Economic Competition and Cooperation between the Soviet Union and the United States in Less-Developed Countries

By Carvounis, Chris C.; Carvounis, Brinda Z. | Business Economics, January 1990 | Go to article overview

Economic Competition and Cooperation between the Soviet Union and the United States in Less-Developed Countries


Carvounis, Chris C., Carvounis, Brinda Z., Business Economics


A cardinal aim of ongoing Soviet economic reform is to upgrade Russia's status to that of a global commercial power. In line with this goal, the Kremlin has assigned a high priority to the expansion of trade and investment flows between the USSR and free-market developing countries, including several Latin American and Southeast Asian nations. In pursuing their objectives in these regions, the Soviets may well come into direct competition with American exporters and multinational corporations. On the other hand, a fuller Soviet commercial presence in these economies may benefit American firms by creating opportunities for them to engage in joint ventures with the Soviets.

BEFORE 1987, most American executives thought of the Soviet Union as irrelevant to their firms' overseas operations. Russian markets were virtually closed to U.S. goods, and the poor quality of Soviet-made wares all but ruled out their sale in the United States. As Mikhail Gorbachev's regime carries out its radical restructuring of the economy, U.S. businessmen have begun to have second thoughts about his nation's commercial potential. With about 170 American corporations already conducting substantial volumes of business with the Soviets,(1) many others are now actively exploring the "new" USSR as either an export outlet or as grounds for coproduction activities.

Ironically, little attention has been paid to the two roles in which a revitalized Soviet Union eventually may have its greatest impact upon corporate America: those of competitor to and collaborator with U.S. firms in third countries. If perestroika succeeds, the Russians soon may be able to launch export/investment drives aimed at important American markets in the Third World, particularly those of Latin America and Southeast Asia. Currently, a configuration of factors favors closer economic ties between the USSR and these countries, ties that might grow at the expense of U.S. interests. Conversely, a stronger Soviet commercial presence in these quarters may yield benefits for American business, including opportunities to team up with the Russians in trilateral cooperation projects.

CHANGE IN THE SOVIET FOREIGN ECONOMY

Very little in the current performance of the USSR's external sector indicates that the Soviet Union will become a power to be reckoned with in the near future. In 1988, total Soviet trade turnover amounted to about $200 billion (at the official exchange rate), less than one-third that of the United States.(2) In fact, this comparison overstates Russia's part in the world trade network. More than half of it was derived from exchanges with the six East European members of the Council for Mutual Economic Assistance (CMEA).

The consumption of Soviet exports (chiefly raw and semiprocessed commodities) and imports (mainly foodstuffs and capital goods) resembles that of a developing economy rather than an industrialized one. Neither the lopsided geographical pattern of its foreign trade nor its narrow export bundle suggests that the USSR is on the cusp of becoming an international trading dynamo. Following two decades of significant growth (the value of Russia's foreign trade increasing some fifteen-fold between 1960 and 1983), both the value and the volume of its external flows have stagnated in the 1980s. Indeed, a greater percentage of Soviet trade is with other CMEA members than was the case five years ago, and a larger portion of its exports consists of oil, gas, and minerals. Worse, acrimonious trade disputes have emerged within the Eastern Bloc, Moscow complaining that its Warsaw Pact allies have been using the USSR as a "garbage can" to dispose of inferior products, while the East Europeans have issued similar criticisms of Soviet commodity shipments. Given all this, the Soviets have ample reason to undertake wholesale changes in their foreign economic relations.

The old Structure of Soviet Foreign Trade

In the past, the administrative structure of Soviet foreign trade stymied its development. …

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