Despite her
suffering
from Russian
?
?
Soviet Union - 1931 - Fighting the Red Trade Menace
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hathitrust.
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? FIGHTING THE RED TRADE MENACE 267
orders the Soviet Union would normally have placed
in Germany in a year. "
This transaction has been the object of consider-
able misunderstanding both abroad and here. It was
popularly believed to mean that Germany at the end
of the year would show exports to the Soviet Union
of at least $75,000,000 more than last year when
Germany sent into Russia $107,000,000 worth of
goods. This was hailed in Germany as a stroke of
great good fortune and abroad was variously but
chiefly estimated as an example of the Soviet Union's
commercial friendliness to this country. In America
it was taken for granted that it meant the Soviet
Union had switched most of those new orders from the
United States to Germany.
It now appears, however, that the transaction must
be judged as better proof of Germany's commercial
friendliness to the Soviet Union than vice-versa. For,
as now transpires, it meant not that the Soviet Union
would purchase in Germany goods to the value of
$75,000,000 more than she purchased last year, but
it meant that the German Government had extended
its guarantees to cover $75,000,000 of Soviet pur-
chases more than the Reich already had insured, and
that was quite another thing.
Germany was the initiator of the now widespread
system of Government guarantees on Russian credits.
Eight other countries have now adopted that system
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? 268 FIGHTING THE RED TRADE MENACE
and France, Poland and Czecho-Slovakia are said to
be about to follow suit. This country guarantees 70
per cent of the face value of Soviet notes, 40 per cent
of the guarantee being taken over by the Reich, 30
per cent by the German states.
By April 1, 1931, these guarantees on Soviet busi-
ness totaled coverage of $125,000,000. That was the
sum the Soviet Union owed German manufacturers.
And that was the sum the German Government was
inclined to believe should be the limit beyond which it
should not go. It was willing to keep up to that limit
and use its funds to guarantee new Soviet purchases
as fast as old ones were paid for, but it did not wish
to pledge any more guarantees than on a total of
$125,000,000.
Early this spring, however, Moscow invited a dele-
gation of German industrialists to visit the Soviet
Union. There the prospect was held out that if they
offered sufficiently good credit terms they would re-
ceive $75,000,000 worth of new orders. The indus-
trialists returned to Germany enthusiastic, pressed
the Government to extend its credit guarantees to
include new orders and finally succeeded. Some ap-
prehension was felt, however, as to public opinion on
the advisability of the Government extending its
credit guarantees to cover what would then amount to
$200,000,000 worth of Soviet notes.
It may not have been calculated, but nevertheless
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? FIGHTING THE RED TRADE MENACE 269
the impression certainly was allowed to prevail at
that time that the $75,000,000 of "new" orders were
to be "over and above the normal amount of Soviet
purchases in Germany," "normal" being taken to
mean the amount purchased last year. Under the in-
fluence partly of this belief the German public was
agreeable to the Government's action and only one
man raised his voice in the Reichstag to warn that
Germany "should not sell her political birthright for
a tip. "
Supported by public opinion, the Government ad-
vanced the necessary funds, so that when all the
Soviet orders are placed by August 31, 1931, as re-
quired by the agreement entered into between the
Germans and the Russians, the Soviet Union will owe
German firms a total of $200,000,000 secured to 70
per cent by German Government guarantee.
It now appears, however, that the transaction's
chief effect was to extend the length of credit time
granted by Germany to the Soviet Union by from
two to five months and that while this extension of
credit will, it is true, increase German exports to the
Soviet Union probably by $15,000,000 to $20,000,-
000 in 1931, it will not mean the increase of $75,000,-
000 which had been anticipated by an ill-informed
public.
In the case of orders on which up to now twelve
months' credit had been granted the Soviet Union an
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? 270 FIGHTING THE RED TRADE MENACE
average time credit of fourteen months was estab-
lished : in the case of orders on which eighteen months'
credit previously was granted an average of twenty-
one now is granted, and in the case of orders on which
twenty-four months hitherto was granted an average
of twenty-eight now is granted. Twenty per cent of
each order must be pledged by the Soviet Union by
bill of exchange with the order, payable, however,
thirteen months after delivery running up to a maxi-
mum of thirty-three months. In other words the So-
viet Union pays no cash down and makes the first
payment thirteen months after delivery.
Obviously this would provide German industrial-
ists few funds with which to run their plants on Soviet
orders if they were unable to discount Soviet bills
and for all except the very largest and most responsi-
ble German firms it was necessary to have the Govern-
ment's guarantee in order to borrow on Soviet
business. It was equally obvious that these were excep-
tionally good credit terms for the Soviet Union and
that credit guarantees to cover $200,000,000 worth of
trade with the Soviet Union represented a large sum
for the Government to invest in any single foreign
trade enterprise.
It was therefore plain that there was a certain ad-
vantage to a government desirous both of serving
its own political interests with the Soviet Union and
of serving what it believed to be economic interests of
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? FIGHTING THE RED TRADE MENACE 271
the country and of aiding legitimate industrial enter-
prise if public opinion at the moment was under the
impression that the total German sales to the Soviet
Union were immediately to rise by $75,000,000. Ac-
tual German exports this year, however, are expected
on an authoritative estimate to equal no more than
$115,000,000 to $120,000,000 or considerably less
than the $140,000,000 that the United States ex-
ported to the Soviet Union last year.
It must, however, be mentioned that had the Ger-
man Government been willing to extend its credit
guarantees to cover another $50,000,000, or, rather,
if German banks had been willing to discount that
much more of Soviet bills, the Germans would have
received another $50,000,000 more of Soviet orders.
But the German banks declared they could spare
funds for no more than the $75,000,000 and when the
Germans applied to the Basle Bank for International
Settlements to rediscount some of their Russian paper
they were not satisfied with the reception they re-
ceived.
This German attempt to rediscount Russian notes
at the Bank for International Settlements deserves
more than passing notice. In it is contained an epi-
tome of Franco-German-Soviet relations and a por-
tent, perhaps, for the future of Soviet relations with
Europe.
In the normal course of affairs the German indus-
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? 272 FIGHTING THE RED TRADE MENACE
trialist who sells 100,000 marks' worth of goods to
the Soviet Union receives from the Soviet trade rep-
resentative two promissory notes, one for 70,000
marks and one for 30,000. With the Reich's guaran-
tee on the 70,000-mark note, the industrialist takes
it to the so-called Gold Diskont Bank, which will ad-
vance him the total amount of the face value of the
note, less the Reichsbank discount rate and 2 per
cent and about 1 per cent commission, making a total
of about 7 per cent. The 30,000-mark note that does
not bear the Government guarantee must either be
bucked away in the industrialist's strong box to be
carried until maturity or else must be submitted
for discount with the industrialist's own indorse-
ment.
If the concern in question possesses good credit and
the bank is possessed of sufficient funds the bank may
discount even this unguaranteed 30,000-mark bill
for only slightly more than the Government guaran-
teed bill. If, however, the industrialist either is not
strong enough for the credit or wishes to obtain dis-
count without recourse on himself he must peddle his
bill on the "Black Exchange" at the usual discount
of 20 to 30 per cent. Here, in other words, one meets
again the odd situation that banks will not advance
money at normal discount rates on the Soviet Union's
unsupported promise to pay, although eight govern-
ments in Europe are willing to guarantee the Soviet
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? FIGHTING THE HED TRADE MENACE 273
Union's promise to pay up to 70 per cent of its ob-
ligations.
At any rate, in the course of its business of dis-
counting Soviet notes on these terms the Gold Diskont
Bank exhausted the funds it had available for that
particular branch of its activities. It applied to the
Bank for International Settlements, the bank that
had been founded to promote international commerce,
and asked the Basle directors to rediscount some of
the Soviet notes. It is important to emphasize that
these notes were guaranteed by the German Govern-
ment. At the time this occurred it was announced at
Basle that the notes in question were not notes that
had been guaranteed by the German Government,
but the writer was authoritatively informed that
every one of them was indorsed by the Reich.
The Bank of International Settlements refused to
rediscount the notes. Its French members explained
to Reich Bank President Luther that the Basle Bank
that had for one of its duties the task of encouraging
all countries to stabilize their currencies could not
afford to rediscount bills of a country such as the
Soviet Union, whose currency was not "regulated. "
What Soviet currency has to do with payment of
Soviet bills that are always paid in foreign currency
obtained by the sale of Soviet exports and never paid
in Soviet rubles remained unexplained.
The Germans, however, were convinced that the
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? 274 FIGHTING THE RED TRADE MENACE
real reason the Bank for International Settlements
did not want to rediscount the Soviet bills was be-
cause they were Soviet bills issued to Germans and
the Basle Bank, under French influence, did not want
to promote German-Soviet trade. The Germans are
equally convinced that if France really reaches an
understanding with the Soviet Union, negotiates a
trade treaty and establishes perhaps its own Gov-
ernment guarantees for Soviet credits, the Bank for
International Settlements will change its mind and
accept Soviet notes for rediscount.
What this would mean for Soviet credit and for
Soviet trade may be estimated from the fact that if
the Basle Bank had been willing now to rediscount
Soviet bills Germany would have been able to take
that extra $50,000,000 worth of orders offered her by
Moscow. Even as it is, the Basle Bank, it is reliably
reported, was forced to yield to German pressure to
the extent of granting the Gold Diskont Bank a
short-term loan said to have totaled around $25,000,-
000. The Gold Diskont Bank then used this loan to
rediscount Soviet bills itself, so that the Basle Bank's
principles were saved and no precedent established
for its rediscounting Soviet bills while in effect Ger-
many obtained in part and by indirection what she
wanted.
More interesting than all these evidences of Ger-
many's resolute intention to pursue to the end the
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? FIGHTING THE RED TRADE MENACE 275
path of cooperation with the Soviet Union upon
which she entered in the Treaty of Rapallo in 1922 is
the appearance in this country of a small but growing
group that, while admitting that progress of the
Five-Year Plan means fire in Europe, contends that
fire can only be fought with fire. Leading the proph-
ets who foresee the possible adoption by Germany of
a state economic form similar to that of the Soviet
Union, these men declare the only salvation of the
present non-proletarian classes is to see to it that the
change comes about from the top and not from the
bottom.
The initial impulse to this movement, which it must
be admitted has not yet penetrated to governmental
circles, was observation of the great tactical advan-
tages possessed by the Soviet Union in its Foreign
Trade Monopoly. Adoption by private capitalist
states of foreign trade monopolies will become a more
pressing necessity, it is argued, as the Soviet Union
expands economically, but this adoption, they say,
will necessarily bring about within the domestic econ-
omy of the countries in question a gradual concentra-
tion of industry into the hands of the state, with a
corresponding concentration of banking and com-
merce.
The net result will be, they believe, a transition
from private to state capitalism with the same sort of
planned national economy now being attempted by
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? 276 FIGHTING THE RED TRADE MENACE
the Soviet Union. If the Soviet Union fails with its
planned national economy, if the Five-Year Plan
fails, then it is argued, there will be no necessity for
other states to adopt state capitalism. If the Soviet
Union succeeds, however, it will have provided such a
powerful argument for the superiority of the state
capitalist system as an instrument of production and
of trade if not as an instrument for the achievement
of human happiness that other states will be forced to
follow suit or be crushed by the juggernaut from the
East. And, they say, it will be much better for this
generation if this transition, granted it has to come,
should come from above than from below. For the
Soviet Union has provided a sufficient example of
what happens to a governing class when the transi-
tion comes from below to make the governing class
chary of achieving state capitalism under the Marx-
ist banner of "class struggle. " This movement's prin-
cipal significance lies in the fact that its proponents
form the intellectual fringe of the National Socialist
Party, exercise a constantly growing influence upon
that party and conceivably may make their ideas de-
cisive for that party's program should it advance to
the position of power it hopes for itself.
Thinking Germans are profoundly and sincerely
pessimistic over the future of their country and over
the future of Europe. I asked one of them for whose
knowledge and insight into this continent's affairs I
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? FIGHTING THE RED TRADE MENACE 277
have great respect to tell me what he would advise
America to do in view of the findings made on this trip
of investigation into the prospects of Soviet success
in Europe.
"I would advise America to cancel the interallied
debts on condition Europe disarms," he said. "Make
cancellation conditional upon disarmament and you
will save Germany from Bolshevism. "
"But you are speaking as a German," I objected,
"What would you say if you were an American? "
"Tell America to get out of Europe and stay out,"
he laughed.
French fear of Germany prevent France and Ger-
many from reaching an understanding. Germany
seeks by cooperation with the Soviet Union to en-
hance French fear until France will accede to an
understanding with Germany. Germany now believes
France is about to seize the same weapon this coun-
try has hoped would be an effective threat to France
and by Franco-Soviet cooperation to checkmate
Germany. Either way, any way, the Soviet Union wins
and the formula "pan-Europe or Soviet Europe"
has become Germany's definition of this continent's
alternatives.
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? CHAPTER XXIV
Berlin:
Between the upper and nether millstones of Amer-
ica and Russia all the important nations of Europe,
as nearly as one can determine from a visit to eleven
of them and after a long-distance survey of ten more,
have embraced "The Red Trade Menace. "
If the Five-Year Plan is succeeding at home it is
succeeding in equal degree abroad, irrespective of
what Soviet exports may mean to the undernourished,
ill-clad Russian population. America is scarcely more
popular as a commercial force in Europe than is the
Soviet Union, and if Europe were to achieve the in-
credible and unite it would unite as well against the
United States as against the U. S. S. R.
This is the balance sheet, unpleasant though it may
be to America, that one is forced to present at the
end of a two-month investigation in the principal
capitals and ports of this continent. Itemized, the
sheet shows the following:
Italy takes 5 per cent of the Soviet exports, asks
for more, encourages sales to the Soviet Union by
Government credit guarantees, is politically deter-
mined to maintain cordial relations with Moscow,
278
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? FIGHTING THE RED TRADE MENACE 279
resents deeply the American tariff and American im-
migration laws.
Germany takes 22 per cent of the Soviet exports,
welcomes them, encourages sales to the Soviet Union
by Government credit guarantees, is politically de-
termined to maintain the best possible relations with
Moscow, resents the American tariff and American
financial "penetration" of Germany and the Amer-
ican refusal to cancel the inter-Allied debts and thus
alleviate reparations.
If all the other nations in Europe were to unite
against the Soviet Union, these two would hold out
and prevent any effectual blockade.
England takes nearly 30 per cent of the Soviet ex-
ports, wages an audible but futile campaign against
Soviet trade on other than economic grounds but
complains that Soviet orders are not larger and en-
courages them with Government credit guarantees;
resents American competition all over the world and
resents intensely America's refusal to cancel or reduce
the inter-Allied debts.
France takes 4. 5 per cent of the Soviet exports,
has tried by reducing them with a license system to
achieve an increase of Soviet orders, has failed in this
attempt and is now seeking to better her trade rela-
tions with the Soviet Union and may introduce a sys-
tem of Government credit guarantees to stimulate
Soviet purchases. France hotly resents our tariff,
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? 280 FIGHTING THE RED TRADE MENACE
publicly resents our refusal to cancel inter-Allied
money debts, privately resents her debt of gratitude
for America's part in the war.
Belgium takes 2. 5 per cent of the Soviet exports,
has had the identical experience of France with Soviet
trade, probably will follow the French example in her
further relationships with the Soviet Union and
shares French feelings toward America.
Holland takes 3. 4 per cent of the Soviet exports, is
eager to take more and is glad when bad Belgian-
Soviet relations improve Dutch-Soviet trade.
Denmark takes nearly 2 per cent of the Soviet ex-
ports, has factually the same interests as the Soviet
Union in her apprehension of the British Empire
preference system and encourages Soviet purchases
by government credit guarantee. Her big land owners
lead a campaign to boycott American wares.
Norway takes less than 1 per cent of the Soviet ex-
ports, sells the Soviet Union three times as much as
she buys, encourages these sales with government
credit guarantees, protects itself against all grain
producing countries by a government grain monop-
oly, resents any foreign financial penetration and
just threw out a government that permitted it.
Sweden feels Soviet competition in timber but be-
lieves an agreement may correct it; meanwhile takes
one-half of 1 per cent of the Soviet exports but sells
five times more.
Despite her suffering from Russian
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? FIGHTING THE RED TRADE MENACE 281
"dumping," she harbors no movement to embargo
Russian products.
Finland fears the Soviet Union militarily and suf-
fers worse than any other country from Soviet com-
petition in foreign timber markets, but takes one-half
of 1 per cent of the Soviet exports, sells the Soviet
Union more than twice as much and encourages these
sales with government credit guarantees.
Latvia takes 7 per cent of the Soviet exports for
consumption and for transit and profits greatly
thereby, suffers greatly through Soviet competition
in the flax market abroad and various enterprises at
home but enjoys a contingent agreement to guaran-
tee a certain amount of Latvian sales to the Soviet
Union yearly and encourages these sales by govern-
ment credit guarantees.
Esthonia, Lithuania, Poland, Austria, Czecho-
slovakia and Greece, with a varying but almost uni-
formly increasing interest for Soviet trade, are, in
varying degree, promoting it. To a varying but al-
ways perceptible extent they resent American com-
mercial penetration of Europe and the American
tariff policy at home.
There remain the five nations that have put down
embargoes--Hungary, Rumania, Jugoslavia, Bul-
garia and Albania. Their total share of Soviet ex-
ports, as has been pointed out, was one-fifth of 1 per
cent. Not one great European nation or important
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? 282 FIGHTING THE RED TRADE MENACE
taker of Soviet goods has put down an embargo, nor
has this investigation revealed the slightest likeli-
hood that they will do so, though to this statement
must be added the qualification that the Tory tem-
perament in Britain has sometimes upset all likeli-
hoods.
They have not put down embargoes because the
majority interests and majority population of Eu-
rope have not suffered but benefited by cheap Soviet
grain, oil and timber. They have not done so because
Soviet exports hit almost no country in its home
markets but only in its foreign markets, over which
it has no control and upon which its own embargo
could have no effect. Those small European agricul-
tural countries which have put down embargoes have
done so in the hope of setting an example and from
political, moral or sentimental reasons but never
under the illusion that an embargo at home would
prevent directly Soviet competition abroad.
Finally, the European nations of any significance
in the question of Soviet trade have not put down em-
bargoes because the products they take from the
Soviet Union compete not at all, or to a very limited
degree, with their own, but with products of the
United States, Canada, Argentina, Venezuela, the
Scandinavian and Baltic countries and with the five
Balkan countries which tried to "lead the way"
against Soviet grain, oil and timber.
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? FIGHTING THE RED TRADE MENACE 283
Of all these countries the United States comes into
closer commercial competition with Soviet exports in
foreign markets than almost any other country. The
size and power of America makes her feel Soviet com-
petition much less than, say, Sweden or Finland, but
neither Sweden nor Finland nor any other country
competes with the Soviet Union on as many fronts
and in as many articles as does America.
For America, like Russia, produces grain, timber,
oil, cotton, coal, manganese and fish. There is no ques-
tion but that American wheat growers have suffered
considerably from Russian competition in foreign
markets notwithstanding the obvious fact that there
would have been too much wheat or too few takers of
wheat whether Russian wheat had been on the market
or not. It appears, moreover, that Russian wheat
competition will not diminish but increase.
It is equally beyond doubt that American oil com-
panies have suffered, are suffering and probably will
continue even more to suffer from the competition of
the rising river of Soviet oil pouring from the Cau-
casian wells. Though the only really significant part
of this competition is in foreign markets, the latest
development in the Soviet oil campaign to force agree-
ments with Standard and Shell is of exceptional in-
terest. It may or may not be common knowledge at
home that the Soviet Union shipped 52,000 tons of
gasoline and allied products to Baltimore in the pe-
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? 284 FIGHTING THE RED TRADE MENACE
riod from October, 1930 to May 15, 1931, according
to Soviet official statistics, and that the Soviet Union
intends to erect there a storage station for 35,000
tons of Soviet oil products.
This audacious move, invasion of the American
domestic oil market from a source 6,000 miles away,
may be taken as an evidence of the determined strat-
egy of the Soviet Foreign Trade Monopoly in its
ambition to obtain the markets it needs for a pro-
duction of oil that one day may rival that of the
United States. But this strategy may be easily mis-
interpreted. In the judgment of European oil men
with whom the writer discussed this curious item of
Soviet commercial news, the Soviet Union does not in-
tend seriously to attempt to compete in the American
domestic market. It does, however, in the opinion of
these expert observers, intend, by shipping oil to
Baltimore, to say to American oil companies, "I know
this is your natural market. But Europe is our nat-
ural market. You fight me in Europe, I fight you
there and in America. You pact with me in Europe, I
may get out of America. "
American coal producers have suffered perhaps a
little, and fear they may suffer more. American tim-
ber producers view with little anxiety the immediate
competition of Soviet timber, but look with appre-
hension on the immense strides contemplated by the
Five-Year Plan for Soviet timber exports. American
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? FIGHTING THE RED TRADE MENACE 285
cotton growers have scarcely felt Soviet competition
and have in the past profited largely by Soviet pur-
chases of cotton, but they, too, are uneasy at the im-
mense additions of acreage to the Turkestan bearing
areas. American manganese producers are among the
few who actually keenly feel Soviet competition in
the American domestic market. American salmon
canneries have lost half their British market to Soviet
canneries. A few more items might be added, but not
many nor of much significance.
It is plain that Soviet competition with America is
not to be measured by the fact that Soviet imports
into the United States itself make up but eight-tenths
of 1 per cent of the total United States imports. These
American present or prospective sufferers from So-
viet competition are numerous and diverse and in-
clude large groups, such as grain farmers, cotton
growers and timber producers who, being dependent
upon the sale of raw materials for their livelihood,
have suffered more than most in the economic depres-
sion wherein raw materials have sunk lower on the
price scale than any other articles of commerce.
On the other hand if one lists those who gain from
Soviet imports into America, obviously consumers
gain immediately, else they would not purchase
Soviet goods. They include the great steel corpora-
tions which require high grade Chiaturi manganese,
wearers of Russian furs, eaters of Russian caviar,
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? 286 FIGHTING THE RED TRADE MENACE
consumers of the small quantities of Russian anthra-
cite, pulpwood, fish, sausage casings, lumber, licorice,
rags, bristles and flax that together made up $24,-
000,000 worth of Soviet products we purchased last
year. To these consumer gainers from Soviet trade
must be added our exporters, whose machines, auto-
mobile trucks, agricultural implements, electrical
equipment and metals made up our sales of $114,500,-
000 to the Soviet Union last year.
It is impossible to estimate numerically how many
Americans lose, how many gain and to what extent
from the forced Soviet exports under its Five-Year
Plan and from the forced Soviet imports under the
Five-Year Plan. It is even more difficult to estimate
to what degree Soviet trade may touch America in
the future, though it appears from this survey of the
European markets, following last year's survey of
the Soviet sources of production, that America will,
at any rate, feel the Soviet economic expansion for
good or for ill as much as any other country, if not
more.
Our trade balance with the Soviet Union has been
strongly active, and this is supposed to represent a
gain in a nation's economy. It has become abruptly
less active recently under the influence of American
moves toward barring Soviet products and reported
restrictions on credits to Amtorg.
Let these factors, however, be ignored for the mo-
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? FIGHTING THE RED TRADE MENACE 287
ment and let it be granted that from a coldly commer-
cial point of view America's ledger in account with
the Soviet Union shows a debit. Let it be admitted
that many more Americans lose than gain by Soviet
trade.
If it is then desired that the results of this investi-
gation of Europe's attitude toward the Soviet Union
be submitted for reference in our attempt to answer
the question, "What shall we do about it ? " the follow-
ing data, gathered in twenty-one industrial, commer-
cial and political centers of Europe, may be pertinent.
In most of the countries of Europe where thought
has been devoted to the question of how the non-
Soviet world is to meet, greet or combat Soviet eco-
nomic expansion, five alternatives have been listed as
comprising about all the measures conceivable. They
are (1) war, (2) embargo, (3) import license sys-
tem, (4) a foreign trade monopoly and (5) unre-
stricted trade.
This list leaves out of account the ordinary instru-
ments of customs tariffs and of such regulations as
those adopted by many European countries requiring
domestic millers to use a certain percentage of do-
mestic grain, requiring domestic movie theatres to
show a certain percentage of domestic films, etc. For
these instruments are usually applicable to all foreign
trade. In Europe they have been used with percepti-
ble effect to check American as well as Soviet imports.
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? 288 FIGHTING THE RED TRADE MENACE
Here, however, the question at issue is what has been
Europe's experience in facing the specific and unique
problem of Soviet economic expansion.
No. 1--War. Coldbloodedly Europe has consid-
ered it. There's no shirking the fact that it has been
considered. Moscow believes it is still being consid-
ered. But if there is one unquestionable conclusion
from this survey of Europe it is that Moscow errs
profoundly in this fear. None but "the lunatic fringe"
of Europeans want war with the Soviet Union. Others
beside lunatics have weighted the idea but found it
distinctly wanting. No European nation could afford
to go to war today and least of all with the Soviet
Union.
For the existence of the Soviet Union has had this
curious influence upon Europe: It has increased pro-
foundly the fear that war must some day inevitably
come between the Soviet and non-Soviet worlds, but
it has diminished considerably the appetite of non-
Soviet nations to war either among themselves or
with the Soviet Union. And from the Soviet stand-
point there ensues the anomaly that whereas ortho-
dox Communist doctrine teaches that world revolu-
tion will follow the next war of "capitalist" nations
among themselves, the fact that the capitalist nations
indubitably, fear this result exercises a restraining
influence upon their belligerence. Thus the Bolshe-
viks have to put up with the melancholy reflection
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? FIGHTING THE RED TRADE MENACE 289
that perhaps if there were no Soviet Union the world
revolution might get along faster than it does.
At any rate the war alternative has been rejected
by Europe for about the following reasons, leaving
entirely out of account any humanitarian, pacifistic
or moral considerations that may or may not have
played a role: Present war has many certain dangers.
Future war may be probable, but is not certain.
Presumptive dangers are preferable to certain dan-
gers. Hence no war.
Solution No. 2--Embargoes on Soviet imports.
Five Balkan countries have imposed them in the vain
hope that their example might move the hearts of
world consumers to reject Soviet goods. They argued,
"You may profit immediately by buying cheap Soviet
products in preference to our dearer ones, but you
will lose indirectly when Soviet competition reduces
our capacity to buy your goods. "
But in this, as in every instance among the many
that have been subjected to observation, the indirect
future presumptive loss failed to impress the recipient
of a direct present real gain, and the consumer na-
tions refused to be disturbed at the plight of the non-
Soviet producer nations. Even France, who listened
sympathetically for a moment to her ally, Jugoslavia,
and reflected upon the possibility of winning from
Italy political territory in the Balkans by helping
Hungary, Rumania, Bulgaria, Albania, concluded
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? 290 FIGHTING THE RED TRADE MENACE
her sympathetic interlude with the negotiations now
going on for improvement of Franco-Soviet trade
relations.
An American embargo on Soviet imports, it may
safely be hazarded, would exercise hardly more ef-
fective influence on the nations of Europe which now
profit by receiving Soviet exports than did the ex-
ample of those nations which, up to now, have hope-
fully held out with their embargoes--all of them, be
it noted nations that consumed next to no Soviet
wares.
Europe has found that exemplary embargoes, in-
tended to work by indirection, have failed. The direct
effect of an American embargo on Soviet wares would
be to cut off 4. 46 per cent of the total Soviet exports.
Stoppage of all American exports to the Soviet
Union, which include a good many machines and other
articles nearly indispensable to the execution of the
Five-Year Plan, probably would have a more serious
effect upon the Soviet Union. The possibility of such
a check on exports may be judged in the light of a
statement of the American representative to the Lon-
don wheat conference, that America could enter into
no export quota agreement due to constitutional limi-
tations, a remark presumably having reference to
Article I, Section 9, Paragraph 5, of the United
States Constitution: "No tax or duty shall be laid on
articles exported from any State. "
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? FIGHTING THE RED TRADE MENACE 291
Solution No. 3--A license system to control Soviet
imports has been tried by France and Belgium and
found to have had an effect directly opposite to the
desired effect of obtaining more Soviet purchases and
lessening French and Belgian purchases from the
Soviet Union. The effect of these two attempts at
license restriction upon Soviet exports has been in-
considerable and both countries admit failure. Con-
sumer interest was too strong, bootlegging of staple
commodities was too easy and Soviet retaliation in
withdrawal of orders was too painful for these two
pioneers in the use of the license weapon against the
Soviet Union to plan its retention.
Solution No. 4--The foreign trade monopoly sys-
tem has been adopted fully only by Persia. Her ex-
perience is too brief to afford conclusions as to the
system's practicability or efficacy in a non-Soviet
state. Norway's Government that recently resigned
had planned to experiment with a foreign trade mo-
nopoly. It is regarded by many Europeans as the
only logical and effective reply to the Soviet Foreign
Trade Monopoly, with all its advantages of concen-
trated buying and selling and all its imposition of dis-
advantages upon the Soviet's competitors.
It may be noted, in addition to those other charac-
teristics of the Soviet Foreign Trade Monopoly, that
already have been described, that under it no foreign
tradesmen may submit their wares in the Soviet Union
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? 292 FIGHTING THE RED TRADE MENACE
unhindered to Soviet consumers, while the Soviet
Foreign Trade representatives abroad enjoy the cus-
tomary freedom of trade, ability to lay their goods
before the world of customers and to use the com-
petitive habits of non-Soviet businessmen to their
own advantage. As one German put it, the Soviet
Foreign Trade Monopoly was at one time regarded
by the outside world as a nuisance but as a nuisance
operative chiefly within the Soviet Union, whereas
today it is being realized more and more that the
Soviet Foreign Trade Monopoly reaches far beyond
the confines of the Soviet Union with an effect upon
trade that tends from year to year to become more
world-wide.
Nevertheless, objections in any "private capital-
istic state" to a foreign trade monopoly are too nu-
merous to make this solution more than the subject of
interesting speculation on the part of most countries,
and the difficulties of putting such a system into effect
in a democratic land would appear almost in-
superable.
There remains Solution No. 5: unrestricted trade
with the Soviet Union. This, in substance, is Europe's
choice. It must be fairly plain by now that it was as
much involuntary as voluntary choice on the part of
the Continent, that has far more reason to shiver be-
fore "the Red Menace" (nota bene, not "the Red
trade menace") than has America. America's geo-
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? FIGHTING THE RED TRADE MENACE 293
graphical position, if nothing else, gives us a com-
fortable, if selfish, right, whether we exercise it or
not, to look upon Europe much as MacDonald said
England might look upon Germany.
? FIGHTING THE RED TRADE MENACE 267
orders the Soviet Union would normally have placed
in Germany in a year. "
This transaction has been the object of consider-
able misunderstanding both abroad and here. It was
popularly believed to mean that Germany at the end
of the year would show exports to the Soviet Union
of at least $75,000,000 more than last year when
Germany sent into Russia $107,000,000 worth of
goods. This was hailed in Germany as a stroke of
great good fortune and abroad was variously but
chiefly estimated as an example of the Soviet Union's
commercial friendliness to this country. In America
it was taken for granted that it meant the Soviet
Union had switched most of those new orders from the
United States to Germany.
It now appears, however, that the transaction must
be judged as better proof of Germany's commercial
friendliness to the Soviet Union than vice-versa. For,
as now transpires, it meant not that the Soviet Union
would purchase in Germany goods to the value of
$75,000,000 more than she purchased last year, but
it meant that the German Government had extended
its guarantees to cover $75,000,000 of Soviet pur-
chases more than the Reich already had insured, and
that was quite another thing.
Germany was the initiator of the now widespread
system of Government guarantees on Russian credits.
Eight other countries have now adopted that system
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? 268 FIGHTING THE RED TRADE MENACE
and France, Poland and Czecho-Slovakia are said to
be about to follow suit. This country guarantees 70
per cent of the face value of Soviet notes, 40 per cent
of the guarantee being taken over by the Reich, 30
per cent by the German states.
By April 1, 1931, these guarantees on Soviet busi-
ness totaled coverage of $125,000,000. That was the
sum the Soviet Union owed German manufacturers.
And that was the sum the German Government was
inclined to believe should be the limit beyond which it
should not go. It was willing to keep up to that limit
and use its funds to guarantee new Soviet purchases
as fast as old ones were paid for, but it did not wish
to pledge any more guarantees than on a total of
$125,000,000.
Early this spring, however, Moscow invited a dele-
gation of German industrialists to visit the Soviet
Union. There the prospect was held out that if they
offered sufficiently good credit terms they would re-
ceive $75,000,000 worth of new orders. The indus-
trialists returned to Germany enthusiastic, pressed
the Government to extend its credit guarantees to
include new orders and finally succeeded. Some ap-
prehension was felt, however, as to public opinion on
the advisability of the Government extending its
credit guarantees to cover what would then amount to
$200,000,000 worth of Soviet notes.
It may not have been calculated, but nevertheless
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? FIGHTING THE RED TRADE MENACE 269
the impression certainly was allowed to prevail at
that time that the $75,000,000 of "new" orders were
to be "over and above the normal amount of Soviet
purchases in Germany," "normal" being taken to
mean the amount purchased last year. Under the in-
fluence partly of this belief the German public was
agreeable to the Government's action and only one
man raised his voice in the Reichstag to warn that
Germany "should not sell her political birthright for
a tip. "
Supported by public opinion, the Government ad-
vanced the necessary funds, so that when all the
Soviet orders are placed by August 31, 1931, as re-
quired by the agreement entered into between the
Germans and the Russians, the Soviet Union will owe
German firms a total of $200,000,000 secured to 70
per cent by German Government guarantee.
It now appears, however, that the transaction's
chief effect was to extend the length of credit time
granted by Germany to the Soviet Union by from
two to five months and that while this extension of
credit will, it is true, increase German exports to the
Soviet Union probably by $15,000,000 to $20,000,-
000 in 1931, it will not mean the increase of $75,000,-
000 which had been anticipated by an ill-informed
public.
In the case of orders on which up to now twelve
months' credit had been granted the Soviet Union an
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? 270 FIGHTING THE RED TRADE MENACE
average time credit of fourteen months was estab-
lished : in the case of orders on which eighteen months'
credit previously was granted an average of twenty-
one now is granted, and in the case of orders on which
twenty-four months hitherto was granted an average
of twenty-eight now is granted. Twenty per cent of
each order must be pledged by the Soviet Union by
bill of exchange with the order, payable, however,
thirteen months after delivery running up to a maxi-
mum of thirty-three months. In other words the So-
viet Union pays no cash down and makes the first
payment thirteen months after delivery.
Obviously this would provide German industrial-
ists few funds with which to run their plants on Soviet
orders if they were unable to discount Soviet bills
and for all except the very largest and most responsi-
ble German firms it was necessary to have the Govern-
ment's guarantee in order to borrow on Soviet
business. It was equally obvious that these were excep-
tionally good credit terms for the Soviet Union and
that credit guarantees to cover $200,000,000 worth of
trade with the Soviet Union represented a large sum
for the Government to invest in any single foreign
trade enterprise.
It was therefore plain that there was a certain ad-
vantage to a government desirous both of serving
its own political interests with the Soviet Union and
of serving what it believed to be economic interests of
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? FIGHTING THE RED TRADE MENACE 271
the country and of aiding legitimate industrial enter-
prise if public opinion at the moment was under the
impression that the total German sales to the Soviet
Union were immediately to rise by $75,000,000. Ac-
tual German exports this year, however, are expected
on an authoritative estimate to equal no more than
$115,000,000 to $120,000,000 or considerably less
than the $140,000,000 that the United States ex-
ported to the Soviet Union last year.
It must, however, be mentioned that had the Ger-
man Government been willing to extend its credit
guarantees to cover another $50,000,000, or, rather,
if German banks had been willing to discount that
much more of Soviet bills, the Germans would have
received another $50,000,000 more of Soviet orders.
But the German banks declared they could spare
funds for no more than the $75,000,000 and when the
Germans applied to the Basle Bank for International
Settlements to rediscount some of their Russian paper
they were not satisfied with the reception they re-
ceived.
This German attempt to rediscount Russian notes
at the Bank for International Settlements deserves
more than passing notice. In it is contained an epi-
tome of Franco-German-Soviet relations and a por-
tent, perhaps, for the future of Soviet relations with
Europe.
In the normal course of affairs the German indus-
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? 272 FIGHTING THE RED TRADE MENACE
trialist who sells 100,000 marks' worth of goods to
the Soviet Union receives from the Soviet trade rep-
resentative two promissory notes, one for 70,000
marks and one for 30,000. With the Reich's guaran-
tee on the 70,000-mark note, the industrialist takes
it to the so-called Gold Diskont Bank, which will ad-
vance him the total amount of the face value of the
note, less the Reichsbank discount rate and 2 per
cent and about 1 per cent commission, making a total
of about 7 per cent. The 30,000-mark note that does
not bear the Government guarantee must either be
bucked away in the industrialist's strong box to be
carried until maturity or else must be submitted
for discount with the industrialist's own indorse-
ment.
If the concern in question possesses good credit and
the bank is possessed of sufficient funds the bank may
discount even this unguaranteed 30,000-mark bill
for only slightly more than the Government guaran-
teed bill. If, however, the industrialist either is not
strong enough for the credit or wishes to obtain dis-
count without recourse on himself he must peddle his
bill on the "Black Exchange" at the usual discount
of 20 to 30 per cent. Here, in other words, one meets
again the odd situation that banks will not advance
money at normal discount rates on the Soviet Union's
unsupported promise to pay, although eight govern-
ments in Europe are willing to guarantee the Soviet
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? FIGHTING THE HED TRADE MENACE 273
Union's promise to pay up to 70 per cent of its ob-
ligations.
At any rate, in the course of its business of dis-
counting Soviet notes on these terms the Gold Diskont
Bank exhausted the funds it had available for that
particular branch of its activities. It applied to the
Bank for International Settlements, the bank that
had been founded to promote international commerce,
and asked the Basle directors to rediscount some of
the Soviet notes. It is important to emphasize that
these notes were guaranteed by the German Govern-
ment. At the time this occurred it was announced at
Basle that the notes in question were not notes that
had been guaranteed by the German Government,
but the writer was authoritatively informed that
every one of them was indorsed by the Reich.
The Bank of International Settlements refused to
rediscount the notes. Its French members explained
to Reich Bank President Luther that the Basle Bank
that had for one of its duties the task of encouraging
all countries to stabilize their currencies could not
afford to rediscount bills of a country such as the
Soviet Union, whose currency was not "regulated. "
What Soviet currency has to do with payment of
Soviet bills that are always paid in foreign currency
obtained by the sale of Soviet exports and never paid
in Soviet rubles remained unexplained.
The Germans, however, were convinced that the
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? 274 FIGHTING THE RED TRADE MENACE
real reason the Bank for International Settlements
did not want to rediscount the Soviet bills was be-
cause they were Soviet bills issued to Germans and
the Basle Bank, under French influence, did not want
to promote German-Soviet trade. The Germans are
equally convinced that if France really reaches an
understanding with the Soviet Union, negotiates a
trade treaty and establishes perhaps its own Gov-
ernment guarantees for Soviet credits, the Bank for
International Settlements will change its mind and
accept Soviet notes for rediscount.
What this would mean for Soviet credit and for
Soviet trade may be estimated from the fact that if
the Basle Bank had been willing now to rediscount
Soviet bills Germany would have been able to take
that extra $50,000,000 worth of orders offered her by
Moscow. Even as it is, the Basle Bank, it is reliably
reported, was forced to yield to German pressure to
the extent of granting the Gold Diskont Bank a
short-term loan said to have totaled around $25,000,-
000. The Gold Diskont Bank then used this loan to
rediscount Soviet bills itself, so that the Basle Bank's
principles were saved and no precedent established
for its rediscounting Soviet bills while in effect Ger-
many obtained in part and by indirection what she
wanted.
More interesting than all these evidences of Ger-
many's resolute intention to pursue to the end the
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? FIGHTING THE RED TRADE MENACE 275
path of cooperation with the Soviet Union upon
which she entered in the Treaty of Rapallo in 1922 is
the appearance in this country of a small but growing
group that, while admitting that progress of the
Five-Year Plan means fire in Europe, contends that
fire can only be fought with fire. Leading the proph-
ets who foresee the possible adoption by Germany of
a state economic form similar to that of the Soviet
Union, these men declare the only salvation of the
present non-proletarian classes is to see to it that the
change comes about from the top and not from the
bottom.
The initial impulse to this movement, which it must
be admitted has not yet penetrated to governmental
circles, was observation of the great tactical advan-
tages possessed by the Soviet Union in its Foreign
Trade Monopoly. Adoption by private capitalist
states of foreign trade monopolies will become a more
pressing necessity, it is argued, as the Soviet Union
expands economically, but this adoption, they say,
will necessarily bring about within the domestic econ-
omy of the countries in question a gradual concentra-
tion of industry into the hands of the state, with a
corresponding concentration of banking and com-
merce.
The net result will be, they believe, a transition
from private to state capitalism with the same sort of
planned national economy now being attempted by
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? 276 FIGHTING THE RED TRADE MENACE
the Soviet Union. If the Soviet Union fails with its
planned national economy, if the Five-Year Plan
fails, then it is argued, there will be no necessity for
other states to adopt state capitalism. If the Soviet
Union succeeds, however, it will have provided such a
powerful argument for the superiority of the state
capitalist system as an instrument of production and
of trade if not as an instrument for the achievement
of human happiness that other states will be forced to
follow suit or be crushed by the juggernaut from the
East. And, they say, it will be much better for this
generation if this transition, granted it has to come,
should come from above than from below. For the
Soviet Union has provided a sufficient example of
what happens to a governing class when the transi-
tion comes from below to make the governing class
chary of achieving state capitalism under the Marx-
ist banner of "class struggle. " This movement's prin-
cipal significance lies in the fact that its proponents
form the intellectual fringe of the National Socialist
Party, exercise a constantly growing influence upon
that party and conceivably may make their ideas de-
cisive for that party's program should it advance to
the position of power it hopes for itself.
Thinking Germans are profoundly and sincerely
pessimistic over the future of their country and over
the future of Europe. I asked one of them for whose
knowledge and insight into this continent's affairs I
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? FIGHTING THE RED TRADE MENACE 277
have great respect to tell me what he would advise
America to do in view of the findings made on this trip
of investigation into the prospects of Soviet success
in Europe.
"I would advise America to cancel the interallied
debts on condition Europe disarms," he said. "Make
cancellation conditional upon disarmament and you
will save Germany from Bolshevism. "
"But you are speaking as a German," I objected,
"What would you say if you were an American? "
"Tell America to get out of Europe and stay out,"
he laughed.
French fear of Germany prevent France and Ger-
many from reaching an understanding. Germany
seeks by cooperation with the Soviet Union to en-
hance French fear until France will accede to an
understanding with Germany. Germany now believes
France is about to seize the same weapon this coun-
try has hoped would be an effective threat to France
and by Franco-Soviet cooperation to checkmate
Germany. Either way, any way, the Soviet Union wins
and the formula "pan-Europe or Soviet Europe"
has become Germany's definition of this continent's
alternatives.
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? CHAPTER XXIV
Berlin:
Between the upper and nether millstones of Amer-
ica and Russia all the important nations of Europe,
as nearly as one can determine from a visit to eleven
of them and after a long-distance survey of ten more,
have embraced "The Red Trade Menace. "
If the Five-Year Plan is succeeding at home it is
succeeding in equal degree abroad, irrespective of
what Soviet exports may mean to the undernourished,
ill-clad Russian population. America is scarcely more
popular as a commercial force in Europe than is the
Soviet Union, and if Europe were to achieve the in-
credible and unite it would unite as well against the
United States as against the U. S. S. R.
This is the balance sheet, unpleasant though it may
be to America, that one is forced to present at the
end of a two-month investigation in the principal
capitals and ports of this continent. Itemized, the
sheet shows the following:
Italy takes 5 per cent of the Soviet exports, asks
for more, encourages sales to the Soviet Union by
Government credit guarantees, is politically deter-
mined to maintain cordial relations with Moscow,
278
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? FIGHTING THE RED TRADE MENACE 279
resents deeply the American tariff and American im-
migration laws.
Germany takes 22 per cent of the Soviet exports,
welcomes them, encourages sales to the Soviet Union
by Government credit guarantees, is politically de-
termined to maintain the best possible relations with
Moscow, resents the American tariff and American
financial "penetration" of Germany and the Amer-
ican refusal to cancel the inter-Allied debts and thus
alleviate reparations.
If all the other nations in Europe were to unite
against the Soviet Union, these two would hold out
and prevent any effectual blockade.
England takes nearly 30 per cent of the Soviet ex-
ports, wages an audible but futile campaign against
Soviet trade on other than economic grounds but
complains that Soviet orders are not larger and en-
courages them with Government credit guarantees;
resents American competition all over the world and
resents intensely America's refusal to cancel or reduce
the inter-Allied debts.
France takes 4. 5 per cent of the Soviet exports,
has tried by reducing them with a license system to
achieve an increase of Soviet orders, has failed in this
attempt and is now seeking to better her trade rela-
tions with the Soviet Union and may introduce a sys-
tem of Government credit guarantees to stimulate
Soviet purchases. France hotly resents our tariff,
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? 280 FIGHTING THE RED TRADE MENACE
publicly resents our refusal to cancel inter-Allied
money debts, privately resents her debt of gratitude
for America's part in the war.
Belgium takes 2. 5 per cent of the Soviet exports,
has had the identical experience of France with Soviet
trade, probably will follow the French example in her
further relationships with the Soviet Union and
shares French feelings toward America.
Holland takes 3. 4 per cent of the Soviet exports, is
eager to take more and is glad when bad Belgian-
Soviet relations improve Dutch-Soviet trade.
Denmark takes nearly 2 per cent of the Soviet ex-
ports, has factually the same interests as the Soviet
Union in her apprehension of the British Empire
preference system and encourages Soviet purchases
by government credit guarantee. Her big land owners
lead a campaign to boycott American wares.
Norway takes less than 1 per cent of the Soviet ex-
ports, sells the Soviet Union three times as much as
she buys, encourages these sales with government
credit guarantees, protects itself against all grain
producing countries by a government grain monop-
oly, resents any foreign financial penetration and
just threw out a government that permitted it.
Sweden feels Soviet competition in timber but be-
lieves an agreement may correct it; meanwhile takes
one-half of 1 per cent of the Soviet exports but sells
five times more.
Despite her suffering from Russian
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? FIGHTING THE RED TRADE MENACE 281
"dumping," she harbors no movement to embargo
Russian products.
Finland fears the Soviet Union militarily and suf-
fers worse than any other country from Soviet com-
petition in foreign timber markets, but takes one-half
of 1 per cent of the Soviet exports, sells the Soviet
Union more than twice as much and encourages these
sales with government credit guarantees.
Latvia takes 7 per cent of the Soviet exports for
consumption and for transit and profits greatly
thereby, suffers greatly through Soviet competition
in the flax market abroad and various enterprises at
home but enjoys a contingent agreement to guaran-
tee a certain amount of Latvian sales to the Soviet
Union yearly and encourages these sales by govern-
ment credit guarantees.
Esthonia, Lithuania, Poland, Austria, Czecho-
slovakia and Greece, with a varying but almost uni-
formly increasing interest for Soviet trade, are, in
varying degree, promoting it. To a varying but al-
ways perceptible extent they resent American com-
mercial penetration of Europe and the American
tariff policy at home.
There remain the five nations that have put down
embargoes--Hungary, Rumania, Jugoslavia, Bul-
garia and Albania. Their total share of Soviet ex-
ports, as has been pointed out, was one-fifth of 1 per
cent. Not one great European nation or important
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? 282 FIGHTING THE RED TRADE MENACE
taker of Soviet goods has put down an embargo, nor
has this investigation revealed the slightest likeli-
hood that they will do so, though to this statement
must be added the qualification that the Tory tem-
perament in Britain has sometimes upset all likeli-
hoods.
They have not put down embargoes because the
majority interests and majority population of Eu-
rope have not suffered but benefited by cheap Soviet
grain, oil and timber. They have not done so because
Soviet exports hit almost no country in its home
markets but only in its foreign markets, over which
it has no control and upon which its own embargo
could have no effect. Those small European agricul-
tural countries which have put down embargoes have
done so in the hope of setting an example and from
political, moral or sentimental reasons but never
under the illusion that an embargo at home would
prevent directly Soviet competition abroad.
Finally, the European nations of any significance
in the question of Soviet trade have not put down em-
bargoes because the products they take from the
Soviet Union compete not at all, or to a very limited
degree, with their own, but with products of the
United States, Canada, Argentina, Venezuela, the
Scandinavian and Baltic countries and with the five
Balkan countries which tried to "lead the way"
against Soviet grain, oil and timber.
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? FIGHTING THE RED TRADE MENACE 283
Of all these countries the United States comes into
closer commercial competition with Soviet exports in
foreign markets than almost any other country. The
size and power of America makes her feel Soviet com-
petition much less than, say, Sweden or Finland, but
neither Sweden nor Finland nor any other country
competes with the Soviet Union on as many fronts
and in as many articles as does America.
For America, like Russia, produces grain, timber,
oil, cotton, coal, manganese and fish. There is no ques-
tion but that American wheat growers have suffered
considerably from Russian competition in foreign
markets notwithstanding the obvious fact that there
would have been too much wheat or too few takers of
wheat whether Russian wheat had been on the market
or not. It appears, moreover, that Russian wheat
competition will not diminish but increase.
It is equally beyond doubt that American oil com-
panies have suffered, are suffering and probably will
continue even more to suffer from the competition of
the rising river of Soviet oil pouring from the Cau-
casian wells. Though the only really significant part
of this competition is in foreign markets, the latest
development in the Soviet oil campaign to force agree-
ments with Standard and Shell is of exceptional in-
terest. It may or may not be common knowledge at
home that the Soviet Union shipped 52,000 tons of
gasoline and allied products to Baltimore in the pe-
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? 284 FIGHTING THE RED TRADE MENACE
riod from October, 1930 to May 15, 1931, according
to Soviet official statistics, and that the Soviet Union
intends to erect there a storage station for 35,000
tons of Soviet oil products.
This audacious move, invasion of the American
domestic oil market from a source 6,000 miles away,
may be taken as an evidence of the determined strat-
egy of the Soviet Foreign Trade Monopoly in its
ambition to obtain the markets it needs for a pro-
duction of oil that one day may rival that of the
United States. But this strategy may be easily mis-
interpreted. In the judgment of European oil men
with whom the writer discussed this curious item of
Soviet commercial news, the Soviet Union does not in-
tend seriously to attempt to compete in the American
domestic market. It does, however, in the opinion of
these expert observers, intend, by shipping oil to
Baltimore, to say to American oil companies, "I know
this is your natural market. But Europe is our nat-
ural market. You fight me in Europe, I fight you
there and in America. You pact with me in Europe, I
may get out of America. "
American coal producers have suffered perhaps a
little, and fear they may suffer more. American tim-
ber producers view with little anxiety the immediate
competition of Soviet timber, but look with appre-
hension on the immense strides contemplated by the
Five-Year Plan for Soviet timber exports. American
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? FIGHTING THE RED TRADE MENACE 285
cotton growers have scarcely felt Soviet competition
and have in the past profited largely by Soviet pur-
chases of cotton, but they, too, are uneasy at the im-
mense additions of acreage to the Turkestan bearing
areas. American manganese producers are among the
few who actually keenly feel Soviet competition in
the American domestic market. American salmon
canneries have lost half their British market to Soviet
canneries. A few more items might be added, but not
many nor of much significance.
It is plain that Soviet competition with America is
not to be measured by the fact that Soviet imports
into the United States itself make up but eight-tenths
of 1 per cent of the total United States imports. These
American present or prospective sufferers from So-
viet competition are numerous and diverse and in-
clude large groups, such as grain farmers, cotton
growers and timber producers who, being dependent
upon the sale of raw materials for their livelihood,
have suffered more than most in the economic depres-
sion wherein raw materials have sunk lower on the
price scale than any other articles of commerce.
On the other hand if one lists those who gain from
Soviet imports into America, obviously consumers
gain immediately, else they would not purchase
Soviet goods. They include the great steel corpora-
tions which require high grade Chiaturi manganese,
wearers of Russian furs, eaters of Russian caviar,
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? 286 FIGHTING THE RED TRADE MENACE
consumers of the small quantities of Russian anthra-
cite, pulpwood, fish, sausage casings, lumber, licorice,
rags, bristles and flax that together made up $24,-
000,000 worth of Soviet products we purchased last
year. To these consumer gainers from Soviet trade
must be added our exporters, whose machines, auto-
mobile trucks, agricultural implements, electrical
equipment and metals made up our sales of $114,500,-
000 to the Soviet Union last year.
It is impossible to estimate numerically how many
Americans lose, how many gain and to what extent
from the forced Soviet exports under its Five-Year
Plan and from the forced Soviet imports under the
Five-Year Plan. It is even more difficult to estimate
to what degree Soviet trade may touch America in
the future, though it appears from this survey of the
European markets, following last year's survey of
the Soviet sources of production, that America will,
at any rate, feel the Soviet economic expansion for
good or for ill as much as any other country, if not
more.
Our trade balance with the Soviet Union has been
strongly active, and this is supposed to represent a
gain in a nation's economy. It has become abruptly
less active recently under the influence of American
moves toward barring Soviet products and reported
restrictions on credits to Amtorg.
Let these factors, however, be ignored for the mo-
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? FIGHTING THE RED TRADE MENACE 287
ment and let it be granted that from a coldly commer-
cial point of view America's ledger in account with
the Soviet Union shows a debit. Let it be admitted
that many more Americans lose than gain by Soviet
trade.
If it is then desired that the results of this investi-
gation of Europe's attitude toward the Soviet Union
be submitted for reference in our attempt to answer
the question, "What shall we do about it ? " the follow-
ing data, gathered in twenty-one industrial, commer-
cial and political centers of Europe, may be pertinent.
In most of the countries of Europe where thought
has been devoted to the question of how the non-
Soviet world is to meet, greet or combat Soviet eco-
nomic expansion, five alternatives have been listed as
comprising about all the measures conceivable. They
are (1) war, (2) embargo, (3) import license sys-
tem, (4) a foreign trade monopoly and (5) unre-
stricted trade.
This list leaves out of account the ordinary instru-
ments of customs tariffs and of such regulations as
those adopted by many European countries requiring
domestic millers to use a certain percentage of do-
mestic grain, requiring domestic movie theatres to
show a certain percentage of domestic films, etc. For
these instruments are usually applicable to all foreign
trade. In Europe they have been used with percepti-
ble effect to check American as well as Soviet imports.
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? 288 FIGHTING THE RED TRADE MENACE
Here, however, the question at issue is what has been
Europe's experience in facing the specific and unique
problem of Soviet economic expansion.
No. 1--War. Coldbloodedly Europe has consid-
ered it. There's no shirking the fact that it has been
considered. Moscow believes it is still being consid-
ered. But if there is one unquestionable conclusion
from this survey of Europe it is that Moscow errs
profoundly in this fear. None but "the lunatic fringe"
of Europeans want war with the Soviet Union. Others
beside lunatics have weighted the idea but found it
distinctly wanting. No European nation could afford
to go to war today and least of all with the Soviet
Union.
For the existence of the Soviet Union has had this
curious influence upon Europe: It has increased pro-
foundly the fear that war must some day inevitably
come between the Soviet and non-Soviet worlds, but
it has diminished considerably the appetite of non-
Soviet nations to war either among themselves or
with the Soviet Union. And from the Soviet stand-
point there ensues the anomaly that whereas ortho-
dox Communist doctrine teaches that world revolu-
tion will follow the next war of "capitalist" nations
among themselves, the fact that the capitalist nations
indubitably, fear this result exercises a restraining
influence upon their belligerence. Thus the Bolshe-
viks have to put up with the melancholy reflection
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? FIGHTING THE RED TRADE MENACE 289
that perhaps if there were no Soviet Union the world
revolution might get along faster than it does.
At any rate the war alternative has been rejected
by Europe for about the following reasons, leaving
entirely out of account any humanitarian, pacifistic
or moral considerations that may or may not have
played a role: Present war has many certain dangers.
Future war may be probable, but is not certain.
Presumptive dangers are preferable to certain dan-
gers. Hence no war.
Solution No. 2--Embargoes on Soviet imports.
Five Balkan countries have imposed them in the vain
hope that their example might move the hearts of
world consumers to reject Soviet goods. They argued,
"You may profit immediately by buying cheap Soviet
products in preference to our dearer ones, but you
will lose indirectly when Soviet competition reduces
our capacity to buy your goods. "
But in this, as in every instance among the many
that have been subjected to observation, the indirect
future presumptive loss failed to impress the recipient
of a direct present real gain, and the consumer na-
tions refused to be disturbed at the plight of the non-
Soviet producer nations. Even France, who listened
sympathetically for a moment to her ally, Jugoslavia,
and reflected upon the possibility of winning from
Italy political territory in the Balkans by helping
Hungary, Rumania, Bulgaria, Albania, concluded
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? 290 FIGHTING THE RED TRADE MENACE
her sympathetic interlude with the negotiations now
going on for improvement of Franco-Soviet trade
relations.
An American embargo on Soviet imports, it may
safely be hazarded, would exercise hardly more ef-
fective influence on the nations of Europe which now
profit by receiving Soviet exports than did the ex-
ample of those nations which, up to now, have hope-
fully held out with their embargoes--all of them, be
it noted nations that consumed next to no Soviet
wares.
Europe has found that exemplary embargoes, in-
tended to work by indirection, have failed. The direct
effect of an American embargo on Soviet wares would
be to cut off 4. 46 per cent of the total Soviet exports.
Stoppage of all American exports to the Soviet
Union, which include a good many machines and other
articles nearly indispensable to the execution of the
Five-Year Plan, probably would have a more serious
effect upon the Soviet Union. The possibility of such
a check on exports may be judged in the light of a
statement of the American representative to the Lon-
don wheat conference, that America could enter into
no export quota agreement due to constitutional limi-
tations, a remark presumably having reference to
Article I, Section 9, Paragraph 5, of the United
States Constitution: "No tax or duty shall be laid on
articles exported from any State. "
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? FIGHTING THE RED TRADE MENACE 291
Solution No. 3--A license system to control Soviet
imports has been tried by France and Belgium and
found to have had an effect directly opposite to the
desired effect of obtaining more Soviet purchases and
lessening French and Belgian purchases from the
Soviet Union. The effect of these two attempts at
license restriction upon Soviet exports has been in-
considerable and both countries admit failure. Con-
sumer interest was too strong, bootlegging of staple
commodities was too easy and Soviet retaliation in
withdrawal of orders was too painful for these two
pioneers in the use of the license weapon against the
Soviet Union to plan its retention.
Solution No. 4--The foreign trade monopoly sys-
tem has been adopted fully only by Persia. Her ex-
perience is too brief to afford conclusions as to the
system's practicability or efficacy in a non-Soviet
state. Norway's Government that recently resigned
had planned to experiment with a foreign trade mo-
nopoly. It is regarded by many Europeans as the
only logical and effective reply to the Soviet Foreign
Trade Monopoly, with all its advantages of concen-
trated buying and selling and all its imposition of dis-
advantages upon the Soviet's competitors.
It may be noted, in addition to those other charac-
teristics of the Soviet Foreign Trade Monopoly, that
already have been described, that under it no foreign
tradesmen may submit their wares in the Soviet Union
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? 292 FIGHTING THE RED TRADE MENACE
unhindered to Soviet consumers, while the Soviet
Foreign Trade representatives abroad enjoy the cus-
tomary freedom of trade, ability to lay their goods
before the world of customers and to use the com-
petitive habits of non-Soviet businessmen to their
own advantage. As one German put it, the Soviet
Foreign Trade Monopoly was at one time regarded
by the outside world as a nuisance but as a nuisance
operative chiefly within the Soviet Union, whereas
today it is being realized more and more that the
Soviet Foreign Trade Monopoly reaches far beyond
the confines of the Soviet Union with an effect upon
trade that tends from year to year to become more
world-wide.
Nevertheless, objections in any "private capital-
istic state" to a foreign trade monopoly are too nu-
merous to make this solution more than the subject of
interesting speculation on the part of most countries,
and the difficulties of putting such a system into effect
in a democratic land would appear almost in-
superable.
There remains Solution No. 5: unrestricted trade
with the Soviet Union. This, in substance, is Europe's
choice. It must be fairly plain by now that it was as
much involuntary as voluntary choice on the part of
the Continent, that has far more reason to shiver be-
fore "the Red Menace" (nota bene, not "the Red
trade menace") than has America. America's geo-
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? FIGHTING THE RED TRADE MENACE 293
graphical position, if nothing else, gives us a com-
fortable, if selfish, right, whether we exercise it or
not, to look upon Europe much as MacDonald said
England might look upon Germany.
