CFM Files: Lot M–88: Box 149: May FM Meeting A Series

Paper Prepared in the Department of State 1

confidential

FM D A–8/1a 2

The Economic Situation

The Western European countries have made great progress toward economic recovery. Current economic trends seem to indicate that the principal Western European countries, provided appropriate policies are adopted here and abroad, could be independent of extraordinary economic assistance by the end of the European Recovery Program in 1952. This is to say that barring extraordinary demands of international political origin, their economies could satisfactorily meet normal demands without incurring unmanageable balance of payments problems.

To achieve this position in 1952, however, progress will have to be made on a number of problems. We are most desirous that international economic relationships develop steadily in the direction of an equilibrium which can be sustained without resort to quantitative restrictions and exchange controls. We are equally desirous that equilibrium be attained at high levels of trade, and be sustained in ways consistent with expanding levels of trade. While the United States has a large measure of economic self-interest in such a development, we believe that this interest is common to the United Kingdom and France and all other Western countries. More important, however, than our economic self-interest is the importance of this development to the strengthening of the non-Soviet world—to the creation of a successfully functioning economic system in the non-Soviet world which will give real promise of meeting men’s economic aspirations.

The Executive Branch of the United States Government is fully aware that the United States will have to make economic adjustments if international economic equilibrium is to be attained at satisfactory levels of trade. The President, acting upon the recommendation of the Department of State, has appointed Mr. Gordon Gray, former Secretary of the Army, to lead an interdepartmental study of the problem of [Page 849] the so-called “dollar gap” and advise him what adjustments the United States should make. There is not, of course, agreement with the Congress or even within the Executive Branch at this time as to what adjustments will be necessary, but the project is a serious one, to which the President attaches great importance. The Department of State believes that the interest of the United States in high levels of trade as a means of creating a successfully functioning international economic system requires a measure of forward planning. That is, it believes that the United States must actively seek, by formulating and carrying out wise policies, to establish conditions in which its international accounts can be balanced at high and expanding levels of trade.

There is a widespread recognition in the United States that tariff barriers should be lowered and that other restrictions should be reduced which curb the ability of foreign countries to earn dollars by selling goods and services to the United States. There is also a general acceptance of the possibility that certain countries, in special circumstances, will continue to require assistance after 1952.

We are, in short, attacking the problem of the dollar shortage vigorously. We believe that a similar effort is being made by most of the Western European countries, but we also believe that they can increase their cooperative efforts to improve their position with the dollar area. Although it will be very difficult, we believe that our combined efforts, vigorously pursued, can lead to conditions in which a satisfactory equilibrium between the Western European countries and the dollar area can be maintained with a diminishing reliance on trade and exchange controls.

Our emphasis on 1952 should not be misinterpreted. There is nothing magic about this date. Its significance is that it is the year when the European Recovery Program was designed to end. However, our interest in Western Europe is a continuing and a fundamental interest, as the general and firm endorsement of the North Atlantic Treaty by the Congress and the public indicates.

The Department of State recognizes that the developing relationship between the West and the Soviet Union may compel a revision of present plans. Defensive forces of the size and character envisaged by the mid-term plan recommended by the Defense Ministers may, and probably will, lead to economic requirements additional to what can be described as normal requirements. The Department of State firmly believes that the economies of the North Atlantic Treaty powers can provide for an adequate defense. We are fully prepared to study what these requirements are, to face the facts, and to recommend to the President and the Congress whatever is established as an equitable [Page 850] share of the defense requirements. We shall, of course, wish to ensure that these requirements are being met most efficiently and effectively and that the burden of defense is no heavier for any country than it need be.

We are also aware in the Department of State that, despite a maximum of agreed and concerted action, there might be unfavorable developments in South East Asia and the Far East, or in trade between Soviet-dominated areas in Europe and the West, or other international political developments which would result in extraordinary economic needs in Western Europe which are not now foreseen. If so, the Department will take them into consideration and will advise the President and the Congress of the need for extraordinary measures to deal with extraordinary situations. This is a necessary corollary of the continuing and common interest of ourselves and our North Atlantic Treaty partners in taking whatever common action our common problems require. We are confident that other Foreign Offices will take a similar view and will seek to influence their national policies in the same way, for it is clear that the ability and willingness and determination of each to act in the common interest will be significantly affected by the knowledge that the others are so acting.

  1. Attached to the source text was a cover sheet, not printed, which indicated that this paper had been cleared within the Department of State and approved by Secretary Acheson (CFM Files: Lot M–88: Box 149: May FM Meeting A Series).
  2. An earlier draft of this paper, FM D A–8/1, dated April 18, not printed, is the same as FM D A–8/1a except for minor textual differences (CFM Files, ibid.).