Foreign Trade of The Soviet Union

Foreign Trade Of The Soviet Union

Soviet foreign trade played only a minor role in the Soviet economy. In 1985, for example, exports and imports each accounted for only 4 percent of the Soviet gross national product. The Soviet Union maintained this low level because it could draw upon a large energy and raw material base, and because it historically had pursued a policy of self-sufficiency. Other foreign economic activity included economic aid programs, which primarily benefited the less developed Council for Mutual Economic Assistance (COMECON) countries of Cuba, Mongolia, and Vietnam, and substantial borrowing from the West to supplement hard-currency export earnings.

The Soviet Union conducted the bulk of its foreign economic activities with communist countries, particularly those of Eastern Europe. In 1988 Soviet trade with socialist countries amounted to 62 percent of total Soviet foreign trade. Between 1965 and 1988, trade with the Third World made up a steady 10 to 15 percent of the Soviet Union's foreign trade. Trade with the industrialized West, especially the United States, fluctuated, influenced by political relations between East and West, as well as by the Soviet Union's short-term needs. In the 1970s, during the period of détente, trade with the West gained in importance at the expense of trade with socialist countries. In the early and mid-1980s, when relations between the superpowers were poor, however, Soviet trade with the West decreased in favor of increased integration with Eastern Europe.

The manner in which the Soviet Union transacted trade varied from one trade partner to another. Soviet trade with the Western industrialized countries, except Finland, and most Third World countries was conducted with hard currency, that is, currency that was freely convertible. Because the ruble was not freely convertible, the Soviet Union could only acquire hard currency by selling Soviet goods or gold on the world market for hard currency. Therefore, the volume of imports from countries using convertible currency depended on the amount of goods the Soviet Union exported for hard currency. Alternative methods of cooperation, such as barter, counter trade, industrial cooperation, or bilateral clearing agreements were much preferred. These methods were used in transactions with Finland, members of Comecon, the People's Republic of China, Yugoslavia, and a number of Third World countries.

Commodity composition of Soviet trade differed by region. The Soviet Union imported manufactured, agricultural, and consumer goods from socialist countries in exchange for energy and manufactured goods. The Soviet Union earned hard currency by exporting fuels and other primary products to the industrialized West and then used this currency to buy sophisticated manufactures and agricultural products, primarily grain. Trade with the Third World usually involved exchanging machinery and armaments for tropical foodstuffs and raw materials.

Soviet aid programs expanded steadily from 1965 to 1985. In 1985 the Soviet Union provided an estimated US$6.9 billion to the Third World in the form of direct cash, credit disbursements, or trade subsidies. The communist Third World, primarily Cuba, Mongolia, and Vietnam, received 85 percent of these funds. In the late 1980s, the Soviet Union reassessed its aid programs. In light of reduced political returns and domestic economic problems, the Soviet Union could ill afford ineffective disbursements of its limited resources. Moreover, dissatisfied with Soviet economic assistance, several Soviet client states opened trade discussions with Western countries.

In the 1980s, the Soviet Union needed considerable sums of hard currency to pay for food and capital goods imports and to support client states. What the country could not earn from exports or gold sales it borrowed through its banks in London, Frankfurt, Vienna, Paris, and Luxembourg. Large grain imports pushed the Soviet debt quite high in 1981. Better harvests and lower import requirements redressed this imbalance in subsequent years. By late 1985, however, a decrease in oil revenues nearly returned the Soviet debt to its 1981 level. At the end of that same year the Soviet Union owed US$31 billion (gross) to Western creditors, mostly commercial banks and other private sources.

In the late 1980s, the Soviet Union attempted to reduce its hard-currency debt by decreasing imports from the West and increasing oil and gas exports to the West. It also sought increased participation in international markets and organizations. In 1987 the Soviet Union formally requested observer status in the General Agreement on Tariffs and Trade and in 1988 signed a normalization agreement with the European Economic Community. Structural changes in the foreign trade bureaucracy, granting direct trading rights to select enterprises, and legislation establishing joint ventures with foreigners opened up the economy to the Western technical and managerial expertise necessary to achieve the goals established by General Secretary Mikhail Gorbachev's program of economic restructuring (perestroika).

Read more about Foreign Trade Of The Soviet UnionDevelopment of The State Monopoly On Foreign Trade, Structure of The Foreign Trade Bureaucarcy, Trade With Socialist Countries, Trade With Western Industrialized Countries, Trade With Third World Countries, Gorbachev's Economic Reforms, Banks

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