IMPACT OF TRADE EMBARGO WITH USSR ON U.S. ECONOMY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84B00049R000601460027-1
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 20, 2016
• Document Release Date: May 29, 2007
• Sequence Number: 27
• Content Type: REPORT

Approved For Release'2&77
Impact of Trade Embargo with USSR
on U.S. Economy
Background
The balance of trade with USSR is heavily in the U.S.
favor -- with exports at least 3-4 times greater than imports
consistently over the last four years.
United States exports to the USSR (which are dominated
by agricultural products) declined sharply in 1980 due to
the sanctions imposed by the Carter Administration following
the Soviet invasion of Afghanistan. In 1981, exports rose
sharply, mainly as a result of the lifting of the grain
embargo. In the absence of USG restraints, it is expected
that exports (particularly grains) would expand further, by
a large amount in 1982. In the manufacturing sector,
exports are concentrated in a few product categories (e.g.
tractors, phosphate fertilizer, pressure sensitive tape),
and a few U.S. companies (e.g. Occidential, International
Harvester, Caterpillar).
The patterns of U.S. exports to the USSR contrasts
sharply with those of our major western allies -- for whom.
steel and machinery are the major export items. Thus, our
allies are a much more important source of manufactures for
the USSR and their manufacturing sectors have a much larger
stake in the Soviet market.
United States imports from the USSR have been primarily
minerals and metals, although in recent years ammonia and
refined petroleum products have accounted for a substantially
larger share. Imports have dropped significantly in volume
in 1980 and 1981 largely due to a decline in gold purchases.
The attached tables provide data on recent U.S. trade
with the USSR.
Impact of Total Embargo
The impact of an embargo on trade with the USSR is
summarized by sector on the attached chart.
~ Jot referred to USDA. \/ l i ?er
plies.
SERET
Approved For Release 2007/05/29: CIA-RDP84B00049R000601460027-1
 Approved For Release 2tgt 000498000601460027-1
In total, we estimate that about $10 billion in export
sales would be lost in 1982-83, with an accompanying loss
of about 160,000 jobs. The impact on certain companies
(e.g. Occidental and International Harvester) would be
quite substantial.
Federal budget outlays for existing agricultural programs
would increase by at least $6-8 billion and there would be
pressure for additional or enhanced programs. Federal
budget outlays and revenues would also be adversely affected
by higher levels of unemployment. The Export-Import Bank
would probably suffer a $180 million loss due to default
on the Occidential contract.
Over the longer term, an embargo would cause loss of
significant potential sales to the Soviet Union and to
other countries and would encourage the spread of long term
supply agreements in agricultural trade.
The attached paper by USDA describes the effects of an
embargo in agriculture in detail.
 Approved For Release 2007/05/29: CIA-RDP84B00049R000601460027-1
U.S. EXPORTS TO USSR
(Million dollars)
First Half
1978
1979
1980
1981
Agricultural
Yellow corn
1,053
1,402
602
387
Unmilled wheat
356
812
336
334
Inedible tallow
19
58
28
40
Soybeans
200
489
45
NA
Shelled almonds
NA
8
17
15
Sugar beets or cane
NA
NA
NA
11
Hops
NA
5
10
10
Subtotal of above
1,628
2,774
1,038
797
(as % of total)
72%
77%
69%
75%
Alumina
NA
NA
NA
8
Molybdenum ore
26
41
NA
8
Petroelum coke,
calcined
18
14
20
21
Tracklaying tractors
& parts
NA
43
90
58
Other tractor parts
NA
2
10
15
Phosphoric acid
NA
93
17
14
Pressure sensitive
tape
37
50
42
Parts for oil/gas
drilling
28
28
NA
Metal working
machines, gear
Belting & belts
for machines
NA
NA
NA
2
NA
13
Subtotal of above 65
218
172
116
(as % of total) 3%
6%
11%
11%
Total Exports 2,249
3,604
1,510
1
066
(above items as
% of total) 77%
85%
81%
,
89%
Approved For Release 2007/05/29: CIA-RDP84B00049R000601460027-1
 Approved For Release 2007/05/29: CIA-RDP84B00049R000601460027-1
U.S. IMPORTS FROM USSR
(Million dollars)
First Half
1978
1979
1980
1981
Agricultural
Sable furskins
8
9
6
Vodka
Minerals/Metals
NA
NA
NA
Gold
286
548
86
18
Nickel
16
29
21
34
Palladium
28
62
54
18
Platinum metals
3
16
6
1
Chrome ore
7
11
4
2
Rhodium
8
9
6
2
Aluminum scrap
30
9
2
2
Metal coins
6
25
18
NA
Subtotal of above
384
709
197
77
(as % of total)
72%
81%
46%
35%
Ammonia
27
56
95
40
Light fuel oils
NA
NA
NA
50
Napthas
NA
--
5
17
Total Imports
530
873
430
(above items as
% of total)
79%
89%
70%
 Approved For Release 2007/05/29: CIA-RDP84BOO049ROO0601460027-1
SUMMARY OF IMPACT OF USSR TRTPF EMBARGO
ON U.S. ECONOMY
AGRICULTURE 1/
Eastern Europe a
1/ Assumes embargo ould apply to
add several bill on dollars in budget outlays).
rFl1 ..l }Ct~..,_
IMPACT IN 1982-1983
1 - Loss of $7 billion in export sales.
2 - Loss of over 100,000 jobs (and associated increased
costs and revenue loss in federal budget).
3 - Increase in U.S. agricultural budget outlays by
$6-8 billion.
4 - Higher costs for ammonia fertilizer, lower for
phosphates.
5 - Depressed commodity price levels (to or below loan
levels).
1 - Loss of $3 billion in export sales and 60,000 jobs
(and associated increased costs and revenue loss in
federal budget).
2 - May well cause International Harvester to go bank-
rupt.
3 - Caterpillar would lose $200 million in sales and
1,000 jobs.
4 - Occidental would lose 1,600 jobs in phosphate indus
try and write off of possibly $60 million.
5 - Cut off of imports of mineral would cause increased
costs_to_consuming industries (e.g. auto, specialty
steel) seeking alternative supplies.
6 - Positive impact on U.S. ammonia industry.
7 - Loss to Export-Import Bank of $180 million
(Occidental deal).
1 - Loss of $50-80 million in revenues to shippers.
2 - Potential adverse effect of U.S. banks holding
credits to Soviets.
1 - Spread of long term trade arrangements.
2 - Foreign buyers will diversify away from
U.S. sources due to loss of credibility
of U.S. as supplier.
- Loss of substantial potential business (e.(
ers.
la
i
y
pe
p
2 - Loss of reliability of U.S. as supplier
would discourage other purchasers.
3 - Loss of $400 million/year for remaining
15 years of Occidental market.
ent programs to aid farmers (which could
nd USSR and no new govern
 Approved For Release 2~7i /1 : R P84B00049R000601460027-1
Summary
SOVIET/EASTERN BLOC EMBARGO - ISSUES AND IMPACTS
The potential gains to be deriver; from a trade embargo with the Soviet
Union and the Eastern Bloc countries appear small relative to the costs the
United States would suffer. Such efforts in the past have not influenced
Soviet foreign policy, but have hurt our agricultural trade, disrupted commodity
markets, depressed commodity prices, and cost the Treasury large sums. A trade
embargo with the Soviet/Bloc countries should not even be considered without
first imposing a full embargo on credit from the West.
While in years of poor harvests the Soviets account for a large share of
the world's wheat and coarse grain imports (nearly a fifth in 1981/82), their
overall imports (nonagricultural and agricultural) make up only 3.3 percent of
their GNP. Because half the Soviet's overall imports come from the Eastern
European countries, any trade embargo action taken by the United States and
its allies would have to also include Eastern Europe to prevent transshipment.
Such an action would depress prices for farm commodities in this country because
over 70 percent of our exports to the Soviet Union and Eas tern Europe are
agricultural products.
Our agricultural export sales to the USSR and Eastern Europe are projected
to total about $4.8 billion in 1981/82. If the action were imposed immediately
and across the board, agricultural export earnings would fall by over $2 billion
in fiscal 1982, further aggravating the U.S. trade deficit and the position
of the dollar internationally. We estimate it would cost the federal government
$2-3 billion for 1981/82 to absorb the commodities that would otherwise have
been exported. The reduction in exports would also mean the loss of over 100,000
jobs throughout the economy. In addition to making commodity loans to farmers,
we would have to subsidize their storage and interest costs. Thus, the export-based
underpinning of American farm income would be seriously weakened by an embargo.
To compensate, it would cost the U.S. government more in price support and
related outlays than the value of the exports lost due to the embargo. The
whole structure of farm prices-including agricultural commodities not now
exported to the Soviet Union and the Eastern Bloc--would shift downward.
The impact of continuing an embargo into 1982/83 is even more damaging to
agriculture and related industries. We project agricultural exports would decline
by over $5 billion in 1982/83. Commodity prices would fall at or below loan
levels, increasing deficiency payments for grains and raising loan and reserve
outlays sharply. Budget outlays for grains alone in 1982/83 would total $4-5
billion above levels expected in the absence of an embargo.
To limit taxpayer sacrifices in continuing to absorb the surpluses, the
U.S. government would be forced into massive and costly acreage reduction
programs. These programs would disrupt markets and impact on nearly all sectors
of the U.S. economy: employment in industries supplying farm inputs would
fall; rural communities would suffer as the volume of U.S. farm output declined;
and gross farm income would fall. The longer the embargo were to continue,
the more severe would become the dislocations.
U.S. agriculture's ability to produce would also be impaired by a total
trade embargo. The Soviet Union and Eastern Europe account for 30 percent of
SECRET
 Approved For Release 2007/05/29: CIA=RDPM000049R000601460027-1
the world's nitrogen fertilizer production capacity. In 1980/81, the Soviet Union
alone supplied the United States with half of its imported ammonia.
Coverage
If an embargo of only agricultural products were imposed, the Agriculture
and Food Act of 1981 would require that the Secretary take steps to assure
farmers of 100 percent of parity. It is important to note that in addition to
grains, the U.S. also exports oilseeds, tallow, sugar, cattle hides, meats,
animals, tobacco, etc. to the USSR and Bloc countries. Hence, there would be
tremendous economic disruptions.
Implementation
In order to minimize disruptions to farm commodity markets, we recommend
that exporters be allowed to deliver on contracts already written for shipment
in 1981/82. Thus, about half of the grain and other agricultural products
projected to be exported to the USSR and EE would still move. This would
still imply about a 10-15 percent reduction in total U.S. grain exports for
1981/82.
Impacts on Agriculture and the Budget
With farm prices and incomes already depressed, an embargo would have a
devastating effect in agriculture and related industries. The reduction in
exports would mean the loss of over 100,000 jobs throughout the economy.
The embargo would eliminate any opportunity for price strengthening in 1981/82
and would lead to a tremendous increase in loan and inventory outlays as well
as a significant buildup in reserves. Unless offsetting actions were taken,
corn prices would drop and average for the season near loan rate levels, about
10-15 cents per bushel below earlier expectations. Wheat prices would also be
pushed near loan rate levels, about 50 to 60 cents per bushel below earlier
projections. This would result in large additional movements of grain under
government loan and into the farmer-owned reserve with additional budget outlays
around $2 billion for these commodities. alone.
A continuation of the embargo into 1982/83 would mean a reduction of
nearly 25 percent in grain exports, with farm prices for grain averaging at or
below the reserve loan rates. Soybean exports and prices would be similarly
affected. Movement of this volume of grain into loan and reserve programs
would result in twice as much grain in the reserve than earlier expected and
budget outlays of about $4 to $5 billion. These increased outlays do not
include the costs of any additional offsetting actions, such as contract purchases,
direct grain purchases, paid land diversion programs, or higher support rates
designed to minimize impacts on the sector as a whole.
Effectiveness of an Embargo
It is very difficult to get exporters to cooperate in a trade embargo. It
would be particularly difficult in this case because of the linkage between
Western Europe and the Eastern Bloc countries. West Germany is a major supplier,
particularly of credit, to the Bloc. Moreover, our experience in managing
embargoes has not been good. Mechanisms do not exist for making such actions
effective. Reports by GAO and USDA's Inspector General conclude that the 1980
embargo with the USSR was virtually ineffective.
SECRET
 Approved For Releas
'Longer Term Impacts
The longer an embargo is allowed to stay in effect, the greater the
problems that would emerge. Pressure for the government to take compensating
actions on agricultural commodity prices would rise. Even then, any further
actions to help farmers would have to be coordinated with the other supplying
nations. The longer the embargo remains in effect, the more the exporters
would be tempted to circumvent the embargo and thereby undermine the intent of
the action. Irrespective of the duration of the embargo, the United States
would find its foreign markets seriously eroded. Other suppliers and the
Soviets would attempt to write bilateral agreements in order to tie up future
trade to their advantage. Other importing countries, including our major
trading partners, would also try to tie up and diversify the sources of their
future requirements in formal agreements. Following the 1980 embargo, roughly
30 percent of the world's grain trade was estimated to he locked up by other
exporting countries in the form of bilateral agreements, a sharp increase from
the pre-embargo level.
SECRET