396.1 LO/5–350: Telegram

The United States Delegation at the Tripartite Preparatory Meetings to the Secretary of State
top secret

Secto 108. Reference UKUS/P/6 May 3, 1950.1 Below is memorandum covering items 3 and 4 of the agenda.2 If approved by plenary bipartite meeting, plan is to submit it to ministers:

“United States–United Kingdom economic relations.

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Joint memorandum by the United States and United Kingdom official representatives.

In the course of the bipartite official discussions we have reviewed the economic relations of our two countries. Issues of current policy at present under discussion in the continuing tripartite consultations in Washington and in Paris were not discussed in detail, and were touched upon only insofar as they illustrated the general problems with which we were concerned. It was felt that it might be of use briefly to summarise the considerations which emerged from this review, and thus attempt to set in perspective the main points on which differences of outlook and emphasis exist between us.

2. Both sides were in accord that, while agreement on ultimate economic objectives exists, most of the major difficulties between the two countries since the war appear to stem from financial or economic issues. They were disturbed, however, that a divergence of approach on many specific issues had cast doubt from time to time upon the identity of these objectives.

3. It was with satisfaction, therefore, that we were able to confirm our agreement that the ultimate economic objectives of both sides were to maximise world levels of trade and standards of living, and that essential to this end were the convertibility of sterling and the end of discriminatory trade practices.

4. We have to recognize, however, that we are not in full agreement on the steps by which, and the pace at which these objectives can be attained. This means that on many specific issues of current and future policy we will not easily find accord, and our mutual long-term interests may seem to each side, and indeed may in fact be, seriously impaired.

5. Perhaps the most fundamental divergence is on the question of sterling area viability. This is the dominating factor in current United Kingdom thought and planning, not, indeed, as an end in itself, but as the essential condition of achieving convertibility and nondiscrimination. It is based on the belief that, while the situation is improving, serious structural disequilibrium persists between the dollar and non-dollar worlds, and that, until it is eliminated, drastic steps towards freeing trade and payments would only imperil the achievement of the long-term objectives. Moreover, the United Kingdom believes that for political and psychological, as well as economic reasons, it is desirable in the interests of both countries that the United Kingdom should stand on its own feet at the earliest possible moment. The United States, on the other hand, while accepting in principle the need to assist in strengthening the sterling area position in this way, tends to feel that the United Kingdom takes too narrow a view of the importance of achieving a balance on the short-term, and differ in their assessment of the risks involved in taking some tangible steps in the near future towards the ultimate objectives. They feel, further, that by adopting an unduly cautious and rigid attitude on short-term issues, the United Kingdom makes more difficult the realization of long-term objectives; it also gives rise to public reactions in the United States which adversely affect United States–United Kingdom relations. (The current oil issue is perhaps a case in point.)

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6. Similarly, each side believes that the other tends to underestimate its difficulties in making the internal adjustments necessary to correct this structural disequilibrium. We are agreed that this requires effort on both sides; on the part of the debtor countries to expand their dollar earning capacity; on the part of the United States to expand their capacity to import. It also requires a rising level of international investment. We believe, however, that there is in the United Kingdom a general tendency to ignore the political climate in the United States and to underestimate the effect on the United States of what may in some cases seem to be an unduly cautious and uncompromising approach to specific issues; the United States for their part tend to underestimate the problems for the United Kingdom presented by the increasing load on the United Kingdom economy arising from domestic and foreign obligations.

7. Finally, there are inherent doubts on both sides, confined perhaps to the subconscious in public opinion, but facts with which we must reckon nevertheless, about the underlying influences which control the policies of each side. They are to some extent irrational and misguided, but to some extent also they are fostered by specific incidents.

In the United Kingdom, on the one hand, there is an inherent and largely unjustifiable fear about the stability of the United States economy and employment levels, to which the distorted interpretation of the events of 1949 bear witness. There is also the feeling in the minds of United Kingdom manufacturers, which substantially limits the effectiveness of the dollar drive, that the United States market is fundamentally hostile to foreign competition as illustrated by the recent incident of the Seattle power contract.
On the other hand, there exists in the United States an inherent suspicion of the sincerity of the United Kingdom motives, particularly in connection with their efforts to strengthen sterling and consolidate the operation of the sterling area. The United Kingdom approach on several recent issues (inter alia, European ‘integration’, the European Payments Union, the proposed United Kingdom statement on import restrictions prepared for the recent meeting of GATT), has been liable to the interpretation in some United States quarters that their objectives were the strengthening of sterling as an end in itself. Furthermore, although the US shares with the UK the objectives of promoting high and stable levels of employment and income, there exists some concern that the relative emphasis in the UK upon immediate domestic employment policy may lead to undue reluctance to accept cooperative international obligations which will assist in promoting economic stability and advance throughout the free world and, indeed, the enduring conditions of full employment policy itself.

8. While these doubts, fears, and suspicions may be recognized as exaggerated, an act of faith is nevertheless in some degree required if the stability of the US economy is to be accepted as a factor in the planning of British policy and if the strengthening of the sterling [Page 960] area is to be regarded as an element in progress towards convertibility and not as an attempt to fortify a closed soft currency system.

9. To sum up, the ability of both sides to take the internal and external steps necessary for the achievement of our agreed objectives of convertibility and nondiscrimination, is very largely determined by the readiness of each side to ease the task of the other. There has, in the past, been too little understanding of the risks involved, the differences of approach to short-term issues have interfered with our ability to progress towards these long-term objectives. The establishment of tripartite talks under the continuing arrangements in September, 1949, was a substantial step in the right direction and the frank exchange of views in Washington and in the current talks have greatly contributed to a better understanding. They have underlined, however, that there is a real difference of emphasis on short-term objectives, which will be for some time a potential source of conflict on specific issues. We conclude that constant and intensified contact will be necessary to insure that these issues are viewed and settled with the broadest possible comprehension of our mutual long-term interest.”3

  1. UKUS/P/6 is the designation given to this paper in the records of the conference.
  2. For a copy of the agenda, see telegram 1731, April 17, p. 835.
  3. In Secto 137, May 5, not printed, the United States Delegation reported that this memorandum had been approved at a U.S.–U.K. plenary on May 4 (396.1–LO/5–550). Following the deletion of the words “and largely unjustifiable” in paragraph 7a and “There has, in the past, been too little understanding of the risks involved, the” in paragraph 9, the memorandum was designated MIN/UKUS/P/2 and submitted to Acheson and Bevin.