Iron Curtain: East-West Trade Winds

Leipzig is a once proud city that has taken on that East German dullness, but last week its streets were brightened by mint green Mercedeses and sapphire Jaguars as Western businessmen got together with potential Communist customers. At the annual Leipzig fall trade fair, cognac and Scotch flowed freely in the displays set up by 1,600 capitalist companies. The wares of only two U.S. outfits were visible—Sunkist Growers and W. S. Hall, a Manhattan book handler—but there were more non-Communist exhibits than last year.

Far off in Pakistan, even as U.S. Under Secretary of State George Ball was objecting to President Mohammed Ayub Khan’s new commercial air pact with Peking, Pakistani and Red Chinese diplomats were negotiating a barter agreement last week. A Soviet mission flew into Ottawa to draw up an expanded trade treaty; last month Canada signed a $360 million wheat export deal with Red China. This month West Germany begins negotiating a trade treaty with Hungary.

Frederick Erroll, president of Britain’s Board of Trade, recently back from a trade trip to Czechoslovakia and about to go off to Moscow, sums up the pragmatic attitude of many European businessmen: “We accept the fact that trade with the Iron Curtain countries benefits them, but it also benefits us.”

Barter Is Better. How big are the benefits? Trade between free nations and the Soviet bloc rose 12% last year to $9 billion, and Western trade with Red China was another $1.4 billion. That seems small when compared with total world trade of $141 billion, but it is significant enough to individual Western firms. Richard Thomas & Baldwins, Ltd., Britain’s last remaining nationalized steelmaker, is being helped in a period of soft demand by a $2.8 million order that Red China placed last week. West Germany’s Howaldt shipyard, which lately has been working below capacity, will be busy until 1966 because last week it won a $63 million contract to build eight Soviet trawlers.

Some Western manufacturers hope that the U.S.-Soviet nuclear test ban agreement will stimulate more orders from Moscow. Russia is the East’s biggest trader, last year exported $1.9 billion to the West, mostly in furs, oil, iron ore and timber; it imported $1.7 billion worth of Western goods, chiefly machinery. To conserve its supply of hard monies, Russia tries to barter whenever possible, and its biggest success so far was sending 82 million bbl. of oil to Italy’s state-run E.N.I, in return for large shipments of machinery and a chemical plant that the Italians are now building in Russia.

Blocks in the Road. Most Western experts anticipate that East-West trade will continue to grow but not fast. Total U.S. trade with the East is in fact declining, slumped to $200 million last year. The U.S. embargo on trade with Red China discourages most Western allies from courting Peking too openly, and NATO’s embargo on sales of strategic items prevents the Communists from buying the computers, large-diameter pipe and other Western industrial goods that they desire most. Aside from politics, the cold economic reality is that until the Communist nations are able to produce higher quality goods that can move in Western markets, they will simply lack the foreign exchange to purchase much more from the West.