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  4. Document 298

Department of State Committee Files, Lot 122, Box 15559

Background Memorandum on the Dollar Gap Question, Prepared in the Executive Secretariat 1

February 21, 1950
secret

Background

The estimated 1949 trade figures of the United States show a gap between imports and exports of $5.3 billion. The problem of this dollar gap is: As ERP is reduced, and after its termination in 1952, how can Europe and other areas of the world obtain the dollars necessary to pay for the high level of U.S. exports which is essential both to their own basic needs and to the well-being of the U.S. economy? There has been widespread feeling in the Department that the solution of this dollar gap problem will necessitate a comprehensive rather than a piece-meal approach to the many specific commercial and financial policy issues involved in increasing the dollar earnings of other countries. It is believed that to achieve this comprehensiveness, White House direction and coordination are required.

Status

1. Substantive

Last December E and S/P prepared a paper on the dollar gap problem which was considered at the Under Secretary’s Meeting on December 12 and was revised and approved by the Secretary shortly thereafter.2 There are no further substantive developments to report except that the Department’s officials are continuing their efforts to implement a consistent economic foreign policy on many individual battlegrounds (petroleum, European trade liberalization, import [Page 832] quotas, etc.). Working-level Departmental officials are now preparing a draft policy paper on the sterling balances which will soon come to the Assistant Secretary level for approval and then go through Secretary Acheson to the National Advisory Council.3

2. Procedural

E, A and S/S have jointly prepared a draft Memorandum to the President making recommendations for interdepartmental machinery to manage the dollar gap “campaign.” Developments concerning this draft Memorandum are:

a)
It was presented to the Secretary late Friday, January 27, and subsequently revised as he suggested.
b)
Two supplements were prepared, the first arguing against the use of the NSC, the second against the use of the NAC as the principal over-all coordinating mechanism for the dollar gap program.
c)
The Memorandum in its final form was taken to the White House by the Secretary and discussed with the President on February 6.4
d)
On February 8 Mr. Webb5 brought the Memorandum to Secretary Snyder6 in Florida and had some preliminary discussions about it.
e)
The Memorandum was left with Secretary Snyder and he discussed it with Secretary Acheson on February 14. The matter is still pending.
f)
Officials in the Bureau of the Budget and also Admiral Souers7 of the White House Staff have been consulted about the recommendations contained in the draft Memorandum to the President. All have expressed agreement in principle.
g)
S/S is taking the lead in preparing a series of charts on the specific parts of the dollar gap problem.
h)
A, E, P and S/S will produce supplementary memoranda on such corollary subjects as the specific functioning of the proposed interdepartmental machinery, public relations in the dollar gap campaign, and Departmental backstopping machinery.

Difficulties Met or Anticipated

1. Substantive

There was originally some difference of opinion between E and S/P on the role of extraordinary foreign assistance in making up that part of the dollar gap which could not be filled by increased [Page 833] imports and increased foreign investments.8 This difference was discussed with the Secretary and a decision obtained.9 Greater substantive difficulties can be anticipated when the Department’s program for closing the dollar gap is presented to such government agencies as the Maritime Commission and the Tariff Commission, to say nothing of expected Congressional and pressure-group opposition.

2. Procedural

The Department originally felt that the NSC was a valuable instrument for interdepartmental coordination of the dollar gap program but Mr. Snyder and Mr. Sawyer10 objected. It is anticipated that Mr. Snyder may still object to our new proposal, i.e., to use new high-level groups, with the help of the White House Staff as the coordinating mechanism, and he may argue for using the NAC as the prime over-all instrument.

Decisions Necessary

Decisions are now required on the part of Secretary Snyder and, presumably, soon thereafter from Secretary Sawyer and the other Cabinet officials (who have not yet seen the Memorandum) as to whether the procedural proposals in the Memorandum are acceptable to them.

Responsibility

For substance: Mr. Thorp

For procedure: Mr. Thorp jointly with Mr. Peurifoy11

Deadline

Hearings on the ECA legislative program are scheduled to begin on February 21. Since the problem of the dollar gap will surely arise in this context, it is considered advisable to have interdepartmental agreement on a dollar gap “campaign” soon after that date.

  1. This document is dated February 21, 1950, but is inserted ahead of the two that follow, which are of earlier date, for general background.↩
  2. There were two papers originally, the basic one being a study prepared in the Bureau of Economic Affairs (E) and submitted to the Under Secretary’s meeting for discussion by Willard L. Thorp, Assistant Secretary of State for Economic Affairs. (S/S Doc. UM D–70, December 8, 1949, Executive Secretariat Files, Lot 53D250; the record of the Under Secretary’s meeting on December 12 is found in this same group.)↩
  3. The files relating to the Department’s effort on this problem during January and February 1950 are for the most part found in Lot 122, Box 15559, which contains the files of the Departmental Dollar Working Group (DDG) (established March 2, 1950).↩
  4. But not formally submitted to the President at that time. See memorandum to the President, February 16, infra. ↩
  5. James E. Webb, Under Secretary of State.↩
  6. John W. Snyder, Secretary of the Treasury.↩
  7. (Rear Adm.) Sidney W. Souers, Executive Secretary, National Security Council.↩

  8. This issue was discussed at the Under Secretary’s meeting on December 12, 1949. A paper drafted in the Executive Secretariat on December 8, 1949 (Doc. UM D–70/1) had this to say:

    “This difference in emphasis perhaps reflects a deeper difference. Implicit in E’s approach is the philosophy that vigorous support of conventional economic measures, e.g., reduction of trade barriers, adjustment of exchange rates, and restoration of currency convertibility, will bring about the adjustments needed for sound and self-sustaining economic relationships among the free nations. Implicit in S/P’s approach is the view that the U.S. is trying to organize a community of free nations, that this community may be, to some degree, uneconomic, in the sense that natural economic forces would exert a centrifugal force on the political system (e.g., East-West trade), and that unconventional economic measures may be necessary for many years to hold the political system together.”

    ↩
  9. No paper has been found that deals explicitly with this action.↩
  10. Charles Sawyer, Secretary of Commerce.↩
  11. John E. Peurifoy, Deputy Under Secretary of State for Administration.↩