Time to Trade

With the U.S. trade balance reaching record deficits, foreign trade and economic competitiveness have become leading issues in domestic and international politics. This issue of the Multinational Monitor focuses on trade between the Eastern European countries and the Western industrialized nations, with particular attention given to U.S.-Soviet trade relations.

East-West trade is rarely included in discussions of this country's growing trade deficit. Although the U.S. has averaged a nearly$2 billion annual trade surplus with the Soviet Union since 1975, U.S. trade with the Soviet Union has remained a very small share of total U.S. foreign trade, accounting for a mere 0.4 percent of global U.S. trade in 1986. Economic benefits are considered secondary, by many policy-makers, to foreign policy objectives and national security concerns.

The emergence of detente in the early seventies had a tremendous impact on East-West trade, legitimizing for the first time in the U.S. the view that economic cooperation is not only possible, but also is in the best long-term interests of both sides.

However, while detente did bring about an increase in U.S.-Soviet trade and economic cooperation, it did not free U.S.-Soviet trade from the vicissitudes of superpower politics. The promising intergovernmental agreements prepared in 1972 and 1973 were severely curtailed by the Trade Act of 1974, with its amendments tying "most-favored-nation" status and Export-Import Bank credits to levels of Jewish emigration from the U.S.S.R.

The 'linkage" of trade policy to foreign policy and national security objectives, has continued to disrupt U.S.-Soviet tiade relations. At the end of 1979, the peak year for U.S: Soviet trade at nearly $45 billion, the US. imposed widespread sanctions on trade with the U.S.S.R. as a response to the Soviet invasion of Afghanistan. More sanctions were added in 1981 and 1982, following the imposition of martial law in Poland. Together, these unilateral US. restrictions on trade with the Soviet Union and its allies contributed to a fall in the level of trade to under $2 billion in 1980. Commerce Department figures also put total bilateral trade for 1986 at under $2 billion, and estimates for 1987 indicate this figure may d rop even further.

However, some signs of a warming trend have been evident over the past two years. In May 1985, the bilateral U.S.-U.S.S.R. Joint Commercial Commission, established as part of the 1972 trade agreements, resumed its annual meetings after a six year lapse, signalling the first official Reagan administration support for improving trade relations with the Soviets.

Six months later, President Reagan and General Secretary Gorbachev met in Geneva for the first East-West summit since 1979. The anticipation of a breakthrough in U.S.-Soviet trade relations was reflected in a record turnout for December's annual meeting of the U.S: U.S.S.R.

Trade and Economic Council in Moscow, where Mr. Gorbachev, U.S.S.R. Foreign Trade Minister Boris Aristov and then Secretary of Commerce Malcolm Baldrige addressed 450 U.S. business leaders and 100 Soviet trade officials.

While the breakthrough never materialized, advocates of expanded trade with the Soviet Union are again hopeful that a change for the better is in the wings.

Encouraging developments over the past year have included:

• Removal of oil and gas technology and equipment export controls in January;
• Publication of an extensive study by the National Academy of Sciences suggesting that U.S. national security export controls have had a serious negative impact on U.S. global economic competitiveness without necessarily benefiting national security;
• Support in Congress for implementing export control reform via the omnibus trade bill currently in conference;
• Appointment of C. William Verity, a longtime advocate of expanded U.S.-Soviet trade, to replace Malcolm Baldrige as Secretary of Commerce; and
• A major arms control agreement at the Washington summit in December.

East-West trade is currently the subject of increased interest also because of dramatic changes taking place in the Soviet Union. The challenges Gorbachev and his supporters face in trying to change fundamental institutions in Soviet society and the economy are formidable. Such change in the Soviet Union also challenges the West to respond.

Political pressure for a response in the area of trade remains far less intense than popular demand for an end to the arms race, although a stronger coalition is being formed between business interests and people who believe that trade has an important positive role to play in the overall political relationship between the two superpowers.

At the summit, arms control will have the top billing, but the overall state of U.S.-Soviet relations will also be under consideration. In both the Soviet Union and the U.S., the internal debates over economic relations with one another have reached a critical point. The absence of trade relations on the Summit's agenda will not quiet the ongoing debates, which are rooted in long-term domestic and international economic concerns of both participants. However, inclusion of trade as a critical element of overall U.S.-Soviet relations can make this year a turning point in U.S.-Soviet economic relations and East-West trade in general. Mr. Reagan and Mr. Gorbachev should recognize, in light of an arms control agreement, that economic cooperation rather than confrontation is in the best longterm interests of both countries.

- Jonathan Dunn