Trading with the Enemy: U.S. Economic Policies and the End of the Cold War A dissertation presented to the faculty of the College of Arts and Sciences of Ohio University In partial fulfillment of the requirements for the degree Doctor of Philosophy Tyler P. Esno April 2017 © 2017 Tyler P. Esno. All Rights Reserved. 2 This dissertation titled Trading with the Enemy: U.S. Economic Policies and the End of the Cold War by TYLER P. ESNO has been approved for the Department of History and the College of Arts and Sciences by Chester J. Pach, Jr. Associate Professor of History Robert Frank Dean, College of Arts and Sciences 3 ABSTRACT ESNO, TYLER P., Ph.D., April 2017, History Trading with the Enemy: U.S. Economic Policies and the End of the Cold War Director of Dissertation: Chester J. Pach, Jr. This dissertation argues that U.S. economic strategies and policies were effective means to wage the Cold War during its final years and conclude the conflict on terms favorable to the United States. Using recently declassified U.S. and British government documents, among other sources, this analysis reveals that actions in East-West economic relations undermined cooperative U.S.-Soviet relations in the 1970s, contributed to heightened tensions in the early 1980s, and helped renew the U.S.-Soviet dialogue in the late 1980s. Scholars have focused on the role arms control initiatives and political actions played in the end of the Cold War. Arms control agreements, however, failed to resolve the underlying ideological and geopolitical competition between the United States and the Soviet Union. Through economic statecraft, the United States strengthened Western security and moved beyond containment to aid the democratic revolutions in Eastern Europe, help settle U.S.-Soviet political differences, and encourage the transformation of the oppressive Soviet system. In effect, this analysis highlights the ways in which U.S. economic statecraft served as an instrument to promote national interests and peace. Between the 1970s and early 1990s, the Soviet Union intended to overcome its economic decline through deeper commercial relations with the West. But, the United States continually sought to block Soviet moves, fearing deeper East-West economic relations would enhance Soviet military potential and grant Moscow leverage over the 4 Atlantic alliance. While working with its West European allies to strengthen the regulation of East-West trade and protect alliance security, the United States also attempted to place further pressure on the Soviet economy and punish Moscow for its aggressive international behavior. In the late 1980s, trade restrictions and limited economic engagement helped the United States negotiate with the Soviet Union from a position of strength, moving beyond the Cold War. Lastly, as the Soviet empire crumbled, economic instruments proved to be the West’s most powerful tool in ending the division of Europe, aiding the institutionalization of democratic, market-oriented systems in Eastern Europe, and encouraging Soviet leader Mikhail Gorbachev to undertake deeper economic reforms. 5 DEDICATION For Breanna 6 ACKNOWLEDGMENTS There are many groups and individuals who made this project possible. In addition to the dedicated archivists who assisted my research, I owe a debt of gratitude to the Ohio University History Department, Contemporary History Institute, and Baker Peace Endowment Committee for the generous financial support and opportunities they have provided me over these many years. I have also benefited from the aid and advice of the History Department’s distinguished faculty. My advisor, Dr. Chester Pach, inspired this dissertation, offered constructive criticism, and prodded me to thinker deeper about the material on many occasions. He has been an admirable mentor throughout my time at Ohio University. Dr. Paul Milazzo kindled my interest in political and policy history while Dr. Ingo Trauschweizer helped me sharpen my thinking on strategic, alliance, and political-military affairs. I also appreciate Dr. James Mosher serving as the outside reader on my dissertation committee. Beyond the university, I would like to thank my family and friends, who believed in my ability to meet the challenges of graduate school and the dissertation. Jesse Cunningham and Luke Griffith helped me take my mind off of this project frequently. Throughout my life, my mom, dad, and sister have nurtured my curiosity and ambitions. Now that I have completed my doctorate, they can breathe a sigh of relief! My in-laws have given me endless encouragement and support as well. Lastly, I would like to thank my wife Breanna. She always listens to my stories about the past with an attentive ear and encourages me to think positively. Without her love and support, none of this would have been possible. 7 TABLE OF CONTENTS Page Abstract ............................................................................................................................... 3 Dedication ........................................................................................................................... 5 Acknowledgments............................................................................................................... 6 Introduction ......................................................................................................................... 8 Chapter 1: Patterns of East-West Economic Relations, 1946-1976 ................................. 25 Chapter 2: A Divisible Détente and the Return of Economic Containment ..................... 57 Chapter 3: A Pragmatic President and a Prudent Approach to East-West Relations ..... 130 Chapter 4: Waging Economic War: The Siberian Pipeline Dispute ............................... 211 Chapter 5: “All in the Family”: Reuniting the Alliance ................................................. 268 Chapter 6: Opening U.S.-Soviet Relations Through Trade ............................................ 322 Chapter 7: “Currency of Peace”: An End to the Economic Cold War ........................... 387 Conclusion ...................................................................................................................... 465 Bibliography ................................................................................................................... 476 8 INTRODUCTION “The Soviet Union is economically on the ropes—they are selling rat meat on the market,” President Ronald Reagan told his National Security Council on May 24, 1982. He thought “this is the time to punish them.” Détente, a period of reduced East-West tensions, had characterized the Cold War in the 1970s, but Reagan considered détente to be a “one-way street that the Soviet Union has used to pursue its own aims.”1 Although Moscow claimed it wanted peaceful coexistence with the West, it conducted a military buildup and intervened in the Third World. In December 1979, the Soviet Union invaded Afghanistan, and almost one year after Reagan assumed office, it aided the Polish communist regime in a crackdown on political dissent. Yet President Reagan knew that the Soviet Union, despite its military strength and threatening actions, faced a growing internal crisis of economic stagnation and decline. Could the Soviet Union survive if rat meat was a growing food staple? He hoped the United States could leverage this economic plight to force Moscow to abandon its aggressive international behavior. In this particular instance, U.S. policy was unsuccessful as the allies in Western Europe refused to cooperate with Reagan’s economic sanctions against the Soviet Union. Nevertheless, this occasion was one of many in which U.S. leaders and policymakers attempted to use economic measures to wage the Cold War during its last decade. My dissertation demonstrates that U.S. economic strategies and policies played an integral, often controversial, and sometimes subtle role in strengthening Western security, 1 NSC Meeting Minutes, May 24, 1982, The Reagan Files, created by Jason Saltoun-Ebin, http://thereaganfiles.com/document-collections/national-security-council.html (accessed 14 Jan. 2017); Ronald Reagan, “The President's News Conference,” Jan. 29, 1981, The Public Papers of President Ronald W. Reagan, Ronald Reagan Presidential Library (RRL), http://www.reagan.utexas.edu/archives/speeches/1981/12981b.htm (accessed 26 Aug. 2015). 9 resolving U.S.-Soviet political differences, and ending the division of Europe. Economic action was one of the most effective means to wage and peacefully conclude the Cold War. Presidents Jimmy Carter, Ronald Reagan, and George Bush each used foreign economic tools to promote U.S. Cold War interests, oppose communism, and help end the conflict peacefully on terms favorable to the United States. At times, these policies were well publicized and apparent to anyone following U.S. politics and international events. Carter’s grain embargo on the Soviet Union and the distress it caused U.S. farmers, for example, was a prominent political issue in the 1980 election. But at other times, U.S. economic strategies and policies were less recognizable. Many Americans, aside from foreign policy elites and business executives, did not notice the Reagan administration’s successful efforts to help renew the U.S.-Soviet dialogue through the expansion of non-strategic trade. In examining the multi-faceted nature of U.S. economic statecraft in the late Cold War, my dissertation reveals ways in which these tools served as instruments to promote national interests