manoeuvring as far as Reagan was concerned, which involved lurid and combative rhetoric to arouse US public support for rearmament, as well as his more assertive leadership of the Western world. Part of the armoury to be deployed was in the economic realm. As we shall see, there was widespread and genuine concern about the impact that Soviet acquisition of Western technology would have on the strategic balance. Reagan wanted to cut down on that flow, though not to the same extent as his more ideologically committed colleagues, or at too great a cost to the unity of the Western Alliance. He also believed that, by raising the spectre of an expensive arms race, he would force the Soviets to the negotiating table; it was a reincar-nation of the Truman Administration’s adage of only negotiating from a position of strength. Again, unlike his more ideological colleagues, Reagan’s immediate intent was not to defeat communism by causing the collapse of the Soviet Union, but to draw it into negotiations that would be beneficial to the USA. Despite all the violent criticisms of détente, in the end, Reagan practised something similar himself. It may have been more ‘hard-headed’, but events developed in the truly radical way they did, and went way beyond any traditional concept of détente, not primarily because of anything that Reagan did, but because of long-standing structural flaws in the Soviet economy and the corro-sive influence of Western ideas, which began to take hold because of enhanced communications, the aggressive propaganda of the Roman Catholic Church, and the fora established by the Helsinki Accords for economic, political and human-rights reforms.69 At the outset of his presidency, the use of economic sanctions was prioritised as a means of sending deterrent messages to the Soviets at a time when, accurately or not, Reagan and his Secretary of Defense, Caspar Weinberger, thought that the USA was too weak to send effective messages that relied solely on US military capabilities.70 Whether or not Reagan opposed East-West trade on ‘moral, economic and strategic grounds’, as one writer has claimed, is debatable, given his lifting of the grain embargo in April 1981 and other measures that he later approved, but it is difficult to disagree with the same

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author’s claim that Reagan appointed to middle-rank positions people who reflected such sentiments. These appointments included Richard Perle as Assistant Secretary of Defense for International Security Policy; Richard Pipes, the main Soviet specialist on the NSC; and Lawrence Brady, Assistant Secretary of Commerce for Export Administration.71 More important for the long-term was the effectiveness that Reagan attributed to economic measures for bringing the Soviets to the negotiating table. This belief recurs consistently throughout his two terms. Before his election he had declared his belief that the Soviets needed to be exposed to the economic potential of the USA, and later he uttered similar sentiments in 1982, 1983 and 1985, albeit in different and changing circumstances. In 1982 he thought that by curtailing Western credits he could confront the Soviets with a stark choice of currying favour with the West or starving. In 1983 he told Prime Minister Thatcher of Britain: ‘The task was to convince Moscow that the only way it could remain equal was by negotiations because they could not afford to compete in weaponry for very much longer.’ And after Mikhail Gorbachev became General Secretary in April 1985 he became convinced that all he needed to do was wait until the Soviets came round to deep arms cuts, while still allowing the USA to proceed with SDI, because of the parlous state of the Soviet economy.72 These views of Reagan and the economic defence policies his Administration deployed, or at least tried to deploy, have led several scholars to talk of a strategy of economic warfare (what the present work would term all-out cold economic warfare) and of its deployment during 1981–5.73 There is little doubt that key figures—including Weinberger, CIA Director William Casey, Perle, Pipes and Brady—all had the intention of waging cold economic warfare with the object of causing the collapse of, or radical change to, the Soviet Union. However, much hangs here on how one constructs definitions. If one were to emphasise the intent seriously to damage the Soviets and ultimately exhaust them into defeat (the logical objective of all-out cold economic warfare), then it would be important to establish whether such intent ever actually prevailed in the Administration. If one were to emphasise results, then one would need to assess the economic instruments available and their effectiveness. On both counts US policy seems to fall far short of the mark. Bureaucratic in-fighting, the impact of Allied policies and Reagan himself prevented either the firm establishment of a clear intent on the part of the US Administration, or the implementation of an effective strategy of allout cold economic warfare—though policy for a time moved further along the continuum away from a strategic embargo to engage with the intention of damaging the Soviet economy for reasons above and beyond considerations of strategic defence. The bureaucratic in-fighting was notorious and a cause of serious embarrassment at home and at international gatherings. At worst, what Richard Perle called Reagan’s extreme “intellectual delegation of authority” invited either bureaucratic chaos, or the pushing of policy far into the regions of unaccountability.’74 On at least two occasions this chaos favoured the hard-line ideologues, who sought to push policy further into the realms of cold economic warfare with the Soviets, but as Shultz observed: ‘No decision could ever be regarded as final or implemented with confidence as policy.’75 In the end, opportunism, afforded by temporary advantage gained in the Washington bureaucratic struggle, did not produce a coherent policy. The squeeze policy was never clearly established, among other reasons because Reagan did not consistently apply it.76

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Somewhat ironically, Mastanduno, after arguing that the USA did develop an economic warfare strategy, itemises attributes of US policy towards COCOM that appear to belie that claim. He observes that US policy was a ‘broad denial strategy of economic warfare’, which used linkage but lacked consensus except over agricultural exports, involved a high level of bureaucratic infighting, and was inconsistent.77 Mastanduno’s intention was to highlight the discrepancy between aims and results in COCOM—but can one actually call this a strategy of (cold) economic warfare when there was a lack of consensus on what to control, inconsistency in policy, and a high level of bureaucratic in-fighting? This was bad enough for the hard-line ideologues whose ambition it was to wage (cold) economic warfare, but there were also problems both with US capabilities and allies.78 A longstanding critique levelled against proposals that the USA should conduct economic warfare against the USSR was that, if a total embargo were instituted, the impact would be negligible. Even before Carter’s retaliation for the invasion of Afghanistan, the total of US-USSR trade was tiny in relation to each country’s GDP. By 1981, US trade had dropped to about $1.5 billion, and most of that was in foodstuffs. The argument that dangers for the West arose because of the high-tech quality of US exports and their potential to open Soviet production bottlenecks carried some (but by no means decisive) weight, and in any case there were alternative sources of supply except for a tiny range of products. The Bucy report and Bucy’s subsequent articles had not argued for economic warfare (unless one wants to define that concept as maintaining a technological lead-time over the Soviets). Thus, if stopping US trade would not significantly affect the Soviets, then the next logical step was to ask whether an embargo would have significant impact if multilaterally applied? The answer to that question, however, was uncertain, because the allies made it abundantly clear that they were not willing to develop anything that smacked of cold economic warfare. Even Reagan’s closest ally, Thatcher, stood out against American calls for extending the Western embargo in response to the declaration of martial law in Poland, specifically to cover equipment contracts for the massive Soviet Urengoi gas pipeline. When Secretary of State Alexander Haig visited Downing Street on 29 January 1982 Thatcher ridiculed the idea of calling in Polish debts, because of the chaos that would cause to Western banking. She pointed out the asymmetry in the burden the USA was asking members of the alliance to shoulder if they embargoed oil and gas industry equipment, especially when there was no talk of a US grain embargo. And finally, she bluntly told Haig, and subsequently Reagan by letter, that there was no possibility of West Germany or France (and, by impli-cation, Britain) giving up their pipeline contracts with the Soviets.79 Sixteen months later in June 1982, Thatcher, on one of her numerous visits to Washington, continuously harangued the President and his advisers about the extraterritorial application of US sanctions against recalcitrant allies in the pipeline crisis.80 As the Europeans were so determinedly refusing to co-operate, it became clear to most rational people that in reality a policy of effective Western cold economic warfare was simply not going to happen, though that did not stop the ideologically committed from advocating and trying to develop such a policy. Shultz’s comments about William Casey are apt here: ‘But his views were so strong and so ideological that they inevitably colored his selection and assessment of materials.’81 The lack of co-operation by the allies is fully documented in the works of Mastanduno, Jentleson, Hanson and others, but

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its implication for US economic defence strategy are not always clearly drawn. Even when it is acknowledged that the Europeans did not allow COCOM ‘to be an instrument of America’s broader economic warfare strategy’, the consequences for that strategy are not spelt out.82 Where did Reagan stand on all this? What were his intentions and just how hard-line was he? A clearer picture will emerge in detail later in this chapter; for the time being, all that is offered are a number of signposts. While Reagan’s language was often provocative and harsh, his actions towards the Soviets were consistently more moderate. Sometimes this was because of his own agenda, sometimes because of arguments urged upon him by advisers or allies. For example, in February 1981, barely a month after his inauguration, Margaret Thatcher arrived—the first senior foreign representative to visit Reagan’s Washington—and she came with a mission. In 1979, at the Guadaloupe Conference, the USA and the West European allies had struck a compromise to try to defuse domestic anti-nuclear protest about the scheduled deployment of Pershing 2 and cruise missiles in Europe in 1983 to counter the Soviet SS-20s. It was the so-called two-track approach: plans for deployment would progress, but at the same time there would be a willingness to negotiate on arms limitations. Thatcher now felt that understanding was under threat because of the new administration’s uncompromising stance. However, Reagan recommitted himself and his administration to the two-track strategy.83 There is little doubt that Reagan did take a hard line on arms talks, and that he believed that the Soviets had gained militarily vis-à-vis the USA during the years of détente and the misnamed years of neglect under Carter. The zero option proposed by Reagan on 18 November 1981—no deployment of Pershing 2 and cruise missiles in return for the withdrawal of Soviet SS-20s—was swiftly rejected by the Soviets on the grounds that they were hardly likely to trade existing for future missiles. Similarly, Reagan’s May 1982 Eureka START proposal of a massive reduction in land-based missiles would have disproportionately disadvantaged the Soviets because of their greater reliance on just such weapons, so again there was rejection. Nevertheless, the Reagan Administration did engage in talks. As far back as the 30 April 1981 NSC meeting, the first since Reagan had been gunned down by a would-be assassin in March, Haig managed to get the President to approve arms talks with the Soviets before the end of the year, in part to appease restless allies. Thus talks came, albeit after some delay, but one should not read too much into that, for, as one scholar has put it, ‘by far the most important reason for the delay was intra-mural’: bureaucratic warfare, not ‘international’ reasons.84 Significantly, the USA later allowed neither the Polish crisis nor the shooting down of the Korean airliner KAL-007 in late 1983 seriously to compromise those talks once they had begun. In May 1982 NSDD-32 authorised diplomatic and economic pressures and covert operations to try to ease Poland away from the Soviet Union, and later that year in December NSDD-75 codified US strategy and, advocating Weinberger’s line, called ‘for an explicit objective of the United States, the use of economic pressure to influence the internal politics of the Soviet Union’. However it also stipulated that the USA should negotiate agreements with the Soviets that were in US interests, and in the judgement of Garthoff the ‘directive’s main thrust was…pragmatic’.85 Furthermore, all this was before, not after, the change to the widely recognised more accommodating stance of the Administration, which began to become evident in 1984.

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‘Some advisers, like Weinberger, Perle, and Pipes, saw the situation [in the early 1980s] as a historic opportunity to exhaust the Soviet system.’86 Reagan appears to have had a rather different agenda. In April 1981 he lifted the grain embargo. This presents advocates of the idea that the USA waged (cold) economic warfare with something of a problem. Jentleson tries to explain this away as an exception and as a ‘graphic demonstration of domestic constraints’.87 Why the farming community should have more leverage on the Reagan Administration than big business (which bridled at export controls), when the Republican Party is so often dubbed the party of big business, is not accounted for. The balance in the Administration also soon shifted. Pipes left after only two years, and the hapless Haig went in 1982. He was replaced by George Shultz, a powerful and wily Secretary of State, who gradually outmanoeuvred the ideological hardliners. Finally, the bare facts tell a pragmatic rather than a consistently doctrinaire story. The USA imposed sanctions on Poland and the USSR in December 1981, and extended them extraterritorially against its own allies in the summer of 1982. It also, however, granted exceptions for a major contract for pipe-layers for the Caterpillar, Company in July 1981 and eventually lifted the extraterritorial sanctions in November 1982. In August 1983 it lifted the embargo on pipe-layers, and when Brady, Clark and Weinberger sought to introduce another round of sanctions in response to the KAL-007 incident, this caused a real furore, with William Root of the State Department resigning in protest. Shultz successfully headed off this new drive for more intensive cold economic warfare.88 Successively in January and August 1984, Washington lifted most of the sanctions on Poland, and at the beginning of 1985 the first US trade mission since 1978 went to Moscow.89 Needless to say, by this time Brady was out of the Commerce Department. Even without considering the motives behind these actions and their aims, the picture that is forming does not seem consistent with a vigorously prosecuted campaign of cold economic warfare. Reagan’s reasons for imposing sanctions on Poland overlapped with those of his hardline Defense Department and NSC team, but it is possible to see other reasons at play as well, to which he gave more emphasis than they. Of Poland, Weinberger wrote in his memoirs: ‘The President-elect correctly sensed that this was to be his first test and that a great deal would depend, for at least the next four years, on how he, and the nation, reacted to Soviet pressure on Poland.’90 The key issue from the start was exactly the same as with the Carter Administration: how could the USA send clear and convincing messages to deter the Soviets from further aggressive acts that might spiral out of control into a direct East-West military confrontation? As Secretary of State Haig put it, ‘Our signal to the Soviets had to be a plain warning that their time of unrestricted adventuring in the Third World was over.’91 The danger of another aggressive Soviet move seemed imminent in late 1980. ‘A telegram from Col. Ryszard Kuklinski, the CIA’s longstanding source inside the Polish general staff, reported in early December 1980 that [General] Jaruzelski [the Polish leader] had ordered his Defense Ministry to approve Kremlin-sponsored plans to allow 18 divisions of Soviet, Czechoslovak and East German troops to enter the country’.92 Before his inaugural, Reagan met with his security team at Blair House to discuss strategy. It agreed that, if the Soviets moved militarily to shore up the communist regime in Poland, the USA could not sit idly by. It had to be prepared mentally and militarily to ensure that the Soviets did not have an easy time. The Soviets

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would be forced to pay a price. Reagan was concerned about Weinberger’s professions of US military weakness, and that existing US military muscle would be insufficient to deter the Soviets. He was very aware of making threats that could not be carried out and of the consequences for future credibility if bluffs were successfully called.93 For a while after he entered the White House developments in Poland seemed less threatening, but intelligence reports were still deeply ominous. In the spring, CIA intelligence from Poland suggested that a Soviet military entry into Poland was imminent. ‘Reagan sent a secret letter to Brezhnev, warning him to expect “the harshest possible economic sanctions” if the invasion went ahead.’94 Reagan and his extreme hard-line, and very influential, CIA Director William Casey both saw Poland as the weak link in the Soviet ring of satellites. Intelligence reports also demonstrated that this was Moscow’s view as well. Polish [KGB] experts in Moscow Centre traced the origins of the Polish crisis to the election of the Polish cardinal Karol Wojtyla as Pope John Paul II in 1978. The following year John Paul II had made a triumphal nine-day tour through Poland. At the end of his visit, as he bade farewell to his home city of Krakow, where, he said, ‘every stone and brick is dear to me’, men and women wept uncontrollably in the streets. The contrast between the political bankruptcy of the Polish Communist regime and the moral authority of the Church and the Polish Pope was plain for all to see.95 As we have already noted, the Administration was not averse to exploiting these problems in order to weaken the Soviet bloc: it authorised economic, diplomatic and covert actions to try to further loosen connections between Poland and Moscow. However, Reagan’s overriding concern at this time was not so much to weaken the Soviets as to deter them from further adventurism. Economic sanctions were threatened more as a deterrent than as a means of damaging the Soviet economy. Things changed on 13 December 1981, when the Polish government declared martial law. It took Washington somewhat by surprise, and it was several days before Reagan responded. Part of the problem was that the Polish Government had declared martial law and there was no overt Soviet intervention. The USA and its allies had not prepared a collective response for this eventuality.96 Intelligence reports placed beyond doubt, in the collective mind of the Reagan Administration, that the Soviets were involved and primarily responsible for the turn of events.97 Reagan wrote to Thatcher of his outrage at the Soviet role in Poland.98 On 29 December he announced a range of trade sanctions against both Poland and the Soviet Union, the most significant of which became those directed at the Urengoi Pipeline. His declared intention was ‘to convey to those regimes, how strongly we feel about their joint attempts to extinguish liberty in Poland’.99 Notwithstanding the clampdown by the Polish authorities, there was still, of course, a possibility of direct Soviet military intervention. Recent evidence has cast new light on the role of Jaruzelski and the Soviets, and, while there is still controversy, it would appear that Jaruzelski wanted direct Soviet intervention but the Kremlin refused.100 Nevertheless, so far as the Americans were concerned at the time, they knew that the Soviet Union had been a key mover of events, and they thought that a direct military

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intervention by the Soviets was highly probable, and still possible even after the declaration of martial law. These considerations are important, because they have a bearing on establishing the motives and intentions of US sanctions. Both Mastanduno and Jentleson argue that the Polish sanctions issue was hijacked by the hard-liners in Washington. Martial law in Poland may have been the ‘proximate’ cause, but it was neither the only nor the ‘most significant cause’ for the sanctions against the pipeline. It all became part of ‘the broader attempt to retard the Soviet economy over the long run’.101 Indeed, the principal ‘architect of the pipeline sanctions was Richard Perle, who obtained the full backing of Weinberger. It was a characteristic Perle move, an example of swift lateral thinking that took his adversaries by surprise.’102 His statement ‘indicated that American coercive objectives ran much deeper than the symbolic and compellance objectives associated with the issue of martial law in Poland’. It was, Jentleson suggests, part of an ‘overarching strategy’ to return to the economic coercion of the 1950s.103 Perle and his allies seized the unexpected turn of events in the Polish crisis as an opportunity to push their agenda of waging what they termed economic warfare against the Soviets, but this kind of thinking was hardly universal within the Administration. Haig was deeply sceptical of the hard-liners’ optimism about the likely impact of the sanctions, and when he resigned on 25 June he was replaced by George Shultz, a much more effective operator and someone who was on record as a critic of what he called ‘light-switch diplomacy’, or turning on and off trade flows.104 He soon made it a major priority to end the sanctions. It is also plausible to claim that Reagan had a rather different position to Weinberger, Perle et al.. He had threatened the Soviets in the spring of 1981 with dire economic consequences if they were to enter Poland militarily and had confided to Weinberger his fears about not being able to convey strong enough messages to the Soviets to act as deterrents. He was also deeply conscious of the danger of having bluffs called. These considerations more than anything else motivated Reagan to impose the sanctions. He was in the business of sending messages; if the denial of high technology slowed down the Soviets’ military programmes or hurt them economically then that was also desirable. He wanted to use economic measures to pressurise the Soviets, but his goal was negotiation, not the collapse of, or uncontrollable turmoil in, the Soviet Union, and it was on these objectives that he parted company from the more hardline and ideological in his entourage. In short, different factions in the Administration had different reasons for wanting to see sanctions imposed. Some indeed saw them as a further step along the road to all-out cold economic warfare, but others, including the President, did not. And even if the Reagan Administration had an overarching strategy to implement all-out cold economic warfare (the present argument rejects this), one must agree with the judgement of Stephen Ambrose that Reagan was in the end reduced to ‘verbal denunciation and the most limited and ineffective economic sanctions’.105 The overall conclusion here is that there was no overarching strategy because key people in the Administration did not favour all-out cold economic warfare, and as a strategy pursued by the ideological hard-liners it amounted, in the end, to wishful thinking. The evidence for Reagan’s motives in imposing sanctions is somewhat circumstantial, but the fact that he began to change his attitude and subsequently his posture towards the Soviets during 1983 lends this interpretation further credence. The year 1983 was a crucible for change. However, given the Reagan Administration’s hard line and the

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disasters that blighted US-Soviet relations during the year, prima facie it seems strange that the change was to more temperate moderation. On 8 March, in front of the National Association of Evangelicals in Florida, Reagan made his most notorious speech on the Soviet Union, in which he was widely reported as having condemned the Soviet Union as an ‘evil empire’.106 Later that month, on the 23rd, he announced the SDI programme. The tone was therefore harsh at the outset of the year, and in the autumn a series of events cast an even deeper pall over US-Soviet relations. On 1 September the Soviets shot down the Korean civilian jumbo jet KAL-007. On 6 October Lech Walensa was awarded the Nobel Peace prize. In the same month the USA suffered heavy casualties to its peacekeepers force in the Lebanon, when a terrorist truck bomb exploded in a marine barracks, and in the Caribbean a US force invaded Grenada to restore order, protect US lives and overthrow the communist regime there. In early November the NATO exercise Able Archer was temporarily seen by the Soviets as being potentially the real thing: a preemptive Western strike against the Soviet Union. And, finally, in November the USA started to deploy Pershing 2 and cruise missiles in Europe, and the Soviets walked out of the arms talks in Geneva. It was against this backdrop of rising tensions, that Reagan began to shift his stance and look for negotiation rather than confrontation. Exactly when this shift took place is not easy to determine, but there were signs evident throughout the year that the US position was not thoroughly hostile and uncompromising. On 15 February Reagan had his first formal discussion with a senior Soviet official when he met with Ambassador Dobrynin. Economic sanctions were eased, and the USA did not embark upon new sanctions after KAL-007, nor did it walk out of the Geneva talks in protest. On 10 November, at the height of US-Soviet tensions, the ailing Brezhnev finally died, and when Reagan visited the Soviet embassy to pay his respects he projected a friendlier image—Dobrynin even notes in his memoirs, ‘There are some who say that the historic turn in our relations began with this visit.’107 Crockatt identifies change in the presidential election year of 1984, and Garthoff identifies a range of reasons, without judging which were the most important: the election year; more united allies; the fait accompli of US Pershing and cruise missile deployment; and the renewal of US strength. Gaddis opts for spring and summer 1983 after savage criticisms of Reagan’s evil empire speech.108 The President’s language was certainly more restrained after March 1983, and less than a year later Dobrynin noted the moderation and more friendly tone in a major speech about US-Soviet relations that Reagan gave on 16 January 1984.109 By September 1984 Reagan was forthright in his call for talks. ‘America has repaired its strength…. We are ready for constructive negotiations with the Soviet Union.’110 Although repairing US strength (or, perhaps more importantly, perceptions of US strength) was very important for Reagan, there were other factors at work that point towards November 1983 as the crucial turning point in Reagan’s stance towards the Soviets. In 1983 both London and Washington were influenced in their outlooks by information coming from Oleg Gordievski, the KGB number two at the Soviet Embassy in London who was providing information to British intelligence. The British Foreign Secretary at the time, Sir Geoffrey Howe, records of Gordievski’s information ‘It played an important part in shaping our strategy.’111 In particular, reports on Soviet suspicions that the CIA had contrived the whole KAL-007 episode and that they feared that Able Archer could be

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the real thing, persuaded him just how paranoid and fearful of the West they actually were. This helped to push Howe into what he termed ‘Howe’s Ostpolitik’, involving Prime Minister Thatcher’s visit to Hungary in February 1984.112 Evidence suggests that Reagan was similarly moved. Robert McFarlane, National Security Adviser 1983–5, has testified that Reagan was told about the Soviet fears of Able Archer and that it had impact on ww him.113 His realisation that the Soviets really were scared of America and Americans, and that they feared the possibility of a nuclear first strike from the West occurred at this time and deeply worried him. This changed his percep-tions about the room to manoeuvre aggressively. For all his combative rhetoric, Reagan’s abhorrence at the prospect of a nuclear war is well-recorded and authenticated. There was no more talk of the evil empire. Shultz soon became the key policy-maker for US relations with the Soviets, and Reagan gave him the task of exploring new avenues of communication.114 In December 1984, Margaret Thatcher met the rising star in Soviet politics, Mikhail Gorbachev, at Chequers, her official country residence. She pronounced him to be ‘a man with whom I could do business’.115 Shortly thereafter, in March 1985, Gorbachev became leader of the Soviet Union, and the world soon discovered that Reagan also could do business with Gorbachev. At Geneva in November 1985 Reagan and Gorbachev held the first USSoviet summit for six years; Dobrynin later described it in Churchillian terms as ‘the beginning of the end of the Cold War’.116 Over the next three years the two leaders made substantial progress on disarmament and in generally improving East-West relations. At the time no one quite understood just how radical the changes were to prove: they ended the Cold War between 1989 and 1991, and that coincided with the collapse of the Soviet Union. For the first time since 1933 the USA was liberated from the threat of a serious strategic challenge. There was no longer any need for the kind of economic defence policies that it had pursued for nearly sixty years.

Advance, retreat and abandonment of an aggressive economic defence policy 1981–91 For all its bold rhetoric, the Reagan Administration, just like any other, took some time to determine its way forward. One of the most immediate issues was the grain embargo. Haig, true to his mentors in foreign affairs—Nixon and Kissinger—urged the President not to lift the embargo unless the Soviets granted the USA some concession in return. He argued, in particular, that a unilateral abandonment of the embargo would send the Soviets the wrong message when they were poised to intervene in Poland. At Reagan’s first Cabinet meeting, Secretary of Agriculture John R.Block argued strongly for abandoning the embargo, but for a while Reagan took no action. However, as domestic pressures mounted Block and Ed Meese prevailed, and Reagan lifted the grain embargo on 24 April. The first major move of the Reagan Administration in its economic defence policy towards the Soviets was to moderate Carter’s strategy, despite the opposition not just of the pragmatic Haig but also of hard-liners such as Jeane Kirkpatrick, US Ambassador to the UN, Weinberger, and NSA Richard V. Allen.117 Over the following weeks there was no further change in existing policy as the hard-

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liners and pragmatists struggled for influence to determine strategy. At the 7 July NSC meeting, chaired by the President, ‘A consensus emerged that Western equipment was important to Soviet economic development and also that the sale of critically strategic material should be curtailed.’118 But this was no different from the received wisdom in the Carter Administration, and the State and Defense departments were unable to agree to go beyond this. As the months went by more emphasis was placed on restricting high technology flows, partly because SDI clearly emphasised the importance of technology applications for defence, partly because of the ceaseless pressures from Weinberger, Perle et al., and partly because of yet more reports confirming the importance of restricting weapons technology transfers.119 Nevertheless, this was hardly a dramatic change of direction from the Carter years, and at the Ottawa economic summit in July, although Reagan raised the issue of technology transfers, he made little impact on his allies, and in the conference final communiqué was grateful for some anodyne phrases of compromise from Margaret Thatcher. ‘We concluded that consultations and, where appropriate, coordination are necessary to ensure that, in the field of East-West relations, our economic policies continue to be compatible with our political and security objectives.’120 This was not a good augury for the hard-liners in the Administration, who wanted to stiffen the backbones of their allies and strengthen the COCOM multilateral embargo. All that was on the cards after Ottawa was an agreement to talk at a high-level COCOM meeting in January 1982. As luck would have it for the hard-liners, the USSR provided more fuel for their arguments with its pressure on Poland and the declaration of martial law that came in December. The situation in Poland created by Solidarity and its leader Walesa deeply troubled the Soviet leadership, but its decision not to intervene directly with military force and to rely on Jaruzelski to impose repression caught the USA off balance. On 19 December, six days after the declaration of martial law, messages were received by allies that the USA would not implement the contingency plan drawn up to respond to a Soviet military intervention, but action was soon forthcoming, and without further consultation. Reagan was determined to send a strong message of condemnation in order to redeem the threats he had uttered to try to deter Soviet involvement in the repression of the Polish reform movement. There would also have been little chance of gaining allied support for a more combative stance against communism if he had not taken punitive action. US Eximbank credit guarantees were stopped, Polish fishing and airline rights in areas of US jurisdiction were suspended, and the President requested the allies to restrict high-tech sales. On 29 December similar sanctions were imposed on the Soviet Union, most notably including the suspension of talks for a new long-term grain agreement and an embargo on equipment for the Urengoi pipeline. However, these measures did not meet with the full approval of either the ideological hard-liners in the Administration, who wanted (and continued to push for) more punitive measures, or the allies, who could only muster feeble retaliatory measures against the Soviets and verbal condemnation at the NATO Council on 11 January. The polarisation of views is well illustrated by Weinberger’s desire to declare Poland in default on its debt repayments and the horror at such a prospect expressed by Prime Minister Thatcher, whom no one could consider as being soft on commu-nism.121 It became obvious on 23 January that there would be a real problem between the USA and its allies when the French signed a major pipeline contract

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with the Soviets: others followed. The intention of one of the key hard-line players in Washington, Richard Perle, had been made abundantly clear even before the Polish crisis erupted. He wanted to strengthen sanctions on the Soviets. Poland gave him the opportunity to try. In November he stated publicly: ‘The assessment of the Department of Defense and of the Reagan Administration is that this highly co-ordinated Soviet effort is being carried out at the expense of the free world by a raid on our tech-nology…from precision tools to process know-how technology.’ In May 1982 his boss Weinberger went even further: ‘Selling them our valuable technology upon which we have historically based much of our security is short-sightedness raised to the level of a crime.’122 Hard-line ideologues such as CIA Director Casey, who by late 1981 was Reagan’s key adviser on Poland, had much input into the decision to sanction Poland and the Soviet Union. These officials had no faith in linkage; they believed the way forward was to cow the Soviets into submission by forging ahead with high-tech upgrades of US defences and to damage them economically and psychologically with a comprehensive and multilaterally applied embargo policy. According to Haig, they pushed things to the extent of over-reaching their actual authority: ‘when the decision [to sanction] was applied by the Department of Commerce, one of its officials, going beyond the letter of intent of the President’s policy, interpreted it as being retroactive.’ ‘I doubt that this was the President’s intent…certainly this issue never won support in discussion around the NSC table.’ ‘Inexplicably, the Administration accepted this bureaucratic fiat.’123 All Haig could do, with the help of Secretary of the Treasury Regan, Secretary of Commerce Baldridge, and USTR William Brock, was to delay the implementation while Under Secretary of State James Buckley went to canvass European opinion. In the meantime, the high-level COCOM meeting agreed at Ottawa had convened and decided that the organisation should be revitalised, its enforcement procedures strengthened, licensing harmonised, lists reviewed, and that the no-exceptions policy adopted in 1980 should be extended to at least 1983 in the light of events in Poland. The Americans, and Brady in particular, made it plain that the USA wanted to go far beyond these modest initiatives and begin to control technology, process know-how and equipment that did not directly relate to military uses; the Europeans firmly rejected this. In 1983, when the USA and its allies reviewed progress at the Williamsburg economic summit, the Americans were disappointed, to say the least, at the modest progress that had been made. The Europeans had insisted on keeping the criterion of ‘direct military value’, and, while fungibility made that criterion flexible and subject to interpretation, only two categories were moved from foreign-policy to national-security criteria.124 During 1982–4, in the overall review of the COCOM controls, 58 out of 100 specific proposals from the USA were accepted, and there was further compromise in which controls over computers were liberalised in return for a tightening of controls on computer software and digital switching systems.125 ‘The new items on the control list were certain types of machine tools, dry docks, semi-conductors, manufacturing equipment, robotics, super-alloy technology and software.’126 Significantly, however, as Jentleson rightly observes, these improvements were due to ‘the shared assessment that much high-tech-nology trade, legal and illegal, posed a serious security threat’.127 The Europeans were willing to strengthen the strategic embargo, but they were not willing to

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move towards implementing a strategy of cold economic warfare. Although changes in COCOM began to gather pace, the hard-liners in Washington were not satisfied and still looked to impose pipeline sanctions—unilaterally, if necessary. Buckley’s trip to Europe did not resolve things, and in May George Shultz was sent to explore the possibilities of a compromise on the urgings of Secretary Haig. One idea that had gained currency was to control credits to the Soviets. In February, at the allied conference in Madrid, the Europeans had told Haig that this was a real possibility, and on 8 March Thatcher, deeply worried about the prospects of a serious rift in the Western Alliance, wrote to Reagan expressing the hope that new credit controls might provide the basis of a compromise and avert the imposition of US retroactive extraterritorial sanctions.128 Shultz’s visit to Europe confirmed allied willingness to move on this: he reported that no one wanted to subsidise the Soviet Union.129 Haig now wanted to use this as the basis for an agreement at the upcoming summit at Versailles. ‘As Versailles approached, I made it plain to the European foreign ministers that if we did not at least have progress on a cooperative policy to limit future government-backed credits to the Soviet Union, the United States would find it difficult not to apply retroactive sanctions that would prevent the manufacture of American technology for the pipeline.’130 At Versailles a compromise was struck on the basis of an implicit understanding that ‘the United States would not apply retroactive, extraterritorial pipeline sanctions’ in return for action on credits for the Soviets. The most recalcitrant of the allies, France, was given the additional incentive of an offer of US dollar support for the ailing franc. Unfortunately, Treasury Secretary Regan was not privy to the making of this arrangement, and when he was apprised of things he rejected it. The US-allied compromise came apart, and the USA and its allies fell into deeper disarray. The ideological hard-liners in Washington now moved in for what they thought would be the kill. Manoeuvring so that Haig was out of Washington at the time, the new NSA William Clark scheduled an NSC meeting to consider how to proceed on the pipeline issue. Lawrence Eagleburger represented State, but the hard-liners, particularly Clark, Casey and Weinberger pushed through the decision to go ahead with retroactive sanctions to stop the export of gas and oil industry equipment and apply them extraterritorially against US subsidiaries and foreign companies manufacturing such goods under licence from US firms. ‘Clark placed only the strongest option paper before Reagan, who uncharacteristically approved it on the spot. There had been little discussion of the issue, and virtually no participation by the President himself.’131 This was a Pyrrhic victory. The response of the allies was one of indignant fury. Even Thatcher condemned it publicly, and Britain along with other countries and the EC denounced the action as illegal and took steps to require their national companies to fulfil their legally binding contractual obligations. This created the very scenario that Haig (and Thatcher) had so dreaded. Not only did the European reaction weaken and negate the thrust of the sanctions campaign, it also created a serious divide in the Western camp at a time when that could be very costly: Pershing 2 and cruise missile European deployment was only months away. Weinberger, Perle, Clark, Casey and Brady now discovered that the Europeans were no easier to coerce than the Soviets, that Shultz was just as able to outmanoeuvre them as they had Haig, and that compromise has virtue. Shultz and Baldridge moderated the impact of the sanctions by restricting their scope,

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in particular to prevent disaster for the Scottish-based John Brown engineering company, which depended heavily on US components and manufacturing licences. There were also moves on the credit issue in the OECD in July, which went some way towards appeasing the Americans: the Soviet Union and its satellites were recategorised as ‘relatively rich’, which meant minimum credit terms rose from 10.5 to over 12 per cent. However, still more needed to be done to bridge the rift between the USA and its allies. In a meeting on 5 August Weinberger remained robustly militant: ‘I don’t want to hear about legalities’ he snapped, and he ‘was against the very idea of a negotiation to resolve this bitter dispute with our allies.’132 But Weinberger was no longer dealing with Haig. The very next day Shultz went to work on the President, who gradually moved increasingly to support the position of the Secretary of State rather than that of the Secretary of Defense. Shultz began a dialogue with the allies, using the good offices of Francis Pym, British Foreign Secretary, in order to get things moving. At the October NATO Foreign Ministers’ Conference in Canada, he negotiated a general strategy on East-West economic relations that would save face for the USA and allow Reagan to lift the sanctions on US allies. At the NSC meeting on 15 October Weinberger tried to hold out for more, but Shultz effectively would have none of that. He got his way.133 The US tried to represent the deal as one that would create a ‘tougher general trade policy toward the Soviet Union’, but it was largely a face-saver, and one can really only have minor differences with Garthoff when he claims it ‘was not’ a tougher policy in substance.134 On 13 November, the President lifted the sanctions on oil and gas equipment and announced that a substantial accord had been achieved among the allies. They had agreed: not to engage in trade agreements that ‘contribute to the military or strategic advantage of the USSR’, particularly high tech goods and oil, gas equipment; not to give preferential aid; not to sign new gas agreements pending completion of energy alternative study by allies; to strengthen COCOM controls; to monitor financial relations with view to harmonizing credit policies.135 As we shall see there were further, if rather minor, developments in COCOM over the following six years, but the pipeline crisis was now at an end; it had been the high-water mark for those trying to develop and implement cold economic warfare through trade and financial controls. SDI continued to have impact, but it soon became clear that the Administration’s primary intention was negotiation, not outright victory through exhausting the Soviet Union into collapse. By March 1983 Shultz was gaming ascendancy in the Administration and pushed through new initiatives for talks with the Soviets. In September, though not without difficulty, he headed off attempts to mount a new sanctions campaign in retaliation for the KAL-007 outrage. At the end of 1983 the President shifted decisively towards negotiation, and relations thereafter steadily improved through the Shultz-Gromyko talks of January 1985, the Reagan-Gorbachev summit in Geneva in November of that year, and a succession of further meetings that were continued by his successor President George Bush. Economic warfare was now definitely out, and soon economic help was to come in.

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Export control policy after the pipeline crisis During 1984, in the aftermath of the pipeline sanctions, with the growing influence of Shultz and Reagan’s shift to a softer and more accommodating stance, plus growing congressional and business criticisms, unease mounted about the export-control policies advocated by the hard-liners. Gradually this resulted in a change of thinking about controls. Those justified by foreign-policy considerations came under ever-closer scrutiny, but there was still some impetus to tighten up controls in the area of clear national-security risks. There was thus continuing ambivalence in new legislation: on the one hand trying to curb controls on foreign-policy grounds; on the other trying to tighten up in security-sensitive areas. However, there was a growing consensus that unilateral controls were ineffective and too costly for the USA. There was now renewed emphasis on multilateral controls, but as the end of the 1980s approached their focus was narrowed on high-technology items of military use. The furore caused by the 1980 grain embargo and the 1982 retroactive sanctions affected the congressional debate about the renewal of the EAA, which expired on 30 September 1983. However, notwithstanding the growing concern about the effectiveness, cost and appropriateness of existing export controls, the proposals the Administration sent to Congress were far from liberal, and still reflected the deep-seated security concerns about high-technology transfers held by many (and not just the hard-liners) in the Administration. Congress failed to renew the EAA on time because of difficulties and disputes, particularly about where authority for controls ought to lie. The key question was whether the Department of Defense ought to have more powers at the expense of Commerce. The existing EAA was extended until October, but then when there was still no new law, Reagan declared a national emergency and invoked the IEEPA of 1977, which provided the legal basis for controls until the Export Administration Amendments Act 1985 was passed. The act was a compromise between the departments of Defense and Commerce and was supposed to strike ‘an acceptable balance between enhancing [US] commercial interests and protecting our national security inter-ests’.136 In terms of protecting the national interest, more powers were given to the Department of Defense to govern hightechnology export controls. In the sphere of extraterritorial controls, despite European lobbying to eliminate them, such powers remained intact and were added to in terms of new import sanctions. Only if they were foreign-policy controls did they have to meet new conditions before they could be applied.137 The main thrust of change was to enhance multilateral security controls, to limit the government’s ability to impose agricultural sanctions, and to constrain foreign-policy control powers. The executive was directed to seek agreement in COCOM to ‘enhance full compliance by all…members, to improve the control list and upgrade the…staff, to adopt uniform and adequate penalties, and to increase on-sight inspection’.138 There was a sixty-day limit on agricultural embargoes, unless either there were a supporting joint resolution of Congress, or a comprehensive embargo were in effect. For foreign-policy controls, obligations on the President were strengthened. He now had to make determinations that controls would be effective, enforceable and benefit the USA, and retrospective controls could only be

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imposed if there were a ‘breach of the peace [that] poses a serious and direct threat to the strategic interests of the United States’.139 Although this sounds quite draconian, in fact such terms as ‘breach of the peace’ and ‘strategic interests’ lend themselves to imaginative interpretations; also, these requirements did not apply to national-security controls, and it should be remembered that a President could always invoke the IEEPA to impose controversial sanctions, as Reagan did in the cases of Libya and Nicaragua. The power of the Executive to control exports remained largely intact. The Department of Defense was now better positioned than ever to monitor and influence controls, and in the mid-1980s there was some movement within COCOM to reinvigorate the organisation and tighten and extend controls on high-technology items of military use. But the high-water mark had passed. The European allies had resisted the more ambitious calls for control of civilian goods, and COCOM still laboured under serious difficulties. The trauma of the pipeline affair had long-lasting effects. As Mastanduno argues, US policy had aggravated already uneasy relations by making foreign-policy demands that the Europeans could not accept. The hard-liners in Washington had broken with diplomatic proprieties, and, even after the compromise struck in the autumn of 1982, COCOM became grossly overburdened because of US reluctance to rationalise the lists, and because of its ever-growing demand for exceptions for exports to China.140 The US Congress and the business community were more vocal in their criticisms. In particular, the idea of US unilateral controls was now largely discredited as a viable policy, and the effects of export controls on the US balance of payments had become a major issue. The hard-liners in the Reagan Administration were gradually diminishing in number, and their influence was more than counterbalanced by Shultz’s. And finally, Reagan’s stance had changed; he now actively sought to negotiate with the Soviets. As he did so, relations improved. Gorbachev began to reform the Soviet Union and relax the hold on the satellites. In this scenario, policy on export controls had to change, and the Omnibus Trade and Competitiveness Act of 1988 reflected that reality. Concern over US export performance was brought sharply into focus by Reagan’s Commission on Industrial Competitiveness in 1985. Among other things it suggested that somewhere in the order of $11–12 billion of the 1984 trade deficit ‘could be traced to the delays and denials of the export control licensing process’.141 Such costs were no longer tolerable, especially as relations with the Soviets improved.142 Martial law was lifted in Poland in July 1983, though it took some time after that before real progress was made. In November 1985 Reagan and Gorbachev began the first of a series of world-changing summit meetings. In early 1987 Secretary Baldridge announced a series of liberalising export measures, and, ironically, revelations of major abuses in COCOM (involving prohibited exports by the Norwegian company Kongsberg-Vaapanfabrik and the Japanese Toshiba Machine Tool Company) actually prompted more liberalisation, not less. In 1988 the ‘clear mandate of the OTCA [was] toward continuing reduction of controlled items that are no longer significant to the military potential of any controlled country, through a required periodic process of review, decontrol, and congressional reporting’.143 That same year there was a compromise in COCOM reminiscent of the 1950s, whereby the USA was granted tighter controls on national-security items in return for a paring down of the control list.144 As the Cold War wound down, so did Cold War economic defence policies. At his first press conference President Bush said: ‘Let’s take

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our time now…we should be cautious.’145 In fact the Cold War and the strategic threat to the USA were about to disappear. There still had to be caution, but time had more or less run out. Gorbachev’s glasnost and perestroika reform programme had raced out of control: in trying to sustain Soviet communism by embracing reform and evicting hardliners and hard-line policies, he had let the genie out of the bottle. From 1988 to 15 February 1989 the Red Army withdrew from Afghanistan. In Eastern Europe Gorbachev’s more liberal line encouraged dissent and a turning against the communist leaders by their people. He effectively had to reject the Brezhnev Doctrine and allow the reforms to run their course. By 10 November 1989 this meant the dismantling of the Berlin Wall; a month later communist rule in Czechoslovakia came to an end. In December President Bush and Gorbachev met in Malta and jointly declared that the Cold War was over. In October 1990 Germany was reunited. The following year the Soviet Union fell apart. It was against this backdrop that US economic defence policies were dismantled. On 29 May 1989 Bush announced that he would ease export controls and lift the COCOM policy of no exceptions for the Soviet Union that had been in place since 1980. The following year the USA and Britain proposed an initiative to draw up a new core list of strategic items for embargo. In May 1991 that initiative resulted in an agreement to cut the COCOM lists by 50 per cent, effective as of 1 September. Further liberalisation followed, and the USA was now in the forefront of joint ventures of assistance with Russia and the former Eastern bloc countries. In September 1991, as the USA struggled to come to terms with what had happened in Moscow and to the Soviet empire, President Bush recorded in his diary: The more I listened to the discussion in the Cabinet Room, the more I was convinced we simply did not know enough to design any detailed aid program. We did not want the Soviets to starve, or to lack medicine. We were already responding in two ways. I had announced that the United States would help alleviate probable food shortages that winter and would send experts to sort out what was needed. Second, we would be offering medical assistance through the end of 1992.146 The Soviet Union now ranked with Third World countries in terms of the demands it made upon US policy-makers. In November 1992 COCOM was transformed into a cooperation forum to help Russia and the East European countries develop economically. The fear generated by the Soviet Union’s geopolitical power and aggressive ideology was largely at an end. Certainly the threat posed by the remaining ex-Soviet nuclear hardware was different in kind from what had existed in the past. Most importantly of all for the present story, the type of threat that the vestiges of Soviet nuclear power posed could no longer be appropriately addressed by the kind of economic defence policy conceived of in the early 1930s and practiced in its varying forms down to 1991.

11 Economic statecraft: theoretical considerations The reductionist worldview is chilling and impersonal. It has to be accepted as it is, not because we like it, but because that is the way the world is.1

Space and time are influenced by the observer’s state of motion and can warp and curve in response to mass and energy. All is change, and nothing stays still long enough to be captured statically in thought. In a very real sense we come to know both the physical and human world by the way they change and in accordance with a variety of theoretical explanatory frameworks that stipulate what count as facts. Since Einstein there has been a frantic search within the scientific community to find a theory that would cope with this and explain everything. A successful discovery would be something so fundamental that it would reconcile the incompatibilities of general relativity and its explanation of the big, and quantum mechanics and its explanation of the small. Scientists now think they may have found this scientific Holy Grail. It is called string theory, and reduces the explanation of everything to tiny vibrating loops of ‘string’. This, if true, would be the final form of reductionism. The humanities and social sciences, meanwhile, suffer from problems rather similar to those the scientific community experiences in trying to resolve the incompatibilities of general relativity and quantum mechanics. In practice (though not necessarily in theory, if string theory works), relationships between individuals, with their reflective selfconsciousness, and collectives, like government departments and states, seem even more challenging to explain than relationships between quarks, neutrinos and so on, positioned by gravity, elec-tromagnetic, weak or strong force.2 Relationships between people, states, and people and states are never simple, are based on perceptions of both observable behaviour and non-observable reasoning, and become even more complicated when economic and political forces are at play, which run into the international realm. In this sphere, as in science, those seeking explanation have adopted a large or a small approach. The galactic and sub-atomic approaches of general relativity theory and quantum mechanics are mirrored in, on the one hand, the theoretical and conceptual approach of political science and international relations, with their emphases on generalisation, variables and causes, and, on the other, in the evidence-led narrative explanation of history, with its attempts to provide reason-giving explanation of human actions.3 The analogy is not completely apposite, because there are outside and inside dimensions to events involving human agency, but it works sufficiently well to get the idea across. This study is primarily historical, and, while it is not so pretentious as to presume it offers anything that approaches string theory’s reductionist scientific explanation, it does offer some

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modest help for reconciling differences that have arisen between historians and between different approaches from political scientists and international-relations scholars. Also, it instantiates a case for the need for historical explanation before it is possible to turn to much of the kind of generalising favoured by political science and international relations. The force of argument developed here rests upon acknowledging that different kinds of questions elicit different kinds of answers, which, nevertheless, can offer some form of mutual support. While analytical models and theoretical frameworks are a necessary part of providing guidance for better practice, by their very nature they often have to exclude detail that is essential for accurate historical explanation. Different needs and different criteria are at issue here. Explaining how best to get from A to B is different from explaining how someone actually made the journey from A to B. However, the experience of a particular journey may reveal something new about the topography that helps in refining generalisations about how to get from A to B. It is this kind of modest contribution to the refinement of theory that may be gleaned from the detail of the preceding narrative. Two possibilities arise from what has been discovered in the previous chapters: one is to try to clarify some of the conceptual issues involved; the second is to draw on illustrations from the text to show how different types of inquiry require different forms of explanation. This is not just a theoretical excursion for its own sake. It will help to distinguish between different kinds of scholarly work, and it will clarify the meaning of language and concepts that are the common currency of academics and policy-makers. The definitions of ‘sanction’, ‘strategic embargo’, ‘cold economic warfare’ and ‘economic warfare’—all of which have contestable meanings in theoretical literature, and which change in practice according to the context—need to be addressed. Should these terms be defined by intent or consequences? If intent, whose intent counts? If consequences, then consequences where? In the target state, or the sender’s domestic constituency? Among allies or neutrals? The nature and practise of economic statecraft, and its use of concepts such as ‘fungibility’ and ‘strategic good’ also require some further consideration. All these terms challenge the historian as well as the political scientist and international-relations scholar.

Sanctions The literature on sanctions is vast and can only be reviewed selectively here. It ranges from the descriptive and policy-prescriptive to the highly theoretical, from detailed case studies to broader works in which sanctions are integrated into the general category of economic statecraft.4 However, apart from a consensus that economic interdependence now offers abundant opportunities for exerting economic leverage, and that sanctions became prominent in the latter half of the twentieth century because it is more prudent to use soft economic forms of coercion than hard military force in a nuclear-perilous world, there is little agreement about anything else. Indeed, there are lively disputes about both the effectiveness and the definition of sanctions.5 Definitions range from David Baldwin’s broad conception, which acknowledges the difficulty of sharply differentiating different forms of economic statecraft, to a more

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Procrustean view held by Margaret Doxey. Unlike Baldwin, who concentrates on the economic nature of the sanction instrument and a wide range of possible consequences cast in terms of ‘influence attempts’ by one state on another, Doxey is more explicit about the aims of sanctions in order to avoid, as she puts it, draining the term of all ‘essential content’. Drawing on the ideas of David Mitrany, she asserts that ‘international sanctions are properly defined as penalties threatened or imposed as a declared consequence of the target’s failure to observe international standards or international obligations’.6 She distinguishes sanctions from other instruments of economic statecraft, such as economic warfare or a strategic embargo, on the grounds that the latter are ‘coercive acts of an economic nature designed to secure advantages for the sender’. Not only should such acts not be classified as sanctions, ‘such manipula-tive and self-serving acts’ might themselves ‘give grounds for sanctions’.7 Sanctions cannot just be to do with one state winning or gaining at the expense of another, they have to have a moral or normative content and be geared towards upholding international standards and order. The moral components of this she discerns in the emergence in the latter part of the twentieth century of a whole raft of norms to do with self-determination, democracy, and human rights. Doxey’s prescriptive notion of sanctions is fine, at least for those who share her values and wish to promote them abroad; for those wishing to explain practice, though, her definition appears arbitrary. It excludes types of behaviour that fall within the scope of the normal use of the language of sanctions. The idea of an international consensus about norms is too much taken for granted, and the cosmopolitan-communitarian debate too easily ignored.8 For example, if a Muslim country economically punished Western states for allowing porno-graphic films to be beamed into its territory, would this be a sanction? Or would this be an illegal act against the right of free expression? And US punitive measures levied against neutrals for trading with the enemy in the Second World War— were these sanctions (see Chapter 4), when such actions were in breach of international law? The repeated reference to norms prompts one to demand whose norms? What justifies them, and are they indeed universal, to the point that that it makes sense to talk about sanctions in the way that Doxey proposes? Matters become even murkier when we are told that sanctions imposed to uphold international norms, or laws, will often correspond to the self-interest of the state imposing the sanction.9 This does not sit well with the view that manip-ulative and self-serving acts might themselves prompt sanctions. The definition of sanctions thus becomes more and more opaque as the book progresses. Doxey sees the US embargo against Cuba as a case of sanctions, but not the strategic embargo against the Soviet Union. Yet in 1950 NSC 68 envisaged the strategic embargo as a means by which ‘the Kremlin is brought at least to the point of modifying its behaviour’,10 and the strengthening of the strategic embargo against communist states during the Korean War had an element of sanction in it as well. It was a way to express moral condemnation of the invasion of South Korea. By the end of the book one is uncertain how national interest, prescriptions about sanctions and international norms, and the motivation of actors for imposing sanctions can be happily reconciled. Nor is it clear why the term sanction has to be restricted to action for upholding international norms or standards of behaviour, when common usage of language and practice often give a different meaning to the term in contexts that do not

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immediately seem to suggest that it has been violated. Violation would only occur if some rule, or norm, were breached—but where are such enforceable rules and universal norms in the international sphere, which could give credible meaning to Doxey’s use of the term sanction? Even long-established international norms are often contested, or states find ‘justification’ for breaching them. The main issue here is not that there is some moral connotation or link to the term sanction, but that Doxey presents the link in terms of received international norms or standards of behaviour. The other main problem is the attempt to distinguish clearly between sanctions and, for example, a strategic embargo, when actual practice and the understanding of the agents conducting policy often see them as overlapping. Others take a more expansive view of sanctions. Boudreau uses the term to cover even such extensive strategies as the Western embargo directed against the communist world in the Cold War.11 Bruce Jentleson sees the difference between sanctions and economic warfare as one of degree: economic warfare is when sanctions are used aggressively and are ‘close to comprehensive in scope’.12 Sanctions, proper, are more restricted and defensive in scope. Galtung defines sanctions both more precisely and broadly as ‘actions initiated by one or more international actors (the “sender”) against one or more international others (the “receivers”) with either or both of two purposes: to punish the receivers by depriving them of some value and/or to make the receivers comply with certain norms the sender deems important’.13 Baldwin takes a similar view with his concept of influence attempts by economic instruments and his acknowledge-ment that sanctions merge into other forms of economic statecraft.14 As we have seen, US policy-makers often used the term sanction in different ways. For example, in the minds of some policy-makers the Soviet empire was so evil, and embodied values so contrary to those of Western notions of rights and liberal capitalism, that the kind of moral perspective spoken of by Doxey was always present in their minds. To them, the strategic embargo and cold economic warfare were also always forms of sanctions against the evil of communism and part of an agenda that would bring the Soviets back into the international mainstream dominated by Western notions of international law and human rights. The more pragmatic policy-makers conceived of sanctions in a narrower context such as the US grain embargo of 1980, intended to punish the Soviets for their invasion of Afghanistan, or the refusal to extend MFN trade treatment until the Soviets lifted restrictions on the emigration of political dissidents and members of ethnic minorities. What is clear from the narrative is that the term does indeed have a variety of meanings, and only the context makes clear which one pertains at any specific time. Furthermore, a particular act of economic statecraft might simultaneously be both a sanction and part of a strategic embargo or a campaign of cold economic warfare. A narrative form of explanation has to rely on the actual usage in practice. The fact that sanction is a term that can legitimately be used differently only makes it the more important to ensure that the context is sufficiently detailed to demonstrate the meaning being attributed to it in a particular case. Notwithstanding ontological uncertainty surrounding sanctions, this has not inhibited empirical work. The widest-ranging study of this kind is Hufbauer and Schott’s.15 In a series of case studies, they apply a framework that posits three ways that sanctions can impose costs—restricting or impeding imports, or exports, or the finances of a target

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state—and five intended goals—to change policies, to change policies radically, to disrupt a minor military adventure, to impair the target’s military potential, or to destabilise the target state’s regime. They then apply this framework to cases ranging from US sanctions against Japan in the 1930s to US sanctions against the Soviets in the 1980s. While this work is widely recognised as a benchmark study and is highly respected, there is still dispute about its findings and the extent to which sanctions have been successful.16 How to measure success is extremely difficult, as the US grain embargo against the Soviets in 1980 (dealt with in Chapter 10) amply demonstrates. The old conventional wisdom would have instructed us a priori that sanctions are ineffective, but opinion has changed over recent years because of challenges by scholars like Deese, Baldwin, Holsti and Rodman, and as a result the whole issue of effectiveness has been reopened. Holsti, for example, argues that, providing sanctions are evaluated in the context of ‘alternatives, secondary objectives, and comparative costs’, then they may be seen as much more effective than has often been claimed to be the case in the past.17 Deese asserts that their value is often underestimated because of two inappropriate assumptions. The first is that results should come primarily from changes effected by the sanctions in the target state, when the impact on the domestic constituency of the sender might be more important. The second is that sanctions are intended to change things, when in fact they may simply be intended to punish, discredit or embar-rass.18 Baldwin shares in these views and has perhaps done more than anyone to change the perspective on the effectiveness of sanctions and economic instruments of statecraft in general, and we shall consider his views at some length shortly. Rodman takes up the case of extraterritorially applied sanctions to argue that the situation is more complex than many have allowed, and that such sanctions do have impact. He claims that part of the problem in formulating a clear picture lies in the fact that hegemony theory has overstated the deployment of US power and created unrealistic expectations. In fact, the USA has been reluctant to act coercively against other states on extraterritorial sanctions for fear of jeopardising broader US interests. However, exerting pressures on multinational corporations (MNCs) to comply with US extraterritorial policy wishes is a different matter. Domestic pressures have often pushed the USA into imposing extraterritorial sanctions, and Washington has then been able to bring coercive pressure to bear on MNCs by inflicting or threatening indirect penalties for them in the US market. This enhances the chance of at least some success for extraterritorial sanctions even though they come at a high cost.19 Notwithstanding the contributions made by Holsti, Baldwin et al., assessment remains problematic. This stems from difficulties, first of all, in quantifying impact in terms of relative costs and gains from the instrumental quality of sanctions; secondly, in evaluating the subjective impact of the expressive quality of sanctions; and, thirdly and most fundamentally of all, in identifying what the criteria of success should be, whose formulation counts, and from what perspec-tive.20 The instrumental quality of sanctions aims to change a situation in some way that is to the detriment of the target state and in a way that can be visibly seen or measured. Cause and effect should be ostensible: for example, if food exports to a state dependent on imports were stopped, then one would have to see a change of policy or regime in order to claim success. The effect, and therefore the success, of the expressive quality of

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sanctions is more difficult to assess. ‘When military action is impossible for one reason or another, and when doing nothing is seen as tantamount to complicity, then something has to be done to express morality, something that at least serves as a clear signal to everyone that what the receiving nation has done is disapproved of.’21 Thus, from one perspective, one could say that the act itself of imposing a sanction constitutes success within the realm of expressive sanctioning. However, a further complication is that sanctions are usually both instrumental and expressive. Even primarily instrumental sanctions are contaminated by more subjective expressive qualities that make the assessment of success or failure elusive in any quantitative sense. This complex duality of sanctions was demonstrated most effectively in Chapters 7–10. The elusive facet of expressive sanctions, the difficulty of assessing their impact in any objective sense, has inclined social scientists to ignore or play down their importance. They nearly always get a mention, but because their quality is not suitable for quantifiable patterns or hierarchically structured processes within analytical models, they very rarely receive much attention. Jentleson, for example, specifically excludes them from his study of the pipeline sanctions crisis of 1982. He also challenges Baldwin for merging expressive or symbolic sanctions with instrumental sanctions to create the category ‘symbolic instrumental’, on the grounds that this leads to confusion. It may lead to confusion, but it does not logically follow that it should do. Baldwin in fact captures a real and highly complex perspective when he highlights the duality of sanctions.22 Furthermore, the effectiveness of economic sanctions often relies upon how the target state perceives them in relation to the likelihood of their being followed by the use of force. In other words, as we asserted in Chapter 1, much will depend on what message is conveyed to the target state in the act of imposing sanctions, sustaining them, and withdrawing them. It emerges from these considerations that is it difficult to assess the success or failure of a particular case of sanctioning from the kind of external perspective, designed to generate generalisations, adopted by the scholars that we have been considering. The problem of setting out criteria for judging success or failure in general is complicated by the subjective quality of expressive sanctions and by the various types of goals that they might have. A further difficulty is the possibility of designing criteria that deem a sanction unsuccessful when those applying it judge it to have been successful: for example, we could easily imagine that kind of situation arising with the Carter Administration’s 1980 grain embargo against the Soviets. One might then be intellectually inclined to seek some further criteria to justify the criteria upon which either of the two contradictory claims rest, but no criteria could reconcile the two positions. One stems from what we might call investigation inside the event, the internal reasoning of the actors involved; the other is established by imposing criteria external to, and irrespective of, the reasoning of the actors involved. In situations of this kind of complexity frameworks of analysis cannot provide easy answers and may even be unintentionally misleading and confusing. Confusing because in explanations we rely on criteria that can, at least in principle, reconcile two contradictory claims, or else establish one as correct and the other as false (for example: Stalin lived in the twentieth century; Stalin defeated Napoleon’s Grand Army in 1812). When claims are made that cannot, even in principle, be reconciled or corrected, we have a problem. We have two types of explanation with different theoretical frameworks; or two non-explanatory forms of

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analysis or discourse in operation; or a type of explanation and a non-explanatory form of analysis or discourse at work. The last appears to be the case here. Questions posed by Rodman, Jentleson and Lisa Martin provoke further thought about sanctions. This group of scholars is concerned not only with degrees of success and failure but with factors that affect the chances of successful co-operation among a group of states in order for sanctions to work at all. The significance of this is highly relevant to the question of the relative influence of the USA and its allies in the formulation and execution of Western Cold War policies. Can these scholars, with their analytical frameworks, give insights that go beyond the historical explanation in Chapters 5–10? The analytical frameworks that Rodman, Jentleson and Martin adopt produce incompatible results, and it is not clear how they can be reconciled. Rodman looks at the 1982 pipeline crisis with both the hegemonic decline theory in mind and the contemporary problem of state control over MNCs.23 He sees some effects of hegemonic decline in the inability of the USA to persuade its allies and MNCs to its preferred way of dealing with the Soviet Union. However, he qualifies this conventional wisdom by claiming that the inability of a country Like the USA to influence MNCs has been exaggerated, and that, in fact, the USA still retains leadership abilities and powers of persuasion to prevent MNCs from radically departing from official US foreign policy.24 As we shall see, these findings are out of line with the views of both Jentleson and Martin. Jentleson stipulates five factors, three international and two domestic, that need to be analysed in order to assess how US-led sanctions work. The international are allied disputes over foreign-policy strategy, diverging economic interests among allies, and the extent of leverage possessed by the USA both in economic terms and through leadership quality. The domestic factors are ideology and group economic interests. This is, of course, only a template that indicates where scholars ought to look for answers. How well Jentleson’s template works became clear in Chapters 9 and 10. For our present purpose it is only necessary to note that he rules out consideration of expressive sanctions, and that his primary finding about the cause of US failure with its allies in the 1982 pipeline case ‘was the increased divergence of economic interests’.25 Martin does not exclude expressive sanctions from her focus, nor does she reach the same conclusion as Jentleson about the key factor in the failure of the 1982 pipeline sanctions. She begins by identifying several commonsense vari-ables that affect the chances of success or failure of sanctions. If the target is weak and there is a coincidence of interests among a group of states that cooperate and help each other in imposing the sanctions, then the chances of success are high. Chances of success will be further enhanced if the leader of the group works through an international institution and accepts high costs of trade denial for itself in order to set a good example that will encourage band-wagoning. If the leader is suffering from hegemonic decline, then this is likely to reduce the chances of success. Using these factors and concentrating on institutions, costs and the bipolarity of the Cold War, Martin assesses the effectiveness of co-operation in US-led sanctions against the Soviet Union in 1978, 1980 and 1982 (see Chapters 9 and 10). Martin’s conclusion, which has much in common with Michael Mastanduno’s judgement about US leadership in the 1970s and 1980s, focuses on the shortcomings of Western co-operation in 1982. She concludes that the effects of hegemonic decline were

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not in evidence, that the key factors involved were leadership mistakes made by the USA and, in particular, that ‘the pivotal factor of cooperation in this episode [1982 sanctions] is the US government’s unwillingness to bear the costs of a grain embargo’.26 Similar reasons, according to Martin, account for the failure of sanctions in 1978, whereas, in contrast, the relative success in 1980 of Western sanctions occasioned by the Soviet Union’s invasion of Afghanistan is attributed to the grain embargo imposed by the Carter Administration. Martin’s attempt to identify the most important causal factors in the 1978, 1980 and 1982 sanction cases provides interesting insights, but the overall conclusion is, at least, debatable. If the failure to impose a wheat embargo was the key factor, then presumably, if the USA had imposed a grain embargo, the implication is that the Europeans would have fallen into line and complied with US demands, or at least cooperated more fully with Washington. Counterfactuals are by their very nature speculative, but the circumstantial evidence in Chapters 9 and 10 does not compel one to accept the implication derived from Martin’s argument, which in turn suggests that she may not have identified the key element of failure. Martin raises a number of factors that would clearly be significant in any analysis by policy-makers struggling to decide whether or not to adopt sanctions as a policy option and, if they decide in favour, how best to implement them. However, rather like Rodman and Jentleson, the adoption of an analytical framework, to further the goal of identifying general factors that determine how sanctions can be most effectively deployed, results in two interconnected problems. One is to do with explaining any particular set of sanctions, and the other, more fundamental, one is to do with the nature of explanation itself. The analytical frameworks either exclude certain types of data or perspectives, as Jentleson’s does with expressive sanctions, or confer importance on selected categories of evidence, as Martin’s does with self-imposed costs, and Jentleson’s with diverging economic interests within the Western Alliance. The result of all this is that, not surprisingly, they come to different conclusions about the key causal factors. One should acknowledge here that Rodman, Jentleson and Martin all address rather different questions; nevertheless, their findings are not compatible. Part of the problem is that different analytical models, which tell scholars where to look for answers to questions about sanctions, result in different emphases on different causal factors. Without stepping outside these analytical frameworks and into the detail of how policy-makers formulated and implemented policies, it is difficult to see how this problem can be resolved—which brings us to the rather more fundamental problem with these types of argument. All three authors rely on a form of reductionism that extracts generalisations from the data and establishes them as key causes. When they then use these key causes to interpret the original data, their search for explanation becomes circular and is in danger of falling into a veritable whirlpool of circularity. Once the original round of reductionism has restructured the data, what is there to prevent a second, third and fourth round? And would they result in ever more powerful causal factors emerging? In science, this may work. String theory may be the ultimate form of reductionism, the source of a kind of ultimate cause, but can this kind of reductionism be applied appropriately to explain human actions and events? The arguments deployed here do not detract from the value that Martin, Rodman et al. have for strategic thinking and the analysis of sanctions geared towards improving practice. Irnportant insights are given by them all, but there are serious problems

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involved in trying to deploy their analytical models in attempts to explain the 1982 pipeline crisis. These observations add weight to the case for valuing evidence-driven narrative explanation that relies on the specific and the historical agent’s world of understanding. This cannot perform the same role that string theory might play for science. It cannot resolve the differences between general claims made by social scientists, because they flow from the assumptions that structure the models and determine what counts as evidence, but it may be able to resolve incompatible claims that two or more models make about specific cases of sanctions, such as the 1982 pipeline case. This does little to help those concerned with improving policy-making and prescribing how to make future policy at the general level at which policy-makers often operate, unless it encourages a more critical scrutiny of the topography from which the assumptions are drawn in order to construct the analytical framework. However, it does help us to see how actual policies were made, and it demonstrates the importance of keeping different types of enquiry separate, otherwise confusion will surely follow.

Economic warfare, cold economic warfare and strategic embargoes Compared to the difficulties of the literature on sanctions, settling on an interpretation of economic warfare appears much more straightforward. Nincic and Wallensteen, Schelling, Mastanduno and Holsti all agree on what constitutes economic warfare: ‘economic privations are imposed with a military objective, i.e., to weaken the target’s capacity to wage war.’27 And those privations could be imposed by either military or economic means. Holsti takes this to its logical conclusion when he writes: ‘Economic warfare refers to those economic policies used as an adjunct to military operations during wartime. The objective is either to hold or conquer strategic resources, so that military forces can operate at maximum strength, or deprive the enemies of these resources so that their capacity to fight will be weakened.’28 These quotes bring to light some interesting considerations. Economic warfare is necessarily an adjunct to war. This is important in terms of setting out what the targets for economic warfare might be. They are necessarily related to conquering or defeating an opponent. This draws quite a clear distinction between the intensity (and, as argued immediately below, the means) with which policy can be implemented in economic warfare, compared with the economic defence policies conducted by the USA against communist states after the Second World War. In short, this distinction has implications for all those scholars who talk of economic warfare being conducted by the USA during the Cold War. This should more properly be termed (following Førland) cold economic warfare. Secondly, economic warfare is not only conducted by using economic instruments of statecraft, as some (including Baldwin) have claimed, but can include military action against economic resources: sinking of supply ships or bombing industrial plant. Again, this has implications for the Cold War. It was not possible to bomb Soviet industry, so this further strengthens the case for drawing a distinction between economic warfare, in which military instruments can be used to conduct policy, and cold economic warfare, in which they cannot.29 Long-standing practice lends support to these arguments. It would have been a serious mistake to ignore

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America’s naval blockade strategies in the two world wars and the way that they developed out of its policy of neutral rights to trade (see Chapters 3 and 4), because those policies shed enormous light on the way America’s overall economic statecraft developed in the twentieth century. The means of carrying out economic statecraft do not have to be restricted to economic instruments. Naval blockades and the military destruction of the enemy’s economic facilities were regarded as part and parcel of economic warfare throughout the twentieth century. For example the economist Paul Einzig wrote of British policy in 1941: The Navy is to a large extent an executive instrument of the Ministry of Economic Warfare in the enforcement of the blockade. The Air Force too acts largely upon suggestions coming from the Ministry of Economic Warfare concerning the choice of objectives of air attacks in Axis countries. In past wars it would have been almost inconceivable that the High Commands should have allowed a civilian department to interfere with their plans. In the present war, however, they fully realise the decisive importance of weakening the enemy’s resistance in the economic sphere.30 There is no compelling reason to depart from the practice of including military instruments as a means of executing economic warfare. In contrast, a campaign of cold economic warfare uses only economic instruments to achieve its aims—unless truly extraordinary conditions pertain, as in the Cuban Missile Crisis of 1962 and the current (2001) sanctions against Iraq, begun in the 1990s. Both economic warfare in time of war and cold economic warfare in time of peace aim to weaken or bring about the collapse or defeat of the target state, with the ultimate aim of changing its political regime. The difference lies in the intensity with which these goals can be pursued and, most obviously, the range of instruments available with which to pursue them. In wartime, economic warfare always seeks the defeat of the enemy: in peacetime, cold economic warfare may have, but does not necessarily have to have, the ambition of ‘defeating’ a regime without recourse to outright military action. With the term strategic embargo we are back in the realm of more hotly contested meaning. Intuitively, a strategic embargo seems to stand somewhere between sanctions and economic warfare as an instrument of statecraft. Thus Michael Mastanduno claims: ‘A strategic embargo seeks to prohibit only the trade that makes a direct and significant contribution to an adversary’s military capabilities. In addition to purely military items, it focuses on the control of those commercial items that have a specific and important military use.’31 However, in practice, fungibility blurs the line between civilian items and goods of direct military utility. Furthermore, policy-makers often see a strategic embargo as a moral message-sender in the way that Doxey conceives of sanctions, while others see it as tantamount to cold economic warfare and hope that the ultimate consequence will be the collapse and defeat of the target state. The main difficulty with the idea of a strategic embargo is this tendency to merge on either side with sanctions and cold economic warfare. In practice, the latter kind of merger has often occurred. In the early Cold War there was considerable debate about restricting US policy to a strategic embargo rather than extending it into what US officials called economic warfare. The scope for

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interpreting what Americans saw as a strategic embargo, but which might be seen by the Soviets as the kind of unfriendly act tantamount to economic warfare (or rather cold economic warfare), worried a number of US officials. In many ways these observations touch on the very heart of the problem of constructing a taxonomy of clearly defined analytical terms, because meaning is given to actions by those subjected to the effects of economic instruments of statecraft, no less than by those who exercise them, and sometimes there may be disagreement among both the receivers and the senders as to exactly what is going on. For example, in Chapter 10 it was clear that some US officials perceived the tightening of the embargo as moving from a strategic embargo to economic warfare, while others saw it simply as tightening up the strategic embargo. Just how complicated this is becomes clear when we recognise that not only are terms such as a strategic embargo inherently ambiguous, but also goods are inherently fungible—in one context a good is not of strategic value, in another it is. These problems created the agonising about policy in Washington in the 1940s and 1950s that we witnessed in Chapters 5 and 6. Contrary to what some analysts have claimed, US bureaucrats and politicians during the Cold War were very much alive to the difficulties of defining the strategic value of goods and tussled with that problem as they strove to maximise both benefits to the West and damage to the communists. They did this by taking into account possible Soviet economic relative gains and made calculations about the fungibility of resources. They also had to make qualitative judgements about whether or not items should be regarded as intrinsically strategic and as having potential to contribute to the Soviet bloc’s immediate war-making capability. Even such an astute analyst as Tor Egil Førland appears to prevaricate a little on this. He argues that, as the Soviets only engaged in trade because they believed it was to their benefit, then the logical thing for the West to have done would have been to impose a complete embargo on all trade.32 ‘Experience from the world wars has shown that in the age of total wars economic warfare should also be total.’ By this he means shutting off trade completely—which, he claims, is the logic of the policy of wishing to inflict maximum damage on the Soviet bloc. He appears to have fallen into the trap of suspending the relative dimension even if calculations of cost and benefit are limited solely to economic and military benefits. But, at another point he springs the trap: ‘As Mastanduno observes however, one might alternatively try to practice strategic export controls selectively, embargoing those items of most strategic value to the enemy…, and hoping to reap whatever economic and strategic benefits might accrue from the trade. Actually this has been the basis on which CoCom has functioned.’33 This argument is in line with the idea of maximising relative benefits of trade: engaging in selective trade with the potential enemy that strengthens the home state more than the targeted state, and also strengthens it more relative to the targeted state than if trade were suspended completely. Of course we do not know what would have happened if all trade had been stopped, but it was not just the Soviets who thought they benefited from trade; the West did as well. Stopping all East-West trade might have hurt the Soviets more than the West, but it could very conceivably have been the other way round.34 Given the West European postwar need for food and raw materials from eastern Europe and the Soviet Union—some of which were highly strategic in nature—one has to accept that even economic logic did

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not necessarily dictate the complete closure of trade with the Soviets. The difficulty of obtaining commodities from non-Soviet, and probably dollar-area sources, particularly given the European shortage of dollars, could have caused further havoc in an already critically unstable situation. That scenario could have damaged the West economically more than the Soviets. Only a very detailed empirical analysis could have determined whether the Soviets would have lost more than the West by a complete embargo, and at the time that kind of analysis was not feasible because of restrictions on information on the Soviet side. What is clear is that, while some saw the embargo as a moral imperative, Americans generally (or at least a substantial majority) thought that it was economically, and thus strategically, in the interests of the West to continue with a selective trade programme. Furthermore, as some of the materials the West obtained from the Soviet bloc were highly strategic in value, one could argue that a qualitative dimension needs to be factored in that cannot be easily cashed out in economic terms, even after applying the principle of fungibility For example, in an NSC meeting on 3 June 1948 Under Secretary of State Robert Lovett wryly observed that he was more interested in ‘getting manganese from Russia than in denying baby bottles to the Russians’.35 Total economic warfare does not allow us to substitute an economic calculus for good judgement. Thus the Western policy-makers did not fly in the face of the logic of their own containment grand strategy. They were, in fact, perfectly logical when they recognised that complex matters of judgement were at stake, given the imponderables and incomplete information on the Soviet economy and their desire to fashion an embargo policy that would both maximise the West’s strength and Soviet bloc weakness in relative terms. That statement delib-erately avoids saying Soviet bloc economic weakness because, at times, the West thought it prudent to strengthen economically certain parts of the bloc in order to cause internal strains, friction and jealousies. Even when the moral or ideological perspective is excluded and only economic calculations are included, the West’s cold economic warfare cannot be characterised as aiming only at weakening the economy of world communism. The above argument does not overturn the observation by Førland that total war involves total economic warfare: it simply explains the character of total economic warfare and some of the differences with cold economic warfare. We must not be misled by the word ‘total’ into believing that total economic warfare policy is thus necessarily tantamount to stopping all economic intercourse with the enemy. It is tantamount to saying that nothing may in principle be excluded from consideration as a target or a means of waging economic warfare—but that is rather different. As allied policy in the Second World War towards the neutrals showed (particularly well illustrated by policy towards Sweden—see Chapter 4), criteria of relative advantage and political considerations held the allies back from a total embargo, even though they knew that the blockade of Germany haemorrhaged badly through Sweden. Clarity can be achieved and confusion avoided here if it is acknowledged: first, that nothing may be excluded a priori from being a strategic good (this will be expanded on in the next section); secondly, that the term total economic warfare is not the language of an absolute that would stop all trade, but only requires an embargo on goods deemed to be of inherent strategic value and those that yield a comparative advantage to the enemy; and, thirdly, that there cannot be total economic warfare in peacetime, and that cold economic warfare captures the

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sense of the restrictions that apply under these conditions. After the Second World War, the Americans soon arrived at a policy decision that involved a very extensive strategic embargo. At times the extent and intensity of that embargo effectively amounted to cold economic warfare. In addition, there were more frequently used tactics, employed in more and less powerful forms throughout the postwar period, that amounted to low-intensity cold economic warfare designed to change the Soviet Union. They involved trade as a means of enticing or seducing the communists away from their beliefs, and ultimately their system, by demonstrating the superiority of the productive power of capitalism to meet the needs of mass society. West European countries generally pursued both these strategies simultaneously. They held to the line that narrowly defined strategic goods and efforts to restrict the war-making potential of the Soviet bloc could go hand-in-hand with a policy of expanding trade in order to demonstrate capitalism’s superiority and make the Soviet-bloc economy interdependent with the West. Ultimately, the goal was to socialise the Soviets into Western ways and norms. This did not maximise the economic weakening of the Soviet bloc, and, as the USA pointed out remorselessly, the West European policy created interdependence—and interdependence is a two-way affair. Nevertheless, this was seen as a policy that went beyond pure commer-cialism: it was seen as a means of altering the Soviet system and, as such, as a kind of cold economic warfare. Later these policies came out most potently in détente, but they were manifest in less powerful ways from time to time before the 1970s. For example, before the outbreak of the Korean War, Secretary of State Dean Acheson went along with the British, who favoured maintaining extensive trade and commercial ties with China. President Eisenhower believed that at the end of the day the West would win out because its economic power was superior to the communist system’s, and he personally favoured relaxing trade controls for a variety of reasons, among them the hope of seducing the communists. In the early 1950s British Prime Minister Winston Churchill thought that trade would increase the West’s ability to infiltrate the Soviet bloc, and a long-standing US tactic was to extend credits and trade to satellite countries, so as to try to drive as big a wedge as possible between them and the Soviets. This did not immediately weaken the Soviet bloc economically (quite the opposite), but it created tensions and problems and often demonstrated that the West could offer things to the satellites that the Soviets either could not or were not prepared to.36 So, the grand strategy of economically weakening the communist bloc has to be quali-fied somewhat. Again this raises question marks over the analytical categories that some of the more theoretical approaches to the subject have tried to impose on past practice. Michael Mastanduno and Førland37 reject the types of policy considered above as forms of economic, or cold economic, warfare. They both define economic warfare as a policy to weaken an adversary’s economy without changing its policy. In contrast, sanctions are defined as a type of economic leverage that does aim to change policy. These definitions are too Procrustean. During the Second World War, when economic warfare appears as a less contestable concept, the goal was not just to weaken the Axis but also to bring about its collapse, and hence change. In the Cold War some Americans were optimistic enough to hope that the embargo policy might modify Soviet behaviour. This was a view expressed by NSC 68, and from time to time some thought that the embargo might actually cause the Soviet Union to implode and thus force a change in its

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system. When the Soviet Union finally collapsed, some were sufficiently deluded by the image of US economic potency and Reaganite rhetoric to think that US policies of economic denial and the economic challenge posed by US rearmament had caused it. So, economic warfare during hot wars encompasses attempts to weaken a target state by the use of economic instruments of statecraft, or to damage the target economy by noneconomic means, with a view to bringing about its surrender, and thus a change of policies, or its defeat. Cold economic warfare, by contrast, is more restrained, because it does not accompany war with the target state. It aims to weaken the target state’s military and economic potential through the use of economic instruments of statecraft, to change its policies, and possibly bring about the collapse of the incumbent regime. For Førland and Mastanduno American policy amounted to economic warfare because it sought to weaken the Soviet bloc economically. But how does this conceptual definition then cope with the distinctions drawn above between economic warfare and cold economic warfare, and, more importantly, the fact that the USA was also prepared to strengthen the Soviet bloc economically, providing that that would cause other types of problems for the Soviets.38 Their definitions cannot catch the nuances of the difference between cold economic and economic warfare. And, because of their insistence that economic warfare aims to weaken a state economically without seeking to change its policies, neither can they encompass either the USA economically assisting Soviet satellites, or its use of the strategic embargo in the hope of modifying both Soviet behaviour and policies.39 This is unfortunate, because containment (and, as an integral part of that policy, the strategic embargo and cold economic warfare) was designed to change Soviet policies. The aims were to get the Soviets to abandon communism and to secure the interests and security of the West. Containment was not there, because it was there, because it was there. Neither was the US economic embargo there only to weaken the Soviets economically as an end in itself. That simply begs the question of why the USA wanted to weaken the Soviet Union. It wanted to do so in order to restrict its warmaking potential, but that objective was not achievable solely through economically weakening the Soviet bloc, and Western aims were broader than just limiting the Soviets’ ability to wage war. There was a series of US objectives: emphasising differences and conflicts within the Soviet bloc; reducing satellite dependence on the Soviets; getting the Soviets to change their policies and modify their behaviour; and sending messages to the Soviets, neutrals, allies and the US domestic constituency. In the early days of the deployment of the strategic embargo, changing policies and sending messages may not have been clearly articulated aspects of US policy, but they were implicit in the whole underlying rationale and as part of overall containment policy. In the 1960s they became explicit when first Kennedy’s administration and later Nixon’s looked to sustaining or relaxing trade controls as means of sending signals to allies and adversaries and as linkages or tools to be used in negotiating changes in Soviet policies. Quite clearly, by then, export control policy was designed to send messages to the Soviets, and, although earlier on the messages may have been more muted because of the secrecy surrounding the initial operations of COCOM and its embargo lists, secrecy itself did not remain absolute by any means, and did not preclude the possibility of messages getting through to the Soviets. Also, of course, secrecy was not a factor between the allies, and so the aim of sending messages about US resolve to its allies was accomplished.

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Economic statecraft, fungibility and strategic goods There are two key issues that come into play when trade controls of whatever kind (except possibly a narrowly construed sanction) are deployed: fungibility and the definition of a strategic good. Baldwin is the scholar who has undoubtedly been responsible for generating renewed debate about these issues within his broader concern with economic statecraft. And it is in that broader context that we need to consider fungibility and the concept of a strategic good. Baldwin synthesises ideas drawn from the work of Yuan-li Wu and Thomas Schelling40 to produce a comprehensive analytical framework in his classic work Economic Statecraft. His declared purpose is to reassess economic statecraft as an integral part of foreign policy-making and argue that it is a more effective tool than it has been given credit for; to stimulate new interest in this neglected realm; and to develop an analytical framework based on social power literature. Using a taxonomy developed by Harold D.Lasswell41 that divides the instruments of power into information, diplomacy, economics and force (more colloquially, words, deals, goods and weapons), Baldwin proceeds to outline his view of economic statecraft as a branch of foreign policy in the language of the social-power theorists such as Harold Lasswell, Abraham Kaplan, Frederick Frey, Jack Nagel and Robert Dahl.42 According to this school of thought, power is a relational concept that shows how one actor influences another to do something that he/she would not otherwise have done. The influence may involve positive or negative sanctions (i.e., carrots or sticks) and arises from a variety of different sources of power (words, deals, goods, weapons). Influence attempts are just that: they may or may not succeed. The effects they have are multidimensional—one should not look for just one outcome, because there could be several, of different degrees of importance. Power is not (as it is often portrayed) a zero-sum game, because one could, for example, influence a state to adopt free-trade policies from which all gain—a positive-sum game. Finally, power analysis always involves the consideration of counterfactuals. In order to evaluate the effectiveness of any given influence attempt, one must ask what were the alternatives and how cost-effective would they have been? Using this framework, Baldwin wishes to demonstrate how other scholars have devalued economic statecraft by claiming economic influence attempts, such as US sanctions against Cuba, were ineffective. He says that, rather than simply accepting such a judgement, one should pose the following kind of questions. If negative sanctions against Cuba are considered a failure, what is the success rate of other types of influence attempt? If economic sanctions generated popular support for the targeted state’s existing regime, then is this a general response to negative sanctions, and not one that applies to negative economic sanctions alone? If the sanctions are considered costly, one should ask what the cost of other influence attempts would have been? Only after asking such questions, contends Baldwin, can a fair and accurate appraisal be made of this particular instance of economic statecraft. He says: ‘Merely to pose such questions is to expose the intellectual weakness in much of what has been written about economic statecraft, for most of these writings do not even acknowledge the existence of such questions, let alone answer them.’43

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Baldwin’s concerns are analytical and prescriptive: he wants to help political leaders appreciate the potential, the character and the scope of economic statecraft, and to do it better. He casts his definition in terms of means, not ends. He uses categories of economic sanctions, economic warfare, and aid, and emphasises both their instrumental and expressive potential. He denies that there is any such thing as inherently strategic goods, and rules out bombing of economic targets as a category of economic statecraft because the means are military. These methodological stipulations are made in order to produce a universally applicable and coherent model of economic statecraft. In a very real sense Baldwin is not concerned to explain any substantive instance of economic statecraft; instead he wants to tell us what the activity must consist of, what its implications might be, and what kind of results we can legitimately expect. Thus he is not primarily concerned with the substantive issue of what is or is not a strategic good in any particular, situation, but he is concerned to explain the nature of a strategic good and what conditions must pertain for it to be so designated. An examination of Baldwin’s concept of a strategic good will help to illumi-nate the differences between his concern to produce an analytical framework and the main aim here, which has been to give a historical reason-giving explanation of actual practice. He argues that nothing is inherently strategic, and everything in fact potentially is. In the Napoleonic Wars oil was not a strategic good; in the Second World War it was. A nuclear weapon may be a strategic good so far as modern states are concerned, but for a scientifically illiterate tribe of Amazonian Indians it could not be—at least not in the way it is for a modern state (they might hit people over the head with it, but they would not know how to explode it). In the early 1960s the USA took the view that wide-diameter steel pipes and double-decker buses were strategic goods: the British government disagreed.44 It is this chameleon-like quality—goods are strategic at some times, and in some hands, and not in others—that leads Baldwin, following Wu, to deny that there is any such thing as an intrinsically strategic good. Baldwin argues convincingly that whether or not a good is strategic depends upon its relative utility, substitutability, and whether or not the marginal elas-ticity of demand is low. Furthermore, ‘The “strategic” quality of a good is a function of the situation; it is not intrinsic to the good itself.’45 Thus the Trident weapon system is not a strategic item in the relationship between the USA and Britain (though realists would not agree with this), but it is in the relationship between the USA and Russia. Similarly, wheat is not a strategic item in US-Argentine relations, but it often was in US-Soviet relations, because of the comparative disadvantages the Soviets had to suffer when either producing wheat themselves or obtaining it from sources other than the USA. Producing things under comparative disadvantages means that the economy is not func-tioning as efficiently as it might, and this reduces the overall potential of the state to produce military or civilian consumer goods—though by now it should be clear that, in strategic terms, there is no clear distinction to be drawn between civilian and military. Baldwin uses the term fungibility to express this: civilian and war production are either convertible into each other, or the way in which they are produced can restrict or enhance the potential production of the other. On this reading, all trade could be the target of a strategic embargo because trade is entered into on the rational premise that it benefits the participants. The interruption of that trade, even if it were in the celebrated commodity of

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trouser buttons—soldiers cannot fight effectively and hold their trousers up at the same time—would be of strategic value to the country instituting the embargo, because the targeted state would then have to get buttons elsewhere at greater cost, or devote national resources to their production under comparative disadvantages, and this would take up productive resources that could be otherwise employed more efficiently in producing wealth or military products. Baldwin has made a major contribution towards a better understanding of economic statecraft, but there have been several challenges to his theoretical framework. Philip Hanson is concerned that, under Baldwin’s definitional terms, all trade of a targeted state would be fair game for a strategic embargo. If this is so, ‘strategic’ becomes a redundant concept. If all trade is of strategic value, then the term becomes meaningless, because it cannot distinguish one good from another.46 But, is this taking logic too far? Even if we concede that in the modern world (because of the threat of total war and the erosion of the distinction between armies and people, as Churchill put it) all goods have a potential strategic value, then it becomes a matter of relative strategic value, to be determined by judgement about the circumstances. Thus Baldwin has an adequate response to Hanson, but his argument is less persuasive when it condemns US policy-makers for failing to take fungibility into account. Baldwin does much to expose the complexities involved in trying to craft policies of economic statecraft. Calculations involved in strategic policy-making are not simply mechanical problems of objective calculation. Value here has three sides to it: the instrumental effect that produces economic benefit or inflicts economic cost; the expressive value of moral statements or of sending messages; and the tactical advantages to be gained for diplomatic bargaining. Furthermore, even when an optimum range of sanctions is determined it may have to be modified because of domestic political considerations, because of differing assessments of optimality by allies, or because, although the sanctioning might have optimal effect in terms of maximising economic denial, there may be fear of an ‘irrational’ response and dangerous over-reaction by the target state. It is one thing to do an economic calculation of what is in fact the more valuable good strategically in a given situation and what it is feasible to embargo given the state of both domestic and alliance politics: wheat could conceivably have been assessed as having more strategic value than missiles in US-Soviet trade, but US farmers were politically powerful enough to curb a wheat embargo. To turn to another scenario, the USA often wanted a stricter embargo on trade with the Soviets than proved possible because of pressures from allies. Furthermore, while the export of buttons may be as important strategically as the export of nuclear technology, common sense tells us that this is only true in the long term, and decision-makers are always confronted with the dangers of the here and now. With this in mind, nuclear technology in the context of the Cold War does take on the appearance of goods with inherent strategic value (notwithstanding the example of the US selling missile systems and sharing nuclear know-how with Britain, because the context tells us what to make of nuclear technology in this relationship). Baldwin bemoans the fact that: The view of ‘military utility’ as an inherent trait to be determined by consideration of the possible military uses of a given item is still [c. 1983]

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embedded in American export control policy. The law of diminishing marginal utility, the doctrine of comparative costs, and the fungibility of resources seem to be ignored by such an approach. What Wu labelled the ‘strategic materials fallacy’ in 1952 appears to be alive and well thirty years later.47 An appropriate comment on this is that, although embedded, it is not certain that this embedding has excluded consideration of the other criteria that Baldwin correctly identifies as being important in the Grafting of effective policy. The reason why policy-makers concentrate on military items is to do with politics and the fear of war. It may make more logical sense strategically to sell weapon systems to an enemy than to sell them industrial equipment: politically it does not make sense. Having one of your cities blown up by a missile exported from your own country could not be politically defended: having one of your cities blown up by a missile made with engineering equipment you have exported is also difficult to defend politically, but there is a difference. When these political considerations are taken into account, it is difficult to see how the criteria of diminishing marginal utility, comparative costs and fungibility can define the optimum policy decision. There is also a problem with time: weapons are immediately usable, ‘more strategically’ valuable exports take more time to contribute to the war-making capacity of potential opponents. Fungibility can only work over time, and nuclear war would be so swift that the luxury of time would be denied to the targeted state. These kinds of considerations were given weight by US policy-makers and led them to treat certain goods as inherently strategic, not out of adherence to the strategic materials fallacy but because of lines of reasoning of which Baldwin’s own position would approve. In an ideal world of rational choice, in which economic instruments of statecraft can be deployed within a clearly delineated framework, calculations of economic loss and gain are appropriate for recommending and assessing economic statecraft. However, in the open-ended world of practice, recommendations on the basis of economic costs and a concept of strategic value, sensitive to changing circumstances, may be compromised by both political realities and context, which (as Baldwin acknowledges) may oblige policy-makers to talk meaningfully of ‘inherently strategic goods’. The immediacy of nuclear war and its likely short duration limits fungibility. Hence the strategic value of such goods and those that depend for their value upon the criteria of diminishing marginal utility and comparative costs would be negated. In the event of a sudden war their potential contribution to the strength of the targeted state could not be realised, but the strategic value of direct military utility items could be realised, even though, in the longer term, they might not have been of such strategic value as other categories of goods. After taking these considerations into account, one could argue that whether decision-makers like it or not, and even when they accept the logic of Baldwin’s argument that there is no such thing as an intrinsically strategic good, they have an obligation to treat goods with clear and present military utility as if they were of inherent strategic value. Thus, while there is force in the analytical axiom that strategic value is a function of the situation, it rather begs the question of what the situation actually is and ignores what it might become. It is often an assessment of what it might become that creates the notion of strategic value in the minds of decision-makers. This highlights the fact that fungibility is not static.

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Before industrialisation and the emergence of total war, fungibility was very limited, as were notions of strategy. While warfare and the tools of power politics were so limited, it was easier to identify what could be of strategic value. The constraints of the context meant that over a long period of time certain kinds of things were seen as (and, for all intents and purposes, were) of inherent strategic value among European states—territory, weapons, battleships, and the skill and size of armies. The emergence of total war changed that. All society and its productive forces were now mobilised for the war effort. In this situation fungibility comes into its own, and is countered by attempts at total embargo. However, as the model of nuclear war succeeded the model of total conventional war, the situation changed again. If nuclear war broke out, it would be so swift that it would not allow time for the fungibility factor to take effect. This scenario placed renewed emphasis on the need to define inherently strategic goods within the context of the incipient struggle between competing superpowers, in case nuclear war were suddenly to break out. At the same time, so long as war does not break out, there must also be emphasis on the need for calculations about how to define strategic in Baldwin’s terms, because of the fungibility of goods and the danger that non-military goods could, over time, contribute more to the power of the potential enemy than selling them missile systems or other ‘inherently strategic goods’. This was the complex scenario that confronted US policy-makers after the Second World War. There thus appears some incompatibility, some lack of coherence, between the framework Baldwin produces and economic statecraft in practice, which goes beyond misunderstanding by the practitioners. This problem is of some concern for Philip Hanson.48 Taking up Baldwin’s notion encompassing the whole range of complexities associated with inherently strategic goods, he tries to reconcile it with his own interest in a debate within the Western Alliance about what was and what was not a strategic good and the central place the concept held in the West’s embargo policy. This draws him into a defence of inherently strategic goods, provided their designation as such is restricted to a particular time frame and circumstance. He notes that Baldwin and others go along with this in principle, but he also remarks that some of the definitions used by Baldwin have little to do with the strategic embargo that exists in the real world (a view that has resonance with the argument developed above). However, having said that, he goes on to show that Baldwin’s ideas can be reconciled with at least some of the actual practice of Western embargo policy Hanson adopts the ideas of Peter J.D. Wiles,49 that bottleneck goods and imported technology should be used to define strategic goods in the context of East-West trade, because their embargo inflicted severe costs upon the Soviet economy and inhibited its technological advance. On the matter of military items Hanson appears less happy with Baldwin’s thesis on strategic goods. He actually refers to Baldwin as having defined away the problem of establishing what is and is not a strategic good. In fact Baldwin has not done that, but he has played down important aspects of politics, context and time—all of which, in a strong sense, oblige policy-makers to treat certain types of military goods as inherently strategic. This does not mean that they were unaware bf the kind of argument put forward by Baldwin that some goods deemed to be civilian were in fact more strategically valuable to the Soviets than military equipment. Often they were aware of this, but for domestic political reasons, or because of the position of allies, such goods of high relative strategic value could not be embargoed. On

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other occasions time and context persuaded US policy-makers that items of direct military utility, but low relative strategic value, had to be treated as being inherently strategic, and thus had to be embargoed. Baldwin is right when he claims that there is no such thing as ‘an inherently strategic good’, because all goods in principle have the potential to be strategic. One cannot argue a priori that a particular good is strategic. The term strategic good only counts in practical affairs when one looks at particular policies and particular problems at particular points in time. So far, so good. But from here onwards Baldwin’s argument weakens, when it underestimates the political inputs and constraints that necessarily arise in the practice of economic statecraft, and when he fails to give due weight to the factors of time and context which make it incumbent upon policy-makers to treat certain goods as inherently strategic. These points do not challenge the logic of his argument, but they illustrate that it has limitations, and that he may have misjudged the policy and actions of US policy-makers. The uncertainties inherent in the passing of time render any calculations based on fungibility tentative and provisional. Domestic and foreign political considerations can qualify what would otherwise be economic imperatives derived from calculations of marginal utility and the infliction of comparative disadvantage. And in some cases the sending of a diplomatic message to potential enemies and actual friends override any calculation of economic cost or benefit.50 Baldwin’s framework cannot always show us where decision-makers have gone wrong in the past, or tell them how to do their job in the future, though it may alert them to the complexities and many facets of policy-making, as hopefully this review of his work has done for the reader. Baldwin seems to think that policy-makers have not followed his kind of guidelines for conducting policy because they have not learnt from people like Wu, who first coined the phrase ‘strategic materials fallacy’. In fact it appears from previous chapters that they had learnt the lesson, but were unable to do what Baldwin thinks that they should have done because of political and legal constraints and the views of allies, all of which were constitutive of the context in which policy was formulated. Furthermore, they were aware that fungibility and the impact of producing under comparative disadvantages need time to take effect, whereas nuclear war is immediate, and this affected the way they viewed the concept of a strategic good. Once time, context and political considerations are introduced, then the economic criteria for prescribing effective action and for assessing success and failure run into difficulties. If other criteria are rational and applicable, and if economic statecraft is not solely to be determined on the basis of diminishing marginal utility, comparative costs and the fungibility of resources, then things are not so straightforward. Before leaving that tentative conclusion it would be fair to point out that what is at issue here with Baldwin is not so much his analytical framework as his contention that US policy-makers have been wedded to the strategic materials fallacy. However, there is also a point to be made about his framework. There are two important sides to it: rational economic calculation of relative gains and losses, closely linked to the concept of fungibility; and the more subjective psychological side, to do with expressing moral viewpoints or communicating messages. (This does not do justice to his framework, but it gets the key characteristics across.) How the subjective and the economically objective factors can be knitted together into a coherent framework of analysis is a challenge that Baldwin rose to meet in Economic

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Statecraft, but a question-mark remains over whether or not his analytical framework constitutes a total victory.

12 Concluding thoughts It is not possible to pinpoint the exact date in the twentieth century when the USA began to fear for its survival. The challenge posed by Germany during the First World War, notwithstanding the Zimmerman telegram and the scare about the possibility of a hostile German-Mexican alliance, was not of an order of magnitude to warrant fears of mortal danger.1 It was only when ideological, economic and military power were welded together, successively by Japan and Germany, and then by the Soviet Union, that American leaders perceived immediate threats to the survival of the state. Such perceptions regarding Japan and Germany took shape in the minds of some US leaders in the mid-1930s, but domestic politics and the inheritance of America’s foreign-policy traditions made it difficult to craft an effective peacetime response. Neutrality, isolationism and disarray among the liberal democracies only allowed piecemeal, inconsistent and, from the perspective of the totalitarian aggressors, irresolute responses. Even when the danger became clear and present, and when some semblance of a coherent economic defence policy began to take shape, Roosevelt was constrained by the Congress, public opinion, the law and lack of allies. Moreover, calculating how best to deal with Japan was fraught with dangers and difficulties. Economic sanctions did not restrain, they provoked Japan. Messages sent were ambiguous and weak, partly because the liberal democracies could not establish a common ground upon which to stand. More than anything else, the Americans learnt from this failure of economic statecraft in the 1930s that they must never again supply material to strengthen an aggressor, that they must craft the instruments of economic statecraft and apply them skilfully to convey the right messages, and they must be prepared both to defend themselves and to lead their democratic allies purposefully. Even before the attack on Pearl Harbor, the military threats from Germany and Japan persuaded many in Washington that previous traditions of practice would have to be abandoned. Fond regard for neutral rights to trade was soon replaced by a Realpolitik conception of an embargo that would be enforced to the maximum extent feasible under prevailing conditions. There was little real difficulty with Britain over its naval embargo before the USA entered the war, and, once in the ray, the USA soon pressed for an ever more expansive embargo, ultimately at the expense of neutral rights to trade. By the end of the war the USA was urging upon the neutrals a duty not to trade with the enemy at all. As wartime negotiations developed, the USA became increasingly assertive, both among its allies, in persuading them to adopt more drastic embargo policies, and in pressing such policies upon the neutrals. The Americans also came to the realisation that at the war’s end they would be in a position to design a new world economy that would exemplify widely held convictions that free trade, prosperity and US security were inextricably interwoven. In working with Britain towards forging these plans they operated without

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much regard for the sovereignty of allies and also learnt much about the effectiveness and impotence of economic power. As the war drew to a close Americans felt well-equipped to deal with the peace. In particular, they believed that they had learnt how to use economic instruments of statecraft effectively, even if events, or other non-economic priorities, sometimes meant that they did not always achieve their ideal economic goals. Nevertheless, the targets of American ambition were not going to wriggle free as they had done after the First World War. Economic warfare against Germany and Japan had been prosecuted vigorously and effectively and seemed to demonstrate the potency of embargoes, naval blockades and aerial bombard-ment. And economic leverage against Britain had yielded agreements along lines that, more or less, represented US preferences. Both those experiences reinforced in American minds the potency of economic instruments of statecraft. The tactics and strategy developed in their dealings with Britain would now be wielded in discussions with the Soviets. Unfortunately for US ambitions, the Soviets would not succumb to the kind of pressure that had been applied to Britain. The USA was now confronted with something totally unique: cold war in a nuclear age with a totalitarian opponent that had such military, economic and ideological strength that it could destroy the USA. Coming to terms with the Soviet challenge involved the development of an economic defence policy that metamorphosed over time: through a strategy designed to deny armaments and strategic technologies and weaken or, most ambitiously, cause the collapse of the Soviet economy, to one that placed priority upon psychological effects, sending messages, and bargaining. In conducting these strategies, Americans often found themselves arguing about the merits of fungibility, what was and was not a strategic good, and what should and should not be embargoed. Successive administrations discovered that they were not as autonomous as they might wish in formulating and conducting policy. Disputes within administrations, and incomplete and often contradictory information, made things difficult. Periodic pressures from public opinion, Congress, allies and, from 1970 onwards, from US corporations, business and farm lobbies also affected what were decided. It was in this highly complex environment that US policy-makers had to reason out possible strategies and tactics in order to determine what, in their opinions, were the optimum policies to promote national interests and ensure the survival of the USA. This book has been an attempt to reconstruct how American leaders and policy-makers made those decisions: how they formulated good reasons for the policies that they crafted. In short it has been an exercise in explanation. The work of Baldwin et al., considered at length in the previous chapter, is primarily concerned with a form of practical reasoning. Such scholars are not concerned so much with explanation, but with what works best. Criteria of practical reasoning have to do with practical results, not with explanation. The key issue is Does it work?, not Is it true? And truth here does not mean an absolute truth, but refers to claims that this is closer to the truth than that, based on criteria that can be referred to in order to correct, or revise statements or claims. Grasping this casts further light on the rather fraught question of definitions raised in Chapter 1 and discussed at length in Chapter 11. Trying to present a definition of something that changes is rather a logical contradiction, unless the thing to be defined can be rendered

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intelligible in terms of an organism, a process or an item of utility whose function is clear and uncontested. In other cases, such as those of sanctions and strategies of strategic denial that clearly change and develop over time, formal definitions before the enquiry takes place are inappropriate, to say the least. Only after the enquiry has been completed can a form of ex post facto generalisation be teased out of the narrative of explanation to claim that—during the time under consideration, and within the scope of the enquiry— sanctions and strategic embargoes were like this. Such definitions cannot then be applied elsewhere, because there are no grounds for claiming that practice and meaning will repeat themselves—unlike in cases of definitions relating to organisms and processes which have set patterns of repetitive behaviour, or regarding items of uncontested utility, such as chairs, tables and so on. This does not mean that there has been no practical reasoning, or practical analysis in the narrative. From time to time comments have been made about the success and failure of sanctions within this practical mode of thinking, but such excursions into practical strategic thinking remain just that: excursions. The task of explanation abides as the main intellectual journey. Between 1933 and 1991 the USA faced what it considered to be strategic threats to its survival from a succession of actual or potential aggressors: Japan, Germany and the Soviet Union. Under such conditions economic statecraft directed at those states was largely formulated according to criteria to do with economic defence, rather than commercial gain. Strategies of economic statecraft were designed to enhance the security of the USA and pre-empt the possibility of its destruction by limiting both the opponent’s specific ability to produce weaponry and his economic output in general, to send important political and diplomatic messages to a variety of constituencies, and to provide bargaining chips in the process of negotiating advantages for the USA. Such strategies were not in evidence before 1933 or after 1991, because they had no plausible targets. This is not to say that the USA did not deploy embargoes or sanctions before or after those dates; it did, but they had different motives. Sanctions against Iraq are real and important in US post-Cold War foreign policy, but they are not justified by, or related to, considerations of defence against a real or potential vital strategic threat to the USA. In simple terms, before and after the dates in question in the twentieth century, there was no clear and present danger to the survival of the USA. Suffering under and being free from perceptions of vital strategic threats to the USA affected the way American leaders and officials thought about economic statecraft. On 4 October 1940 there was a conversation in the White House Oval Office concerning reports that the Japanese Government would regard it as an act of war if the USA were to ‘give aid and comfort to any of the enemies of Japan’. Roosevelt ruminated out loud about the possible practical consequences of the USA continuing to trade with Britain, which was the matter that had prompted the Japanese comments. Now, they might send us an ultimatum: ‘If you continue to send anything to England, we will regard that as an attack on us.’ I’ll say: ‘I’m terribly sorry. We don’t want any war with you…. If you regard us as a belligerent, we’re frightfully sorry for you, because we don’t. Now, all we can say to you is that, of course, if you act on that assumption, that we’re a belligerent, and make any form of attack on us, we’re going to defend our own.’2

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Having a clear and present danger to the survival of the USA imposed a form of practical reasoning upon Roosevelt that obliged him to think in terms of a possible cataclysmic war if the USA were to continue to trade, or, though largely unspoken on this occasion in the Oval Office, what the consequences might be if the USA were to comply with Japanese wishes and weaken Britain by stopping the flow of supplies. In 1989, as the USA emerged into what some have termed ‘the unipolar moment’, concerns about the second most powerful military state on earth were rather different from those evident in Roosevelt’s chain of practical reasoning about Japan in October 1940. Secretary of State James Baker and President Bush speculated about the consequences for the Soviet Union and internationally, if Gorbachev failed to stabilise things. Baker We’ve got to ask ourselves: What happens if Gorbachev loses, if things go to hell in a hand basket over there? Bush It’s tempting to say, ‘Wouldn’t it be great if the Soviet Empire broke up?’ But that’s not really practical or smart is it?3 There was still a nuclear threat to the USA, but it was of a different order and kind from what had existed in the past. The Soviet Union was hardly in a position to threaten the USA directly. Its regime was discredited and offered no viable alternative to Western liberal constitutional democracy. It was all that Moscow could do to prevent its domestic matters spiralling out of control into chaos. The priority for US economic statecraft now was to help the Soviet Union and prevent chaos that could have regional repercussions in Europe and central Asia. The agenda of economic defence policy had changed. The need to weaken global challengers who had the ability to destroy the USA, the sending of messages of resolution and moral rectitude, the clear subservience of economic to strategic priorities, and the need for vigorous leadership of the Western Alliance, all became of less importance, or redundant. In the future conditions might arise again that would once more demand the kind of strategic practical reasoning about economic statecraft that governed much of US thinking between 1933 and 1991. If they do, then policy-makers will turn to Baldwin et al. and their intellectual successors for guidance on how to develop their strategic thinking. Later on will come the turn of someone like myself to explain what they actually thought and the reasons they had for developing the strategies that they did. But, for the moment at least, Americans have been liberated from the need to develop and deploy such strategies.

Notes 1 Economic statecraft

1 Thomas A.Wolf, US East-West Trade Policy: Economic Warfare Versus Economic Welfare (Heath, Lexington, 1973). 2 Hegemonic decline is caused by the hegemon shouldering the costs of sustaining the system while others ride free at its expense and improve their relative position in the system’s hierarchy of power. See Charles Kindleberger, The World in Depression 1929–1939 (University of California Press, Berkeley, 1973), and, for further discussion and literature references, Alan P.Dobson, ‘The USA, Britain and the Question of Hegemony’, in Geir Lundestad (ed.) No End to Alliance: The USA and Western Europe, Past, Present and Future (Macmillan, Basingstoke, 1998). 3 Realists hold that considerations of state power and security, rather than values or affections, determine relations between states in an anarchical international state system. Hans J.Morgenthau, Politics Among Nations (Knopf, New York, 1955); Kenneth N.Waltz, Theory of International Relations (Addison Wesley, Reading MA, 1979). 4 Henry Kissinger, Diplomacy (Simon & Schuster, London, 1995), p. 299. Kissinger incorrectly describes Abyssinia as the last independent state in Africa. In fact, as my friend and colleague Norrie MacQueen has pointed out, Liberia was also independent. 5 W.S.Churchill, The Gathering Storm (Bantam, New York, 1961), pp. 158–9. 6 Most situations that invite sanctions are so plagued by uncertainties that it is impossible to predict the outcome if sanctions were to be used. Harsh sanctions, intended to deter aggression by sending a clear message that force will follow if sanctions fail, might provoke retaliation. Alternatively, a programme of sanctions, carefully designed to deter and not provoke, might be perceived by a potential adversary as a sign of weakness and thus fuel aggression. These are the kinds of calculations that Americans had to make with respect to Japan in the late 1930s and early 1940s (see Chapter 3). And, of course, there is one further perspective on this. In some circumstances, irrespective of whatever level or type of sanction used, the target state might remain immune from its influence so far as changing policy is concerned. 7 David Baldwin, Economic Statecraft (Princeton UP, Princeton, 1985); Susan Strange, ‘International Economics and International Relations: A Case of Mutual Neglect’, International Affairs, 1970, 46, pp. 304–15; Joan Edelman Spero and Jeffrey A.Hart, The Politics of International Economic Relations (Routledge, London, 1997).

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8 Baldwin, Economic Statecraft, Philip Hanson, Western Economic Statecraft in EastWest Relations: Embargoes, Sanctions, Linkage, Economic Warfare and Détente (Routledge & Kegan Paul, London, 1988); Per Lundborg, The Economics of Export Embargoes (Croom Helm, London, 1987); Michael Mastanduno, Economic Containment: COCOM and the Politics of East-West Trade (Cornell UP, Ithaca, 1992). The distinction drawn here has resonance with the argument about practical attitudes to the past and interest in the past for its own sake developed in Michael Oakeshott’s essay, ‘The Activity of Being An Historian’, in his Rationalism in Politics (Methuen, London, 1974). 9 G.Adler-Karlsson, Western Economic Warfare 1947–67: A Case Study in Foreign Economic Policy (Almquist & Wiksell, Stockholm, 1967); R.N.Gardner, SterlingDollar Diplomacy in Current Perspective (Columbia UP, New York, 1980); Alan S.Milward, The Reconstruction of Western Europe 1945–51 (Methuen, London, 1984); S.Strange, Sterling and British Policy (Oxford UP, London, 1971); Alan P.Dobson, The Politics of the Anglo-American Economic Special Relationship (Wheatsheaf/St Martins, Brighton and New York, 1988). There is also, of course, the classic by John Maynard Keynes, The Economic Consequences of the Peace (Macmillan, London, 1920). 10 Strange, ‘International Economics and International Relations’. 11 The kinds of work that have emerged over the years cover a wide spectrum. For example Spero and Hart’s The Politics of International Economic Relations, with its emphasis on the politics of international economic relations, contrasts with the more radical approach of international political economy advocated by scholars such as Susan Strange. Spero and Hart favour emphasising the state as the main actor in international affairs, albeit in a milieu in which economics is given more prominence than in the traditional approach to the subject, which emphasises political, security and strategic matters. My own inclination is to side with international political economy and its emphasis both on the inter-relatedness of politics and economics and on the importance of non-state economic actors and forces, though I would probably still give more attention to the state than most IPE scholars. And, of course, my focus of attention in this work is indeed on state policies. However, unlike Baldwin, who concentrates on how politics determines economic instruments of statecraft and excludes consideration of domestic forces from his analysis (Economic Statecraft, p. 4), this work demonstrates how economics dynamically interacts with politics, and how at times the domestic situation can determine, or at least greatly influence, the political realm and the way that it formulates economic instruments of statecraft and determines how they are to be deployed. Robert W.Matson in Neutrality and Navicerts: Britain, the United States and Economic Warfare, 1939–40 (Garland Publishing, New York, 1994) is concerned with a specific historical problem, and the concepts he uses are rather simplistic. In contrast, the work of Michael P.Malloy, Economic Sanctions and US Trade (Little, Brown, Boston, 1990), is wide-ranging and looks at the legal and policy-promulgation side of the post-war US strategic embargo. Finally B.E.Carter, International Economic Sanctions: Improving the Haphazard US Legal Regime (Cambridge UP, Cambridge, 1988) offers a wide-ranging study of sanctions and

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some useful definitions, including sanctions as: ‘coercive economic measures taken against one or more countries to force a change in policies, or at least to demonstrate a country’s opinion about the other’s policies.’ 12 The most effective analytical work on this remains Baldwin’s, Economic Statecraft, but see also the exchange between Baldwin and Robert A.Pape, ‘Evaluating Economic Sanctions’, International Security, 1998, 23(2), pp. 189–98, and my own comments on Baldwin’s work that come later in Chapter 11. Also, it is important to note that the first scholar to coin the term ‘cold economic warfare’, at least to my knowledge, was Tor Egil Førland, ‘Cold Economic Warfare: The Creation and Prime of COCOM, 1948–1954’, PhD thesis, University of Oslo 1991. However, he does not draw the distinction between economic warfare and cold economic warfare in quite the same way as it is drawn here. 13 By introducing the term ‘cold economic warfare’ there is danger of confusion, because it is used to describe an activity that the officials at the time simply called ‘economic warfare’. What I have tried to do is restrict my use of the term ‘cold economic warfare’ to passages of analysis, and where the narrative is reconstructing the past I have remained true to the language of the time and use the term ‘economic warfare’. 14 Yuan-li Wu, Economic Warfare (Prentice Hall, New York, 1952). 15 These comments touch on some fundamental issues of epistemology, which will be taken up again in more rigorous form in Chapter 11. For the time being, the reader unfamiliar with this territory might wish to refer to Martin Hollis and Steve Smith, Explaining and Understanding International Relations (Clarendon, Oxford, 1991), which sees explanation as something from the outside of an event that follows a scientific-like paradigm, and understanding as an insider’s reason-giving that renders something understandable. Unlike the present author, they do not see the latter exercise as a form of explanation in its own right. For a somewhat different attitude to the inside and outside of events, see R.G.Collingwood, The Idea of History (Clarendon, Oxford, 1946), Part 5, ‘Epilegomena’. 16 Eugene V.Rostow, A Breakfast for Bonaparte: US National Security Interests From the Heights of Abraham to the Nuclear Age (National Defense UP, Washington DC, 1993), p. 82. 17 The general contrast is most clearly illustrated by Diane B.Kunz, Butter and Guns: America’s Cold War Economic Diplomacy (Free Press, New York, 1997), which hardly mentions the kind of economic denial policies that are central to the account of economic statecraft in the Cold War presented here. The more particular case of non-governmental actors (NGOs) that either influence, or help to implement, policies poses more difficult problems of inclusion and exclusion from this study. The primary focus here is on the way American officials processed information and reacted to influences, developed their ideas, and formulated policy. Thus, analysing how inputs came from the outside is of less importance than establishing exactly what they were. Similarly, it is more important to determine the outcome of government policy-making rather than how it was carried out. Nevertheless, the influence and role of corporations and lobby groups are considered when they are particularly prominent, though this probably does not go far enough to satisfy the

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curiosity of those who place emphasis on the external influences on foreign policy formulation, or on the use made by government of NGOs, such as the oil majors, for the implementation of policy.

2 The practice: economic statecraft and US foreign policy

1 Carlton Savage, Policy of the United States Toward Maritime Commerce in War, vol. 1, 1776–1914 (Department of State, US Printing Office, Washington, 1934), p. 167, Jefferson to Pinkney. 2 Ibid., p. 455. 3 There is a fuller discussion of this and of other more theoretical issues in Chapter 11. 4 H.C.Allen, Great Britain and the United States: A History of Anglo-American Relations 1783–1952 (Odhams, London, 1954), p. 625. 5 W.S.Churchill, The World Crisis 1911–1918 (Odhams, London, 1938), vol. 2, p. 734. 6 Ibid., p. 735. 7 Viscount Grey of Fallodon, Twenty Five Tears 1892–1916 (Hodder & Stoughton, London, 1923–5), p. 103. 8 For a fuller account of the context in which difficulties arose see Alan P.Dobson, Anglo-American Relations in the Twentieth Century: Of Friendship, Conflict, and the Rise and Decline of Superpowers (Routledge, London, 1995), ch. 3. 9 Alien, Great Britain and the United States, pp. 653–6 10 Some of the ideas expressed here I have developed elsewhere, for example in a comparative context in Anglo-American Relations in the Twentieth Century, and also most recently with Steve Marsh in US Foreign Policy Since 1945 (Routledge, London, 2000), ch. 1. For other views see Gordon Martel (ed.) American Foreign Relations Reconsidered 1890–1993 (Routledge, London, 1994), in particular Michael H.Hunt, ‘Traditions of American Diplomacy: from Colony to Great Power’; Kissinger, Diplomacy; Walter Lafeber, The American Age: United States Foreign Policy at Home and Abroad since 1750 (Norton, New York, 1989). 11 Wayne S.Cole, Roosevelt and the Isolationists, 1932–1945 (University of Nebraska Press, Lincoln NE, 1983); Robert A.Divine, The Illusion of Neutrality (Chicago UP, Chicago, 1982); Michael H.Hunt, Ideology and US Foreign Policy (Yale UP, New Haven, 1987); George E Kennan, American Diplomacy, 1900–1950 (Chicago UP, Chicago, 1951); for those unfamiliar with US foreign policy, see Dobson and Marsh, US Foreign Policy Since 1945. 12 Text in Henry Steele Commager, Living Ideas In America (Harper, New York, 1951), pp. 14–17. 13 Robert Dallek, Franklin D.Roosevelt and American Foreign Policy, 1932–1945 (Oxford UP, New York, 1979); M.Simpson, Franklin Roosevelt, (Basil Blackwell, Oxford, 1989). 14 Alan P.Dobson, ‘The USA, Britain and the Question of Hegemony’, in Lundestad

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(ed.), No End to Alliance, pp. 134–67. 15 Adler-Karlsson, Western Economic Warfare; Vibeke Sørensen, ‘Recovery Versus Containment: The Anglo-American Controversy Over East-West Trade 1947–51’, Cooperation and Conflict, 24, 1989, pp. 69–97; Philip J.Fungiello, American-Soviet Trade in the Cold War (University North Carolina Press, Chapel Hill, 1988), p. 42; Michael Mastanduno, ‘Trade as a Strategic Weapon: American and Alliance Export Control Policy in the Early Postwar Period’, International Organization, 42(i), 1988, pp. 121–50; Førland, Cold Economic Warfare; lan Jackson, ‘The Cold War At Its Height: The Truman Administration’s Export Control Policy Against the Soviet Union, 1948–52’, paper presented to Society for the History of American Foreign Relations annual conference, Boulder, 1996. 16 Harry S.Truman Library (hereafter HST Lib.), PSF box 156, Subject File Cabinet, folder: Defense Secretary of—miscellaneous folder 1, memo of conversation Forrestal—Harriman, 11 Nov. 1948. 17 Ibid., PSF box 163, Subject File Conferences, Sept. 1947–Dec. 1950, Folder: Subject File Conferences, Paris Conference, Oct.–Nov. 1949, US Ambassadors’ Meeting, 21 Oct. 1949. 18 Library of Congress, Harriman Papers box 271, folder: Marshall Plan Country File UK 20, Douglas to Acheson et al, 7 May 1950. 19 Foreign Relations of the United States (published from time to time by the US Government Printing Office, Washington DC, and hereafter referred to as FRUS), 1951, vol. iv, pp. 980–5, PPS memo, ‘Outline for Discussion at JCS Meeting’, 21 Nov. 1951. 20 HST Lib., PSF box 116, folder: Central File, Churchill-Truman Meetings, Papers prepared for US-UK relations, ‘Nature of US-UK Relationship’. 21 Dwight D.Eisenhower Library, CF box 9, folders: Bermuda Meeting, March 21–23, 1957, for the President (1), undated. 22 I have dealt with some of these issues at greater length elsewhere: Dobson, ‘The USA, Britain and the Question of Hegemony’, in Lundestad (ed.), No End To Alliance; and in ‘The USA, Hegemony, and Airline Market Access to Britain and Western Europe, 1945–96’, Diplomacy and Statecraft, vol. 9 (2), 1998, pp. 129–59. 23 Before entering the war the USA had been sensitive to neutral rights and the danger of pushing unoccupied Vichy France into the arms of Germany, see Cordell Hull, The Memoirs of Cordell Hull, 2 vols (Hodder & Stoughton, London, 1948), ch. 68; W.D. Leahy, I Was There (Victor Gollancz, London, 1950). 24 Franklin D.Roosevelt Library (hereafter FDR Lib.), Diaries of Henry Morgenthau, vol. 279, p. 112, comment by Gaston, 2 July 1940. 25 William J.Long (ed.), US Export Control Policy: Executive Autonomy vs. Congressional Reform (Columbia UP, New York, 1989); Gary K.Bertsch (ed.), Controlling East-West Trade and Technology Transfers: Power, Politics and Policy (Duke UP, Durham SC and London, 1988); Paula Stern, Water’s Edge: Domestic Politics and the Making of American Foreign Policy (Greenwood Press, Westport, 1979). For more recent literature on these issues see Simon Serfaty (ed.), The Media and Foreign Polity (Macmillan, Basingstoke, 1990); Steven Kull and I.M.Desder, Misreading the Public: The Myth of a New Isolationism (Brookings Institution,

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Washington DC, 1999); Eugene R.Wittkopf and James M. McCormick (eds), The Domestic Sources of US Foreign Policy: Insights and Evidence (Rowan & Littlefield, Boston, 1999); Daniel Yankelovich and I.M.Destler (eds), Beyond the Beltway: Engaging the Public in US Foreign Policy (Norton, New York, 1994). 26 As we shall see in later chapters, there were intermittent problems with and pressures from US corporations to relax the US-led embargo of exports to communist states. In particular, once trade was encouraged by President Nixon and his National Security Adviser (NSA) Henry Kissinger in the 1970s, more companies developed vested interests in keeping the trade door open and consequently became more and more recalcitrant and vocal in their opposition to the policies of their own government. There were also always constraints on US policy stemming from its relationship with allies. 27 Long (ed.), US Export Control Policy; Bertsch (ed.), Controlling East-West Trade; Stern, Water’s Edge. 28 Alan P.Dobson, ‘The Kennedy Administration and Economic Warfare Against Communism’, International Affairs, 1988, 64, pp. 599–616. 29 John F.Kennedy Library (hereafter JFK Lib.), NSF box 310, folder: Trade EastWest Trade, Policy Planning Council Paper, ‘US Policy on Trade with the European Soviet Bloc’, 26 July 1963, p. 35. 30 Ibid. 31 F.H.Hinsley, Power and the Pursuit of Peace: Theory and Practice in the History of Relations Between States (Cambridge UP, Cambridge, 1967), pp. 96–7. 32 The Jackson-Vanik amendment prohibited the USA from extending MFN (Most Favored Nation trading terms) to the Soviets until they reformed their restrictions on emigration from the Soviet Union. See Chapter 8 and following.

3 Transforming policy: from peace to war 1933–42

1 David L.Gordon and Royden Dangerfield, The Hidden Weapon: The Story of Economic Warfare (Harper Bros., New York, 1947, Da Capo Reprint, New York, 1976), p. ix. 2 Elmer Bendiner, A Time For Angels: the Tragicomic History of the League of Nations (Knopf, New York, 1975); Lafeber, The American Age. 3 Frank Costigliola, An Awkward Dominion: American Political, Economic and Cultural Relations with Europe, 1919–33 (Cornell UP, Ithaca, 1984); Joseph Brandes, Herbert Hoover and Economic Diplomacy (Pittsburgh UP, Pittsburgh, 1962); Carl Parrini, Heir to Empire: United States Economic Diplomacy 1916–23 (Pittsburgh UP, Pittsburgh, 1969); Michael J. Hogan, Informal Entente: The Private Structure of Co-operation in Anglo-American Economic Diplomacy 1918–28 (Missouri UP, Columbia, 1977). 4 Dobson, Anglo-American Relations in the Twentieth Century. 5 I have drawn liberally from the work of Jurg Martin Gabriel, The American

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Conception of Neutrality After 1941 (Macmillan, Basingstoke, 1988), in developing my ideas on neutrality. 6 W.I.Cohen, The American Revisionists: The Lessons of Intervention in World War I (Chicago UP, Chicago, 1967). 7 John E.Wilz, From Isolation to War (Routledge & Kegan Paul, London, 1969); this is now rather dated, but it gives a clear account with discussion of the historiography of this subject. Herbert Feis, The Road to Pearl Harbor (Princeton UP, Princeton, 1950) still remains a classic text. For more recent scholarship, see Dallek, Franklin D.Roosevelt and American Foreign Policy; Warren F.Kimball, The Juggler: Franklin Roosevelt as Wartime Statesman (Princeton UP, Princeton, 1991), and Arnold A.Offner, The Origins of the Second World War: American Foreign Policy and World Politics, 1917–1941 (Praeger, New York, 1975). 8 Robert A.Divine, Second Chance: The Triumph of Internationalism in America During World War 2 (Atheneum, New York, 1971), p. 22. 9 FDR Lib., Morgenthau Diary, vol. 284, p. 211, 19 July 1940. 10 Cohen, American Revisionists. 11 Text at FDR Lib., PSF box 160, folder: Neutrality 1935–38, Nye Committee Preliminary Report; Dallek, Roosevelt, p. 148 ff. 12 FDR Lib., PSF box 160, folder: Neutrality 1935–38, statement by Roosevelt, 5 Oct. 1935. 13 Ibid., Hull statement 30 Oct. 1935; see also Dallek, Roosevelt; Hull, Memoirs; Offner, Origins; Wilz, Isolationism. 14 Hull thought that this was an incoherent exposition of foreign policy: Hull, Memoirs, p. 486. 15 Dallek, Roosevelt, p. 194. 16 Ibid., p. 148; Wilz, From Isolation to War, p. 62. 17 For an interesting perspective on this see, Neil Forbes, Doing Business with the Nazis: Britain’s Economic and Financial Relations with Germany 1931–39 (Frank Cass, IIford, 2000). 18 Morgenthau Diary, vol. 288, pp. 276–9, ‘Effectiveness of Licensing Control over Aviation Gasoline, Aviation Lubricating Oil and Tetraethyl Lead’, White to Morgenthau, 5 Aug. 1940; ibid., Ullman to White, 5 Aug. 1940, ‘The Petroleum Situation in Japan’. Both memoranda give detail on Japanese policies for acquiring and stockpiling oil. Baldwin makes the point well about US sanctions sending ineffective messages because of the way that they were imposed, Economic Statecraft, p. 173. See also D.G.Boudreau, ‘Economic Sanctions and Military Force in the Twenty-First Century’, European Security, 6 (1997), and G.C.Hufbauer and J.S. Schott, Economic Sanctions Reconsidered: History and Current Policy (Institute for International Economics, Washington DC, 1985; 2nd ed., with Ann Elliott, 1990), pp. 163–70. 19 FDR Lib., PSF box 160, folder: Neutrality 1935–38, Bullitt to Roosevelt, 19 May1939, and R.Walton Moore to Roosevelt, 2 June 1939. 20 Wilz, Isolationism, p. 72. 21 Hull, Memoirs, p. 693. 22 FDR Lib., PSF box 32, folder: GB 1937, Chamberlain to Roosevelt, 4 Oct. 1939.

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23 Ibid., box 8, folder: State Department 1937–38, Hull to Roosevelt, 24 Nov. 1937 24 Ibid., Stimson to Roosevelt, 15 Nov. 1937. 25 Ibid., box 160, folder: Neutrality 1939–41, Roosevelt to Welles and Hull, 28 March 1939. 26 Morgenthau Diary, vol. 284, pp. 201–11, 19 July 1940, memo of conversation at British Embassy the previous evening; Offner, Origins, pp. 187–91. 27 Ibid., vol. 285, pp. 317–24, 23 July 1940, memo of conversation between Stimson and Morgenthau. 28 Ibid., vol. 287, pp. 251–3, 26 July 1940, telephone conversation between Morgenthau and Ickes; ibid., p. 173, 26 July 1940, Treasury Group Meeting. 29 Ibid., vol. 294, pp. 21–3, Morgenthau to Roosevelt, 14 Aug. 1940; ibid., vol. 302, pp. 152–3, minutes of meeting, Morgenthau, Lothian et al., 3 Sept. 1940. 30 Feis, Road to Pearl Harbor, pp. 106, 122. 31 FDR Lib., PSF box 9, folder: State Department 1939–40, Grew to Roosevelt, 14 Dec. 1940. 32 T.A.Wilson, The First Summit: Roosevelt and Churchill at Placentia Bay (rev. ed., Kansas UP, Lawrence, 1991); Douglas Brinkley and David Facey-Crowther (eds), The Atlantic Charter (St Martin’s, New York, 1994). 33 Boudreau, ‘Economic Sanctions’. 34 M.L.Chadwin, The Hawks of World War 2 (University of North Carolina Press, Chapel Hill, 1968), p. 210. 35 Gordon and Dangerfield, Hidden Weapon, p. 46. 36 Malloy, Sanctions, p. 137. 37 FDR Lib., PSF box 7, folder: Navy 1936–40, Chief of Naval Operations, Standley, to Secretary to the President, Mclntyre, 24 Sept. 1936. 38 Ibid., box 32, folder: GB 1939, Chamberlain to Roosevelt, and his reply, 31 Aug. 1939. 39 Hull to Davis, 20 Nov. 1937, quoted from Dallek, Roosevelt, p. 150; see also Hull, Memoirs, vol. I, ch. 39. 40 Bascom N.Timmons, Jesse H.Jones: The Man and the Statesman (Henry Holt, New York, 1956). 41 Gordon and Dangerfield, Hidden Weapon, p. 44. 42 Neil Forbes, ‘Trading with the Potential Enemy’, paper given at the International History Group (of BISA) annual conference at University of Wales Conference Centre, Gregynog, September 2000. 43 Ibid., p. 33; Matson, Neutrality and Navicerts; W.M.Medlicott, The Economic Blockade, 2 vols (Longmans Green, London, 1952). 44 Ibid.; and Matson, Neutrality and Navicerts. 45 Quoted from ibid., pp. 8–9, citing source FRUS vol. I, p. 772, memo by John Hickerson, 9 Nov. 1939. 46 Morgenthau Diary, vol. 282, pp. 15–16, telephone conversation between Hull and Morgenthau, 11 July 1940. 47 FDR Lib., PSF box 33, folder: GB Jan.–Sept. 1940, memo of conversation between Hull and Lothian, 5 July 1940, and aide mémoire. 48 Ibid.

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49 Morgenthau Diary, vol. 288, pp. 283–4, White to Morgenthau, 5 Aug. 1940. 50 FDR Lib. Wallace Papers, box 80, folder: Frances Perkins [sic, should be Milo Perkins], Roosevelt to Perkins, 17 Dec. 1941.

4 The demise of neutrality and the development of economic instruments of coercion

1 Gordon and Dangerfield, Hidden Weapon, p. 222. Dangerfield was head of the Blockade Division, Foreign Economic Administration. 2 Hull, Memoirs, vol. 2, p. 1345. 3 Ibid., pp. 1347–8. 4 Gordon and Dangerfield, Hidden Weapon, p. 225. 5 Quoted from James J.Dougherty, The Politics of Wartime Aid: American Economic Assistance for France and French North Africa 1940–46 (Greenwood Press, Westport, 1978), p. 24, citing Leahy Diary, 7, 28 Feb. 1941. 6 Gordon and Dangerfield, Hidden Weapon, pp. 72–7. 7 Ibid., pp. 59–60. 8 FDR Lib., Wallace Papers, box 88, folder: President 1942, Wallace to Roosevelt 18 and 20 March and 16 April 1942; Roosevelt to Wallace 3 April 1942. Sumner Welles, in particular, had opposed BEW’s vigorous line on economic warfare and had criticised some of his juniors for helping and sympathising with BEW. 9 Ibid., box 80, folder: Frances [sic: Milo] Perkins, Perkins to Wallace, 19 March 1942. 10 Ibid., box 88, folder: President 1942, Wallace to Roosevelt, 10 Sept. 1942. 11 Ibid. 12 Roosevelt Lib., PSF, box 6, folder: BEW, Hull to Roosevelt in response to the President’s 12 September request for a reply to Wallace, and Roosevelt to Wallace, 15 Oct. 1942. 13 Ibid. 14 Warren F.Kimball, Churchill and Roosevelt: The Complete Correspondence, 3 vols (Collins, London, 1984), vol. 1, p. 639, Churchill to Roosevelt, 25 Oct. 1942. 15 Ibid. 16 Wallace Papers, box 88, folder: President 1942, ‘Trade Toward Sweden’, BEW Office of Economic Warfare Analysis, 3 Nov. 1942. 17 Ibid., ‘Trade Policy Toward Sweden’, report by Staff at BEW and approved by representatives from State, Navy and War Production Board: War Department dissented. Policy Conclusion, 5 Nov. 1942; and Wallace to Roosevelt, 16 Nov. 1942 enclosing BEW resolution with agreement of the Joint Chiefs of Staff, 12 Nov. 1942. 18 Ibid., Morgenthau and Patterson to Wallace, undated. 19 J.M.Blum (ed.), The Price of Vision: The Diary of Henry A.Wallace 1942–46 (Houghton Mifflin, Boston, 1973), p. 132.

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20 Wallace Papers, box 88, folder: President 1942, Wallace to Roosevelt, 16 Nov. 1942. 21 Hull, Memoirs, pp. 1345–8. 22 Hopkins Papers, box 156, folder: Stanton Griffiths, Griffiths to Donovan, 9 Feb. 1943. 23 In his Memoirs, pp. 1346–7, Hull writes of the opposition coming from the War and Navy departments, but Morgenthau had also vigorously opposed trade with Sweden, whereas the position of the Navy seems to have been less hard-line. 24 Portugal, Spain, Turkey and Switzerland also had to be dealt with in similar ways: see Gordon and Dangerfield, Hidden Weapon; Gabriel, Neutrality After 1941; Mecllicott, Economic Blockade. 25 Ibid., p. 1347. 26 FDR Lib., PSF, box 149, folder: FEA, Crowley to Roosevelt, memo ‘Current Bearing Negotiations with Sweden’, undated, and Crowley to Roosevelt, 25 May 1944, ‘Sweden’. 27 FDR Lib., Cox Papers, box 82, folder: economic warfare: Sweden, Currie to Patterson, 23 June 1944. 28 FDR Lib., PSF box 9, folder: State Department, 1944–45 (1), Hull to Roosevelt 12 July 1944. 29 Kimball, Churchill-Roosevelt Correspondence, vol. 3, p. 245, Roosevelt to Churchill 13 July 1944. 30 Chadwin, Hawks of World War 2, p. 210. 31 Kimball, Churchill-Roosevelt Correspondence, vol. 3, p. 257, Churchill to Roosevelt, 27 July 1944. 32 Hull, Memoirs, pp. 1347–8. 33 Gabriel, Neutrality After 1941, pp. 51–2. 34 H.L.Stimson and McGeorge Bundy, On Active Service in Peace and War (Harper, New York, 1947), p. 171. 35 Alan P.Dobson, US Wartime Aid To Britain (Groom Helm, London, 1986). 36 These are official US Government figures quoted in Bruce W.Jentleson and Thomas G.Patterson (eds), Encyclopedia of US Foreign Relations, 4 vols (Oxford UP, Oxford, 1997), vol. 3, p. 61, entry, ‘Lend-Lease’. 37 R.G.D.Alien, ‘Mutual Aid Between the US and the British Empire’, Journal of the Royal Statistical Society, 1946, 109, p. 245. The figure calculated for Lend-Lease aid received by Britain here is $27 billion. 38 For those who wish to pursue the Lend-Lease story in detail, the following will be useful: for its origins Warren F.Kimball, The Most Unsordid Act: Lend-Lease 1939– 1941 (Johns Hopkins UP, Baltimore, 1969); for an insider’s account heavily biased towards celebrating Lend-Lease for propaganda purposes, Edward R. Stettinius jr., Lend-Lease: Weapon for Victory (Penguin Special, London, 1944); for detail of the Foreign Economic Administration’s running of Lend-Lease from 1943 onwards, Stuart L.Weiss, The President’s Man: Leo Crowley and Franklin Roosevelt in Peace and War (Southern Illinois UP, Carbondale and Edwardsville, 1996); for Britain, Dobson, US Wartime Aid to Britain; for the Soviet Union, George C. Herring, Aid to Russia, 1941–46: Strategy, Diplomacy, and the Origins of the Cold War (Columbia

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UP, New York, 1973), see also his ‘Experiment in Foreign Aid: Lend-Lease 1941– 1945’, Ph.D thesis 1965, University of Virginia, and ‘Lend-Lease Aid to Russia and the Origins of the Cold War 1944–45’, Journal of American History, 1969, 56, pp. 93–114; for France, Dougherty, The Politics of Wartime Aid; and for the Cold War, L.Martel, Lend-Lease Loans and the Coming of the Cold War (Westview Press, Boulder, 1979). 39 The USA had never shown much compunction about using coercive power to compromise the integrity of countries in Latin America, but using such power against mature democracies was a new policy departure. 40 Brandes, Herbert Hoover and Economic Diplomacy. 41 Kimball, Churchill-Roosevelt Correspondence, vol. 1, pp. 49–51, Churchill to Roosevelt, 7 Oct. 1941. 42 Alan P.Dobson, Peaceful Air Warfare: The United States, Britain and the Politics of International Aviation (Clarendon, Oxford, 1991). 43 Trade within the Empire and Commonwealth was subject to lower tariffs than trade from outside. 44 PRO, CAB 66, WP(41)202 and 203; H.V.Morton, Atlantic Meeting (Methuen, London, 1943); Wilson, The First Summit. 45 PRO, CAB 66, WP(42)21, 5Jan. 1942, and CAB 65, WM(14)42, 2 Feb. 1942. 46 Kimball, Churchill-Roosevelt Correspondence, vol. 1, pp. 357–8 and 360–1. 47 Sumner Welles, Seven Decisions That Shaped History (Harper Bros, New York, 1951), ch. 5. 48 National Archives of the USA, Washington DC, decimal file document 841.24/720, Winant to Secretary of State, 3 Sept. 1941 (hereafter such decimal file numbers will be cited without location); Cmnd 6311, ‘The Export White Paper’, 10 September 1941; Alan P. Dobson, ‘The Export White Paper of 1941’, Economic History Review, 1986, 39, pp. 59–76. 49 Quoted from Herring, ‘Experiment in Foreign Aid: Lend Lease 1941–45’, PhD thesis, citing transcript of telephone conversation Oscar Cox and Stettinius, 15 Dec. 1941, Stettinius Papers, OLLA file, University of Virginia, Charlottesville. 50 FO 371/40883, memo by Dalton, ‘Supersession of the Export White Paper’, 28 June 1944. 51 FDR Lib., Morgenthau Diary, 592, p. 292, Stettinius to Morgenthau, 3 Dec. 1942 in which he quotes Cox memo to Stettinius 23 Nov. 1942, also pp. 110 and 150–78, 17 and 18 Dec. 1942; US National Archives RG 169, box 163, minutes of Dollar Position Committee, 29 Dec. 1942; ibid., box 721, BEW Board Meeting, 29 Dec. 1942. 52 FDR Lib., PSF, box 49, folder: GB 1944–45, Roosevelt to Churchill, 22 Feb. 1944. 53 841.24/2197A, draft letter and memo by Acheson, 21 Feb. 1944; Morgenthau Diary, 709, p. 109, 13 March 1944. 54 FO 371/40881, Anderson to Churchill, 24 Feb. 1944. 55 Kimball, Churchill-Roosevelt Correspondence, vol. 3, pp. 35–6 and 65–6. 56 PRO, CAB 66 WP(43)566, Hudson memo 14 Dec. 1943 and WP(43)576, Amery memo, 20 Dec. 1943; Kenneth Young, Churchill and Beaverbrook: A Study in Friendship and Politics (Eyre & Spottiswoode, London, 1966), p. 261; Lionel

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Robbins, Autobiography of an Economist (Macmillan, London, 1971), p. 203. 57 A.Van Dormael, Bretton Woods: Birth of a Monetary System (Macmillan, London, 1978); Fred Block, The Origins of International Economic Disorder (California UP, California, 1977); Gardner, Sterling-Dollar Diplomacy; R.B.Woods, A Changing of the Guard: Anglo-American Relations 1941–46 (North Carolina UP, Chapel Hill, 1990); Dobson, Politics of the Anglo-American Economic Special Relationship. 58 Dobson, US Wartime Aid to Britain. 59 PRO, FO 371/45699, Keynes, ‘Overseas Assets and Liabilities of the UK’, 12 Sept. 1945. 60 Quoted from Robert A.Pollard, Economic Security and the Origins of the Cold War (Johns Hopkins UP, Baltimore, 1975), p. 13, citing source Pasvolsky Papers, National Archives of the USA, RG 59, Pasvolsky Office Files, Gordon Leddy to Leo Pasvolsky, 16 Feb. 1944. 61 Thomas G.Patterson, Soviet-American Confrontation: Postwar Reconstruction and the Origins of the Cold War (John Hopkins UP, Baltimore, 1973). 62 Herring, ‘Lend-Lease Aid to Russia’, at p. 95; the French were required to pay cash for civilian goods, see Dougherty, Politics of Wartime Aid, p. 3. 63 FRUS 1945, vol. v, p. 998, Elbridge Durbrow, Chief Eastern European Affairs, State Department, memo 13 May 1945. 64 US National Archives, RG 169, box 163, folder: British capital goods, Knollenberg to Crowley, 15 Oct. 1943. 65 M.Djilas, Conversations with Stalin (Penguin, Harmondsworth, 1963), p. 114 66 Daniel Yergin, Shattered Peace: The Origins of the Cold War and the National Security State (André Deutsch, London, 1978), pp. 36–8; Kimball, The Juggler. 67 FDR Lib., PSF box 68, Nelson to Roosevelt, 6 Nov. 1943, memos on talks with Molotov, 12 Oct., and Stalin 15 Oct. 1943. Patterson, Soviet-American Confrontation, pp. 20–1; Pollard, Economic Security, pp. 13–15. 68 FRUS 1943, vol. iii, pp. 788–9, Harriman to Secretary of State, Nov. 1943. 69 The Export-Import Bank of Washington was established in 1934, after US formal recognition of the Soviet Union in 1933, in order to help finance exports to the Soviets. 70 Martel, Lend-Lease Loans, p. 130. 71 FRUS 1944, vol. iv, p. 951, Harriman to Hull, 13 March 1944. 72 Herring, ‘Lend-Lease Aid to Russia’, pp. 98–9; Martel, Lend-Lease Loans, p. 74. 73 Harriman Papers, box 173, Harriman to State Department, 27 June 1944. 74 Martel, Lend-Lease Loans, p. 115; FRUS 1945, vol. v, pp. 938–40, memo by Collado, 4 Jan. 1945. 75 Ibid., pp. 942–4, Harriman to Secretary of State, 4Jan. 1945. 76 Martel, Lend-Lease Loans, p. 129. 77 Quoted from Yergin, Shattered Peace, p. 103. 78 Contemporary documents place a figure of $400 million on this agreement, but a retrospective in 1952 put a figure of $233 million, with $19 million unused by March 1947. FRUS 1946, vol. vi, pp. 820–1, Durbrow to Acheson, 21 Jan. 1946. HST Lib., Acheson Papers, box 67, memo of conversation 1952, folder: March, memo by Battle 20 March 1952.

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79 FRUS 1945, vol. v, pp. 945–7, Harriman to Secretary of State, 6 Jan. 1945. 80 Ibid., pp. 947–8, Stettinius to Roosevelt, 10 Jan. 1945. 81 Ibid., pp. 261–3, memo of conversation, Stettinius, H.D.White and Morgenthau, 17 Jan. 1945. 82 Ibid., pp. 964–6, Clayton to Secretary of State, 20 Jan. 1945. 83 Ibid., p. 966, memo of conversation Clayton and Morgenthau, 25 Jan. 1945. 84 Ibid., pp. 994–6, Harriman to Secretary of State, 11 April 1945. 85 HST Lib., Acheson Papers box 67, memo of conversations 1952, folder: March, memo by Battle, 20 March 1952 86 FRUS, 1946, vol. vi, pp. 820–1, Durbrow to Acheson, 21 Jan. 1946. 87 HST Lib., Acheson Papers box 67, memo of conversation 1952, folder: March, memo by Battle, 20 March 1952. 88 Ibid. Patterson, Soviet-American Confrontation, pp. 47, 51–2; Pollard, Economic Security, pp. 50–3. 89 FRUS 1946, vol. vi, pp. 828–9, Byrnes to Orekhov, 21 Feb. 1946. 90 HST Lib., PSF box 156, Subject File Cabinet, folder: Commerce Secretary of Henry Wallace, Wallace to Truman, 21 March 1946. 91 Ibid., pp. 841–2, Novikov to Acting Secretary of State Grew, 17 May 1946. 92 Ibid., pp. 842–3, Luthringer to Clayton, 23 May 1946. 93 Ibid., Pollard, Economic Security, pp. 50–3. 94 FRUS 1946, vol. vi, pp. 842–3, Luthringer to Clayton, 23 May 1946. 95 Ibid., pp. 844–6, Secretary of State Byrnes to Nabikov, 13 June 1946. 96 Harry S.Truman, The Memoirs of Harry S.Truman, vol. 1, Tear of Decisions 1945 (Hodder & Stoughton, London, 1955), p. 493.

5 The Truman Administration and the development of strategic embargo policy

1 John Lewis Gaddis, Strategies of Containment: A Critical Appraisal of Postwar American National Security Policy (Oxford UP, New York, 1982), pp. 14–15. Fungiello, American—Soviet Trade, p. 15. 2 Of course some did not see $400 million under a Lend-Lease pipeline 3c agreement and $250 million of UNRAA benefits as minor. Instead they were seen as weakening the bargaining position of the Americans and as encouraging the Soviets to seek further piecemeal arrangements that would not involve concessions to the USA. See FRUS 1946, vol. vi, pp. 820–1, Dubrow to Acheson, 21 Jan. 1946. 3 See Anne Deighton, The Impossible Peace: Britain, the Division of Germany, and the Origins of the Cold War (Clarendon, Oxford, 1990); and Alan Bullock, Ernest Bevin: Foreign Secretary (Oxford UP, Oxford, 1985). 4 Truman, Year of Decisions, pp. 492–3, Truman to Byrnes, 5 Jan. 1946. 5 George F.Kennan (writing as ‘X’). ‘The Sources of Soviet Conduct’, Foreign Affairs, 25, 1947, pp. 566–82.

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6 Gaddis, Strategies of Containment, p. 35; HST Lib., Naval Aide Files, State Department Briefs 1947 Jan.–1949 Dec., folder: June–August 1947, 5 April 1948 Soviet Union; ibid., folder: May–Aug. 1948, 3 May, USSR. 7 CAB 129, CP(47)197, 5July 1947. 8 FRUS, 1948, vol. i, p. 546, NSC 7, 30 March 1948, The Position of the United States with Respect to Soviet Directed World Communism’. 9 The term cold economic warfare clearly transcends the chronological boundaries of the historic Cold War 1945–91, as indeed should the term cold war. 10 HST Lib., Naval Aide Files, State Department Briefs 1947 Jan.–1949 Dec., folder: June–August 1947, 5 Nov. 1947 and 10 Nov. 1947. 11 See Fungiello, American-Soviet Trade, ch. 2 and p. 32 citing source Acheson Papers, Political and Government File, Russia, 1947, ‘Secretary Harriman’s Views on Trade with the USSR and the Satellites’, before House Foreign Affairs Committee, 13 Nov. 1947. 12 The NSC was established by the 1947 National Security Act with the purpose of co-ordinating the work of all executive departments with involvement in national security. The first National Security Adviser (NSA) to the President was Sidney W. Souers. 13 HST Lib., PSF box 191, folder: Actions Record of 1947–49, 14 Nov. 1947, 3rd meeting NSC, action 7. 14 FRUS 1948, vol. iv, pp. 489–98, PPS 17, 26 Nov. 1947; State Department East European Economic Working Party, 19 Nov. 1947; Secretary Harriman to NSC, 14 Nov. 1947. 15 Ibid., pp. 511–12, NSC 17 Dec. 1947. 16 Ibid. 17 Ibid., pp. 524–6, memo conversation, Armstrong, Thorp, Wood and Blaisdell, 16 March 1948. Secretary of Defense Forrestal was also wary of the dangers of economic warfare, see Fungiello, American—Soviet Trade, p. 39, quoting source HST Lib., Papers of Matthew J.Connelly. 18 FRUS, 1948, vol. iv, pp. 524–6, memo of conversation, Armstrong, Thorp, Wood and Blaisdell, 16 March 1948. 19 The Advisory Committee on Exports was set up in 1947 and chaired by the Commerce Department, it was renamed Advisory Committee on Requirements in 1948. The Commerce Department was in charge of export controls of non-military and non-nuclear items. 20 FRUS, 1948 vol. iv, pp. 527–8, paper presented to Cabinet by Marshall, which it approved, ‘Control of Exports to Soviet Bloc’, 26 March 1948. 21 For the most persuasive argument about this need see Milward, Reconstruction of Western Europe. 22 FRUS, 1948, vol. iv, pp. 527–8, paper presented to the Cabinet by Marshall, which it approved, ‘Control of Exports to the Soviet Bloc’, 26 March, 1948. 23 Ibid., pp. 536–42, Report by Ad Hoc Subcommittee of Advisory Committee of the Secretary of Commerce, 4 May 1948. 24 Ibid., pp. 542–4, 550, Thorp to Secretary of State, 6 May 1948, Sawyer to Marshall and his reply, 19 June 1948; HST Lib., PSF 220, folder: NSC Meetings, 12th

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meeting 3 June 1948, 13th meeting, 18 June 1948. 25 FRUS 1949, vol. v, p. 115, Harriman to Hoffinan, 20 May 1949. 26 Milward, Reconstruction of Western Europe, pp. 121–2, notes that the ECA was more hard-line than the State Department in September 1948; however, it never adopted such an aggressive stance as the Commerce Department in the summer of 1948, and by May 1949 appears to have moved close to the State Department position. 27 However, even certain people in the defence establishment were cautious about taking the embargo programme too far: Defense Secretary Forrestal expressed such caution and rendered help to State and ECA in toning down the shrill demands from Commerce: see Jackson, ‘Cold War at its Height’, and Førland, Cold Economic Warfare. 28 See Frank M.Cain, ‘Exporting the Cold War: British Responses to the USA’s Establishment of COCOM, 1947–51’, Journal of Contemporary History, 29 (iii), 1994, pp. 501–22, p. 505; and HST Lib., PSF box 206, folder: NSC Meeting 39, 5 May 1949, A Report to the NSC by the Secretary of State, 3 May 1949’. 29 Ibid. 30 Ibid., FRUS 1948, vol. iv, pp. 564–8, Marshall and Hoffinan to Harriman, 27 Aug. 1948, to implement NSC Dec. 17, 1947, Cab. 26 March 1948, and sect. 117(d). 31 Ibid. 32 Ibid., pp. 585–8, Bureau of Economic Affairs, 22 Nov. 1948, no. 178. 33 CAB 129/24, CP(48)72, ‘The Threat to Western Civilisation’, 3 March 1948. 34 FO 371/77799, UK Delegation OEEC to FO, 24June 1949. 35 Milward, Reconstruction of Western Europe, p. 122. 36 Klaus Schwabe, Atlantic Partnership and European Integration: American European Policies and the German Problem, 1947–1966’, in Lundestad, No End to Alliance. 37 FRUS, 1949, vol. v, pp. 99–100, Harriman to ECA, 19 March 1949; HST Lib., PSF box 191, NSC (A-D), Folder: Action Record of 1947^9, 5 May 1949, 29th meeting action 210, ‘Understandings on Export Controls in East-West Trade’, and ibid., box 206, folder NSC Meeting 39, 5 May 1949, A Report to the National Security Council’ by Secretary of State, 3 May 1949. 38 Ibid., p. 115, Harriman to Hoffman, 20 May 1949. 39 Ibid., pp. 113–14, Foster to Hoffman, 12 May 1949. 40 Ibid., pp. 136–7, 141–2, Sawyer to Acheson and his reply, 15 Aug., 19 Sept. 1949. 41 Ibid., pp. 150–52, Harriman to Hoffman, 15 Oct. 1949. 42 HST Lib., PSF box 163, Subject File Conferences Sept. 1947-Dec. 1950, folder: subject file conferences Paris Conference Oct.-Nov. 1949, Meeting of US Ambassadors, 21–22 Oct. 1949, pp. 15–17. The idea of moving responsibility for embargo policy to NATO was never achieved, or indeed pursued vigorously. The Americans did take an initiative in 1950–51, but it came to nought, see Tor Egil Førland, ‘An Act of Economic Warfare? The Dispute Over NATO’s Embargo Resolution, 1950–51’, International History Review, 12 (iii), 1990, pp. 490–513. When in November 1949 the Americans mentioned to the British the possibility of a permanent group being set up in NATO, their reaction was very negative: they saw NATO as defensive, and thus incompatible with an embargo as economic warfare.

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There was also the problem of non-NATO members, FRUS, 1949, vol. v, pp. 166–7, Acheson to Paris Embassy, 2 Nov. 1949. 43 HST Lib., PSF box 163, Subject File Conferences, Sept. 1947–Dec. 1950, folder: subject file conferences, Paris Conference, Oct.–Nov. 1949, Perkins to Acheson, ‘Summary Record of the Paris Meeting and of the Conclusions of the London Meeting’, 7 Nov. 1949. 44 HST Lib., Papers of Thomas Blaisdell, box 8, folder: ECA Dept. Commerce 1951, undated statement L.K.Macy, Director OIT to House Foreign Affairs Committee, ‘Export Controls for Security Purposes’. 45 Truman said that the USA and Britain ‘had to work out their problems on a worldwide basis and that the United States will not negotiate with the British at one point to have them slap us in the face at another’, i.e. over China: HST Lib. PSF box 159, folder: Subject File—Cabinet State Secry. of misc., Notes of Presidential Meeting by Webb, 26 March 1950. 46 CAB 128/18, 42(50)3, 4 July 1950 discussing paper CP(50)157, and meeting 44 (50)1, 10 July 1950. These meetings show Britain agreed in principle as early as July 1949 to embargo exports to the PRC, providing other European allies did so as well. At the Anglo-French-US talks in Washington 13–15 Sept. 1949 it was agreed that controls on exports to Eastern Europe should be extended to cover trade with China, HST Lib., PSF, box 112, folder: General File, Acheson, Dean, meeting with Bevin and Schuman, Washington DC, 13–15 Sept. 1949. However, continuing uncertainty about the wisdom of this emerged in the British Cabinet on 4 July 1950, when, in the absence of Bevin, it decided against imposing the same embargo on the PRC as existed for the Soviet bloc, for fear of provoking Chinese action against Hong Kong. Members of the Cabinet could see no likely practical benefit from an embargo. Five days later, with Bevin present, that decision was overturned. 47 For details of military aid to Britain see: Helen Leigh-Phippard, Congress and Military Aid to Britain: Interdependence and Dependence, 1949–56 (Macmillan, Basingstoke, 1995). 48 FRUS, 1950, vol. i, pp. 252–3, NSC 68, 14 April 1950. 49 Ibid. 50 HST Lib., Papers of Charles Sawyer, box 78, folder: Sec. Commerce Daily Recording File: Classified Material, 25 April 1950. 51 FRUS, 1950, vol. iv, pp. 153–4, Memo Joint Chiefs of Staff to Secretary Johnson, 26 June 1950, quotes an extract from NSC 69 and also refers to a recent naval intelligence report suggesting that Western observers believed that effects of the embargo had been underestimated, and if applied stringently could ‘result in the Russian economy’s grinding to a stop within a period of five to ten years’. 52 HST Lib., PSF box 220, folder: memos for President summary of 56th NSC meeting, 5 May 1950. 53 Ibid., folder: memos for the President (1950), Summary of 56th NSC Meeting, Sawyer’s Paper NSC 69, 5 May 1950. 54 FRUS, 1950, vol. iii, pp. 1031–2, telegram reporting conversation, 10 May 1950. 55 Ibid., pp. 1109, paper by McSweeney, 2 Aug. 1950. 56 Acheson Papers, folder: July 1950, Cabinet meeting on Korea, 14 July 1950.

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57 For details of the hostile Congressional criticisms of the Administration’s embargo policy and the various initiatives that were taken see Fungiello, American-Soviet Trade, ch. 3. 58 FRUS, 1950, vol. iv, pp. 163–72, NSC 69/1, Export Controls and Security Policy, 21 Aug. 1950. 59 For a discussion of the different approaches, largely in the context of UK-Soviet trade agreements, see Cain, ‘Exporting the Cold War’. 60 FRUS, 1950, vol. iv, pp. 174–6, Acheson to US Embassy, London, 22 Aug. 1950. 61 Ibid., pp. 179–81, Action NSC 66th meeting, 24 Aug. 1950; HST, PSF, box 220, folder: NSC Meetings, folder memos for the President, Meetings, Discussions 1950, NSC 66th meeting, 25 Aug. 1950. Fungiello, American-Soviet Trade, p. 57, erroneously suggests that the Commerce Department was more liberal than it actually was, and that it suggested the moratorium, whereas in fact it was Acheson. Fungiello’s interpretation seems to go rather uncharacteristically adrift here, as indeed it does on p. 46, where he suggests that the State Department thought export controls were essentially futile. 62 CAB 128/18, 45(50)3, 4 July 1950; ibid., 44(50)1, 10 July 1950. 63 CAB 129/42, CP(50)201, Paper by Shinwell, 31 Aug. 1950. 64 CAB 128/18, 55(50)7, 4 Sept. 1950. 65 Ibid., 57(50)4, 11 Sept. 1950. 66 FRUS, 1950, vol. iv, pp. 201–2, memo of conversation, Acheson et al., 11 Oct. 1950. 67 Ibid., pp. 196–7, Webb to US Embassy, London, 27 Sept. 1950. In fact the Cannon amendment had been preceded by the more hard-line Wherry amendment, for which the Administration had only just managed to engineer a defeat. The success of the Administration in getting the Cannon amendment altered so that the President could use his discretion was important: Truman never used the Cannon amendment against ERP countries. 68 Acheson Papers, box 65, folder: Memos of conversation, Oct. 1950, 11 Oct. telephone conversation with William Foster, and 30 Oct. meeting Acheson, Sawyer, Blaisdell, Foster and Bishop. 69 FRUS 1950, vol. iii, pp. 1300–1, Agreed Minute by US, UK and France, at Foreign Ministers Meeting New York, 26 Sept. 1950. 70 I do not mean to suggest here that the British position encapsulated the composite reservations of all the West European allies. Denmark and Norway, for example, were often more reluctant than Britain to adopt items for control because of their greater sensitivity towards provoking the Soviets. However, on the issues which had impact on the way US policy developed the British position does cast light on most of the relevant factors. 71 CAB 128/18, 85(50)3, 12 Dec. 1950. 72 HST Lib., PSF box 163, folder: Subject File Conferences, Truman-Attlee Talks, Dec. 1950 (folder 1), Memo of Truman-Attlee talks on the Williamsburg, 5 Dec. 1950. 73 John Lewis Caddis, We Now Know: Rethinking the Cold War History (Oxford UP, Oxford, 1997).

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74 HST Lib., PSF box 112, folder: General File, Attlee, Clement, US-UK Washington Conversations, 6 Dec. 1950. 75 Ibid., box 159, folder: Subject File, Cabinet State Secy, of (folder 2), Morrison to Acheson, 10 May 1951. 76 Steve Marsh, ‘The Anglo-American Special Relationship and the Anglo-Iranian Oil Dispute, 1950–54’, PhD thesis, University of Wales, Swansea, 1999. 77 HST Lib., PSF box 112, folder: General File, Attlee, Clement, Washington Conversations, 6 Dec. 1950; ibid., box 115, folder: General File Churchill, Winston, 1951–52, Fechteler to Truman, 2 Jan. 1952. 78 Ibid., box 116, folder: General file, Churchill-Truman meetings, Far Eastern Problems, Negotiating Paper, ‘Divergence of US and British Policies Respecting China’, 5 Jan. 1952. 79 Ibid., box 159, folder: Subject File Cabinet State Secry. of (folder 2), Acheson to Truman, 25 Sept. 1952. 80 FRUS, 1951, vol. i, pp. 1000–5, Sawyer memo to NSC, 17 Jan. 1951. Fungiello, American-Soviet Trade, p. 41, claims that the US did not use the criteria of relative advantage and that this separated her from Western European countries. In fact, while the USA consistently took a harder line, it did not abandon the concept of relative gain so far as general US interests and the interests of the West as a whole were concerned, though it did institute a comprehensive embargo of US exports against North Korea and the PRC. However, it tolerated, albeit with ill grace, the continuation of British trade with China, and recognised the importance of this and the relative gain Britain received. 81 Førland, Cold Economic Warfare, pp. 170–3. Førland also notes that the view often taken that this was Truman calling for stricter controls misses an important point: the letter gave the State Department more authority in the embargo field, and thus strengthened Acheson’s hand in trying to dilute the demands for stricter controls. 82 FRUS, 1950, vol. iv, pp. 255–6, Truman to Acheson, 28 Dec. 1950. 83 Ibid., 1951, vol. i, pp. 1025–6, Acheson to Truman, 10 Feb. 1951. 84 Ibid., pp. 1051–2, NSC 84th meeting, NSC 104/2, 21 Feb. 1951. 85 Acheson Papers box 167, Index Card Summaries of Telegrams and Memos, EastWest Trade, NSC Doc. 104/2, 4 April 1951. 86 See Mutual Defense Assistance Control Act 1951, US Statutes at Large vol. 65, statute 644. 87 In 1956 Ceylon (Sri Lanka) was penalised for rubber sales to the PRC, but retaliation was hardly effective, as Ceylon was not at the time in receipt of US aid. See Kenneth A.Rodman, Sanctions Beyond Borders: Multinational Corporations, Extraterritoriality, and US Economic Strategies (Rowan & Littlefield, Boston, 2001). 88 CAB 128/24, 1(52)1, 3 Jan. 1952; FRUS, 1952–54, vol. i, pp. 816–7, Penfield to State Department, 4 Jan. 1952. 89 HST Lib., PSF box 192, folder: NSC Determinations 18–21, Determination 18, 21 Sept. 1951; when the Kem amendment had come into force the NSC had originally declared a three-month blanket exemption, much to the annoyance of Kem and his allies in the Congress.

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6 Eisenhower: problems with colleagues and problems with allies

1 For an earlier treatment of some of these matters, specifically within the AngloAmerican context, see Dobson, Politics of the Anglo-American Economic Special Relationship, pp. 155–61. For other contrasting approaches, see: Førland, Cold Economic Warfare, p. 259; Thomas Schelling, International Economics (Allyn & Bacon, Boston, 1958); Adler-Karlsson, Western Economic Warfare; Mastanduno, ‘Trade as a Strategic Weapon’; Robert Mark Spaulding ‘“A Gradual and Moderate Relaxation”: Eisenhower and the Revision of American Export Control Policy, 1953–1955’, Diplomatic History, 17 (ii), 1993, pp. 223–49; John W.Young, ‘Winston Churchill’s Peacetime Administration and the Relaxation of East-West Trade Controls, 1953–54’, Diplomacy and Statecraft, 7 (i), 1996, pp. 125–40. 2 Tor Egil Førland,‘“Selling Firearms to the Indians”: Eisenhower’s Export Control Policy, 1953–54’, Diplomatic History, 15 (ii), 1991, pp. 221–44. Førland sets the issue of Eisenhower’s role in making and executing embargo policy within the debate about bureaucratic policy-making and the revisionist and counter-revisionist arguments about Eisenhower as leader: see Morton H. Halperin, Bureaucratic Politics and Foreign Policy (Brookings Institution, Washington DC, 1974); Fred L. Greenstein, The Hidden-Hand Presidency: Eisenhower as Leader (Basic Books, New York, 1982); and Spaulding, ‘“Gradual and Moderate Relaxation”’. 3 The idea of negotiating away trade controls for a quid pro quo from the Soviets became a more pronounced characteristic of policy in the 1960s and early 1970s. 4 Førland, ‘“Selling Firearms to the Indians’”; Spaulding,‘“Gradual and Moderate Relaxation”’. 5 This evocative phrase has been used by both Førland, and Fungiello, in AmericanSoviet Trade, quoting from Stephen E.Ambrose, Eisenhower, The President (Allen & Unwin, London, 1984), pp. 36–9. 6 Førland, ‘“Selling Firearms to the Indians”’. 7 FRUS, 1952–54, vol. i, p. 1219, NSG 205th meeting, 1 July 1954. 8 On 1 July 1954 Eisenhower wanted the US to be ‘heavy handed’ in trying to persuade her allies not to reduce trade controls on China. In October 1956 he not only wanted to relax the controls to make the differential more realistic, but also spoke of wanting to supply the Chinese with arms, though not of the most sophisticated types. FRUS, 1952–54, vol. xv, p. 1302, NSC 152nd meeting, 2 July 1953; Eisenhower Lib., Clarence Randall Journals, box 3, file CFEP 1956, 25 Sept.– 23 Oct., entry 16 Oct. 1956. 9 Ibid., p. 940, NSC 137th meeting, 18 March 1953. 10 Eisenhower Lib. Ann Whitman File, NSC 137, 18 March 1953, alternative source FRUS, 1952–54, vol. i, pp. 939–42. 11 Ibid., p. 1220, 205th NSC meeting, 1 July 1954. 12 FRUS, 1952–54, vol. ii, pp. 577–97, NSC 162/2, 30 Oct. 1953. 13 Gaddis, Strategies of Containment, pp. 145–6. For the New Look implications for

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Western Europe, see Saki Dockrill, ‘Cooperation and Suspicion: The United States’ Alliance Diplomacy for the Security of Western Europe, 1953–54’, Diplomacy and Statecraft, vol. 5, 1994, pp. 138–82. I would also like to acknowledge the fact that I have absorbed other views from Dockrill’s work in general in this chapter, including from her Eisenhower’s New Look National Security Policy (St Martin’s, New York, 1996). 14 FRUS, 1952–54, vol. ii, p. 595, NSC 162/2, 30 Oct. 1953. 15 Ibid. 16 Ibid. 17 Ibid. 18 The CFEP was established in the aftermath of the Randall Commission’s inquiry into foreign trade as a means to develop and co-ordinate foreign economic policy: for further information see below. 19 Eisenhower Lib., CFEP Records, Policy Papers Series box 1, folder: CFEP 501 East-West Trade Action Papers 1955 (3), ‘Review of Economic Defense Policy and Program’, 20 Jan. 1955. 20 Ibid., ‘Review of Economic Defense Policy and Program: The Background’, 20 Jan. 1955. 21 Ibid., Dodge to Amory, 7 Feb. 1955. In responding to this memorandum Vice Admiral Davies of the Defense Department uses the term fungibility, FRUS, 1955– 57, vol. x, p. 222, Davies to Dodge, 23 Feb. 1955. 22 Eisenhower Lib., CFEP Records Policy Papers Series, box 1, folder CFEP 501 East-West Trade Action Papers 1955 (3), Amory to Dodge, 10 Feb. 1955. 23 Ibid., Steering Committee to CFEP and Cullen to Dodge, 23 and 29 March 1955; ibid., p. 222, Davies to Dodge, 23 Feb. 1955. 24 FRUS, 1952–54, vol. i, p. 938; CAB 129/58, C(53)21, memo by Eden, 21 Jan. 1953; CAB 128/26, 5(53)9, 27 Jan., 8(53)5, 10 Feb., 15(53)10, 26 Feb. 1953. In fact it was not until early 1955 that transaction controls were implemented. 25 The most celebrated clash between the USA and Western Europe over rearmament came when Dulles threatened an ‘agonising reappraisal’ of US policy if the Europeans could not agree on a means to draw West Germany into rearmament. The reappraisal would have involved America turning away from Europe towards the Pacific. In effect, it was a threat to revert to traditional isolationism. 26 Klaus Larres, ‘Eisenhower and the First Forty Days after Stalin’s Death: The Incompatibility of Détente and Political Warfare’, Diplomacy and Statecraft, 6, 1995, pp. 431–70. 27 Eisenhower Lib., Dulles Papers, Subject Series, box 1, folder: Bermuda Conference—Foreign Ministers Meeting, Conference at Dulles’ house, 8 June 1953. 28 FRUS, 1952–54, vol. i, p. 914, Harriman to Lay, 19Jan. 1953, Sixth Progress Report on NSC 104/2. 29 Ibid., pp. 968–81, NSC 152, 25 May 1953. 30 Ibid., Sixth Report on NSC 104/2, 19Jan. 1953. 31 Ibid., pp. 939–42, NSC 137th meeting, 18 March 1953. 32 Ibid., pp. 945–63, NIE-59, ‘Probable Effects of a Severance of East-West Trade’, 16 April 1953.

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33 Ibid., pp. 968–87, NSC 152, 25 May 1953. 34 Ibid., pp. 987–91, NSC 148th meeting, 4June 1953. 35 Ibid. 36 Ibid., pp. 1009–14, NSC 152/2, 31 July 1953. 37 Ibid., p. 1010. 38 Ibid., vol. xv, pp. 1170–3, NSC 154, ‘United States Tactics Immediately Following An Armistice in Korea’, draft, 15 June 1953. 39 Ibid., p. 1300, NSC 152nd meeting, 2 July 1953. 40 Ibid., p. 1012, NSC 152/2, 31 July 1953. 41 Ibid., p. 1043, Lincoln Gordon to State Department, 10 Nov. 1953, reporting on British response to US proposals. 42 On 6 November 1953 it was redesignated NSC 152/3 after minor amendments to do with the problem of trade between Hong Kong and Macau, on the one hand, and China on the other. 43 CAB 128/26, CC(53)67, 17 Nov. 1953. 44 FRUS, 1952–54, vol. i, pp. 1062–4, Aldrich to British Government, 3 Dec. 1953. 45 FO 371/106008, Coulson to Scott, 23 Nov. 1953. 46 Eisenhower Lib. Ann Whitman File, Administrative Series, ‘Report to the President and Congress, January 1954’—The Randall Commission on Foreign Economic Policy; ibid., Legislative Meetings Series, box 1, folder: legislative meetings 1954 (2) March-April, 29 March 1954 supplementary notes 47 Ibid., International Meetings Series, box 1, folder: State Dept. Report, memo of conversation Eisenhower and Churchill, 4 Dec. 1953. 48 CAB 128/27, 3(54)5, 18Jan. 1954. 49 Ibid., 9(54)6, 17 Feb. 1954. 50 Hansard, 25 Feb. 1954, 524, pp. 582–91. 51 FRUS, 1952–54, vol. i, pp. 1108–16, NSC 118th meeting, 11 March 1954. 52 Ibid., p. 1111. 53 Ibid., p. 1109. 54 Ibid., p. 1110. 55 Ibid., p. 1111. 56 Ibid., p. 1114. 57 Ibid., pp. 1108–20, NSC 1888, 11 March 1954, and Eisenhower to Churchill, 19. March 1954. 58 Ibid., pp. 1132–3, Churchill to Eisenhower and his reply, 24 and 27 March 1954; CAB 128/27, 22(54)3, 24 March 1954. 59 Ibid., pp. 1134–5, Aldrich to State Dept. 29 March 1954; FO 371/111294, Thorneycroft to Churchill, 29 March 1954. 60 See Førland, Cold Economic Warfare, pp. 287–93; and Young, ‘Churchill’s Peacetime Administration’. 61 FRUS, 1952–54, vol. i, pp. 1143–45, NSC 191st meeting, 1 April 1954. 62 Eisenhower Lib., Ann Whitman File, box 18, folder: Churchill visit June 1954 (1). 63 FRUS, 1952–54, vol. i, pp. 1218–21, NSC 205th meeting, 1 July 1954. 64 In March 1953 there had been an Anglo-American economic conference in Washington at which the British slogan had been ‘trade not aid’. It yielded only

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modest results. See Dobson, Politics of the Anglo-American Economic Special Relationship, pp. 147–54, and Eisenhower Lib., CF, Subject Series Confidential box 67, folder: State Dept. thru Sept. 1953 (3) and (4). 65 FRUS, 1952–4, vol. i, pp. 1218–21, NSC 205th meeting, 1 July 1954, pp. 1220 and 1221. 66 Ibid., pp. 1232–5, NSC 207th meeting, 22 July 1954. 67 FO 371/111214, UK delegation Paris to Mutual Aid Dept. FO, 24 July 1954. 68 FRUS, 1952–4, vol. i, p. 1238. 69 Fungiello, American-Soviet Trade, p. 86. 70 Ibid., 1955–7, vol. x, pp. 345–356, NSC 282nd meeting, 26 April, 1956, p. 348. 71 FRUS, pp. 421–8, NSC 315th meeting, 6 March 1957, p. 425. 72 Following the 1954 relaxation of the embargo, exports into the Soviet bloc in 1955– 6 rose 20 per cent on their 1952 level. Thereafter they stalled for several months, partly to do with Soviet internal economic difficulties, but mainly because of uncertainties about policy as Khrushchev struggled to master the leadership of the Soviet Union. On this, see Robert Mark Spaulding, ‘East-West Trade at the Geneva Summit’, in Gunter Bischof and Saki Dockrill (eds), Cold War Respite: The Geneva Summit of 1955 (Louisiana State UP, Baton Rouge, 2000). 73 FRUS, 1955–7, vol. x, pp. 203–4, Dulles to Eden, 7 Jan. 1955. 74 Ibid., pp. 205–13, National Intelligence Estimate, 100–55, 11 Jan. 1955. 75 Gaddis, Strategies of Containment, pp. 169–70. 76 FRUS, 1952–4, vol. xii, pp. 1062–72, NSC 54295/5, ‘Current U.S. Policy Toward the Far East’, 22 Dec. 1954. 77 Ibid., 1955–7, vol. x, pp. 216–23, Dodge to Amory and his reply, 7 and 10 Feb. 1955, Waugh to Hoover 21 Feb. 1955, and Davis to Dodge 23 Feb. 1955. 78 Ibid., pp. 228–33, ‘Interim Report on Review of Economic Defense Policy’, 24 March 1955. 79 Ibid., pp. 232–3, Tab A. 80 Ibid., pp. 242–5, Kalijarvi to Hoover, 12 July 1955. 81 Ibid., pp. 239–41, NSC 254th meeting, 7 July 1955. Spaulding also demonstrates that by the time of the foreign ministers meeting, the Soviets did not want to pursue the issue of expanding East-West trade, see Spaulding East-West Trade, pp. 245–50. Soviet interest in trade did not pick up again until the spring of 1957, after Khrushchev had consolidated his leadership position. In February 1958 the Soviets signed a trade agreement with West Germany. 82 FRUS, pp. 246–7, CFEP 25th meeting, 26 July 1955. 83 Ibid., pp. 255–6, State Department to Permanent Representatives at the North Atlantic Council, 1 October 1955 referring to July 1955 trilateral agreement. 84 He was unaware that this strategy would not bear fruit immediately because of Soviet reluctance to expand East-West trade further until the spring of 1957. 85 Ibid., pp. 250–4, memo of conversation, 11 Aug. 1955. 86 Ibid., pp. 255–6, Dulles to Permanent Representative at North Atlantic Council, 7 October 1955. 87 Ibid. 88 Ibid., pp. 257–9, Report by Steering Committee of the CFEP, 4 Oct. 1955.

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89 Ibid., pp. 263–4, 28th CFEP meeting, mins. 11 Oct. 1955. 90 Ibid., p. 267, Telegram from Delegation at Foreign Ministers Meetings to Department of State, 16 Nov. 1955. 91 Ibid., Editorial note p. 273 and pp. 273–4, US Embassy London to Department of State, 3 Dec. 1955. 92 Ibid., pp. 275–6, Dulles to Eisenhower, 8 Dec. 1955. 93 Ibid., pp. 288–9, Dodge to Hoover, 13 Jan. 1956. 94 Ibid., pp. 278–9, Gray to Hoover, 12 Dec. 1955. 95 Ibid., pp. 286–7, 36th CFEP meeting, 12 Jan. 1956 discussing CFEP 501/8; see also footnote p. 289 re Hoover’s views. 96 Ibid., pp. 281–3, Radford to Secretary of Defense Wilson, 12 Dec. 1956. 97 Ibid., pp. 301–3, 27th NSC meeting, 26Jan. 1956. 98 Eisenhower Lib., Ann Whitman File, International Series, folder: Eden visit 30–1 Jan. 1956 Feb. 1956 (3), memo of conversation Eisenhower and Eden et al., pp. 18– 21, 1 Feb. 1956. Dulles immediately steered the two leaders away from this topic, but it was a most extraordinary episode. 99 Fungiello, American-Soviet Trade, ch. 5. 100 FRUS, 1955–7, x, pp. 345–55, 282nd NSC meeting, 26 April 1956. 101 Eisenhower Lib., Clarence Randall, Journals, 1953–61, box 3, file CFEP 1956, 25 Sept.–23 Oct., entry 16 Oct. 102 Ibid. 103 Ibid., folder: CFEP 1956, 24 Oct.–7 Dec., entry 14 Nov. 1956. 104 FRUS, 1955–7, vol. x, pp. 410–11, Randall to Delany, 4Jan. 1957. 105 Eisenhower Lib., Oral History interview, Denis Fitzgerald Deputy Director International Cooperation Administration, pp. 34–5. 106 FRUS, 1955–57, vol. x, pp. 420–1, Kalijarvi to Secretary of State, 5 March 1957. 107 Ibid., pp. 421–8, and 428–32, 315th NSC meeting 6 March 1957, and NSC 5704/1, Statement of US Economic Defense Policy, 8 March 1957, the review of economic defence policy was finally completed on 16 September 1957 and took the form of NSC 5704/3. 108 Ibid. 109 Ibid., p. 425, 315th NSC meeting, 6 March 1957. 110 Randall Journal, box 4, folder: CFEP 1957, 15 May–21 June, entry 15 May. 111 FRUS, 1955–57, vol. x, p. 467, Macmillan to Eisenhower, 29 May 1957. 112 Randall Journals, box 4, file: CFEP 1957, 15 May–20 June 1957, entry 22 May. 113 Four years later Macmillan said of COCOM restrictions: ‘The whole idea was ridiculous in itself and particularly so to the United Kingdom, 40 per cent of whose gross national product was accounted for by overseas trade.’ Quoted from L.V. Scott, Macmillan, Kennedy and the Cuban Missile Crisis: Political, Military and Intelligence Aspects (Macmillan, Basingstoke, 1999), p. 26, citing source, PRO, PREM, 11/3689, Record of Conversation, 24 June 1962. 114 Randall Journals, box 5, file CFEP 1958, 12 June–22 July, entry 12 June 1958; Fungiello, American—Soviet Trade, pp. 109–12. 115 Randall Journals, box 5, file CFEP 1958–59 26 December–3 February, entry 23 Jan. 1959.

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116 Ibid., 14 April–27 May, entry 1 May 1959.

7 Thinking about change: the Kennedy and Johnson Administrations

1 Gary Wills, The Kennedy Imprisonment: A Meditation on Power (Pocket Books, New York, 1983); James N.Giglio, The Presidency of John F.Kennedy (Kansas UP, Lawrence, 1991); R.E.Neustadt, Presidential Power: The Politics of Leadership From Roosevelt to Reagan (Free Press, New York, 1990); Arthur Schlesinger jr., The Imperial Presidency (Popular Library, New York, 1974). 2 Walt W.Rostow, The Stages of Economic Growth: A Non-Communist Manifesto (Cambridge UP, London, 1969), p. 105. 3 Giglio, Presidency, p. 94; Thomas G.Patterson, (ed.) Kennedy’s Quest for Victory: American Foreign Policy 1961–63 (Oxford UP, New York, 1989). 4 JFK Lib., NSF box 176, folder: USSR General: US Relations with the Soviet Bloc 5/25/61 Edwin Martin to McGeorge Bundy 25 May 1961, subject: review of US relations with the Soviet Bloc. 5 Ibid., box 310, folder: trade East-West 10/63–11/63, action circular, Rusk, 14 Oct. 1963. 6 Dobson, ‘Kennedy Administration’. 7 Lyndon B.Johnson Library (hereafter LBJ Lib.), NSF, NSC Meetings box 1, folder: vol. 1 tab 8, 4/16/64, McGeorge Bundy memo for Johnson, 14 April 1964; ibid., NSF Committee File box 16, folder: Miller Committee Meetings, 4–5, 18–19, 25–26 March 1965, Assistant Secretary for International Affairs Dorothy Jacobson to Fried, 16 March 1965 re ECRB chairmanship and need to refer matters to Kennedy. 8 Some FRUS references in this chapter are taken from the on-line version at the Department of State website; instead of page numbers they are located by document number. FRUS 1961–3, vol. ix, doc. 298, memo by Bohlen to Bowles on meeting with Secretary Hodges, 7 April 1961. 9 Contrasting analyses of Kennedy’s performance are in R.J.Williams and D.A. Kershaw, ‘Kennedy and Congress: The Struggle for the New Frontier’, Political Studies, 27, 1979; and J.Hart, ‘Kennedy, Congress and Civil Rights’, Journal of American Studies, 13, 1980, pp. 165–78. 10 Thomas W.Zeiler, American Trade and Power in the 1960s (Columbia UP, New York, 1992), p. 48. 11 Ibid., p. 49; William S.Borden, ‘Defending Hegemony: American Foreign Economic Policy’, in Paterson, Kennedy’s Quest, p. 63, describes Kennedy as being ‘obsessed’ with the balance of payments problem. George W.Ball, The Past Has Another Pattern: Memoirs (Norton, New York, 1982), p. 205 describes Kennedy as brooding over the problem and says that this was exacerbated by his father’s pessimistic views. 12 LBJ Lib. NSF Intelligence Estimates boxes 1–5, folder: 11–60 USSR. ME No. 11– 4–60, 1 Dec. 1960; Frank Costigliola, The Failed Design: De Gaulle and the

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Struggle for Europe’, Diplomatic History, 8 (3), (1984), pp. 227–251. 13 David Halberstam, The Best and the Brightest (Random House, New York, 1973). 14 For details of Kennedy’s problems with high-level Cold War strategy, see Michael Beschloss, The Crisis Tears: Kennedy and Krushchev 1960–1963 (Harper Collins, New York, 1991). 15 JFK Lib. NSF box 328, folder: NSAM 22, Kennedy to Rusk, 6 Feb. 1961; AdlerKarlsson, Western Economic Warfare, p. 101. 16 Rostow, Stages of Economic Growth. 17 LBJ Lib. Vice Presidential Papers, Security File box 7, ‘Basic National Security Policy’, 26 March 1962, quoted in Gaddis, Containment, p. 214. 18 Theodore C.Sorensen, Kennedy (Harper Row, New York, 1965), p. 678. 19 JFK Lib. NSF box 297, folder: Foreign Economic Policy Task Force Report 12/31/60, Report to Kennedy from George Ball. 20 Ibid. 21 Ibid. 22 Ibid. 23 Ibid., NSF box 328, folder NSAM 22, Kennedy to Rusk, 6 Feb. 1961. 24 Ibid., box 296, folder: Export Control policy 5/18/61–5/28/63, Rowland Burnstan, Assistant Secretary for International Affairs to Secretary Hodges, 18 May 1961. 25 Ibid., box 176, folder: USSR General, US Economic Relations with the Soviet Bloc 5/25/61, 25 May 1961, Edwin Martin to McGeorge Bundy, subject ‘Review of United States Economic Relations with the Soviet Bloc’, paper prepared under authority of George Ball. 26 Ibid. 27 The Food for Peace Program was started in 1954 with the passage of PL 480. For the struggle that Kennedy had with Congress to try to get MFN for Yugoslavia and Poland, see A. Paul Kubricht, ‘Politics and Foreign Policy: A Brief Look at the Kennedy Administration’s Eastern European Diplomacy’, Diplomatic History, 11 (i), 1987, pp. 55–65, which also clearly shows the continuity between some of the ambi-tions of the Kennedy Administration, and Johnson’s later bridge-building strategy for Eastern Europe. 28 JFK Lib., NSF, box 176, folder: USSR General, US Economic Relations with the Soviet Bloc 5/25/61, 25 May 1961, Edwin Martin to McGeorge Bundy, subject ‘Review of United States Economic Relations with the Soviet Bloc’, paper prepared under authority of George Ball. 29 Dobson, ‘Kennedy Administration’. 30 JFK Lib. NSF box 176, folder: USSR General: US Foreign Relations with the Soviet Bloc 5/25/61. 31 Ibid. 32 Ball, Past, p. 201. 33 Fungiello, American-Soviet Trade, ch. 6, has much detail on this. For different interpretations of congressional disposition see JFK Lib. NSF box 296, folder: Export Control Policy 5/18/61–5/28/63, Hodges memo for NSC 16 July 1962 and ibid., Rusk memo for NSC 10 July 1962. 34 FRUS 1961–3, vol. ix, doc. 302, memo Hodges to Rusk and McNamara, 18 Sept.

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1961. 35 Ibid. 36 JFK Lib., Behrman Papers box 6, folder: East-West Trade Reports 1/62–11/63, Behrman to Hodges, 24 Jan. 1962. 37 Ibid., summary minutes of meeting Interdepartmental Committee of Under Secretaries on Foreign Economic Policy, 10 Jan. 1962. 38 Ibid. 39 Ibid., Behrman to Hodges, 24Jan. 1962. 40 FRUS 1961–3, vol. ix, doc. 306, Hodges to Ball 14 February 1962. 41 Ibid., doc. 307, US-UK East-West trade talks, 27 Feb. 1962 The COCOM review was concluded on 13 July 1962 with results that in fact turned out to be ‘highly satisfactory’ from the US standpoint, see Ibid., doc. 315, 31 July 1962. 42 Ibid., NSF box 296, folder: Export Control Policy 5/18/61–5/28/63, Hodges to Kennedy 10 July 1962, paper presented to NSC meeting 503, 17 July 1962. 43 Ibid. 44 Ibid. 45 Ibid., and at same location, for problems on backlog awaiting licensing decisions, see memo Director Export Policy Staff Commerce Department to Chairman Advisory Committee on Export Policy, 11 July 1962. 46 Ibid., Rusk memo for NSC, 10 July 1962. 47 Ibid. 48 Ibid. 49 Thomas J.Shoenbaum, Waging Peace and War: Dean Rusk in the Truman, Kennedy and Johnson Years (Simon & Schuster, New York, 1988), p. 325. 50 JFK Lib. NSF box 296, folder: Export Control Policy 5/18/61–5/28/63, Hodges memo for NSC, 16 July 1962, and FRUS 1961–3, vol. ix, doc. 310, Hodges to JFK, 10 July 1962. 51 Ibid. 52 Ibid. 53 Ibid., Rusk memo for NSC, 16 July 1962, enclosure 2. 54 FRUS 1961–3, vol. ix, doc. 313, NSC meeting 17July 1962. 55 Ibid., doc. 317, Rusk to Hodges, 5 Sept. 1962. 56 Bruce W.Jentleson, Pipeline Politics: The Complex Political Economy of East-West Trade (Cornell UP, Ithaca, 1986), pp. 104–5, comes to more or less the same conclusions about Hodges’ victory, but he fails to note the subsequent rearguard action by Rusk. 57 Section 402 Foreign Assistance Act, July 1963 allowed the President to continue MFN with Poland and Yugoslavia. 58 JFK Lib. POF box 88a, folder: State Department, 1/63, Kennedy to Rusk and his reply, 22 and 29 Jan. 1963. 59 Ibid., NSF box 310, folder: Trade East-West 8/63–9/63, Kennedy to ECRB, 16 May 1963. 60 Ibid., box 296, folder: Export Control Policy 5/18/61–5/28/63, Kennedy to Hodges, 16 May 1963; box 305–10, folder: Trade East-West 8/63–9/63, Kennedy to ECRB, 16 May 1963.

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61 Ibid. 62 JFK Lib., NSF, box 296, folder Export Control Policy 5/18/61–5/28/63, minutes of ECRB 15 Aug. 1963. McNamara said East-West trade was ‘purely a foreign policy matter’—i.e., not significant in national security terms—and that: ‘He had thought for years that we have been misjudging and grossly overestimating the impact of our trade controls on Soviet military power.’ 63 Ibid., Rostow paper, ‘US Policy on Trade with the European Soviet Bloc’, Policy Planning Council, 26 July 1963. 64 Ibid. 65 Ibid. 66 Ibid. 67 Ibid. 68 Ibid. 69 Ibid., McNamara, Hodges, Rusk to Kennedy, 15 Aug. 1963, ECRB recommendations. 70 Ibid. 71 Ibid., Klein to McGeorge Bundy 12 Aug. 1963, subject, ‘Relations with Hungary, Rumania and Bulgaria’. 72 Ibid., Klein memo ‘East-West Trade’ to McGeorge Bundy, 14 Aug. 1963. 73 Ibid., Klein memo NSC Standing Group Meeting—Discussions of East-West Trade Policy, 7 Sept. 1963, McGeorge Bundy copy. 74 Ibid., Kennedy memo to ECRB draft 12 Sept. 1963 and final copy 19 Sept. 1963. 75 Ibid., Kaysen to McGeorge Bundy, 11 Sept. 1963 who indicates Secretary of State has a ‘strong personal interest in the matter’; ibid., folder: Trade East-West 10/63– 11/63, McGeorge Bundy to ECRB. 76 LBJ Lib. NSF Committee File box 16, folder: Miller Committee Meetings, March 4–5, 18–19, 25–26, 1965, presentation by Thompson, 18 March 1965, ‘The Political Framework: Opportunities and Obstacles; ibid., box 18, folder: Miller Committee Current Hearings of the Senate Foreign Relations Committee, statement by George Kennan, 26 Feb. 1965; Lyndon B.Johnson, The Vantage Point: Perspectives on the Presidency 1963–1969 (Holt Rinehart Winston, New York, 1971), p. 473. 77 LBJ Lib. Administrative History: State Department, vol. 1, ch. 3, section G, EastWest Trade. 78 Kubricht, ‘Politics and Foreign Policy’, p. 64. 79 Ball, The Past Has Another Pattern, p, 203; LBJ Lib. William S.White oral history transcript, Arthur Schlesinger Jr., quoted in Waldo Heinrichs, ‘Lyndon B.Johnson: Change and Continuity’, in Warren I.Cohen and Nancy Berkopf Tucker (eds), Lyndon B.Johnson Confronts the World: American Foreign Policy 1963–1968 (Cambridge UP, New York, 1994), pp. 15–16. 80 LBJ Lib., NSF NSC Meetings, box 1, folder vol. 1 tab 8, 4/16/64, McGeorge Bundy memo for Johnson, 14 April 1964, this line also received support from the CIA, and the State Department. It was opposed by Agriculture, Commerce and Defense. 81 Ibid., NSC record of actions, meeting 527, 16 April 1964. 82 Johnson, Vantage Point, p. 471. 83 FRUS 1964–68, vol. ix, doc. 159, Hodges to Johnson, 25 June 1964.

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84 LBJ Lib. NSF Committee File box 17, folder: Miller Committee statements submitted by private organizations, East-West Trade Affairs Newsletter on Business and Economic Affairs vol. 1(3), 1 March 1965; Johnson, Vantage Point, p. 471; Fungiello, American—Soviet Trade, pp. 153–4. 85 LBJ Lib., NSF boxes 18 and 19, memo meeting with Prime Minister Wilson, 7 Dec. 1964. 86 Frank Costigliola, ‘Lyndon B.Johnson, Germany and “the End of the Cold War”’, in Cohen and Tucker, Johnson Confronts the World’, for a broader perspective on US relations with Western Europe and the German problem see Geir Lundestad, Empire by Integration: The United States and European Integration 1945–1997 (Oxford UP, Oxford, 1997). 87 Heinrichs, in Cohen and Tucker, Johnson Confronts the World, pp. 26 and 29; on Johnson and his foreign policy, see also Robert Dallek, Flawed Giant: Lyndon Johnson and His Times (Oxford UP, New York, 1998), and for his close association with and dependence on Secretary of State Dean Rusk, Thomas W.Zeiler, Dean Rusk: Defending the American Mission Abroad (Scholarly Resources, Wilmington, 2000). 88 Johnson set up a series of task forces following his speech at Ann Arbor, 22 May 1964, when he pledged to move towards a Great Society. 89 LBJ Lib., Task Force Reports box 1, folder: Outside 1964 Task Force on Foreign Economic Policy, memo for the president and the report, 25 Nov. 1964. 90 Ibid. 91 Public papers of the President, 4 Jan. 1965 (US Government Printing Office, Washington DC, 1965). 92 LBJ Lib. NSF Committee File, folder: Miller Committee Meetings March 1965, 2, CIA paper, ‘Soviet Bloc Use of Trade for Political Purposes in Relations with the Free World’. The only serious case cited was in relation to economic sanctions against Finland in November 1958. 93 I am not suggesting that there were not shades of opinion within the consensus. Orville Freeman, Douglas Dillon (and his successor Henry Fowler) and Stewart Udall, respectively secretaries of Agriculture, Treasury and Interior, were all more cautious than Rusk, Ball, Secretary of Defense McNamara and White House advisers. The most important convert to liberalisation was the Commerce Department under its new Secretary John Connor, who thought that ‘Our export controls are somewhat out of date and the procedures should be simplified.’ LBJ Lib. NSF Committee File box 23, folder: Miller Committee Conversations, John Connor, 16 Feb. 1965. Averell Harriman’s view that East-West trade ‘has become a sort of a game in the Department of Commerce to try to stop this trade’ was no longer so appropriate after Connor took over in January 1965, ibid., Harriman, 16 Feb. 1965. Evidence of the consensus that emerged during the deliberations of the Miller Committee may be found at ibid., box 16, folder: Miller Committee Meetings, 4–5, 18–19, 25–26 March 1965, ‘Review of United States Policy on EastWest Trade’, Philip Trezise, Deputy Assistant Secretary of State for Economic Affairs, 4 March 1965, Attitudes of Western Europe and Japan Towards East-West Trade’, Trezise, 5 March 1965, ‘Prospects and Implications for Soviet Bloc Trade

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with the Industrial West’, William Morrell, Deputy Assistant Director of Research and Reports CIA, ‘The Political Framework: Opportunities and Obstacles’, Llewellyn Thompson, Ambassador at Large assisted by Trezise et al., 18 March 1965, State Department Papers—‘The Soviet Union’, ‘Our Allies’, ‘The Developing Countries’ all 15 March 1965, ‘The Use of Trade in Communicating With the European Communist Countries’, 16 March 1965, CIA reports—‘Soviet Bloc Use of Trade for Political Purposes in Relations with the Free World’, ‘Soviet Industrial Technology in US—USSR Trade’, ‘Dumping by Soviet Bloc Countries’—see Morrell to Edward Fried, Executive Secretary to the Miller Committee 12 March 1965. These are by no means all the documents, but they are the most important and representative. For statements from private sources see ibid., box 17, folder: Miller Committee Statements submitted by private organizations 1 and 2. The most opposed to EastWest trade was the CIO/AFL—‘it would be utterly unrealistic to think that they [the Soviets] can do “business as usual”’. 94 Ibid., box 16, folder: Miller Committee Meetings 4–5, 18–19, 25–26 March 1965, ‘Strategic Importance of Western Trade to the Soviet Bloc’, Morrell, CIA, 4 March 1965. 95 Ibid., box 19, folder Miller Committee: Department of State or CIA Pieces on EastWest Trade, Thomas L.Hughes, Department of State Bureau of Intelligence to Secretary of State, 18 June 1964, ‘The Communist Economic Offensive Through 1963’. 96 Ibid., box 16, folder: Miller Committee Meetings 4–5, 18–19, 25–26 March 1965, Presentation by Llewellyn Thompson, Ambassador at Large, assisted by Trezise et al., 18 March 1965. 97 Ibid. 98 Ibid., box 18, folder: Miller Committee Hearings at the Senate Foreign Relations Committee, statement by George F.Kennan, 26 Feb. 1965. 99 Ibid., box 23, folder: Miller Committee Conversations, 18 Feb. 1965, at same location statements of Feb. and March by Connor, Ball, Harold Linder Chairman Export Import Bank, Thomas Mann Under Secretary of State for Economic Affairs, Douglas Dillon. 100 Ibid., box 25, folder: Miller Committee Report to the President, and Miller Committee members to Johnson, 29 April 1965. 101 LBJ Lib. NSF Committee File box 6, folder: NSAM 324, Special Presidential Committee on US Trade Relations with Eastern European Countries and the Soviet Union. McGeorge Bundy memo to holders of NSAM 324. 102 LBJ Lib. WHCF Legislation box 155, folder: LE/TA, Califano to Johnson, 23 March 1966. 103 For the political discussion on tactics see LBJ Lib. Papers of George Ball, box 2– 3, folder: East-West Trade. 104 LBJ Lib. NSF, NSC Meetings folder: NSC Meetings vol. 5, tab 67, 4/24/68, Eastern Europe. 105 Ibid., Administrative History, State Department, vol. 1, ch. 3, sect G, East-West trade. 106 LBJ Lib. Department of Commerce Administrative History, vol. 1, part 3, 1964–

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68. 107 Ibid. 108 FRUS 1964–68, vol. ix, doc. 194, ‘US Thinking on COCOM List Review’, 23 April 1968. 109 Ibid., doc. 196, State Department memo ‘Export of Computer Technology to Eastern Europe and the Soviet Union by Our Allies’, 21 Dec. 1968. 110 Costigliola, in Cohen and Tucker, Johnson Confronts the World.

8 Economics becomes high politics: constructing the base and building up détente, 1969–74

1 Richard Nixon, The Memoirs of Richard Nixon (Book Club Associates, London, 1978), p. 941. 2 Henry A. Kissinger, ‘The Vietnam Negotiations, Foreign Affairs, 47 (2), 1969, pp. 218–19. 3 Nixon, Memoirs, p. 602. 4 Mastanduno, Economic Containment, p. 147, quoting source US Congress, Senate Committee on Banking and Housing and Urban Affairs, Subcommittee on International Finance, ‘The Role of the Export—Import Bank and Export Controls in US International Export Policy’, hearings 93rd Congress, 2nd session, 2, 5, 10, 23, 25 April, and 2 May 1974, p. 352. 5 Gary K. Bertsch and Steven Elliott, ‘Controlling East-West Trade in Britain: Power, Politics and Policy’, in Bertsch (ed.), Controlling East—West Trade, p. 212, quoting OECD statistics. 6 An exception to this generalisation is the 1951 Battle Act and congressional pressures on the Truman Administration to tighten up export controls; however, as we have seen, Truman avoided the more draconian consequences of all this. 7 The term periphery is taken from others, in particular Robert Litwak (see below), and it is not a term that endears itself to the author. For the dangers of Cold War paradigms marginalizing other important developments and distorting the view of post-war international relations see Alan P.Dobson (ed.) with S.Malik and G.Evans (assistant eds), Deconstructing and Reconstructing the Cold War (Ashgate, Andover, 1999). 8 Cold War International History Project (CWIHP) Bulletin, 11, winter 1998, p. 166– 7, Report by Four Chinese Marshals—Chen Yi, Ye Jianying, Xu Xiangqian, and Nie Rongzhen—to the Central Committee, A Preliminary Evaluation of the War Situation’ 11 July, 1969. 9 For a discussion of the issues that are involved with the USA’s post-war power see Dobson, in Lundestad (ed.), No End To Alliance, pp. 134–67; and Dobson and Marsh, US Foreign Policy Since 1945. 10 European Community (EC) succeeded the EEC in 1967 and then became the European Union (EU) in 1993.

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11 There were in fact some complex arrangements—the Smithsonian Agreement— which established a two-tier gold price, but the eventual outcome was a freely floating dollar. 12 FO 371/171957, Trevelyan to Home, 25 April 1963. 13 Ibid., Northern Dept. FO brief for the President of the Board of Trade for his visit to the USSR, Sept. 1963; see also Alan P.Dobson, ‘Anglo-American Relations and Diverging Economic Defence Policies in the 1950s and 1960s’, in Jonathan Hollowell (ed.) Anglo-American Relations in the Twentieth Century (Macmillan, Basingstoke, 2001). 14 Carter, International Economic Sanctions, pp. 65–9. 15 Henry Kissinger, The White House Years (Weidenfeld & Nicolson and Michael Joseph, London, 1979), p. 966. 16 Richard Crockatt, The Fifty Years War: The United States and the Soviet Union in World Politics, 1941–1991 (Routledge, London, 1995), p. 230. 17 Kissinger, White House Years, p. 403. 18 Export Administration Act, 1969, PL 91–184. 19 Malloy, Economic Sanctions, pp. 52–9; Carter, International Economic Sanctions, pp. 64–9. 20 Export Administration Act, 1972, PL 92–412. 21 Gaddis, Strategies of Containment, pp. 274–5. Fungiello observes that ‘détente was in large part the response to Russia’s economic weakness’, American-Soviet Trade, p. 177. Both David P.Calleo in Beyond American Hegemony: The Future of the Western Alliance (Basic Books, New York, 1987), and Thomas J.McCormick in America’s Half Century: United States Foreign Policy in the Cold War (Johns Hopkins UP, Baltimore, 1989) also emphasise, though in rather different ways, the importance of the economic situations in the USA, the Soviet Union and in Eastern Europe. 22 Richard Ned Lebow and Janice Gross Stein, We All Lost the Cold War (Princeton UP, Princeton, 1994), p. 156. 23 Ibid., p. 159. 24 Raymond Garthoff, Détente and Confrontation: American-Soviet Relations From Nixon to Reagan (Brookings Institution, Washington, 1985, revised 1994), p. 88; Nixon, Memoirs, p. 875. Some have argued that the Soviets were consistently more inclined to peaceful co-existence, and thus more trade, than most of conventional Western literature allows: see R. Bideleux, ‘Soviet and Russian Perspectives on the Cold War’ in Dobson and Marsh (eds) Deconstructing and Reconstructing the Cold War, pp. 226–51; and R. Bideleux and I.Jeffries, A History of Eastern Europe: Crisis and Change (Routledge, London, 1998). 25 Of course, this worked on both sides. The East Europeans had an interest in détente that was easily differentiated from the Soviets’, and that proved divisive within the Eastern bloc just as West European détente created tension in the Western camp. See R.Davy (ed.), European Détente: A Reappraisal (Sage/RIIA, London, 1992). 26 Schlesinger, The Imperial Presidency. 27 Nixon Project, National Archives, WHCF, FG-11, State Department box 5, folder: EX FG11, 6/1/72–6/30/72, Larry Brady to Flanigan, 21 June 1972, Subject Morgan-

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Culver Hearings on Organization of the Executive Branch to Deal with the Issues of Foreign Economic Policy, Rogers’ testimony. Also Roger B.Porter, Presidential Decision Making: the Economic Policy Board (Cambridge UP, New York, 1980), p. 31, footnote 2, records that the CIEP ‘met infrequently’. 28 Seymour Hersh, The Price of Power: Kissinger in the Nixon White House (Summit, New York, 1983), pp. 69–70; W.Isaacson, Kissinger: A Biography (Simon & Schuster, New York, 1992), p. 136. 29 Richard Thornton asserts that there was a fundamental divide between the two. He claims that Nixon sought to ‘preserve the bipolar order through modifications of containment’, Richard Thornton, The Nixon-Kissinger Years: Reshaping America’s Foreign Policy (Paragon House, New York 1989), p. 146. At the heart of this, and his ‘principal objective’ throughout his first term, was to create an adversarial relationship between the PRC and the Soviet Union by easing the difficulties in each other’s strategic rear, respectively through withdrawal from Vietnam and by détente in Europe, (ibid., p. 4). This strategy would also reconfigure the power relationship between the USA, the Soviet Union and the PRC, but with the main emphasis still on the US-Soviet relationship. Thornton juxtaposes this essentially bipolar view by the strategic vision he assigns to Kissinger, which emphasises multipolarity. Kissinger is then credited with aiming to reposition the USA back from its forward strategic positions and with adopting a policy of détente to stabilise relationships. By de-emphasising Kissinger’s traditional geopolitical views and by emphasising his responsibility for and reliance on détente, Thornton can exonerate Nixon and blame Kissinger for the failures of US détente policy in the mid-1970s. Unfortunately for the historical record, Nixon and Kissinger aroused strong emotions in many of those who wrote about them. Thornton clearly falls into this category, as does Seymour Hersh, who is highly critical of them both, only distinguishing between them, according to Robert Schulzinger, in that ‘detestation of Kissinger surpassed his [Hersh’s] contempt for Richard Nixon’; Robert D. Schulzinger, Henry Kissinger: Doctor of Diplomacy (Columbia UP, New York, 1989), pp. 6–7. Hersh’s, Price of Power is important for the theme of the present chapter because he asserts a major connection between the trade in US grain and the progress of SALT. While the current analysis agrees that economic inducements, and grain in particular, played a more important part in SALT than either Nixon or Kissinger allow, it also challenges the degree and extent of their importance as claimed by Hersh. His book is based on extensive interviews, but the evidence is not always dealt with plausibly, there are errors, and his interpretative theme is exaggerated. The main justification for these remarks lies in the body of the present narrative, but two illustrations follow. On p. 563 Hersh claims that Kissinger negotiated credits for US grain sales to the Soviets ex post facto on his trip to Moscow in September 1972. In fact, the credit arrangements were agreed in July 1972, but by pushing the date back to September it looks as if Kissinger was compounding previous errors by arranging credits, which Hersh claims subsidised the Soviet purchases: the credits were actually at the commercial level of 6.125 per cent. On this see Garthoff, Détente and Confrontation, p. 306; it might also be noted that Flanigan, Peterson and Butz were more important than Kissinger in dealing with the grain deal. However, he rightly

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points out that Kissinger was involved—harder evidence of this than he provides is to be found in the Nixon Project, Flanigan Papers, box 10. The second point is that on p. 347, in an attempt to prove that there was a direct and controlling link between SALT and grain, he quotes Jesse Calhoon, president of the Marine Engineer’s Beneficial Association, whom the Administration were trying to persuade to go along with a grain deal: ‘“There was one quote that sticks in my mind” he [Calhoon] said. One of Nixon’s aides, stressing the urgency of the situation, solemnly cited the words of Anatoly Dobrynin, telling the union leader that Dobrynin had threatened “that there would be no SALT agreement unless the grain deal was worked out”.’ This, of course might be true, but it is a report three people removed from the original, and in such circumstances one could imagine an aide saying such a thing, whether or not it were actually true, in order to persuade Calhoon to come on board. It is on the basis of this kind of evidence and reasoning that the present work sees Hersh’s interpretation as exaggerating the strength of the link between grain and SALT. 30 Joan Hoff, ‘Nixon Doctrine’ in jentleson and Patterson (eds), Encyclopedia of US Foreign Relations, vol. 3, p. 252, and her Nixon Reconsidered (New York, Basic Books, 1994). This view of the world ascribed to Nixon is very similar to that of George Kennan expressed early in the Cold War. 31 Robert S.Litwak, Détente and the Nixon Doctrine: American Foreign Policy and the Pursuit of Stability, 1969–1976 (Cambridge UP, Cambridge, 1986), p. 56. 32 Department of State Bulletin, LXXVI, No. 1963, 7 Feb. 1977, p. 102. 33 Litwak, Détente and the Nixon Doctrine, pp. 78–9. 34 Garthoff, Détente and Confrontation, pp. 69–70, quoted with approval in Stephen E. Ambrose, Nixon: Volume Two—The Triumph of a Politician 1962–1972 (Simon & Schuster, New York, 1989), p. 233. 35 Gaddis, Strategies of Containment, p. 275. 36 Kissinger, White House Years, pp. 135–6. 37 Nixon, Memoirs, p. 618. 38 Kissinger, Diplomacy, p. 714. 39 Kissinger, White House Years, p. 130. 40 See Joseph S.Nye, jr., Bound to Lead: The Changing Nature of American Power (Basic Books, New York, 1990), ch. 6, and Understanding International Conflicts (Longman, New York, 1997), ch. 8. 41 Gaddis, Strategies of Containment, p. 299, and Lebow and Stein, We All Lost the Cold War, part 2. 42 Kissinger, Diplomacy, pp. 737, 741. 43 Nixon, Memoirs, p 1036. 44 The most detailed account of this is Stern, Water’s Edge. 45 Garthoff, Détente and Confrontation, p. 13. 46 Richard Rosecrance, ‘Détente or Entente?’, Foreign Affairs, 53 (3), 1974–5, pp. 464–81, at p. 464. 47 Litwak, Détente and the Nixon Doctrine, pp. 92–3. 48 Henry Kissinger, A World Restored: Metternich, Castlereagh and the Problem of Peace 1812–1822 (Universal Library, New York, 1964).

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49 Coral Bell, The Diplomacy of Détente: The Kissinger Era (St Martin’s, New York, 1977), p. 5. Bell sees détente as a management system for adversary power relations, where tensions are consciously reduced in both central and regional balances of power, as opposed to Cold War normal conditions, where high tension is maintained. 50 Quoted from Lebow and Stein, We All Lost the Cold War, p. 154; and Nixon Memoirs, p. 618. 51 Henry Kissinger, Years of Upheaval (Little Brown, Boston, 1982), p. 585. Apparently, by this time, Nixon was incapacitated as a result of the Watergate scandal, and it was Kissinger who took the decision about how to respond to the Soviet proposal for intervention in the Middle East. 52 Lebow and Stein, We All Lost the Cold War, section 2. 53 Litwak, Détente and the Nixon Doctrine, p. 196. 54 Nixon, Memoirs, pp. 135–6. 55 Isaacson, Kissinger, p. 209: source Lake interview. Also, according to Isaacson p. 201, Defense Secretary Melvin Laird ensured that he got his own man, Vice Admiral Noel Gayler, as head of the National Security Agency, so that, unknown to Kissinger, he could receive copies of all Kissinger’s back-channel communications: source, Laird interview. Hersh, Price of Power, pp. 340–41, claims Kissinger specifically ordered records of back-channel meetings to be edited and revised: for example, when Gerard Smith, head of the Arms Control and Disarmament Agency and chief negotiator in the ‘front-channel’ SALT negotiations, requested copies of the record. 56 Kissinger, Diplomacy, p. 718. 57 Nixon, Memoirs, p. 407. 58 Public Papers of the President: Richard M.Nixon 1969 (US Government Printing Office, Washington DC, 1971), 25 July 1969, p. 550. 59 Nixon, Memoirs, p. 281. 60 Nixon Project, WHCF CO box 71, folder [EX] CO 58, 11/1/70–11/30/70, Flanigan to Kissinger, memo of recent meeting between Nixon and Stans, 23 Nov. 1970. 61 Nixon Project, WHCF CO box 70, folder: [EX] CO 158, USSR Begin 5/30/69, Stephen Ball to Haldeman, 22 April 1969. 62 Ibid. 63 Ibid. 64 In a memo to Haldeman, 1 May 1969, Kissinger refers to ‘the NSC meeting on overall East-West trade on May 14’, Nixon Project, WHCF CO box 70, folder: [EX] CO 158 USSR Begin 5/30/69. In his The White House Years, pp. 153–4, he repeatedly refers to an NSC meeting on 21 May at which Nixon made the crucial decisions. There is thus some ambiguity about the dates, especially as Kissinger refers to the meeting on 14 May as being scheduled to deal with East-West trade generally and then refers to the meeting on 21 May as the one at which East-West trade came up for discussion and at which the Administration had to take a position on EAA and on a number of licensing issues. Possibly both meetings dealt with East-West trade, or the subject for the 14th was postponed until the 21st, or Kissinger made a mistake about the 14th.

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65 Kissinger, White House Years, pp. 153–4. 66 Ibid., p. 154. 67 Garthoff, Detente and Confrontation, p. 91. 68 Ambrose, Nixon, pp. 461–2. 69 Lebow and Stein, We All Lost the Cold War, p. 173. 70 Nixon, Memoirs, p. 523. 71 Nixon Project, WHCF CO box 71 folder: [EX] CO 158, 11/1/70–11/30/70, Flanigan to Kissinger, 23 Nov. 1970. Stans at Kissinger’s request postponed a trip to Moscow. 72 Nixon Project, WHSF WHCF: CF box 3, folder BE 5–6 Post-war Planning, Peterson to Nixon, 12 April 1971. 73 Ibid., WHCF CO box 19, folder: CO 34–2 PRC (Red China) 1/1/71–5/31/71, Nixon Statement 14 April 1971. In contrast, at a press conference two days later in response to a question about Cuba, Nixon said: ‘Until Cuba changes their policy towards us we are not going to change our policy toward Cuba.’ See Nixon Project WHCF CO box 23, Korologos to Comesanas, quoting Nixon, 28 Sept. 1971. 74 Ibid., Theodore L. Elliot Jr. to Kissinger, 17 April 1971. 75 Ambrose, Nixon, p. 452, drawing on Hersh, Price of Power and Garthoff, Détente and Confrontation, succinctly details the secret understandings that underpinned the opening with the PRC. 76 Ambrose, Nixon, p. 451, drawing on Hersh, Price of Power and Garthoff, Détente and Confrontation. 77 Hersh, Price of Power, pp. 334–49. 78 Kissinger, White House Years, p. 716. 79 Hersch, Price of Power, p. 345; Garthoff, Détente and Confrontation, pp. 92, 183; Ambrose, Nixon, p. 451; Lebow and Stein, We All Lost the Cold War, p. 173. Hersh emphasises this to the point of exaggeration—his chapter dealing with this is actually titled ‘SALT: A Grain Deal’, the others are more measured in their judgements. Isaacson, Kissinger, p. 805, note 33, cites an unpublished work by William Hyland, one of Kissinger’s assistants, which he refers to as a rebuttal of Hersh’s thesis and something he has relied on in his own work. However, he fails to spell out exactly what is rebutted, though it is noticeable that he does not emphasise the links claimed by Hersh between SALT and the grain deal. Readers may also wish to refer back to footnote 29 of this chapter. 80 Nixon Project, WH Special Files, WH Central Files, Confidential Files box 6, folder: CO 34–2 PRC 1971–74, Peterson to John Erwin iii, 10 May 1971, subject Under Secretaries Committee review of China trade. 81 Ibid., WHCF CO box 71, folder: [EX] CO 158 10/1/71–12/3/71, Whitacker to Nixon via Ehrlichman, 2 Nov. 1971. Hersh, Price of Power, pp. 334–5, on basis of an interview with Colson, seems to suggest that Colson was earmarked for the job of persuading organised labour to accept a grain deal at a celebratory dinner party on the presidential yacht Sequoia on the Potomac on 19 May 1971, the eve of the SALT breakthrough announcement. However, he also subsequently records that Kissinger discussed the issues with organised labour in June, which suggests that Colson was not yet leading these discussions, though he was aware of the problem.

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He did not actually take the lead until October. 82 Hersh, Price of Power, p. 347. 83 Ibid., WHSF WHCF, CF box 17, folder: FG 6–20 CIEP 1971–74, Laird to Nixon, 29 June 1971. 84 According to Isaacson, Kissinger, p. 201, Laird may very well have known precisely what was going on, but, as Kissinger and Nixon did not know that he knew, the sense of potential embarrassment would still be real. 85 At the same time the USA gave the go-ahead for the sale of two British computers to the Soviet Physics Laboratory at Serpukhov. For some months the British had argued in vain with the Americans that the Laboratory was a centre for international collaboration, and therefore that the sales should be authorised. Then, after negotiations between the Pentagon, the State Department and a British delegation, it was agreed that constant British monitoring of the output and use of the computers would be sufficient to enable the deal to go ahead. In the end the Soviets did agree, but it was such a slight on their sovereign integrity that everything was kept secret by both sides. Nixon Project, WHCF CO box 80, folder: CO 160 4/1/71–5/30/71, Prime Minister Heath to Nixon. I am also grateful to Ralph Land, who worked for many years in the British computer industry and who gave some of the above details at a symposium on COCOM in the LSE 22 Oct. 1999. 86 Ibid., folder: [EX] CO 158 1/1/72–1/31/72, Hormats to Kissinger, 3Jan. 1972. 87 Bell, Diplomacy of Détente, pp. 48–9. 88 Nixon Project, Whitman Papers, box 9, US Moscow Embassy to Secretary of State, 27 May 1972. 89 Kissinger, White House Years, p. 1133. 90 Nixon Project, Ezra Solomon Papers, box 5, folder: CIEP Task Force Draft Report, 22 Nov. 1971. Study memo 3 prepared by Robert McLellan, Department of Commerce. See also ibid., folder: CIEP 1, W.De Vier Pierson memo on Task Force Report, 3 Jan. 1972, which indicates that it embodies established view of the Commerce Department. 91 Kissinger, White House Tears, p. 1134. 92 Hersh, Price of Power, p. 348. Nixon Project, Ezra Solomon Papers, box 5, CIEP Task Force Draft Report, 22 Nov. 1971, De Vier Pierson memo on Task Force Report, 3 Jan. 1972. Secretary of State Rogers suggested that Lend-Lease should be linked to trade and that Willis Armstrong, Assistant Secretary of State for Economic Affairs, be put in overall charge of negotiations. In the margin, in longhand, the word ‘no’ was underlined, several times, in response to these suggestions, ibid., Flanigan Papers, box 10, folder: President’s Moscow visit April 1970–June 1972 (2), Roger’s to Nixon, 10 March 1972 responding to NSDM—151/CIEP—6. 93 Ibid., undated paper ‘Pre-Moscow Visit’ prepared by CIEP and Kissinger. 94 Ibid., Flanigan memo for the files, subject US-USSR negotiations, 29 March 1972. 95 Kissinger, White House Years, p. 1134. 96 Garthoff, Détente and Confrontation, p. 97. 97 Kissinger, White House Years, pp. 1151–2. Hersh, Price of Power, pp. 531–4, 563, convincingly argues that by this time Kissinger must have known of the severe Russian crop failure in the winter of 1971/2, despite denials in his memoirs. Hersh

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then argues that the possibility of grain sales was used to try to retrieve the situation announced in the May 1971 SALT breakthrough, when the Americans had not included SLBM or modernisation (i.e. MIRVing of ICBMs) in the vague commitment that an ABM treaty would go forward with negotiations about restrictions on offensive weapons. But, of course, if this were the case, matters would have been very sensitive because of the commitments to a grain sale and other trade liberalisa-tions, which had already secretly been given by the Americans. In fact, the argument in this study suggests that those commitments were by no means as clear and definite as Hersh contends and also that the evidence for grain playing such a key role in the post-May 1971 SALT talks is flimsy. 98 Kissinger, White House Years, pp. 1152. 99 Nixon Project, Peter Flanigan Papers, box 10, folder: President’s Moscow Visit April 1970–June 1972, Flanigan memo for the files, subject US-USSR negotiations, 29 March 1972. In May 1972 Connally resigned and was succeeded by George Shultz. 100 Nixon Project, WHSF WHCF CF, box 9, folder: CO 158 USSR 1971–74, Flanigan to Nixon, 26 April 1972, Status of Commercial Negotiations with the Russians Preparatory to Moscow Visit. 101 Ibid. 102 Ibid. 103 Ibid. 104 Ibid. 105 Nixon, Memoirs, p. 595. 106 One persuasive reason why the Soviets did not want to lose the summit was the fear of adverse consequences that this might have had on détente with West Germany; Lebow and Stein, We All Lost the Cold War, pp. 158–9. 107 Kissinger, White House Years, p. 1202. 108 Nixon Project, box 17, folder: FG 6–20 CIEP, 1971–74, Flanigan to Haldeman, 13 April 1972. 109 WHSF WHCF CF box 9, folder: CO 158 USSR 1971–74, Flanigan to Haig, 12 June 1973. 110 WHCF CO box 72, folder: [EX] CO 158, 5/11/72–5/3/72, Peterson to Kissinger re discussion with Patolichev, 17 May 1972. 111 Anatoly Dobrynin, In Confidence: Moscow’s Ambassador to America’s Six Cold War Presidents 1962–1986 (Times Books, New York, 1995), p. 253. 112 Hersh, Price of Power, p. 531, quoting source, Joseph Alsop, A View of the Summit’, Washington Post, 24 May 1972. 113 Clayton Yeutter of the Campaign to Re-elect the President identified the adverse effects of the grain deal, along with early worries about Watergate, as the only two adverse factors in public opinion. Nixon Project, Whitacker papers, box 22, Folder: USDA-Russia Wheat Deal, Yeutter to Whitacker, 4 Oct. 1972. 114 Garthoff, Détente and Confrontation, p. 307, suggests that Kissinger concluded the final terms for Lend-Lease during his September trip to Moscow. In the light of Dobrynin’s memoirs, In Confidence, p. 253, it looks as if this is inaccurate, at least insofar as the financial terms had been agreed by Kosygin and Nixon in May.

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Kissinger, Years of Upheaval (Little Brown, Boston, 1982), p. 249, credits Peterson with negotiating Lend-Lease. 115 WHSF WHCF CF box 9, folder: CO 158 USSR 1971–74, 14 Oct. memo re conclusion of Maritime Agreement reports Nixon: ‘We are grateful that the Soviets are so understanding of our position—and we will make it worth your while in the years ahead.’ 116 Porter, Presidential Decision Making, p. 128. 117 Nixon Project, Flanigan Papers, box 10, folder: Presidential Meetings Agenda and Briefs Memos to file April 1971–July 1974, Flanigan memo 18 Oct. 1972. 118 Ibid., WHCF CO box 73, folder. [EX] CO 158 9/1/72–9/30/72, Flanigan to Kissinger, 20 Sept. 1972. 119 Both Jentleson and Elliott show that the Nixon Administration made positive moves towards energy trade with the Soviets soon after the 1972 summit, and at the June 1973 US—USSR summit Nixon urged US firms to push ahead with this trade. However, it was the Yom Kippur War, when the Soviets, despite their ties with radical Arab states, supplied the USA with $76.2 million of oil in 1973, up from $7.5 million the previous year, and the October 1973 OPEC price hike that pushed the Americans into closer co-operation for alternative oil supplies from the Soviets. Also, such supplies now did not appear so costly. Substantial contracts were signed, but the 1975 rejection of the US—USSR trade agreement by the Soviets then pushed away the Americans and landed the bulk of Soviet energy contracts on the tables of European and Japanese companies. This was to cause problems in the 1980s. See Bruce W.Jentleson, ‘From Consensus to Conflict: The Domestic Political Economy of East-West Trade’, International Organization, 38 (4), 1984, pp. 625–60; Steven Elliott, ‘The Distribution of Power and the US Politics of East-West Energy Trade’, in Bertsch (ed.), Controlling East-West Trade. 120 Nixon Project, WHSF WHCF CF, box 9, folder: CO 158 USSR 1971–74, Richard K.Cook to W.H.Timmons, 19 April 1973: see also ibid., Haig to Colson, 12 Sept. 1972, and Larry Brady to Flanigan, 22 Sept. 1972. 121 Ibid., box 21, folder FG 31–1, Legislative Leadership Meetings, 1971–73, Flanigan to Nixon via Haig, 24 Oct. 1973. 122 Ibid, box 61, folder: TA Trade 1971–74, memo by Kissinger for Nixon, meeting with Secretaries Shultz and Kissinger, 3 Dec. 1973. 123 Ibid. 124 Ibid. 125 Stern, Water’s Edge, p. 94. And see Stern generally for the fullest account of the domestic political opposition to MFN and détente in general. 126 Schlesinger took over from Elliot Richardson as Secretary of Defense in 1973, shortly after he had taken over from Laird. 127 Litwak, Détente and the Nixon Doctrine, pp. 156–69.

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9 Ford and Carter: the decline of détente and the approach of the second Cold War 1974–9

1 Gerald R.Ford, A Time to Heal: The Autobiography of Gerald R.Ford (W.H.Alien, London, 1979), p. 346. 2 Samuel P.Huntington, ‘Trade, Technology, and Leverage: Economic Diplomacy’, Foreign Policy, 32 (fall), 1978, pp. 63–80, at p. 71. 3 Reading Ford’s memoirs, A Time to Heal, clearly illustrates the central concern he had with the economic difficulties that afflicted the USA. 4 Crockatt, Fifty Years War, p. 254. 5 Ford, Time to Heal, p. 128. 6 According to British Prime Minister, James Callaghan, after the Bonn Summit, these meetings deteriorated into ‘media events’, James Callaghan, Time and Chance (Collins, London, 1987), p. 497. 7 For these, other figures about the US economy and the general impact of the oil crises of 1973–4 and 1978, see Spero and Hart, Politics of International Economic Relations. 8 President Ford, August 1974, Presidential Documents vol. 10, p. 1033, General Services Administration, US National Archives, cited from David Howard Davis, ‘Energy Policy and the Ford Administration: The First Year’, in David A.Caputo (ed.), The Politics of Policy Making in America (H.Freeman, San Francisco, 1977), p. 39. 9 Gerald R.Ford Library (hereafter Ford Lib.), Papers of William Seidman, box 53, folder: CIEP (6), Evers to Parker, 17 Dec. 1975. 10 Ford, Time to Heal, p. 128. 11 Albert Wohlstetter, ‘Is there a Strategic Arms Race’ and ‘Rivals But No Race’, Foreign Policy, (15) 1974, pp. 3–20, and (16) 1974, pp. 48–81. 12 Paul Nitze, Assuring Strategic Stability in An Era of Détente’, Foreign Affairs, (54) 1976, pp. 207–32. 13 Isaacson, Kissinger, p. 622. 14 Bell, Diplomacy of Détente, p. 213. For Ford’s account see Time to Heal, pp. 297– 8. 15 For contrasting views of this see Ford, Time to Heal, pp. 322–30; Isaacson, Kissinger, 669–72; Garthoff, Détente and Confrontation, pp. 440–1; and W.G.Hyland, Mortal Rivals: Superpower Relations From Nixon to Reagan (Random House, New York, 1987), pp. 148–55. 16 Peter G.Boyle, American-Soviet Relations: From the Russian Revolution to the Fall of Communism (Routledge, London, 1993), pp. 184–5. Boyle provides a clear chronological account of US-Soviet relations for the uninitiated. 17 Hyland, Mortal Rivals, p. 161. 18 Ibid. 19 Ford, Time to Heal, p. 358.

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20 Dobrynin, In Confidence, p. 369. 21 S.J.Ball, The Cold War, 1947–1991 (Arnold, London, 1998) has some good general points to make about the Ford presidency and its foreign policy. 22 Executive Order 11808, 30 September 1974. 23 US 1974 Trade Act, PL 93–618, sect. 411. 24 East-West Trade Policy Committee was established 1973. It was succeeded in 1974 by the President’s Committee on East-West Trade Policy, and it was from this that new EWFTB was derived. Sometimes the Board was referred to simply as ‘the EastWest Trade Board’. 25 Seidman, box 55, folder: East-West Foreign Trade Board 1, meetings 28 Jan, and 18 March 1975, Evans to Dunn re working group meetings, 24 Jan. and 17 March 1975. 26 Seidman, box 318, folder: International Economic Summit 6/27–28/76, Briefing Papers, East-West Economic Relations. 27 Michael Mastanduno, ‘The Management of Alliance Export Control Policy’, in Bertsch, Controlling East-West Trade; Shahid Alan, ‘Russia and Western Technology Control’, International Relations, 11 (5), 1993, pp. 469–91. 28 Stern, Water’s Edge, p. 146, quoting J.F.ter Horst, Ford’s press secretary as source. 29 Isaacson, Kissinger, p. 616; and Ford, Time to Heal, p. 139. 30 Text is quoted from Stern, Water’s Edge, pp. 169–9. Other details of this episode can be found in Isaacson, Kissinger, Garthoff, Détente and Confrontation; Hyland, Mortal Rivals; and Kissinger, Years of Upheaval 31 Dobrynin, In Confidence, p. 337. 32 Daniel Yergin, ‘Politics and Soviet-American Trade: The Three Questions’, Foreign Affairs, 55, 1977, pp. 517–38, at p. 532. 33 Seidman, box 55, folder: East-West Trade Board 1, subject Working Group Meeting 20 May 1975. See also ibid., 2, Parsky to members of EWFTB and EWFTB meeting 11 July 1975, Summary Record. 34 He was certainly enamoured by this idea by July, Hyland, Mortal Rivals, p. 125. 35 Seidman, box 57, folder: EPB CIEP full Board meetings, record 15 May 1975 of the 14 May meeting; ibid., box 72, folder: International Economic Policy Review 1975(2), Simon and Seidman to Ford, 27 May 1975. 36 Ibid., box 55, folder: East-West Trade Board 2, Parsky to members of EWFTB distributing ‘Possible Legislative Changes to Normalize East-West Trade’, 3 June 1975. 37 Ibid., W.J.Casey to members of EWFTB, 16 June 1975. 38 Ford Lib., Papers of James E.Connor, box 36, folder: June 1975 (2), Connor for the record, 25 June 1975; Seidman, box 55, folder: East-West Trade Board 2, Ford to Ullman, 27 June 1975. 39 Ibid., Meeting 11 July 1975, Summary Record. 40 Ibid., box 53, folder: CIEP (5), East-West Trade Board working group, 13 Aug. 1975, Evans for Seidman and Dunn, ‘Report on Economic Aspects of the President’s Trip to Helsinki’. As we shall see in the next section, however, the idea of a grain for oil deal was discussed. This was not mentioned in the report. 41 Ibid., folder: CIEP (6), Evans to Dunn, subject East-West trade, 12 Sept. 1975.

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42 Ibid., folder: CIEP (8), Summary Status Report, International Economic Policy Issues, 12 March 1976. 43 For this section, I have drawn liberally from Porter, Presidential Decision Making, ch. 5. 44 Ford Lib. box 56, folder: East-West Trade Comptroller General’s Report 1. Summary Statement: the Government’s Role in East-West Trade Problems and Issues. 45 Porter, Presidential Decision Making, p. 128. 46 Robert Paarlberg, Director of Economics, Department of Agriculture, has written that George Meany, the President of the AFL-CIO, negotiated the suspension with Dunlop and the CEA, but it would appear that there were other grounds for imposing the suspension and a wider responsibility involved: Robert L.Paarlberg, ‘Using Food Power: Opportunities, Appearances, and Damage Control’, in Miroslav Nincic and Peter Wallensteen (eds) Dilemmas of Economic Coercion: Sanctions in World Politics (Praeger, New York, 1983), p. 141. 47 Ibid., p. 127. 48 Ibid., p. 128. 49 Hyland, Mortal Rivals, p. 125. 50 Porter, Presidential Decision Making, p. 130. 51 Ibid., p. 131. 52 Ibid., p. 142. 53 Ibid., p. 144. 54 Ibid., p. 155. 55 Murphy Commission Report on the Organization of the Government for the Conduct of Foreign Policy (GAO, Washington DC, June 1975); The Government’s Role in East-West Trade—Problems and Issues (GAO, Washington DC, 4 Feb. 1976). 56 Seidman box 53, folder: CIEP (4), Dunn to Executive Committee EPB, 3 July 1975, ‘Highlights from Murphy Commission on the Organisation of the Government for the Conduct of Foreign Policy’, ch. 5, made recommendations about foreign economic policy. See also Porter, Presidential Decision Making, p. 56. 57 Quoted from Long, US Export Control Policy, p. 63, citing source J.Kenneth Fasick, Director International Division of GAO, in Senate Hearings, 1976, pp. 3–5. 58 Seidman box 56, folder: East-West Trade Comptroller General’s Report 1, ‘Summary Statement: The Government’s Role in East-West Trade—Problems and Issues’. 59 Ibid. 60 Ibid., folder: EWFTB Background Material, July 1976, undated Executive Summary. 61 Ibid., folder: East-West Trade Comptroller Generals Report 1, Summary Statement: The Government’s Role in East-West Trade—Problems and Issues. 62 Ibid., box 55, folder: EWFTB 2, 11 July 1975 meeting. 63 Ibid., box 56, folder: EWFTB 3, Long to Simon, 18 September 1975, and Parsky to members of the EWFTB 30 Sept. 1975, and ibid., box 53, folder: CIEP 6, Evers to economic policy making staff EWFTB, 12 Dec. 1975.

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64 Ford Lib., WHCF, box 209 FG409, folder: East-West Trade Board 8/9/74–1/5/75, 3 Jan. 1976, Executive Order 11894. On 1 October the Secretary of Labor and the NSA were also added to full membership of the Board, ibid., box 210, FG 409, folder: FG 409/A. 65 Defense Science Task Force on Export of US Technology, An Analysis of Export Control of US Technology—A Department of Defense Perspective (Washington DC, 4 Feb. 1976). 66 Seidman box 53, folder: CIEP 9, G.Weiss via W.F.Gorog to Seidman, 1 July 1976. 67 Mastanduno, Economic Containment, pp. 188–9. 68 Malloy, Economic Sanctions, pp. 58–62, and Long, US Export Control Policy, p. 56. 69 EAA amendments 1974, PL 93–500, 29 Oct. 1974. Seidman box 66, folder: Export Licensing Procedures, p. 119. 70 DoD Appropriations Authorization Act of 1975, PL 93–365, 5 August 1974; Seidman box 66, folder: Export Licensing Procedures, p. 119. 71 Yergin, ‘Politics and Soviet-American Trade’, pp. 517–18. 72 McCormick, America’s Half Century, p. 200. 73 Dobrynin, In Confidence, p. 386: ‘Carter obviously believed he could harmlessly separate his public statements about human rights from the whole package of the US-Soviet problems.’ 74 Jimmy Carter, Keeping Faith: Memoirs of a President (Bantam, New York, 1982), p. 143. 75 John Dumbrell, American Foreign Policy: Carter to Clinton (Macmillan, Basingstoke, 1997), p. 5, source National Journal, 19, 1980, Harris Polling. 76 In 1973 David Rockefeller founded the Trilateral Commission to promote better relations between the democratic industrial blocs of North America, Western Europe and Japan. It is a highly exclusive club, to which most of the Carter Administration belonged, including Carter, Brzezinski, Vance, Harold Brown, Michael Blumenthal and Warren Christopher. For an important scholarly study of the Commission, see Stephen Gill, American Hegemony and the Trilateral Commission (Cambridge UP, Cambridge, 1990). 77 Cyrus Vance, Hard Choices: Critical Tears in America’s Foreign Policy (Simon & Schuster, New York, 1983), p. 31. 78 Zbigniew Brzezinski, Power and Principle: Memoirs of the National Security Adviser, 1977–1981 (Farrar, Straus & Giroux, New York, 1985), p. 148. See also: Gerry Argyris Andrianopoulos, Kissinger and Brzezinski: The NSC and the Struggle for Control of US National Security Policy (Macmillan, Basingstoke, 1991), pp. 183–4. 79 McCormick, America’s Half Century, p. 200. 80 Dobrynin, In Confidence, p. 389. 81 NIE 11- 3/8 -76, ‘Soviet Strategic Capabilities and Objectives’, report to Congress signed by Bush and Defense Secretary Rumsfeld, 27 Jan. 1977. Garthoff, Détente and Confrontation, pp. 783–6. 82 R.C.Thornton, The Carter Tears: Toward A New Global Order (Paragon House, New York, 1991). John Dumbrell’s comment on Thornton’s thesis is that it ‘strains

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credibility’: this author agrees. Dumbrell, American Foreign Policy, p. 42. 83 Andrianopoulos, Kissinger and Brzezinski, pp. 183–4. 84 Njolstad argues that it was largely because of the more assertive Carter Administration policy towards the Soviet Union that caused the breakdown of détente: Olav Njolstad, ‘Key of Keys: SALT 2 and the Breakdown of Détente’, in Odd Arne Westad (ed.), The Fall of Détente: Soviet-American Relations During the Carter Years (Scandinavian UP, Oslo, 1997). This collection offers other interesting perspectives on this matter. 85 Brzezinski, Power and Principle, p. 461; Andrianopoulos, Kissinger and Brzezinski, p. 181; McCormick, America’s Half Century, p. 205. 86 Huntington, ‘Trade Technology and Leverage’, p. 64. 87 An episode at the Rambouillet summit in 1975, illustrates both US attitudes towards arms trade with China and that linkage could be played both ways. The Chinese were interested in buying British vertical-take-off Harrier jets. In response to this Brezhnev ‘wrote letters to Carter, Giscard [d’Estaing], Helmut Schmidt and myself [James Callaghan], going so far as to imply that unless the United States pressurised Britain and France not to supply arms to China, the SALT Agreement would be in danger.’ The allies agreed that they could not bow to such pressure. In fact, in the end no Harriers were sold. The Chinese claimed that they were too expensive, but a 7–year UK-Chinese trade agreement was soon signed. Callaghan, Time and Chance, p. 530. 88 Fred Bucy, ‘Technology Transfer and East—West Trade: A Reappraisal’, International Security, 5(3), 1980/81, pp. 132–51, at p. 137. 89 Ibid., p. 134. 90 Ibid., p. 150; see also Bucy, ‘On Strategic Technology Transfer to the Soviet Union’, International Security, 1 (4), 1977, pp. 25–3. 91 Huntington, Trade, Technology, and Leverage, p. 65. 92 Ibid., pp. 67 and 69. 93 As my colleague Dr. Steve Marsh has observed, there is an enormous hinterland of diplomacy and policy involved with the oil industry and US economic statecraft. However, given the fact that the Soviet Union was the world’s largest oil-producer, there were definite limitations on oil diplomacy in this context. The main US policy concerned controls on oil industry technology, which is covered here in considerable detail. For a broader perspective readers might wish to consult Daniel Yergin, The Prize: The Epic Quest for Oil, Money, and Power (Simon & Schuster, London, 1991). 94 Huntington, Trade Technology and Leverage, p. 71. 95 Ibid., p. 79. 96 Carter, Keeping Faith, p. 220. 97 Garthoff, Détente and Confrontation, p. 589. 98 ‘The International Energy Situation, Outlook to 1985’, April 1977, and ‘Prospects for Soviet Oil Production’, ER 77–10270, April 1976, released April 1977, both by the CIA, see Steven Elliott, ‘The Distribution of Power and the US Politics of EastWest Energy Controls’, in Bertsch (ed.), Controlling East-West Trade, p. 75; Jentleson, Pipeline Politics, pp. 151–2.

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99 Huntington, ‘Trade Technology and Leverage’, p. 70. 100 Adrianopoulos, Kissinger and Brzezinski, p. 204. 101 Carter, Keeping Faith, p. 299. 102 Ibid., p. 194, Diary entry 16 May 1978. 103 See Dobrynin, In Confidence, ch. 5. 104 A few weeks earlier Bergland had returned from Eastern Europe and the Soviet Union, where he reported they were all keen to increase trade. He wanted to follow up various proposals and ‘further our agricultural relations generally’, Carter Library (hereafter Carter Lib.), WHCF, Subject File box CO 64, folder: CO 167 6/1/78– 12/3/78, Bergland to Carter, 16June 1978. 105 Brzezinski, Power and Principle, p. 323. 106 Lisa L. Martin, Coercive Co-operation: Explaining Multilateral Economic Sanctions (Princeton UP, Princeton, 1992), p. 200. 107 Brzezinski, Power and Principle, p. 324; Elliott, in Bertsch (ed.), Controlling East-West Trade, p. 77. Of 476 items subject to licences, 115 were revoked, 54 cancelled and 26 suspended, see Elliott, in Bertsch (ed.), Controlling East-West Trade. 108 Elliott, in Bertsch (ed.), Controlling East-West Trade. 109 Carter Lib., Staff Offices, Counsel Cutler box 74, folder: Export Control 1/79– 8/80, Joe to Lloyd, 9 Jan. 1979. 110 Carter Lib., Staff Offices, Lipshutz, box 6, Folder: Jackson-Vanik Amendment, and Washington Post, 23 March 1979. 111 Carter Lib., Special Adviser to the President, Moses box 9, folder: Jackson-Vanik, Washington Post, 17 May 1979; Garthoff, Détente and Confrontation, p. 730. 112 Washington Post, 17 May 1979. 113 Carter, Keeping Faith, p. 250. 114 See Garthoff, Détente and Confrontation, and Brzezinski, Power and Principle. 115 Elliott, in Bertsch (ed.), Controlling East-West Trade. 116 Robert Cullen (ed.), The Post-Containment Handbook: Key Issues in US-Soviet Economic Relations (Westview, Boulder, 1990), p. 19. There were also continuing worries about the anomalies between trade practices with the Soviets and those with the Chinese, see Carter Lib., WHCF, Subject File Foreign Affairs, box FO—46, Javits to Carter, 4 Jan. 1979. 117 Fungiello, US-Soviet Trade, p. 190. 118 Malloy, Economic Sanctions, pp. 64 and 66–7. 119 1979 Export Administration Act, PL 96–72. 120 Mastanduno, Economic Containment, p. 268; Stephen Woolcock, Western Policies on East-West Trade (Routledge & Kegan Paul, London, 1982), p. 41. 121 Long, US Export Control Policy, pp. 72–7; see also Long, ‘The Executive, Congress, and Interest Groups in US Export Policies: the National Organization of Power’, in Bertsch (ed.), Controlling East-West Trade. 122 Long. US Export Control Policy, p. 77. 123 1979 Export Administration Act, PL-96–7 2. 124 For a detailed discussion of the implications of the act, written at the time of the Afghanistan crisis, see Carter Lib., Staff Offices, Counsel Cutler, box 74, folder:

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Export Control 1/79–8/80, Homer Moyer to Cutler, 6 Jan. 1980, subject, EAA requirements. Another source of legal powers in this field was the 1977 International Economic Emergency Powers Act (IEEPA). This basically took Section 5b of the Trading With The Enemy Act and applied it for peacetime use. In circumstances of a national emergency the President can use the IEEPA to impose sanctions. In the 1980s Reagan used the IEEPA when Congress failed to renew the EEA and for sanctions, for example against Libya and Nicaragua; see Malloy, Economic Sanctions, pp. 139–59; and Carter, International Economic Sanctions, p. 184. 125 David D.Newsom, The Soviet Brigade in Cuba: A Study in Political Diplomacy (Indiana UP, Bloomington, 1987). 126 Brezhnev-Honecker conversation, 4 Oct. 1979, DDR Bundesarchiv DY30 JIV 2/201/1342, quoted from Westad (ed.), Fall of Détente, pp. 313–14. 127 Boyle, American-Soviet Relations, p. 196. 128 The Soviets had set up a special group to track events in and decide on policy for Afghanistan. It consisted of Dimitri Ustinov, Defence Minister, Andrei Gromyko, Foreign Minister, Yuri Andropov, KGB Chairman, and Boris Ponomarev, head of the Central Committee International Department.

10 Through the second Gold War to liberation

1 Carter, Keeping Faith, p. 473. 2 Ronald Reagan, An American Life (Pocket Books, New York, 1992), p. 589. 3 Lundborg, Economics of Export Embargoes, p. 29. 4 Congressional Quarterly Weekly Report, 26 January 1980, p. 201; see also Hufbauer and Schott, Economic Sanctions Reconsidered, for chronology of key events, pp. 655–7. 5 Carter, Keeping Faith, p. 473, diary entry 3 Jan. 1980. 6 Mastanduno, Economic Containment, pp. 223–4, deduces similar analytical categories from the Carter Administration’s range of responses, but the consequences he draws from them are somewhat different to those claimed here. It should also be noted that there was a new emphasis on naval power, which had important implications for the US strategic position in the Middle East. 7 Carter, Keeping Faith, p. 474. 8 Robert L.Paarlberg, in Nincic and Wallensteen (eds), Dilemmas of Economic Coercion, pp. 131–55, at p. 135; see also Paarlberg, ‘Lessons of the Grain Embargo’, Foreign Affairs, 59 (1), 1980, pp. 144–62. Paarlberg was the Chief Economist, US Department of Agriculture. 9 Scholars and writers such as Baldwin and Renwick, have rightly pointed out that sanctions do have effects, often more than they are given credit for, and that they should be regarded as a valuable, if limited, form of statecraft. Their value, in part, is that they are forms of coercion that fall short of outright military violence. What such writers tend to understate, and even Baldwin I think does so, is the

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economically non-instrumental aspects of sanctions: Baldwin, Economic Statecraft; Robin Renwick, Economic Sanctions, (Centre for International Affairs, Harvard University, Cambridge MA, 1981). 10 All these points are clearly reflected in Brzezinski’s account in Power and Principle, p. 430; see also, P.L.Falkenstein, ‘Post Afghanistan Sanctions’, in D.Leyton-Brown (ed.), The Utility of Economic Sanctions (Groom Helm, London, 1985). 11 Brzezinski to Carter, 26 Dec. 1979, Brzezinski documents, Carter/Brezhnev Collection, National Security Archive, quoted from Westad (ed.), Fall of Détente, pp. 329–32, at p. 329. 12 Ibid., p. 331. 13 Ibid. 14 Carter, Keeping Faith, p. 472. See also Carter Lib., Staff Offices Counsel, Cutler, box 74, folder: Export Control 1/79–8/80, Acting Secretary of Agriculture James Williams statement on support for farmers and points for briefing Congress, 8 Jan. 1980, and ibid., Chief of Staff Jordan, box 56, folder: USSR/Afghanistan Embargo, Richard Moe, Office of the Vice President to Jordan et al., 8 Jan. 1980, which also reveal thinking of the Administration. 15 Bertsch and Elliott, in Bertsch (ed.), Controlling East-West Trade, p. 213, describes British support as ‘lukewarm’; Mastanduno, Economic Containment, is rather uncharacteristically ambiguous, in that he claims that the USA failed to engage allied support for the new economic defence policy that it wished to deploy and yet was willing to ‘bolster the strategic embargo’, p. 230. There is further discussion of this below. Martin, Coercive Cooperation, pp. 194–203, on the other hand, makes a rather unconvincing contrast between allied unresponsiveness to US measures aimed at retaliation for ill-treatment of Shcharansky and others in 1978 and ‘bandwagoning’ in 1980, as the allies followed the US lead because it was clear that the USA was prepared to shoulder costs and set a worthy example. She makes little of the fact that the allies perceived the Afghan invasion in much more serious political and strategic terms than mistreatment of Soviet dissidents. 16 Margaret Thatcher, The Downing Street Years (HarperCollins, London, 1993), p. 88. 17 Brzezinski, Power and Principle, p. 431. 18 The job of the Iowa caucus of Democratic Party activists was to choose delegates for the Democratic Party National Convention, which later in the year would choose the party’s presidential candidate. If the delegates chosen were not Carter supporters, this would not only lose him votes from Iowa, its effect on public opinion would also damage his re-election campaign in general. 19 Garthoff, Détente and Confrontation, p. 951. While Garthoff is right to emphasise the importance of domestic factors, I do not think that they were as decisive as Carter’s fears about possible further Soviet aggression and the need to convey effectively US resolve and moral outrage at the Soviet invasion of Afghanistan. 20 Brzezinski, Power and Principle, p. 431. 21 NSC meeting on Afghanistan, chaired by Carter, 2 Jan. 1980, Vance documents, Carter-Brezhnev Collection, National Security Archive, quoted from Westad (ed.)

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Collapse of Détente, p. 350. 22 Ibid., p. 339. 23 Ibid., p. 342. 24 Ibid., p. 343. 25 Ibid., p. 348. 26 Ibid., p. 350. 27 Carter Lib, Staff Offices Counsel: Cutler box 74, folder: Export Control 1/79–8/80, Joe Onek, Deputy Counsel to the President to Lloyd Cutler, 4 Jan. 1980. 28 Ibid, box 76, folder: Grain, Eizenstat to Carter, 3 Jan. 1980. 29 Ibid. 30 Brzezinski, Power and Principle, pp. 431–2. 31 Carter, Keeping Faith, pp. 475–6, Diary 4 Jan. 1980. 32 Carter Lib, Chief of Staff Jordan box 56, Folder: USSR/Afghanistan Embargo, Jordan to Carter, 5 Jan. 1980. 33 Carter Lib, Staff Offices Counsel: Cutler, box 74, folder: Export Control 1/79–8/80, Benjamin Civiletti to Cutler 10 and 17 Jan. 1980; and ibid, box 76, folder: Grain— Cutler notes 1–3/80, Onek to Cutler 11 Jan. 1980. 34 Carter, International Economic Sanctions, p. 71; Long, US Export Control Policy, p. 78; and K.Abbott, ‘Linking Trade to Political Goals: Foreign Policy Export Controls in the 1970s and 1980s’, Minnesota Law Review, 65, pp. 739–56, 1981. 35 Carter Lib, Staff Offices Counsel: Cutler, box 76, folder: Grain—Cutler notes I– 3/80, Cutler memo Subject: Report to Congress under EAA 1979. 36 Ibid, folder: Grain memos 1/17–31/80, Cutler to Carter, 18 Jan. 1980. 37 There were bipartisan proposals for the repeal of the embargo in both houses of Congress in the summer of 1980, but they came to nothing, Long, US Export Control Policy, p. 79. 38 At the end of September 1980 US farm prices were higher than in January, Carter Lib, Staff Offices: Domestic Policy Staff Eizenstat, box 112, folder: Grain Suspension 11/12/80, Eizenstat to Senator Pressler, 12 Nov. 1980. 39 Paarlberg, in Nincic and Wallensteen (eds), Dilemmas of Economic Coercion, p. 147. Paarlberg points out that the embargo was thus not the disaster for US farmers that some of its critics claimed. Fungiello, US-Soviet Trade, appears to go along with the conventional wisdom that the embargo hurt US farmers: ‘No wonder Senator Edward Zorinski of Nebraska commented: “With the embargo, this country pointed a gun at Russia and shot the US farmer in the foot’”, p. 193. He also offers some rather confusing figures concerning the amounts actually shipped. Cyrus Vance, for his part, suggests in his memoirs that the grain embargo really hurt economically: ‘No other measure was as costly to the Soviet Union’, which is another aspect of the conventional wisdom that is suspect (Vance, Hard Choices, pp. 389–90). 40 Brzezinski, Power and Principle, p. 431. 41 Carter Lib, WHCF, Subject File box CO 65, folder: CO 167 1/1/80–1/20/81, Brzezinski to UK Ambassador Henderson, 11 Feb. 1980. 42 Ibid, Staff Offices Counsel Cutler, box 77, folder: Grain Memos 3/80, memo for Carter, 25 March 1980. The decision not to control intra-Western trade distin-

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guished the Carter Administration from Reagan’s. The latter tried to restrict oil and gas industry technology and penalised its allies when they did not toe the line. 43 Ibid., folder: Grain Memos 4–10/80, Eizenstat and Lynn to Carter, 5 June 1980. 44 Ibid., folder: Grain Statements 1–10/80, Agreement with China 22 Oct. 1980; Paarlberg, in Nincic and Wallensteen (eds), Dilemmas of Economic Coercion, p. 137. 45 Carter Lib., Staff Offices Counsel Cutler, box 77, folder: Grain Memos 4–10/80, Eizenstat and Lynn to Carter, 5 June 1980. 46 Ibid., Staff Offices: Domestic Policy Staff Eizenstat, box 112, folder: Grain Suspension 11/12/80, Eizenstat to Senator Pressler, 12 Nov. 1980. In 1981 it became clear that the embargo had only been marginally effective in economic terms, see subcommittee on Europe and the Middle East of the House Committee on Foreign Affairs, ‘An Assessment of the Afghanistan Sanctions: Implications for Trade and Diplomacy in the 1980s’, Report by Congressional Reference Services, 1981. 47 Hanson, Western Economic Statecraft, p. 43. 48 Carter Lib., Staff Offices, Counsel Cutler, box 74, folder: Export Control 1/79– 8/80, 6 Jan. draft issued 7 Jan. 1980, memo to Secretary of Commerce and Secretary of Agriculture. 49 Ibid., Cutler and Brzezinski to Carter, 8 Jan. 1980, subject: Directive on High Technology Transfers. 50 Ibid., Agenda of the Meeting on Technology Transfers to the USSR, 9 Jan. 1980. 51 Mastanduno, Economic Containment, p. 230. 52 Thatcher, Downing Street Years, p. 88. Mastanduno, Economic Containment, p. 227, points out that, for other reasons, the British had decided before the invasion of Afghanistan not to renew the credit agreement, but that does not detract from the impact of the reason that the British gave publicly: that they were not going to renew because of Afghanistan. 53 Carter, Keeping Faith, p. 486. 54 Brzezinski, Power and Principle, p. 462, Carter to Vance and Brzezinski, Feb. 1980. 55 Ibid., p. 462; and interview with former Prime Minister (and now Lord) Callaghan by the author, 26 Feb. 1987. 56 Martin, Coercive Cooperation, p. 203. 57 Brzezinski, Power and Principle, p. 435. 58 Westad (ed.) Collapse of Détente, pp. 351–7, at p. 355–6, Marshall Shulman to Vance on US-Soviet Relations after Afghanistan, 15 Feb. 1980, source, Vance Documents, Carter-Brezhnev Collection, National Security Archive. 59 Ibid. 60 Carter Lib., Staff Offices Counsel Cutler, folder: Export Control 1/79–8/80, Cutler to Senator Thurmond, undated. 61 Mastanduno, Economic Containment, p. 227. 62 Ibid., p. 233; OEC Monthly Statistics of Foreign Trade Series A. 63 Robert Dallek, Ronald Reagan: The Politics of Symbolism (Harvard UP, Cambridge MA, 1984); Joel Krieger, Reagan, Thatcher and the Politics of Decline (Polity Press, Cambridge, 1986); Geoffrey Smith, Reagan and Thatcher, (Bodley Head, London, 1990); Lou Cannon, President Reagan: The Role of a Lifetime

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(Simon & Schuster, New York, 1991); ‘President Reagan, who may have had cynical advisers was not cynical himself…took the principle of “negotiation from strength” literally: once one had built strength, one negotiated’, John L.Gaddis, The United States and the End of the Cold War: Implications, Reconsiderations, Provocations (OUP, New York, 1992), p. 125. With a man such as Reagan it may take some time for any kind of objective consensus to emerge. 64 Paul Kennedy, The Rise and Fall of the Great Powers (Unwin Hyman, London, 1988). 65 Nye, Bound to Lead. 66 Hyland, Mortal Rivals, p. 232. 67 Hedrick Smith et al., Reagan the Man, the President (Pergamon, Oxford, 1980), pp. 120–1, sources International Associated Press interview, 1 Oct. 1980. 68 Reagan, An American Life, p. 588; Garthoff’s judgement echoes this, and even includes Reagan’s more extreme colleagues: ‘Reagan was not disposed to take confrontational courses of action that risked a direct clash with the Soviet Union, nor were any of his principal advisers’, Détente and Confrontation, p. 1013. 69 Davy (ed.), European Détente; K.Dawisha, Eastern Europe, Gorbachev and Reform (Cambridge UP, Cambridge, 1990); David Ryall, The Cross and the Bear: The Vatican’s Cold War Diplomacy in East Central Europe’, and Robert Bideleux, ‘Soviet and Russian Perspectives on the Cold War’, in Dobson (ed.) with Malik and Evans Deconstructing and Reconstructing the Cold War. 70 The issue here is more complex than a straightforward inventory of US military power. As Hyland argues, both US weakness in 1981 and US strength in 1985 were exaggerated, but by 1985 Reagan had managed to change perceptions and, most crucially of all, so far as Soviet assessments were concerned, he had set in train a trend of US military build-up. Hyland, Mortal Rivals, p. 232. 71 Steven Elliott, ‘The Distribution of Power and the US Politics of East-West Energy Trade Controls’, in Bertsch (ed.), Controlling East-West Trade, p. 78. Brady had been fired by the Carter Administration for publicly criticising lax implementation of export controls: Reagan reappointed him at a higher level, Jentleson, Pipeline Politics, p. 175. 72 Christopher Andrew, For the President’s Eyes Only: Secret Intelligence and the American Presidency from Washington to Bush (Harper Perennial, New York, 1996), p. 468, citing Reagan, An American Life, pp. 316, 320, Diary, 26 March 1982; Thatcher, Downing Street Years, p. 324, and on the wisdom of Reagan holding out at Reykjavik, p. 471; Reagan, American Life, p. 66, and Donald T. Regan, For the Record: From Wall Street to Washington (Hutchinson, London, 1988), pp. 295–8. 73 Most notably the leading scholars in this field, Mastanduno, Economic Containment, pp. 233–4 and elsewhere in his various publications; Philip Hanson, ‘Soviet Responses to Western Trade Policies’, in David A.Baldwin and Helen V. Milner (eds), East-West Trade and the Atlantic Alliance (Macmillan, London, 1990), p. 50; Jentleson, Pipeline Politics, p. 175. 74 Dumbrell, American Foreign Policy, p. 59; the disagreements and feuds were not just between departments and agencies, but within them as well, for example see the

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role of Michael Pillsbury, Acting Director of the Arms Control Agency in the Department of State, as portrayed in Strobe Talbot, Deadly Gambits: The Reagan Administration and the Deadlock in Nuclear Arms Control (Knopf, New York, 1984), p. 45. 75 George Shultz, Turmoil and Triumph: My Years as Secretary of State (Scribner, New York, 1993), p. 690. 76 Dumbrell, American Foreign Policy, p. 117; Boyle, American-Soviet Relations; p. 207 77 Mastanduno, ‘CoCom and American Export Control Policy: the Experience of the Reagan Administration’, in Baldwin and Milner (eds), East-West Trade, p. 213. 78 To be fair to Mastanduno, for whose work I have the utmost respect, at times he seems to be arguing that the intent of the Reagan Administration was to develop and wage a strategy of economic warfare, rather than that it actually succeeded, see ibid., and Economic Containment, pp. 233–6 and 263–4. But at other points he seems to suggest that economic warfare was actually practised, see ibid., p. 13, where he identifies 1949–58 and 1980–84 as periods of US economic warfare, which he defines thus: ‘Economic warfare is aimed to weaken the military capabilities of a target state by weakening the state’s economy.’ My own view, as developed here, argues that a strategy for economic warfare was never firmly established in the Reagan Administration because of bureaucratic in-fighting and a number of key people who did not subscribe to the policy. In the latter category were Haig, Shultz, Secretary of the Treasury Donald Regan, US Trade Representative William Brock, and Secretary of Commerce Baldridge. Haig described the last three as ‘always sensible’, Alexander Haig, Caveat (Macmillan, New York, 1984), p. 255. Furthermore, actual policy never approached the scope, effectiveness or consistency required for economic warfare. On this latter point, the area of difference between Mastanduno and my position does seem to hinge on different understandings of economic warfare. 79 Thatcher, Downing Street Years, p. 255; Haig, Caveat, pp. 255–6. 80 Smith, Reagan and Thatcher, pp. 100–2. 81 Shultz, Turmoil and Triumph, p. 691. 82 Mastanduno, in Baldwin and Milner (eds), East-West Trade, p. 195. 83 Smith, Reagan and Thatcher, pp. 46–7. In her memoirs Mrs Thatcher simply says that she expressed caution about an early summit with the Soviets and that she and Reagan were of one mind on the problem of theatre nuclear weapons in Europe, Downing Street Years, p. 159. 84 Talbot, Deadly Gambits, pp. 49 and 233. 85 Andrew, For The President’s Eyes Only, p. 468; Mastanduno, Economic Containment, p. 238; Garthoff, Détente and Confrontation, p. 1012. 86 Gaddis, United States and the and End of the Cold War, p. 125. 87 Jentleson, Pipeline Politics, p. 170. 88 Ibid., p. 210; Hanson, Western Economic Statecraft, p. 43, quoting Shultz from New York Times, 14 Sept. 1983, ‘Trade sanctions, particularly agriculture, would not be invoked unless we got Canada, Australia, and Argentina to go along with us.’ 89 Hufbauer and Schott, Economic Sanctions, pp. 683–711.

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90 Caspar Weinberger, Fighting for Peace: Seven Critical Years in the Pentagon (Warner, New York, 1990) p. 25. 91 Haig, Caveat, p. 96. 92 CWIHP Bulletin, 11, Winter 1998, Malcolm Byrne, ‘New Evidence on the Polish Crisis 1980–81’, p. 3. 93 Ibid. 94 Andrew, For the President’s Eyes Only, p. 462. The CIA agent was Colonel Ryczard Kuklinski of the Polish General Staff. 95 Ibid., p. 468. 96 Smith, Reagan and Thatcher, p. 73. 97 Andrew, For the President’s Eyes Only, p. 466, citing Reagan, An American Life, p. 303. 98 Thatcher, Downing Street Years, p. 253, the letter arrived 19 Dec. 1981. 99 Public Papers of the President: Ronald Reagan 1981 (US Government Printing Office, Washington, 1981) p. 1202 100 CWIHP Bulletin, 11, Mark Kramer, ‘Jaruzelski, the Soviet Union and the Imposition of Martial Law in Poland: New Light on the Mystery of December 1981’, and Jaruzelski’s reply, pp. 32–40. 101 Bruce W.Jentleson, ‘The Western Alliance and East-West Energy Trade’, in Bertsch (ed.), Controlling East-West Trade, p. 331; Mastanduno, Economic Containment, p. 246. 102 Smith, Reagan and Thatcher, p. 73. 103 Jentleson, Pipeline Politics, 173. 104 Haig, Caveat, p. 240; Shultz, Turmoil and Triumph, p. 137. 105 Stephen E.Ambrose, Rise to Globalism: American Foreign Policy Since 1938 (Penguin, Harmondsworth, 1988), p. 316. 106 In actual fact the tone of the speech was much more moderate than one might think from the reports. Most of the speech was not about the Soviets. Ironically, Reagan used the phrase ‘evil empire’ in the midst of a plea for toleration for the opening of negotiations with the Soviets. Source: The Greatest Speeches of All Time [this speech certainly does not merit such an accolade], Jerden Records, 1996, Ronald Reagan, ‘Evil Empire’ extract. 107 Dobrynin, In Confidence, pp. 511–12. 108 Crockatt, Fifty Years War, p. 317; Garthoff, Détente and Confrontation, p. 1013; Gaddis, United States and the End of the Cold War, p. 125. 109 Dobrynin, In Confidence, p. 545; Public Papers of the Presidents of the United States: Ronald Reagan 1984 (Government Printing Office, Washington, 1986), pp. 40–4. 110 Quoted from Garthoff, Détente and Confrontation, Reagan’s speech to the UN General Assembly, citing Presidential Documents, vol. 20, (October 1, 1984), p. 1356. 111 Geoffrey Howe, Conflict of Loyalty (Pan, London, 1995), p. 350 112 Ibid.; and Thatcher, Downing Street Years, p. 454–8. 113 Smith, Reagan and Thatcher, p. 123. 114 Andrew, For the President’s Eyes Only, pp. 476–7; Reagan, An American Life,

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pp. 588–9. 115 Thatcher, Downing Street Years, p. 463. 116 Dobrynin, In Confidence, p. 564. 117 Haig, Caveat, pp. 57, 80–1, 210. 118 Fungiello, American-Soviet Trade, p. 196. 119 Soviet Acquisition of Western Technology (1982); Soviet Acquisition of Military Significant Western Technology: An Update (US Department of Defense, Washington DC, 1985). 120 Quoted from Smith, Reagan and Thatcher, p. 53. Smith comments: At Ottawa her [Thatcher’s] interest was to save him from political embarrassment without endorsing his entire position on East-West trade.’ 121 Mastanduno, ‘The Management of Alliance Export Control Policy’ in Bertsch, East-West Trade, pp. 302–3; Thatcher, Downing Street Years, pp. 354–5; Haig, Caveat, p. 255. 122 Both are quoted from Bertsch, Pipeline Politics, pp. 17 and 21, citing as sources, Perle testimony before House Committee on Foreign Affairs, Sub-Committee on International Economic Policy and Trade, 12 Nov. 1981, Weinberger speech, Foreign Policy Association, New York, 21 May 1982. 123 Haig, Caveat, p. 254. 124 Mastanduno, Economic Containment, p. 260. 125 Mastanduno, in Baldwin and Milner, East-West Trade, p. 195. 126 Alam, ‘Russia and Western Technology Controls’, pp. 469–91, p. 477, citing source, National Academy of Sciences, Balancing the National Interest: US National Security Export Controls and Global Economic Competitiveness (National Academy Press, Washington DC, 1987). 127 Jentleson, Pipeline Politics, p. 180. 128 Thatcher, Downing Street Years, p. 255. 129 Shultz, Turmoil and Triumph, p. 137. 130 Haig, Caveat, p. 305. 131 Ibid., p. 312. 132 Shultz, Turmoil and Triumph, p. 138. However, on 9 Oct. 1982 US disregard for legalities was demonstrated when it withdrew MFN status from Poland, contrary to the rules of GATT, see James Mayall, ‘The Western Alliance, GATT and East-West Trade’, in Baldwin and Milner, East-West Trade, p. 28. 133 Ibid., p. 141. 134 Garthoff, Détente and Confrontation, p. 1035. 135 Hufbauer and Schott, Economic Sanctions Reconsidered, pp. 699–700, citing sources, Congressional Quarterly, 20 Nov. 1982, p. 2883; Department of State Bulletin Jan. 1983, p. 28. 136 Malloy, Economic Sanctions, p. 69, EAAA, PL 99–64, 99 stat. 120, 1985. 137 Long, US Export Control Policy, p. 84; Mastanduno, Economic Containment, pp. 288–96; James M.Montgomery, ‘The Cumbersome Apparatus’, in Cullen (ed.), Post-Containment Handbook, pp. 34–41; Elliott, in Bertsch (ed.), Controlling EastWest Trade, p. 81, sums up the EAAA: ‘the act increased the Pentagon’s role by establishing a national security control office under a Defense under secretary,

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included provisions to strengthen COCOM, continued the NSC’s overseer function, and incorporated the import ban provision’. 138 Carter, International Economic Sanctions, p. 80. 139 Ibid., pp. 77–8; and Malloy, Economic Sanctions, p. 70. 140 Mastanduno, in Baldwin and Milner, East-West Trade, p. 199. Shultz visited China in February 1983 and was followed by Reagan in April 1984, after China had been reclassified as an export destination to allow a more liberal trade flow. It was not, however, reclassified in COCOM, and hence the problem with the large number of exception requests. 141 Jentleson, Pipeline Politics, p. 241; Bertsch (ed.), Controlling East-West Trade, p. 14. 142 This argument was again repeated by the National Academy of Sciences, ‘Balancing the National Interest: US National Security Export Controls and Global Economic Competition’, in Jan. 1987, see Montgomery, ‘Cumbersome Apparatus’, in Cullen, Post-Containment Handbook, pp. 41–3. 143 Malloy, Economic Sanctions, p. 76. 144 Mastanduno, Economic Containment, p. 299. 145 Quoted from: Michael R.Beschloss and Strobe Talbot, At the Highest Levels: The Inside Story of the End of the Cold War (Little Brown, Boston, 1993), p. 19, News Conference 27 Jan. 1989. 146 George Bush and Brent Scowcroft, A World Transformed (Vintage Books, New York, 1999), p. 540.

11 Economic statecraft: theoretical considerations

1 Steven Weinberg, Dreams of a Final Theory (Pantheon, New York, 1992), p. 52. 2 These are the four kinds of force presently identified by scientists. For explanation of them and of string theory, see Brian Greene, The Elegant Universe (Vintage, London, 2000). 3 I do not wish to suggest here that theory has nothing to do with historical explanations, because it does. Historical evidence-led narratives are, of course, underpinned by theoretical assumptions concerning the status of evidence and the nature of reason-giving as a form of explanation. The past is also a metaphysical assumption that historians make, as the past by definition is lost to them. Their narratives use correspondence with existing evidence for what the past might have been, but they can never tell if their narratives actually do correspond with the past. 4 Renwick, Economic Sanctions; James Barber, ‘Economic Sanctions as a Policy Instrument’, International Affairs, 1979, 55, pp. 367–84; Hufbauer and Schott, Economic Sanctions Reconsidered; Ethan Barnaby Kapstein, The Political Economy of National Security: A Global Perspective (South Carolina UP, Columbia, 1992); Nincic and Wallensteen, Dilemmas of Economic Coercion; Martin, Coercive Cooperation; Margaret P.Doxey, International Sanctions in Contemporary Perspective

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(Macmillan, London, 1996); K.J.Holsti, International Politics: A Framework for Analysis (Prentice Hall, Englewood Cliffs, 1988); Baldwin, Economic Statecraft; Rodman, Sanctions Beyond Borders; Thomas WäZlde, ‘Managing the Risk of Sanctions in the Global Oil and Gas Industry: Corporate Response Under Political, Legal, and Commercial Pressures’, Texas International Law Journal, 2001, 36, pp. 183–228; Daniel Denzer, The Sanctions Paradox: Economic Statecraft and International Relations (Cambridge UP, New York, 1999). 5 Nincic and Wallensteen, Dilemmas of Economic Coercion, p. 2; contributing to the same work, David A.Deese in ‘The Vulnerability of Modern Nations: Economic Diplomacy in East-West Relations’, was one of the first to challenge the conventional wisdom that sanctions were ineffective. He argued that those who judged them to be ineffective often made assumptions that were formulated too narrowly. Had their criteria for success included the impact on the sanctioning state’s own domestic constituency, and intent to punish, discredit and embarrass rather than change the target state’s policies, then sanctions would be seen to be more successful. Baldwin made a similar argument even more forcefully in his Economic Statecraft. 6 Doxey, International Sanctions, p. 9; David Mitrany, The Problem of International Sanctions (Oxford UP, London, 1925). 7 Doxey, International Sanctions, p. 9. 8 Stephen Mulhall and Adam Swift, Liberals and Communitarians (Blackwell, Oxford, 1995); Chris Brown, International Relations: New Normative Approaches (Harvester/Wheatsheaf, Brighton, 1992). 9 Doxey, International Sanctions, p. 126. 10 Ibid., p. 9; FRUS 1950, vol. 1, pp. 252–3, NSC 68, 14 April 1950. Doxey argues that economic warfare should be distinguished from sanctions when it has no ‘moral or legal basis’, but the US strategic embargo/cold economic warfare did have a legal basis, and often, if not always, had a moral connotation to it. I am sure that throughout the existence of the strategic embargo there was always at least one senior US official involved who saw it in a moralistic light: would this qualify as a moral basis for the strategic embargo? 11 Boudreau, ‘Economic Sanctions’, at p. 29. 12 Jentleson, Pipeline Politics, pp. 28–9. 13 Johan Galtung, ‘On the Effects of International Economic Sanctions: With Examples from the Case of Rhodesia’, in Nincic and Wallensteen, Dilemmas of Economic Coercion, p. 19. 14 Baldwin, Economic Statecraft, pp. 35–6. 15 Hufbauer and Schott, Economic Sanctions Reconsidered. 16 Diane B.Kunz, ‘When Money Counts and Doesn’t: Economic Power and Diplomatic Objectives’, Diplomatic History, 1994, 18 (4), pp. 451–63. 17 Holsti, International Politics, p. 241. 18 Deese, in Nincic and Wallensteen, Dilemmas of Economic Coercion. 19 Rodman, Sanctions Beyond Borders. 20 The terminology of instrumental and expressive sanctions is Galtung’s, from ‘Effects of International Economic Sanctions’, in Nincic and Wallensteen,

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Dilemmas of Economic Coercion. One notion of success in cases of sanctions, which has been used in this narrative, makes sense in terms of the reasoning of the actors who impose the sanctions. They are the ones who know what was intended. It is they who might change their expectations and goals over time, and who are in a position meaningfully to assess the results of the sanctions that they have imposed. One might see this, in the terms of Hollis and Smith, Explaining and Understanding International Relations, as a criterion of success drawn from inside understanding. The main problem of definition is from the external perspective, in its ambition to generalise, because it is difficult to establish a fixed criterion that captures the nature of success in sanctioning in different cases. 21 Ibid., p. 48. 22 Jentleson, Pipeline Politics, p. 98. 23 Hegemonic decline is caused by the hegemon shouldering the costs of sustaining the system while others free-ride at its expense and improve their relative position in the system’s hierarchy of power. See Kindleberger, World in Depression, and for further discussion and references Dobson, USA, Britain and the Question of Hegemony; on MNCs see Spero and Hart, Politics of International Economic Relations. 24 Kenneth A.Rodman, ‘Multinational Corporations, and US Economic Sanctions Since the Pipeline Case’, International Organization, 1995, 49 (i), pp. 105–39; he develops this argument more elaborately and focuses on extraterritorial sanctions in his Sanctions Beyond Borders. 25 Jentleson, Pipeline Politics, p. 218. 26 Martin, Coercive Cooperation, p. 240; Mastanduno in Economic Containment, p. 9, comes to a similar conclusion: ‘This examination of the Western export control regime finds no simple causal relationship between the relative power of the United States and the maintenance of effective cooperation in CoCom. Although relative power matters, other factors—the interests of non-hegemonic states and the leadership capacity of the United States—emerge as critical to determining the nature of cooperation.’ 27 Nincic and Wallensteen, Dilemmas of Economic Coercion, p. 3. 28 Holsti, International Politics, p. 288. 29 Baldwin does not require this distinction, because he insists that economic statecraft only involves economic instruments, and thus he excludes strategic bombing of economic targets and naval blockades from the scope of economic warfare. Baldwin’s ideas are discussed at greater length below. 30 Paul Einzig, Economic Warfare (Macmillan, London, 1941), p. 3. 31 Mastanduno, Economic Containment, p. 13, see also Schelling, International Economics, p. 488. 32 Tor Egil F0rland, ‘Economic Warfare and Strategic Goods: A Conceptual Framework for Analyzing COCOM’, Journal of Peace Research, 28 (ii), 1991, pp. 191–204; Klaus Knorr, The Power of Nations: The Political Economy of International Relations (Basic Books, New York, 1975). I also have had the benefit of being allowed to see Førland’s, sadly unpublished, doctoral thesis, ‘Cold Economic Warfare’, from which I have greatly benefited. Developing the idea of

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cold economic warfare is an important theme in my argument here. 33 Quoted from Førland, ‘Economic Warfare’, pp. 199, 200; Michael Mastanduno, ‘Strategies of Economic Containment: US Trade Relations with the Soviet Union’, World Politics, 1985, 37 (iv), pp. 503–31, citing pp. 509 and 512–13. 34 A CFEP task force under chairmanship of Thorsten V.Kalijarvi, Deputy Assistant Secretary of State for Economic Affairs reported in July 1955 that: ‘The relative economic advantage of any East-West trade is greater for the Soviet bloc than for the Free World.’ There is good reason to believe that this judgement was different to the US position in the early Cold War, when Western Europe was reconstructing its economy and needed many things from the non-dollar market of Eastern Europe. Also, Eisenhower was ‘confident that the West has skill in trading such that a net advantage would probably lie with them’, FRUS, 1955–57, vol. x, pp. 243, 338, memo Kalijarvi to Hoover 12 July 1955, and memo of conversation at the White House, 18 April 1956. Such divergent judgements were possible because the evidence was never conclusive. 35 HST Lib., PSF box 220, folder NSC Meetings, folder: memo for Presidential Meeting Discussions, notes on 12th meeting NSC, 3 June 1948. 36 CAB 128/27, 3(54)5, 18 Jan. 1954; Ritchie Ovendale, ‘Britain, the US and the Recognition of Communist China’, Historical Journal, 26 (i), 1983, pp. 139–58. 37 Førland, Economic Warfare, and Michael Mastanduno, ‘Strategies of Economic Containment’ and Economic Containment. 38 See the discussions about the sale of a steel blooming mill to Yugoslavia: HST Lib., Acheson Papers, box 64, folder: April 1949, memo of conversation between Defense Secretary Johnson, Under Secretary of Commerce Whitney, Secretary of State Acheson and their assistants, 21 July 1949. 39 As noted before, Baldwin avoids the need to distinguish between economic warfare and cold economic warfare by restricting the tools of economic warfare to economic instruments. However, it seems strange to exclude naval blockades (and, to a lesser extent, strategic bombing), when for most people these have traditionally encapsulated what is meant by economic warfare. 40 Wu, Economic Warfare; Schelling, International Economics. 41 Harold D.Lasswell, World Politics Faces Economics (McGraw Hill, New York, 1945), p. 9. 42 Power as an explanatory concept appears to me to be somewhat nebulous, unless it is used in an ex post facto descriptive sense. By this I mean that it is not possible to go from assessing potential power to predicting actual outcomes: if it were, then how could one explain the outcome of the Vietnam conflict? If the reply to this is that I am failing to give weight to the subjective element of power, will-power, resolve, and so on, then this simply makes the case for me, for we are then in the realm of reasoning and reason-giving explanation, not a theoretical, conceptual explanation cast at a higher level of generalisation than reason-giving. The problem with power is partly to do with the fact that we know that some situations result from the successful application of power, but to jump from that to invoking power theory to explain that outcome is circular or tauto-logical. Thus power theory as explanation, seems to be reduced to something like the following. The question of

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why the Americans lost in Vietnam is answered by the observation that they did not apply sufficient power. The question of why they prevailed in the Gulf War is answered by the observation that they applied sufficient power. This is hardly an adequate form of explanation. However, this is not to deny the fact that notions of power are used by policy-makers; they are—but bedded in practical reasoning in attempts to apply means to achieving ends, not to produce explanations. Whether such means succeed and why can be accounted for in a reason-giving historical narrative, but not, I fear, by power theory. I am grateful to my long-standing mentor and friend Charles Reynolds for prompting some of these thoughts, though I take full responsibility for the formulation of the actual argument here. 43 Baldwin, Economic Statecraft, p. 25. 44 Dobson, ‘Kennedy Administration’. 45 Baldwin, Economic Warfare., pp. 214–15. 46 This appears to be the view of Philip Hanson, Western Economic Statecraft, pp. 8– 9. 47 Baldwin, Economic Warfare, p. 224. 48 Hanson, Western Economic Statecraft, pp. 8–9, drawing on Peter J.D.Wiles, Communist International Economics (Basil Blackwell, Oxford, 1968). 49 Ibid. 50 A good example of this is the US grain embargo imposed by the Carter Administration in order to punish the Soviet Union for the invasion of Afghanistan. In the first few months of its operation it hurt the Soviets economically. Thereafter, alternative sources of supply (notably from Argentina), combined with a good Soviet harvest in 1980, meant that the embargo then cost the USA more than it cost the Soviet Union, but it was continued for political reasons. See Carter Lib., Staff Offices: Counsel Cutler box 77, folder: Grain memo 3/80. Memo for the President, ‘Suspension of Grain Exports to the USSR’, 25 March 1980.

12 Concluding thoughts

1 On 17 January 1917 British Intelligence intercepted a telegram from German Foreign Minister, Arthur Zimmermann, to the German ambassador in Mexico, suggesting a war alliance against the USA. Once the war was won, Mexico could retake all the territory lost to the USA in the Mexican War of the 1840s. This telegram was passed on by the British to the USA. 2 William Doyle, Inside the Oval Office: The White House Tapes from FDR to Clinton (London House, London, 1999), pp. 31–2.

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Index

Abyssinia 4, 22, 34 Acheson, Dean 53, 74, 96, 164 East-West trade 95–6; embargo list agreement 88, 93; Hong Kong 99; Korean war 94, 99, 100 Adenauer, Konrad 159 Adler-Karlsson, Gunnar 22 Advisory Committee on Exports 83, 84, 85, 116 Advisory Committee on Requirements 97; see also Advisory Committee on Exports Afghanistan 3, 229, 230–6, 259, 263 Africa 179, 203, 219–20, 224, 226 Agriculture Act (1961) 147 Agriculture Department 85, 99, 148; East-West trade 162, 220, 224; grain 182, 186, 212, 235, 252; technology transfers 224 Aldrich, Winthrop 118 Allen, Richard V. 252 allies see Western Alliance Ambrose, Stephen 176, 184, 185, 186, 250 American Civil War (1861–65) 10 –2 Amin, Hafizullah 229, 233 Amory, Robert 110 Anglo-Iranian Oil Company 99 Angola 203, 209, 215 appeasement 2, 30, 40, 46, 77 Argentina 231, 238 armies, growth of modern 10 arms control see various administrations Arms Control and Disarmament Agency 201 arms embargoes 32–3, 36 arms race 178, 244, 251 arms trade 31, 33, 41 Arms Traffic Convention (1925) 33 Arnold, ‘Hap’ 68 Asia 37, 111, 126, 131, 224 Asquith, Henry 15 Atlantic Charter 60

Index

355

Atlantic Conference (1941) 39 Atomic Energy Commission (AEC) 25, 85, 99, 135 Attlee, Clement 98 Attorney General 237 Australia 238 Austria 46, 128 Baker, James 284 Baldridge, Secretary 254, 255, 258 Baldwin, David 5, 261, 262, 263, 264, 274 –9 Baldwin, Stanley 4 Balkans 68 Ball, George 139, 148–9, 156, 158 Ball Report 143 –8 Basic National Security Policy 140 –1 Bator, Francis 160 Battle Act (1951) 20, 101, 122, 130, 138, 143; Cannon amendment 96; Cuba 138; exemptions from 112; revision (1954) 131 Behrman, Jack 148 –9 Belisha, Hore 36 Bell, Coral 178 Bergland, Robert 221, 225, 236, 238 Berle, Adolf 37, 44 Berlin 89, 172, 184; Airlift 79; wall 138, 141, 148, 259 Beveridge Report 62 Bevin, Ernest 80, 82, 87, 93, 96 BEW (Board of Economic Warfare) 42, 49, 50–3, 61 Black List of companies 15, 44, 45 Blacked Nationals, Proclaimed List of 45 Blackwell, Robert 212 Blaidsell, Thomas 97 Block, John R. 252 blockades 6, 12–4, 20, 269; paper blockades 12, 13, 43–5, 49 Boheman, Erik 52 Bohlen, Charles 93 Bonn summit (1978) 200 Boudreau, D.G. 263 Bowie, Robert R. 143 Bradley, General 96 Brady, Lawrence 245, 248, 254 Brandt, Willy 172, 205 Brazil 231

Index

356

Bretton Woods monetary system 5, 62, 63, 68, 71, 170, 200 Brezhnev, Leonid 251; Brezhnev doctrine 205; emigration/MFN 207; grain deal 188, 190–2, 211; Poland 248; SALT 1 201, 202, 220, 226, 228; technology transfers 174 Brock, William 254 Brown, Harold 219, 224, 235 Brussels Nine Power Conference (1937) 36, 41 Brzezinski, Abigniew 217, 218–20, 223, 224, 233, 237, 239, 241 Buckley, James 254 Bucy, Fred 220 Bucy Report 215, 220, 223, 241, 246 Bulgaria 78, 164 Bullitt, William 35 Bundy, McGeorge 139, 141, 148, 154, 156, 158, 160, 162 Burns, Arthur 183 Bush, George 219, 258–9, 284 Butz, Earl 186, 189, 213 Byrnes, James 74–5, 78 Califano, Joe 163 Camp David Accords 217 Campaign for Nuclear Disarmament 159 Canada 231, 238 Cannon amendment 96 Carter administration: Afghanistan, response to 230–6; arms control 217–20, 222, 225, 227, 228; cold economic warfare 239, 240–2; economic defence policy review 220–2; grain embargo 228, 230, 231–8; grain exports 237–8; messages from sanctions 232, 239, 242; technology transfers 224, 236, 239 Carter, Jimmy 216–7; Carter Doctrine 231; human rights 217–9, 224; PD–18 219, 222 Casey, William 245, 246, 248, 254 Central America 17 Century Group 32 Chalkley, Owen 44 Chamberlain, Neville 36, 41 Chase, Salmon P. 12 Chiang Kai-shek 12

Index

357

China, Nationalist 12, 111, 125 China, People’s Republic of (PRC) 3, 91, 226, 238; advanced weapons programs 164; arms sales 226; Attlee-Truman talks (1950) 97–8; Cannon amendment 96; China differential 102, 109, 110, 123–35, 134, 164; Eden-Dulles talks 111; European trade 91–; Hong Kong 92, 99, 126; Japanese aggression 22, 34, 36; Korean war 97; Lend-Lease 57; Manchuria 34; MFN status 220; Rape of Nanking 34; SALT 1 223; Sino-Soviet relations 98, 108–25, 163, 169, 181, 200, 226; strategic embargo 77, 91–, 96, 97, 105, 113; technology 236; US trade increases 167, 185, 220; Vietnam 181, 226; war threat 94, 115 –6 CHINCOM 102, 134 ChouEn-Lai 170, 185 Christopher, Warren 235, 240 Churchill, Winston 4, 13, 14, 70; Atlantic Conference (1941) 39; East-West trade 111, 117–8, 120–1; Fulton speech 78; gold & dollar reserves 61; Lend-Lease 58, 59, 62, 69; Swedish neutrality 51, 55; Truman talks (1952) 23, 98 CIA (Central Intelligence Agency) 20, 140, 161, 219, 248; Poland 254 Clark amendment (Angola) 203 Clark, William 254 Clayton, William 63, 71, 72, 75, 79 Clinton, Bill 168 Cobden, Richard 26 COCOM (Co-ordinating Committee) 22, 24; anomalies in 204–6; China 91–, 102, 110, 134, 164; establishment of 87, 88, 90; exemption policy 167, 214, 239; Japan joins 102; lists extended (1950s) 97, 100;

Index

358

lists reduced (1954) 116–22, 131; no-exceptions policy 240, 258–9; Poland 254; technology 138, 184, 239, 257 –8 cold economic warfare 10, 26, 40; for change 40, 272; meaning of 5, 6–7, 80, 259, 269–70; moralism of 262–3; see also economic warfare Cold War 2; development of 22, 77–81; renewal of 164; Second Cold War 1, 230–2, 252, 258; static 154 Collado, Emilio 69, 73 Colson, Chuck 186 Commerce and Navigation Treaty (1911) 37, 42 Commerce Department 20, 24, 42, 50; agricultural commodities 148, 158; ball-bearing exports 144; China 91; embargo policy 81–5, 87, 100; export licences 96, 111, 138; flexible response 162; grain sales 212; industrial exports 187; Korean war 94–5; liberalisation policy 138, 144, 148–9, 150, 153, 180–1, 182, 183; MFN status for Soviets 135; national embargo lists reduction 112–4; Poland 254; technology transfers 215–6, 239; Third World 221; total embargo 102, 138 Commercial Commission 192 Committee to Defend America by Aiding the Allies 31 Commodity Credit Company 189 Congress 30, 41; aid conditions 20, 102; Bay of Tonkin Resolution (1964) 163; Cannon amendment 96; credits 96; East-West trade legislation 163; executive autonomy 6, 21, 24–5; flexible response 165; influence on trade 20–1, 126; input into economic statecraft 6;

Index

359

liberalisation policy 126, 140, 151, 153, 156, 160, 172–3, 180, 182; Marshall Plan 79–81, 87; MFN status 190–1, 193; neutrality laws (1930’s) 20, 21, 27; President’s discretionary power 227–8; South Vietnam 199; Technology, International Transfer of 223 Connally, John 171, 189 Connor, John 162 Consultative Group (GC) 89, 91 containment 77–80, 89, 92–3, 118–9, 178; Asia 126; for change 272–3; New Look Containment 107–10, 129 Continental System 10 continuous voyage 12, 15 contraband 12–4, 20, 32, 33, 44, 81 corporations, influence of 6, 27, 172, 214, 215–7; multinational corporations (MNCs) 264, 266 Council of Economic Advisors 139 Council on Foreign Economic Policy (CFEP) 109, 116, 117, 128, 130, 133 Council on International Economic Policy (CIEP) 174, 184, 186–7–188, 194, 214 courant normal 14, 41, 44 Cox, Oscar 62, 69 Crockatt, Richard 172, 251 Crowley, Leo T. 43, 50, 54, 62, 69, 74 Cuba 26, 138, 185, 203, 228; missile crisis (1962) 81, 141, 142, 152, 269 Cullen, Paul H. 110 Currie, Lauchlin 55 Cutler, Lloyd 235 –7 Cutler, Robert 114, 115, 119, 239 Czechoslovakia 46, 78, 82, 164, 259 Dallek, Robert 34 Dalton, Hugh 61 Davies, A.C. 110, 126 Dawes Plan (1923) 31 de Gaulle, Charles 152, 159, 164 Declaration of London (1909) 13 Defense Department 21, 200; agricultural commodities 148; Appropriation Authorization Act (1975) 216; ball-bearing exports 144; China differential 130, 131, 133; communist trade 94–5, 99, 112, 138; containment policy 92–3, 110, 118–9; détente 202;

Index

360

export control monitoring 205; export licensing 228; grain embargo 234–5; industrial exports 186–7; International Security Policy 110, 126, 244; liberalisation policy 118, 126, 144, 148, 153; MAD (Mutual Assured Destruction) 219–20; ‘meaningful symmetry’ 196, 201; military capability 244; Poland 248; Science Task Force 215; technology transfers 214–6, 227, 239, 241, 254, 257 Delany, Admiral 114, 120, 131, 133 Denmark 41, 56 Dent, Frederick 180, 194 détente 7, 20, 28, 159, 166; Basic Principles Agreement 189; China 181; decline of 181, 199, 206; development of 168–9, 171, 174, 176, 183–8; Europe 171–4, 191; failure of 168, 178–80, 218; grand strategy 169, 176, 180, 197; human rights 21, 27, 194–6, 217–09, 218–9; Middle East 177, 179, 193, 195, 199, 207; Ostpolitik détente 171–2, 184, 205; success of 188 –93 deterrence 4, 108, 175, 179, 220 Dillon, Douglas 134, 141, 149, 170 Divine, Robert 32 Dobrynin, Anatoly 181, 185, 188, 207, 219, 226, 229, 251, 252 Dodge, Joseph 110, 117, 130 Donovan, Bill 54 Douglas Home, Alec 171 Douglas, Lew 23 Doxey, Margaret 262 Dubcek, Alexander 164 Dulles, Allen 119, 120, 128–30, 131, 133 Dulles, John Foster 20, 106, 111, 113–5, 122 Dunlop, John 211, 212, 213, 235 Durbrow, Elbridge 68, 74 Eagleburger, Lawrence 255 East Germany 78, 164; Berlin 79, 89, 138, 141, 148, 172, 184, 259; Ostpolitik détente 171, 172, 184, 205; Poland treaty (1971) 172 East-West Foreign Trade Board (EWFTB) 204, 209, 213 –5

Index

361

East-West Trade, The Government’s Role in 204 Eastern Europe 89, 255, 258; détente 205; independence of 106, 145, 158, 162; Marshall Plan (European Recovery Program) 86; Ostpolitik détente 171, 172, 184, 205; Soviet relations 68, 70, 73–4, 108, 114, 154, 181; trade with 25, 181, 183, 241 Eastern European Affairs, Division of 68 Eastern European Economic Working Party 81 Eberle, William 195 Economic Control Review Board (ECRB) 138 Economic Co-operation Act (1948): Cannon amendment 96; Mundt amendment 84, 85, 95–6, 100 Economic Co-operation Administration (EGA) 85, 93, 94–5, 96, 99, 100 –1 Economic Defense Advisory Committee (EDAC) 112–3, 116, 122, 131, 132 Economic Defense Board 42, 45; see also BEW (Board of Economic Warfare) Economic Policy Board (EPB) 203, 206, 210, 211–2, 213 economic statecraft 30, 157, 281, 283; development of 8, 10–6; effectiveness of 282; failure of (1930’s) 281; theory 5; see also foreign policy Economic Statecraft (Baldwin) 273 economic warfare 7, 8, 256; meaning of 5, 7, 80, 259, 263, 267–70; total economic warfare 39, 270 Eden, Anthony 55, 111, 117, 121, 131 Ehrlichman, John 182 Einzig, Paul 269 Eisenhower administration: China differential 269, 127, 131, 132, 133; liberalisation policy 104–7, 114–9, 126, 133; messages from sanctions 109; New Look Containment 107–10, 116, 126, 129 Eisenhower, Dwight D.: Khrushchev letter 135; Macmillan talks (1957) 23; rejects liberalisation 118, 120–1; spy plane 135; supports liberalisation 104, 105, 112, 115 Eizenstat, Stuart 235, 239 Erhard, Ludwig 159 ERP (European Recovery Program) see Marshall Plan (European Recovery Program) Espionage Act (1917) 40

Index

362

Ethiopia 224; see also Abyssinia Europe: China 91–, 134; COCOM lists 101–2; Common Agricultural Policy (CAP) 152, 170; Conference on Security and Cooperation in Europe (CSCE) 172, 205; détente 171–4, 205; dollar shortage 84; economic distress 79; European Defence Community (EDC) 111–3, 117; European Economic Community (EEC) 139, 152, 170, 237; European Free Trade Area (EFTA) 139; export controls 82, 96, 100; extraterritorial sanctions 254–6; Foreign Ministers conference (1950) 96; integration 23, 64, 89, 95; missile deployment in 247, 251, 255; multilateral embargo 85–91, 94, 108–9, 117; Organisation for European Economic Cooperation (OEEC) 22, 87; Ostpotitik détente 171–2, 205; rearmament 95–6; recovery zone 82; relative gain 95; technology transfers 240, 254; Year of Europe 205; see also Eastern Europe; Western Alliance Executive Reorganisation Bill (1938) 21 Eximbank 68, 74, 75, 157, 164, 190, 191, 201; Act (1968) 163; Soviet credits stopped 253; Stevenson amendment 207, 226, 227 Export Administration Act (EAA) (1969) 172–3, 182, 183, 196; extension (1983) 256; justification of embargo 236–7; reform 216, 226 Export Administration Amendments Act (1985) 256 Export Control Act (1949) 87 Export Control Act (1962) 147, 149, 150, 152 Export Control, Office of 42 Export Control Review Board (ECRB) 138, 148, 149, 152 –6 Far East 36, 39, 125, 130, 133 farmers 170, 238, 247 Fechteler, William F. 99 Fight for Freedom 32 Finletter, Thomas K. 29 First World War 12–5, 14, 33, 41

Index

363

Flanigan, Peter 180, 189, 191, 193, 194, 195, 209 flexible response 141–7, 157, 160, 161–2, 165 Ford administration: arms control 201–2, 210; détente declines 199, 201, 206; grain deal 210–3; Helsinki Accords 172, 202, 205, 244; liberalisation policy 204; SALT 204, 203; technology transfers 205, 206, 214–6; Trade Act (1974) 199, 201, 204, 206 –9 Ford, Gerald R. 198, 199; allied co-operation 205; Brezhnev summit (1974) 202; grain production 210; Jackson-Vanik amendment 210 Foreign Affairs Committee 82 Foreign Assistance Act (1948) 100 –2 Foreign Assistance Act (1963) 157 Foreign Economic Administration (FEA) 42, 49, 54, 66, 69 –71 Foreign Economic Policy Task Force 142, 160 Foreign Operations Agency (FOA) 112, 113 foreign policy: An Analysis of Export Control of Advanced Technology 205; co-ordination 204, 213; Commission on the Organisation of the Government for the Conduct of Foreign Policy 204; Congress, role of 20, 27; constraints 22; corporations, role of 7, 27, 172, 214, 215–6, 264, 265–6; Council on Foreign Economic Policy (CFEP) 109, 116, 117, 128, 130, 133; Council on Foreign Relations 31; Council on International Economic Policy (CIEP) 184, 186–7, 188, 194; domestic economy influence 209–13, 233; Economic Policy Board (EPB) 203, 206, 210, 211–2, 213; economic statecraft in 30, 273–9; economics in 30–2, 185, 201; evaluation 22, 245, 257; executive autonomy 6, 21, 24–5, 43; The Government’s Role in East-West Trade 204; post-war policy 48, 56–62; public opinion influence 237, 20–1, 25, 36, 39, 150, 156, 158, 169, 178; Realpolitik 18, 19, 20, 28, 281 Foreign Policy Association 31 Foreign Relations Committee 30 Førland, T.E. 23, 100, 105, 106, 270, 271 Formosa 127 Forrestal, James 23 Foster, William 88

Index

364

Fowler, Henry 148–9, 163 France 10, 49; Abyssinia 4; Anglo-French-American Summit (1953) 118; China differential 131, 134; dollar support 254; Far East policy 125; Foreign Ministers conference (1950) 96; invasion of 50; Lend-Lease 57; liberalisation policy 134; multilateral embargo 87, 100; nuclear capability 159; oil 4; Paris Conference (1949) 89; pipeline contract 253; Poland 47; Quadripartite treaty (1971) 172; Soviet trade 241; technology transfers 240; unilateralism 159; US-Anglo-French talks (London, 1950) 97; Vietnam 94, 106 Freeman, Orville 148, 163 Fulbright Committee 158 fungibility 6, 13, 110, 127, 165, 216, 233, 241, 254, 269, 274, 275 –9 Fungiello, Philip 23, 123 Gaddis, J.L. 126, 176, 251 Galbraith, John Kenneth 143 Galtung, Johan 263 Garthoff, R. 176, 178, 183, 186, 190, 234, 247, 251 GATT (General Agreement on Tariffs and Trade) 5, 170, 194 General Accounting Office (GAO) 204, 213 –4 Geneva Conference (1954) 106, 128 Ginsberg, Alexander 224 Goldfinger, Nathaniel 162 Gorbachev, Mikhail 252, 258, 284 Gordievski, Oleg 251 Gordon, Lincoln 117 grain 239; Canadian-Soviet deal 238; China deal 238; embargo 228, 230, 231–4, 248, 267; embargo justification 233, 236, 263; embargo lifted 252; Great Grain Robbery 192, 210; messages from 239;

Index

365

public opinion influence 237; and security 234, 236; Soviet deal 172, 182, 185–6, 188, 191–2, 212; for Soviet oil 209–13, 216; and technology 236 Great Britain 31, 39; allied policy, influence on 12–5, 22, 43–5, 56; Anglo-American differences 11–5, 17–8, 116–23, 131; Anglo-American Financial Agreement 63, 66; Anglo-American special relationship 23; Anglo-French-American Summit (1953) 118; Anglo-Soviet credit agreement 240; Atlantic Conference (1941) 39; blockade policy 12–4, 43–6, 269; Burma Road 269; China differential 131, 134; China, trade with 91, 93, 96, 98–9, 125, 128–9, 226; COCOM lists 101, 149, 240; containment 79; convertibility of sterling 64; copper exports 64; Declaration of London (1909) 13; détente 171; devaluation 89; Eden-Dulles talks 111; European integration 23, 64; exceptionalism 19; exports controlled 60, 62; extraterritorial sanctions 254–6; Far East policy 125; Foreign Ministers conference (1950) 96; gold & dollar reserves 61–4; gold standard 31; grain embargo 237; Hong Kong 92, 99, 126; Imperial Preference negotiations 59, 64; intelligence 251; Iran 99; Japanese oil embargo 32, 36–9; Korean war 94, 95, 96–8; Lend-Lease 56–65, 283; liberalisation policy 105, 106, 111, 116–9, 121, 134–5; London Conference (1949) 89; London summit (1977) 200; Marshall Plan 79, 81; Ministry of Economic Warfare (MEW) 36, 43, 44, 50, 269; multilateral embargo 87, 96–9, 100; Mutual Defense Assistance Program (MDAP) 92;

Index Napoleonic Europe 11; Navicerts 45, 49; Neutrality Law repeal 35–6; nuclear capability 159; Order in Council (1914) 13; Orders in Council (1793) 11; pipelines 26, 137, 151; Quadripartite treaty (1971) 172; Reciprocal Trade for USA 57; Security-Exports Controls Working Party 96; Soviet trade 81, 116–24, 137; Sweden 48–9, 51; technology transfers 240; US-Anglo-French talks (1950) 97; War Trade Agreements 43, 44, 48–9, 51; war with US (1812) 11, 17 Great Depression 21, 31, 58 Greece 79 Grew, Joseph 39, 67, 72 Griffiths, Stanton 54 Gromyko, Andrei 188, 207, 223, 256 Gulf War 81 Hague Conference, Second (1907) 13 Haig, Alexander 246, 247, 248, 250, 252, 254 Haldeman, Bob 191 Hamilton, Alexander 17 Hanson, Philip 5, 276, 278 Hardin, Clifford 183 Harriman, Averell 23, 67, 77, 101; Soviet credits 68–71, 72–3, 74; strategic embargo 81, 84–7, 89 Hawley-Smoot tariff (1930) 21, 58 Heller, Walter 140 Helsinki Accords 172, 202, 205, 244 Hersh, S. 186, 190 Hinsley, F.H. 27 Hitler, Adolf 4, 37, 40, 46, 67 Ho Chi Minh 94 Hodges, Luther 139, 148, 149, 151, 152 Hoff, Joan 175 Hoffman, Paul 85, 93, 97 Holland see Netherlands Holloway, James 203 Holsti, K.J. 264, 268 Honecker, Eric 229 Hong Kong 92, 99, 126

366

Index

367

Hoover, Herbert 31, 58, 130, 132 Hopkins, Harry 67, 68, 71 Hornbeck, Stanley 71 Howe, Geoffrey 251 Hufbauer and Schott 263 Hull, Cordell 33, 45, 64, 68; Japan 34–5, 36, 41; Lend-Lease 57, 59; Reciprocal Trade Agreements Act (1934) 30; Swedish neutrality 48, 50 –5 human rights 218–9, 224, 244; Jackson-Vanik amendment 21, 27, 194–6, 207–9, 217 Humphrey, George 107, 114, 115, 118, 121, 132 Hungary 132, 164, 252 Huntingdon, Samuel P. 218, 219, 220 –2 Hyland, W.G. 203, 243 Ickes, Harold 32 Icklé, Fred 201 idealism 16, 18, 20, 29, 30, 217 Imperial Defence Committee 43 Imperial Preference 59, 64 Imperial presidency 174 India 126, 188, 231, 233 Indochina 39, 111, 120, 127 Industrial Intelligence Centre 44 industrial revolution 3, 10 Ingersoll, Robert S. 215 Interdepartmental Committee on Neutrality 43 Interior Department 85, 99 International Monetary Fund (IMF) 57, 62, 63, 74, 78, 170 International Security Policy 110, 126, 244 International Trade Organisation (ITO) 63 International Transfer of Technology 223 internationalism 16–20, 31 –4 Iran 78, 99, 200, 220, 225, 231 Iraq 81, 269, 283 isolationism 16–20, 31––31, 33, 35, 40 Israel 177, 179, 193, 194, 199, 208 Italy 4, 8, 22, 34, 36, 45 Jackson, Henry (‘Scoop’) 188, 194–6, 201, 207, 226 Jackson, lan 23 Jackson-Vanik amendment 21, 27, 194–6, 207–9, 217 Japan 2, 8, 27, 133, 171; China 22, 34, 37; China differential 131; East-West trade 125, 206;

Index joins COCOM 102; Pearl Harbour 19–20; pipelines 26; Rape of Nanking 34; sanctions against 2, 32, 34–5, 36–9; US aid to enemies of 283; US control 77 Jaruzelski, Wojciech 248, 249, 253 Jefferson, Thomas 10–1, 17 Jentleson, B.W. 248, 250, 254, 263, 265, 266 John Paul II 249 Johnson Act 68, 74, 138, 145, 155 Johnson administration: agricultural commodities 158; arms control 159; flexible response 157, 160, 161–2, 165; liberalisation policy 158–62; Miller Committee 160–2; technology transfers 158; Vietnam 159, 163, 165 Johnson, Herschel V. 56 Johnson, Louis 93 Johnson, Lyndon B. 43, 157; Bay of Tonkin Resolution (1964) 163; bridge-building 158–60, 165; East-West trade legislation 162; Great Society 170; licensing lists reduced 164; MFN status 162; ‘wheat deal’ 158 Johnston, Eric 68 Joint Chiefs of Staff 53, 120, 141, 203, 206 Joint Intelligence Committee 80 Jones, Jesse 22, 42, 50 Jordan, Hamilton 218, 224, 237 Kalijarvi, Thorsten 127, 133 Karmal, Babrak 229, 233 Kem amendment 100 –2 Kennan, George 78–9, 82, 89, 157, 161 Kennedy administration: agricultural commodities 153, 171; Ball Report 143–8; Battle Act (1951) 143, 144, 145; Berlin 138, 148; Cuba 138, 143; Export Control Act (1962) 149, 150, 152; flexible response 141–7;

368

Index

369

liberalisation policy 137, 151, 153, 156; messages from sanctions 142, 154, 164; Soviet civil aviation 146–7; technology transfers 138, 146, 149; Third World 141, 143, 146, 147 Kennedy, Edward 234, 237 Kennedy, John F. 20, 43, 150; as Cold War leader 140; Cuba 143; Economic Control Review Board (ECRB) 138; Export Control Act extension 149; New Frontier 137 Kennedy, Joseph 36 Kennedy, Paul 243 Kennedy, Robert 155 Khrushchev, Nikita 26–7, 110, 135, 138, 141, 145, 151 Kilpatrick, Jeane 252 Kirk, Alan G. 89 Kissinger, Henry 20, 167, 199; Abyssinia 4; China 185; détente 172, 174–9; grain sales to Soviets 186, 188, 192, 210–3; grand strategy 169, 176, 180; influence declines 200, 202, 204, 206; linkage 178, 180, 184, 186, 187, 189–90, 196; SALT 1 201; Soviet trade 182–3; Trade Act (1974) 195–6, 207–9; US-Soviet Summit (1972) 177; Vietnam 176; Yom Kippur War (1973) 179 Klein, David 154 –5 Knox, Frank 32 Korea: North Korea 26, 77, 96, 97, 116, 168; South Korea 92, 126 Korean airliner KAL-007 247, 251, 256 Korean war 105, 130; armistice 115–6; China enters 98; outbreak of 94; policy after 111, 127; Sino-Soviet relations 98; Soviet export controls 99, 119 Kosygin, Alexei 170, 174, 188, 192 Krakow 249 Kreps, Secretary 221, 223, 224

Index

370

Kuklinski, Rysard 248 Laird, Melvin 187, 196 Lake, Anthony 180 Latin America 45, 51, 60, 142 Lay, James 92 League of Nations 4, 30, 32, 36 Leahy, William 49, 67 Lebanon 251 Lebow, R.N. 179, 184, 186 Lend-Lease 21, 37, 48; 3c terms 68–75; consequences 56–65; consideration for 59–60; Master Agreement 60, 62, 63, 74; Soviet debt 188 –91 Lend-Lease Act (1941) 57, 58 Less Developed Countries (LDCs) 141, 143, 145–6, 148–9, 160, 199, 220–1, 248 liberalism 5, 26–7, 32 linkage: China-SALT 1 223; China-Vietnam 181, 184; development of 168, 176; grain 186–7, 189–90, 236; policy 179, 180, 196, 214, 222; reverse linkage 178, 186 Litwak, Robert 175–6, 178, 198 Lodge, Henry Cabot 30 London Conference (1949) 88 –9 London Naval Conference (1907) 12 London summit (1977) 200 Long, Russell B. 215 Long Telegram 77, 79 longshoremen 210, 212, 234 – Lothian, Ambassador 234, 45 Lovett, Robert 271 Lundborg, Per 5, 231 Lynn, James T. 213 MacAvoy, Paul 212 Macmillan, Harold 23, 129, 134 –5 MAD (Mutual Assured Destruction) 219 –20 Makins, Roger 93 Malaya 92, 94, 126 Malloy, M.P. 41 Maritime Agreement (1972) 186, 192, 200, 209–13, 210 Marshall, George 78, 83 –4 Marshall Plan (European Recovery Program) 22, 79, 82, 83; Cannon amendment 96; Congress debate 80–1;

Index Kem amendment 100–2; multilateral arrangements 85–7, 93; Mundt amendment 84, 85, 95–6, 100 Martin, Lisa 240, 265 –7 Marxism 5, 25, 26, 68 Mastanduno, Michael : Bucy Report 215, 220; economic warfare 220; policy evaluation 5, 22, 245, 257; Polish sanctions 249; strategic embargoes 239–40, 269, 270 Matson, R.W. 44 Matsu 126 Maxwell, Russel L. 42 McClellan, John L. 131, 134 McConeJohn 140 McFarlane, Robert 252 McNamara, Robert 141, 148, 162 mercantalism 3, 10 messages from sanctions 7, 279; Abyssinia 4; Carter administration 232, 238, 242; Eisenhower administration 109; Kennedy administration 142, 155, 165; Nixon administration 167, 177, 196; Reagan administration 244; Roosevelt administration 29, 39 Middle East 217; instability of 229, 231, 233; Yom Kippur War (1973) 177, 179, 193 –5 Mikoyan, Anastas 68 Miller Committee 160 –2 Miller, J. Irwin 160 Mills, Wilbur 195 Milward, Alan 88 Molotov, Vyacheslav 70, 71 –2 Mondale, Walter 164, 234, 235 Monroe Doctrine (1823) 18 Moore, R. Walton 35 moralism 19, 28, 29, 56, 217, 261–2–263, 264, 279 Morgenthau, Henry 279, 53–4, 63, 68; Japan 39; Lend-Lease 57, 72; neutral trading rights 20, 32, 37, 44–5; Treasury authority 42 Morrison, Herbert 99 Morton, Rogers 213 Moscow summit (1972) 176–9, 180, 189 –90

371

Index

372

Mueller, Frederick 135 multinational corporations (MNCs) see corporations, influence of Mundt amendment see Economic Co-operation Act (1948) Murphy Report 204, 213, 214 Muskie, Edmund 239 Mussolini, Benito 4, 34 Mutual Aid Agreement see Lend-Lease, Master Agreement Mutual Defense Assistance Control Act see Battle Act (1951) Mutual Defense Assistance Program (MDAP) 92, 93, 112 Mutual Security Agency 101, 112 Nanking 34 National Defense Act (1940) 37, 40 National Economic Council 168 national emergencies 40, 97 National Intelligence Estimates 113 national security 41; Basic National Security Policy 140–1; collective security 29, 32, 35; Conference on Security and Co-operation in Europe (CSCE) 172, 205; grain and 233, 235; as justification 236–7; Mutual Security Agency 101, 112; Realpolitik 18, 19, 20, 28, 281 National Security Council (NSC) 20; Anglo-American differences 121; Anglo-American differences (NSC 152/2) 116–9; arms control 203; Asia policy (NSC 5429/5) 125; China differential 130, 131, 133; Cold War strategy (NSC 162/2) 107–9; containment policy (NSC 68) 92, 107; containment policy (NSC 69) 92–3; defense spending (NSC 141) 107; economic defense policy 149, 151; export licences for all (NSC 104/2) 99–100, 111, 112; extraterritorial sanctions 254–6; grain 210, 233, 234–5; jurisdiction 214; Kem amendment exceptions 101; liberalisation policy (NSC 152/2) 114–9; Planning Board 112–3, 114; recovery zone 82; relax controls 105 –6 National Security Decision Directives 247 National Security Policy, Basic 140 –1 National Security Resources Board (NSRB) 24, 85, 95 NATO (North Atlantic Treaty Organisation) 78, 89, 92, 219; Able Archer exercise 250–1;

Index

373

embargo extension 96; Foreign Ministers’ conference (1982) 255; France withdraws 159; Germany joins 128; Multilateral Nuclear Force 159; pipelines 26, 146 Navicerts 45, 49 Navy Department 18, 24, 42; cruise missiles 203; neutrality 32; oil to Germany and Japan 32; Swedish trade 50, 52, 53 Nazi-Soviet Pact 67 Nelson, Donald 42, 68 Netherlands 15, 40, 45 neutral trading rights 1; American Civil War (1861–65) 10–2; Anglo-American differences 11–5, 17–8; First World War 12–5; inter-war period 30–2; laws (1930’s) 21, 27, 32, 34; Napoleonic Wars 11; National Defense Act (1940) 40; Swedish 48–50; US against 8, 20, 23, 29, 281; War Trade Agreements 43, 48–9, 51 neutrality 18–20, 29–32, 40; Interdepartmental Committee on Neutrality 43; partial neutrality 32–6; Sweden 46 Neutrality Law (1935) 31, 33 Neutrality Law (1936) 31 Neutrality Law (1937) 31, 36 New Deal 57, 58, 65 New International Economic Order (NIEO) 199 Nitze, Paul 92, 201 Nixon administration: arms control 181, 184; China 170, 177, 185; Export Administration Act (EAA) (1969) 172–3, 182, 183, 196; grain sales to Soviets 182, 185, 186, 191–2; liberalisation policy 172, 180, 182; linkage 169, 178, 180, 181, 184, 187, 190; messages from sanctions 167, 177, 196; Middle East 179; SALT 1 180, 184, 185–6, 191, 194, 199;

Index

374

Soviet MFN 178, 183, 188–94; technology transfers 174; Trade Act (1974) 194–6; Vietnam 176, 181, 183, 184, 190 Nixon, Richard 20, 28, 120, 167; détente 172, 174–9; domestic economy 171; grand strategy 169, 176, 180, 197; Imperial Presidency 174; Jackson-Vanik amendment 194–6; Nixon Doctrine 175; Sino-Soviet relations 181; Soviet-satellite relations 181; “sufficiency” 170; US-Soviet Summit (1972) 176–7, 178, 180, 184; US-Soviet trade treaty (1972) 167, 178; wage freeze 171; Watergate 177, 195 Norway 41, 52, 56 NSC (National Security Council) see National Security Council (NSC) nuclear weapons 2, 6, 98, 108, 126, 148, 175, 220, 259; Campaign for Nuclear Disarmament 159; MAD (Mutual Assured Destruction) 219–20; missiles 185, 202, 247, 251, 255; Multilateral Nuclear Force 159; SDI 242, 251, 253; Soviet tests 148 Nye Committee 31, 33 Nye, Joseph S. 243 Office of Strategic Services (OSS) 53, 68; see also CIA (Central Intelligence Agency) oil: Anglo-Iranian Oil Company 99; crisis 6, 199, 220, 225; Dresser Industries 225; Italy 4; Japan 37–9; Latin America supplies Britain 45; pipelines 20, 73, 245, 247, 249; Sweden 53; US grain for soviet oil 210–3, 216 Olympic Games (1980) 225, 230, 231, 235, 236, 241 Omnibus Trade and Competitiveness Act (1988) 257 –8 Onek, Joe 237 OPEC (Organisation of Oil Exporting Countries) 5, 200 Operation Solarium 107 Organisation for Economic Co-operation and Development (OECD) 143, 205, 255 Organisation for European Economic Co

Index

375

operation (OEEC) 23, 87 Ostpolitik détente: Eastern Europe 172, 184; Europe 172; Germany 171, 205 Ottawa summit (1981) 253 Pakistan 188, 231, 233 Panama Canal 17, 217 Paris Conference (1949) 88 –9 Parksy, Gerald 204, 209 Patolichev, Minister 188, 192, 209 Patterson, Robert 37, 53, 55 Pearl Harbour 19–20, 46 People’s Republic of China (PRC) see China, People’s Republic of (PRC) Perkins, George W. 23 Perkins, Milo 20, 37, 42, 46, 50; oil exports to Sweden 52 –3 Perle, Richard 194, 245, 248, 250, 254 Perry, William 241 Persian Gulf 231 Peterson, Peter 181, 185, 186, 192, 194 Philippines 36 pipelines 26, 73, 245, 247, 249, 253, 254 –5 Pipes, Richard 245, 248 Poland 164, 242, 253; Czechoslovakia 164; East Germany treaty (1971) 171; martial law 245, 249, 253, 258; MFN status 148, 152, 158; sanctions 248, 249, 253; Soviet dominance 70, 77, 247, 248; Soviet invasion of 46 Policy Planning Staff (PPS) 23, 79, 81–2, 92, 141, 153 Porter, Robert 212 Potsdam Conference (1945) 67, 73, 78 Powell, Jody 235 PRC (People’s Republic of China) see China, People’s Republic of (PRC) pre-emptive buying 42, 43, 44, 49 Present Danger Committee 201, 216, 220 President, office of 6, 20, 24, 32, 96, 138, 227–8; Bay of Tonkin Resolution (1964) 163; Imperial presidency 174; PD 17 219, 222 Prochnow, Herbert 130 Proclaimed List of Certain Blacked Nationals 45 Puerto Rico summit (1976) 200 Pym, Francis 256 Quebec Conference, Second (1944) 63

Index

376

Quemoy 126 Rabelais, François 1, 3 Radford, Admiral 120, 130, 133, 134 Rambouillet summit (1975) 200 Randall, Clarence 107, 116, 117, 132–3, 134, 135 Rapid Deployment Force 219–20, 231 Reagan administration 20; arms control 243, 243, 251–2; cold economic warfare 243, 244r7, 247; Commission on Industrial Competitiveness (1985) 258; extraterritorial controls 254–6; messages from sanctions 244; pipeline crisis 20, 246, 249, 253, 254–5; Second Cold War 1 Reagan, Ronald 202, 252; ‘evil empire’ speech 251; Gorbachev summit (1985) 252; grain sales to Soviets 239, 247; negotiating table 244, 257; Poland 248; two-track strategy 246 realism 4, 18, 20, 29, 31 rearmament 244 Reciprocal Aid for US 57, 61 Reciprocal Trade Agreements Act (1934) 20, 30 Regan, Donald 254 Requirements, Advisory Committee on 97 Rhine-Danube waterway 78 Rhineland 46 Richardson, Elliott 202 Rise and Fall of the Great Powers (Kennedy) 242 Robertson, Walter S. 133, 134 Rockefeller, Nelson A. 199 Rodman, Kenneth A. 266 Rogers, William 174, 176, 181 Roman Catholic Church 244 Romania 46, 77, 182 Roosa, Robert 160 Roosevelt administration: arms embargoes 33, 34–5, 36; British influence on strategy 43–5; economic warfare post Pearl Harbour 45–6; internationalism 32–4, 35, 39–40; isolationism 19–20, 29; Japan 33, 34–5, 36–9, 281, 283; Lend-Lease 56–65; messages from sanctions 29, 39;

Index

377

neutrality 30–3, 35, 40–2; Sino-Japanese conflict 34–5, 36–9; Soviet Union reconstruction 66–8; Swedish neutrality 48–56; trade agreements legislation 20, 30, 41 –2 Roosevelt, Franklin D. 28, 29, 71; Abyssinia 22, 34; Atlantic Conference (1941) 39; Board of Economic Warfare 42; British reserves 61, 62; cash-and-carry 31, 37; Chamberlain 41; quarantine speech’ 35 Root, William 248 Rostow, Walt 140–1, 143, 154 –6 Rumsfeld, Donald 201, 202, 203 Rusk, Dean 144, 149, 150, 151, 152, 162 SALT (Strategic Arms Limitation Talks): SALT 1 180, 184, 185–6, 191, 194, 199; SALT 1 199, 201, 217–20, 222, 226, 228 San Francisco Conference (1945) 70, 71 sanctions : as alternative to force 3–4; analytical framework 267; costs of 1, 264, 266, 275–7; effectiveness of 2, 33–9, 264; extraterritorial 255–7, 264; legal framework 40–1; meaning of 5, 6–7, 259–63, 283; optimality of 2, 276; positive and negative 274; see also messages from sanctions Sawyer, Charles 20, 25, 83, 84, 88, 93, 97 Scharnansky, Anatoly 219, 224 Schlesinger, Arthur 174 Schlesinger, James 196, 201, 202, 224 Schmidt, Helmut 240 Scowcroft, Brent 202 Second Hague Conference (1907) 13 Security and Co-operation in Europe Conference (CSCE) (1975) 172, 205 Security Exports Controls Working Party 96 Seidman, William 204, 215 Shinwell, Emmanuel 96 Shulman, Marshall 224, 241 Shultz, George 194, 196, 245, 246, 248, 250, 252, 255, 256 Simon, William 203, 204, 209, 213 Singapore 92 Smith, Adam 26

Index

378

Smith, Bedell 75, 113, 120 Smith, Gerard 201 Smith,Wilbur 195 Snyder, John 95 Solidarity trade union 242, 253 Solzhenitsyn, Alexander 194, 202 Sørensen, Vibeke 23 Soviet Union: aid 258–9; China 98, 108–25, 164, 170, 181, 201, 226; civil aviation 145–7; credits 68, 74, 190, 191, 192, 201, 207, 209, 222, 226, 255; credits stopped 253; disarmament 252; dissidents 194, 201, 224; emigration policy 177, 178, 194–6, 207, 209, 224, 263; Fiat-Vaz 164; Germany treaty (1971) 171; glasnost and perestroika 259; Kama River Truck Plant 183, 186–7, 230; Khrushchev letter to Eisenhower 135; LDCs 144, 149, 161, 173; Lend-Lease 57, 60, 63, 65–9, 71–3, 72–3; Lend-Lease debt 188–9; Moscow summit (1972) 176–9, 180, 189–90; Most Favoured Nation (MFN) 135, 145, 178, 183, 188–94, 207, 222; nuclear weapons 148, 259; oil industry 26, 45, 183–, 193, 209–13, 216, 223, 225, 246; Partial Test Ban Treaty (1963) 152; patents and copyright 161; “peaceful co-existence” 139; Quadripartite treaty (1971) 172; rearmament 78; ‘relatively rich’ 256; satellite states 107, 108, 114, 181, 273; satellites’ chiefs of mission 89; Second World War 35; Soviet Protocol Committee 70; Sputnik 1 135; Swedish trade 52; trade policy, change in 115–6, 119, 126, 128; Trade treaty (1972) 167, 178; Urengoi gas pipeline 246, 249, 253; war potential 77–9, 82, 86, 92, 94, 104, 113–5, 119–21, 137, 141, 149, 160, 164; Yom KippurWar (1973) 179 Spaulding, R.M. 105 Stages of Economic Growth (Rostow) 141

Index

379

Stalin, Joseph 66, 69, 71, 78, 111 Stans, Maurice 180, 182, 183, 187 Star Wars see Strategic Defense Initiative (SDI) Stassen, Harold 112–3, 115, 118, 120, 121, 122 State Department 6, 20, 24, 37, 41, 42; China differential 129, 131, 132–3; civil aviation 145–7; containment policy 92–3; Defense Department differences 24; East-West trade 102, 138, 162–209; European trade with communists 164; executive autonomy 6, 21, 24–5, 43; grain embargo 232, 234–5; grain-oil deal 211–2; Imperial presidency 174; International Economic Affairs 43; LDCs 145; Lend-Lease 59; liberalisation policy 106, 126, 146–7, 149, 150–1, 156, 161, 180; oil industry 246; Poland 254; Policy Planning Staff (PPS) 23, 79, 81–2, 92, 141, 153; Soviet Union 69, 71, 72–3, 82–4, 87–9, 94–5, 99–100, 112; Swedish neutrality 48, 50–5; technology transfers 224, 239; UK’s reserves 62 Stein, J.G. 179, 184, 186 Stettinius, Edward 55, 61, 67, 69, 70, 72 Stimson, Henry 32, 37, 57 Strategic Arms Reduction Treaty (START) (1982) 247 Strategic Defense Initiative (SDI) 242, 251, 253 strategic embargoes 2, 5, 6, 7; costs of 1, 275–7; effects of 89–91; justification of 1–2, 107–10, 123, 126, 129, 142, 173, 228, 236; meaning of 5, 6, 7, 259, 269, 283; psychology of 109, 142, 154, 164, 168, 177, 196, 231, 232, 238; relative gain 77, 86, 93, 95, 97, 99, 100, 101, 106, 109, 119, 161, 164, 279 strategic materials 6, 23, 31, 38, 43, 65, 80; civilian goods 14; defining 101, 162, 164, 273–9; diminishing marginal utility 275–7, 279; fallacy 6, 13, 277, 279; pre-emptive buying 42, 43, 44, 49; Reconstruction Finance Agency 42 Strauss, Lewis 135 Suez crisis 132 Sweden 46, 271;

Index

380

ball-bearing exports 53–5; Germany, trade with 49–56; neutrality 48, 50–2, 55; oil from US 52–3; War Trade Agreement (1939) 48–9, 51 Taiwan 126 Taylor, General Maxwell 141 Teheran embassy 229, 233, 238 Teng Hsiao-ping 226 Thailand 126 Thatcher, Margaret 238, 240, 252; credit controls 254; pipeline crisis 246, 253, 254; Polish debt 253; technology transfers 253 Third World 141, 143, 145–6, 148–9, 161, 199, 221, 248 Thorneycroft, Peter 117, 118, 121, 122 Thorp, Willard 100 Threat to Western Civilisation, The (Bevin) 87 Trade Act (1974) 194–6, 199, 201, 204, 206 –9 Trade Expansion Act (TEA) (1962) 139–40, 147 Trade treaty (1972) 167, 178, 193 Trading with the Enemy Act (1917) 40, 97, 138 Treasury Department 20, 24, 32, 42; China differential 131, 132, 133; communist trade 94–5, 99, 114, 138, 148, 194; domestic economy 171; East-West trade 171, 220; East-West trade legislation 162; Economic Policy Board (EPB) 203; grain sales to Soviets 212; Lend-Lease debt 189–91; liberalisation policy 106, 148–9; Soviet loans 68, 69, 72; Swedish trade 52 –4 Trezise, Philip 160 Truman administration: containment policy 75, 77–80, 88, 92–3, 107; Lend-Lease 68–75; multilateral embargo and China 91–; multilateral embargo and Korean war 94–103; multilateral embargo organization 85–91; national embargo 81–5; Poland 70 –1 Truman, Harry S. 67; Attlee talks (1950) 97–8; Churchill talks (1952) 23, 98; Eastern Europe 74;

Index

381

Greece and Turkey 78; Molotov talks 70; national emergency 97; ‘non-coercive’ policy 96, 99; Soviet threat 77–9; Soviet trade talks 75; Stalin talks 73; Truman Doctrine 78–9, 81; see also Marshall Plan (European Recovery Program) Turkey 36, 78 Turner, Stansfield 219 Twining, General 135 unilateralism 20 United Nations 52, 71, 77, 129 United Nations Relief and Rehabilitation Agency (UNRRA) 74 United States: Advisory Committee on Requirements 97; agricultural sales 153, 171, 182; ambassadors’ conference (1948) 23; Anglo-American differences 11–5, 17–8, 116–23; Anglo-American Financial Agreement 63, 66; Anglo-American special relationship 23; Anglo-French-American Summit (1953) 118; balance of payments 173, 225, 257; Basic National Security Policy 140–1; Committee to Defend America by Aiding the Allies 31; Continental Grain Company 182; destroyers for bases 37; dollar floats 171; economic decline 170, 199; Foreign Ministers conference (1950) 96; hegemony of 3, 22, 113, 217, 264, 265; international aviation policy 63, 75; marginal theory 61; merchant marine 186, 192, 201, 210–3; Mutual Defense Assistance Program (MDAP) 92; national embargo lists 24, 80–5, 95–7, 99, 100, 111, 112, 117, 119, 122, 145, 167, 183; non-market economies (NMEs) 200, 214; nuclear war 97; Quadripartite treaty (1971) 172; rearmament programme 228; self-sufficiency 24; trade unions 182, 186, 200, 211, 233–5; US-Anglo-French talks (London, 1950) 97; US-Soviet Summit (1972) 176–7, 178, 180, 186, 189–90; US-Soviet trade treaty (1972) 178, 192; war with Great Britain (1812) 11, 17; war with Mexico (1846–48) 11

Index

382

US Policy on Trade with the European Soviet Bloc (Rostow) 153 –4 Vance, Cyrus 181, 217, 220, 224, 225, 234, 239; détente 218 Vanik, Charles 194, 226 Versailles summit (1982) 254 Vietnam : Chinese invasion 226; France 94, 105; North Vietnam 26; South Vietnam 126, 199 Vietnam war 159, 190; Bay of Tonkin Resolution (1964) 163; China 181; exit from 176, 180; Tet Offensive (1968) 164 Vinson, Fred 63 Walensa, Lech 242, 251, 253 Wallace, Henry 20, 22, 37, 42, 62, 70, 75; Sweden 49, 50, 53 war: Congress’s role 30; economic warfare 8, 268; nuclear war 97, 107, 126, 175, 220; ‘phoney war’ 37; total war 6, 10, 15, 29, 39, 43, 52, 80, 270, 277 War Department 24, 32, 41, 42; Lend-Lease 60; Swedish trade 50, 52 –5 War Production Board (WPB) 52, 53, 68 War Trade Agreements 43, 44, 48–9, 51 Washington, George 17 Waugh, Samuel 127 Weeks, Sinclair 20, 25, 113, 121, 122, 131, 133 Weinberger, Casper 244, 247, 248, 253 Welles, Sumner 37, 60 West Germany 21, 27, 45, 78; ball-bearing imports 54–5; containment 89; détente 173–4; division of 79, 137; Eastern bloc 165; economic recovery 170; First World War trade 14; food embargo 15; nuclear capability 159; Ostpolitik détente 171–2, 184, 205; rearmament 112, 128; reparation 30;

Index

383

reunification 159, 258; Soviet Union treaty (1971) 171; Swedish exports 50–6; technology transfers 240 Western Alliance 255; Afghanistan, response to 231, 236, 239; aid conditions 20, 21, 102; allied policy, influence on 12–5, 22, 43–5, 56; Arrangements on Guidelines for Officially Supported Export Credits 226–7; Asia 111–3; China 128, 134, 226; Committee to Defend America by Aiding the Allies 31; credits 201, 255; grain embargo 267; hegemony of US 2, 22, 113, 217, 264, 265; influence of 21–3; liberalisation policy 104–7, 106, 108–9, 115–6, 134; multilateral embargo 86–91, 117; Ottawa summit (1981) 253; pipelines 245–6, 266; sanctions against 254–5; unity of 23–4, 111–3, 118, 133, 150, 164, 173, 205, 241; Versailles summit (1982) 254; Williamsburg summit (1983) 254 Westmorland, General 163 White, Harry Dexter 20, 32, 37, 45, 68; Lend-Lease 57, 61, 72 White, William Allen 32 Wiles, Peter J.D. 278 Williamsburg summit (1983) 254 Wilson, Charles 105, 113, 119, 122, 132, 133 Wilson, Harold 159, 165 Wilson, Woodrow 30 Winant, John 55 Wohlstetter, Albert 201 Wu, Yuan-Li 5, 12, 273, 276 Yalta Conference (1945) 70 Yergin, Daniel 70, 216 Yom Kippur War (1973) 177, 179, 193, 194, 199, 208 York, John 71 Young Plan (1929) 31 Yugoslavia 148, 152, 158