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THE recognition of the government of Soviet Russia by the United States has evoked much discussion as to the effect this action may have on trade between the two countries. While some observers insist that the commercial results of recognition will be of no great consequence, others predict an enormous demand from Russia for all kinds of American goods. It is at least significant that for some months before the Soviet Government was recognized, negotiations were under way in Washington for a substantial grant of credit to Russia by the Reconstruction Finance Corporation to finance purchases in the United States.
The Soviet Government is authoritatively reported as ready to place orders for machinery, steel rails, cotton, and live stock to an amount exceeding $500,000,000 if the necessary credits can be arranged. Whether this would be the beginning of a new and steady demand for American products only time can disclose, but in any event the current discussions give a new interest to certain salient facts concerning Russia's place in world trade and especially to her trade relations with the United States.
In spite of her vast territory, large population and abundant natural resources, Russia is not one of the great commercial nations. In this respect she is considerably outdistanced even by tiny Belgium and the Netherlands (not including the trade of the Dutch colonies). Approximately two-thirds of the foreign trade of the world is in the hands of twelve nations. In this group Russia in 1932 ranked eleventh. Argentina then stood twelfth in the list, and in recent years she and Russia have taken turns in holding last place. No country outside this group of twelve accounts regularly for as much as 2 percent of the total world trade. Russia's share in 1932 amounted to 2.44 percent, a figure to be compared with 13.38 percent for Great Britain and with 10.92 percent for the United States.
While Russia's external commerce is thus relatively unimportant for a large nation, it expanded rapidly in the decade after 1920, as shown in Chart I, and even during the depression in 1931 and 1932 it held up better than did the trade of the great maritime powers. Between 1929 and 1932, while British exports declined 64 percent, German exports 58 percent, and exports from the United States 70 percent, exports from Russia declined slightly less than 40 percent. It is especially interesting to note a gain of nearly 10 percent in Russia's exports between 1929 and 1930, a time when both British and American exports declined more than 20 percent.
The United States for a time enjoyed an increasing share of Russia's trade; indeed in 1930, as shown in Chart II, it had a slight lead over Germany. By 1932, however, the United States had fallen to third place, having been passed by both Germany and Great Britain. Some of the more ardent advocates of closer relations with Russia maintain that the recent recognition of the Soviet Government will enable the United States to regain the market which it has temporarily lost to its British and German rivals. Chart II shows that in 1931
and 1932 British and German exporters were gaining relatively at the expense not only of Americans but of exporters in other countries.
In 1930-32 the United States, Germany and Great Britain supplied an average of 62 percent of all foreign goods purchased by Russia. The share from the United States fell from 25 percent in 1930 to 5 percent in 1932. Germany's share, meanwhile, rose from 24 to 46 percent, and Great Britain's from 8 percent to 13 percent. Various explanations have been offered for the marked decline in the American share. It is stated that the Soviet Government found it more difficult than formerly to arrange the needed credit in the United States. At the same time it had begun to manufacture tractors, agricultural machinery and other mechanical equipment which it had formerly obtained wholly from American manufacturers. It is also possible, though not easily proved, that in reducing their American purchases the Soviet authorities were seeking to show their resentment at efforts made by certain interests in the United States to have an embargo laid on Russian lumber, pulpwood, asbestos, manganese and safety matches, on the ground that some of these were being "dumped" into the United States -- that is, were being sold below the cost of production -- and that others were the products of forced labor and therefore subject to exclusion under the tariff laws.
But Chart II also shows that Great Britain and Germany afford a much better market for Soviet goods than does the United States, and this may help to explain the shifts in Russia's foreign buying. From the nature of the case, the American market for Russia's goods is limited; for her chief exports -- petroleum, grain, and lumber -- are also produced in exportable quantities in the United States.
While the United States is in no position to buy heavily of Russian products, it is in a favored position to supply the goods which Russia especially needs. The lack of balance between imports and exports in the post-war trade between the United States and Russia is clearly indicated in Chart III. The classification of Russia's imports, as shown in Chart IV, reveals that since 1921 four groups of commodities -- cotton, metals, machinery, and automotive vehicles -- have formed an increasing proportion of her purchases. In 1922 they constituted 25 percent of the total imports, and in 1931 and 1932 they had increased to about 75 percent. These are goods which the United States is especially equipped to export, but as Russia has few goods and still fewer services with which to make payment, it would appear that any considerable volume of trade between these two countries must be established on a triangular basis, with some third country, or more probably a group of countries, taking the Russian goods which the United States does not need and thereby supplying the Russians with the means for paying for imports from the United States.