The Russian Review/Volume 1/February 1916/The Immediate Future of the Russian-American Trade Relations

The Immediate Future of the Russian-American Trade Relations.

The recent abrogation of the Russian-American commercial treaty would never, of itself, have exerted any marked influence upon the commercial relations between the two countries. Russia has always been, and still is, for the United States, a land of almost unlimited economic possibilities. American capital, energy, and business methods can work miracles in this young country, rich in productive forces and natural resources. And if the commerce between the United States and Russia has not as yet reached its proper degree of development, this is due to the fact that American capital has never been sufficiently interested in Russia. If American capitalists were sufficiently possessed of constructive imagination, they would study the country and realize that they are face to face with an opportunity for the peaceful economic conquest of a vast country, with a population of over 180,000,000. Such a conquest would mean, as far as Russia is concerned, the maximum development of her enormous productive forces, while, for the United States, it would mean an unparalleled opportunity for the application of American capital, skill, and genius for organization.

A peaceful economic conquest of Russia by the United States would work as little harm to Russia as the United States have suffered because of the fact that foreign capital is even now dominant in the economic life of America. When one studies the industrial history of the United States, one is struck by the fact that, despite their enormous productive resources, the United States have more foreign capital than any other country of the world. The whole industrial and financial history of the United States is one continuous story of how streams of foreign capital from time to time poured into the country. During the first sixty years of the country's history this money came in the form of government loans. But, beginning with 1845, when the rairoads opened new and wonderful possibilities for economic expansion, foreign capital came unceasingly in the form of private loans and investments. Later on, after this capital had developed and irrigated the great agricultural areas, trade with other countries became the source of foreign capital, for the trade balance became more and more favorable for the United States. If this balance were settled in gold, the whole European supply of precious metal would have to be removed to America.

It is difficult to determine accurately the extent of America's indebtedness to Europe. According to Mr. L. F. Loree, President of the Delaware & Hudson, ("The Annalist," June 28, 1915), four fifths of Europe's investments in the United States is in railroad stock. If we take this stock at par value, the total amount of European holdings in the United States would be $3,408,401,342.^[1]

On the other hand, Mr. John J. Arnold, writing on "The American Gold Fund of 1914,"^[2] says that, according to the statistics of the U. S. Bureau of Foreign and Domestic Commerce, the United States owe Europe no less than $7,000,000,000.

This figure is divided as follows:

England ______ $4,000,000,000
Germany _____ $1,250,000,000
France _______ $1,000,000,000
Holland ________ $650,000,000

No matter how great is the divergence between these two figures, the fact remains that the United States owe an enormous amount to Europe, and that this debt was steadily increasing up to the time of the war. There were times when England was compelled to call in some of her American investments, and such periods were usually accompanied by more or less severe financial depression in the United States.

The war has brought great changes in the financial status of the United States. Instead of a debtor nation upon the financial market of the world, the United States are rapidly becoming a creditor nation. This fact is of tremendous importance in forecasting the near future of the Russian-American commercial relations, and deserves special attention.

Immediately before the outbreak of the war, towards the end of July 1914, the United States passed through a period of acute financial depression. It was caused by an extraordinary demand for gold from Europe. The European stock-exchanges were practically inactive, and almost all of their business was transferred to New York. As a result of this the New York Stock Exchange was flooded with orders forimmediate realization on stocks and bonds, that came from all parts of Europe. The prices went down very rapidly, the supply of gold was becoming exhausted, and, if it were not for the closing of the New York Stock Exchange, the United States would have had to deal with extremely acute financial difficulties.

From August to November, 1914, the foreign trade of the United States passed through a period of depression. In December, however, this trade began to blossom out, and each succeeding month invariably shows a considerable increase over the corresponding month of the preceding year. The figures for the first eight months of 1915 show the value of exports as $2,231,808,345, while during the corresponding period of 1914, the exports were valued at only $1,311,349,656. During the whole year, the amount of export increased over 1914 by more than $1,500,000,000.

Comparing the amount of export with that of import trade during the time of the war, we obtain figures which are no less significant. During the first eight months of 1915, as we have already seen, the amount of exports was $2,231,808,345. The imports during the same period equalled $1,150,884,760. This leaves a balance of $1,080,923,585 in favor of the United States. During those same eight months the amount of gold exported from the United States was $10,902,690, while the amount imported was $223,828,565. This shows clearly that Europe has been settling her trade balance largely by returning to the United States the American obligations held by European capitalists. Mr. L. F. Loree's recent investigation shows that during the first half of 1915 the railroad stock returned to the United States by European holders, was valued at $480,892,135. During the same period the value of stocks and bonds, other than railroad, returned to America, reached the figure of $140,000,000. Thus, during the first six months of 1915, the value of American paper returned to the United States by European holders was $621,000,000, or $104,000,000 a month. The tempo of the trade between Europe and America has not yet shown any signs of slowing down, and we are therefore justified in assuming that during the year the debt of the United States to Europe has decreased by about $1,500,000,000.

This leads us to the conclusion already quite obvious. The War will concentrate in the United States enormous amounts of capital which will necessarily seek new fields of application. After the War the whole of Europe will have to pass through a period of reconstruction, and it is to Europe, most probably, that the American capital will flow. There seems to be no doubt that the foreign trade of the United States will continue on the same high level for some time after the war is over.

Europe will need American capital for its reconstruction, but it is obvious that not all of Europe will need it in the same degree. No matter how impoverished, economically and financially, England, Germany and France will be, they will still remain potentially powerful and developed. In many fields they will be able to rise out of their slough of financial despond by the use of their own means. It will not be to their interest to allow full play to foreign capital. The existence of their own wealth, and of highly organized productive facilities, together with the principle of strictest economy, which will, no doubt, prevail in European affairs after the war, will lead them to avoid new loans.

Not so with Russia. This country, in its economic situation, closely resembles the United States of that period when foreign capital first began to find its way into our economic life. The United States have become the most powerful industrial country of the world, and Russia can become almost as powerful, if American capital will play the same creative part in its economic development, that European capital has played here.

Russia is boundless in extent, and amply supplied with labor recruited from her young, healthy, and willing population of over 180,000,000. The country teems with natural resources, not one-thousandth part of which has as yet been utilized. Russia needs not only American capital, but American business men themselves, with their creative genius, their breadth of vision, their organizing abilities, their power of setting into motion every available force and resource of the country. The businessmen of Russia are slow and often indolent. Among them there are few men of great vision and broad outlook. They are easily satisfied, and seldom go beyond the limits of one, or, in unusual cases, two or three cities. Thus it is that the vast, rich, and interesting country still remains poorly organized commercially, and still awaits the awakening touch of men who are capable of doing business on a large scale.

In some ways, Russia has already caught up with the other countries of Europe. Her capital cities, Petrograd and Moscow, have passed the million mark in population. After the capitals, come, in order, the other large cities, the smaller cities, towns and villages, all striving to "catch up." The War has stimulated and hastened this process of Europeanization. No doubt, after the storm of war has gone by, the whole political countenance of Russia will undergo momentous changes, and, from that moment on, Russia will surely take her place among the commercially progressive nations of the world.

From that moment, too, constructive work will begin in Russia, and her tremendous productive forces will undergo the process of awakening that must precede their effective organization. This period will coincide with the particular moment when the concentrated American capital, released by the War, will begin to seek new fields of activity. If by that time Americans will have become sufficiently aroused to the opportunity, their capital would be able to perform, very profitably for itself, tremendous and useful economic work in Russia.

There are good grounds for thinking that the United States will not fail to take advantage of this happy concatenation of circumstances. The significance of a closer commercial rapprochement between Russia and the United States seems to be gaining recognition in both countries. A recent number of the official organ of the Russian Ministry of Finance, the "Trade-Industrial Gazette", contains an interview with Mr. Carver, who went to Petrograd as a representative of certain American business interests for the purpose of establishing trade relations with Russia. Mr. Carver's opinion on the possibility of close financial and economic relations between Russia and America is extremely interesting, as it sums up very ably what has been said and done in the field.

"Russia and the United States," says Mr. Carver, "are the largest countries in the world, and the two great nations have much in common. Our two countries, perhaps the strongest in the world, each moving rapidly onward along its path of development, have been, it seems, created for a strong alliance. And, in fact, there are not, nor can there be, any serious political difficulties to be settled between them, nor any economic sphere in which Russia and the United States could possibly come in contact as rivals. They both possess enormous natural wealth and the best possible supply of labor. These factors cannot but assure the two countries rapid growth and development of their wealth and economic forces. My personal opinion about Russia and the Russians is that the Russian people is a splendid one, capable of the most sustained and productive labor.

"Under such extremely favorable conditions, it cannot but be a matter of astonishment and sincere regret, that the financial and economic relations between Russia and the United States have not as yet reached the high level so easily made possible."

According to Mr. Carver, the part that American capital can play in the commercial and industrial development of Russia may be almost limitless, since American financiers and businessmen are willing to invest in any enterprise that promises good returns, and mutual benefits. America is ready to assist Russia in her program of railroad construction, not only financially, but also by sending to Russia railroad supplies, as well as experienced engineers and technicians. In agriculture, the United States can help Russia largely in those departments of the industry where machines take the place of hand labor. Moreover, American capitalists are interested in the irrigation projects undertaken by the Russian government, both the completed ones and those still under consideration.

In conclusion, Mr. Carver expresses his firm conviction that, while it is difficult to predict what form the Russian-American commercial alliance will assume, it is necessary to begin preliminary work as soon as possible. It is also hard to tell what kind of organization, whether of the type of chambers of commerce, or export and import associations, will prove to be the best channel for the powerful new movement. It is hoped, however, that the exigencies of the near future will offer a practicable and satisfactory solution to all these problems.

 

1. Figures for March, 1915.
2. "Journal of Political Economy," July, 1915.