S/S Files: Lot 63 D 351: NSC 104

The Executive Secretary of the National Security Council (Lay) to the National Security Council

secret

NSC 104

U.S. Policies and Programs in the Economic Field Which May Affect the War Potential of the Soviet Bloc

Reference: Memo for NSC from Executive Secretary, same subject, dated February 12, 19511

The President has referred the enclosed letter by the Secretary of State2 and its attached report on the subject for consideration by the National Security Council of the “Recommendations on Substantive Measures” contained in Part II–A therein. The Secretary of the Interior, the Secretary of Agriculture, the Secretary of Commerce, the [Page 1903] Economic Cooperation Administrator and the Director, Bureau of the Budget, are being invited to participate in consideration of the enclosure by the Council, the Secretary of the Treasury and the Director of Defense Mobilization.

The President has referred the “Recommendations as to Organization” contained in Part II–B of the enclosed report to the Director, Bureau of the Budget for separate consideration.

Also enclosed is a copy of the letter from the President to the Secretary of State3 requesting the enclosed report.

The analysis of the “Vulnerability of the Soviet Bloc to Existing and Tightened Western Economic Controls”, and the analysis of the “Trade of the Free World with the Soviet Bloc”, referred to in the enclosed letter by the Secretary of State, are being transmitted separately by the reference memorandum.

It is recommended that the “Recommendations on Substantive Measures” contained in Part II–A of the enclosed report, as adopted, be submitted to the President for consideration with the recommendation that he approve them and direct their implementation by all appropriate departments and agencies of the U. S. Government under the coordination of the Secretary of State.4

James S. Lay, Jr.
[Enclosure 1]

The President to the Secretary of State

confidential

My Dear Mr. Secretary: Recent developments in the international situation require that the United States review and adjust certain of its policies and programs with respect to its international economic activities. It is necessary that we now take such measures as are feasible to prevent the flow to countries supporting Communist imperialist aggression of those materials, goods, funds and services which would serve materially to aid their ability to carry on such aggression. We must enlist the cooperation and support of other nations in carrying out those measures; and in securing such support we must stand ready to take such steps as may be necessary to minimize the economic dependency [Page 1904] of cooperating nations upon Communist imperialist countries. Such objectives must necessarily be achieved without materially impairing our collateral aim of increasing the flow, and assuring the sound allocation, of strategic and critical materials to the free countries of the world.

It is my desire that to the extent that legislation, organization and funds permit and subject to your advice and concurrence with respect to foreign policy objectives, all appropriate programs of the Government now be adjusted and hereafter administered in the light of the above determinations. I desire that you keep me currently informed of the actions taken by the various agencies involved in support of these objectives.

Further, I request that you take the lead in developing recommendations, for submission to me within the next 30 days, of additional measures to achieve these purposes. The development of recommendations will require an analysis to be undertaken by the Economic Cooperation Administration, with such assistance from other agencies as it may request, of the economy and trade of Communist imperialist aggressors as well as the economy and trade of countries trading with them and the development of specific programs for the adjustment of those trade patterns.

I am having copies of this letter transmitted to the Secretaries of Defense, Treasury, Agriculture, Commerce and Interior, to the Economic Cooperation Administrator, and to the Director of Central Intelligence with the request that they undertake such studies and analyses and participate in the development of recommendations as you may require.

I am also sending copies of this letter to Mr. Harriman5 and to the Director of the Bureau of the Budget with the request that they work closely with you in the development of the recommendations, the latter especially on those which have organizational and budgetary implications.

Sincerely yours,

Harry S. Truman
[Enclosure 2]

The Secretary of State to the President

secret

Dear Mr. President: In accordance with your letter of December 28th concerning U.S. policies and programs in the economic field which may affect the war potential of the Soviet bloc, I submit herewith [Page 1905] a report containing the recommendations of the Department of State, together with supporting material setting forth our conclusions as to the nature of the vulnerability of the Soviet bloc, the nature of the economic relationships between the Soviet and non-Soviet worlds, and the implications of alternative lines of action.

There is appended to the report an analysis of the vulnerability of the Soviet bloc, prepared in the Department of State on the basis of its own intelligence reports and of those of the Defense establishment.* There is also appended an analysis of the economies and trade of the free world with Soviet bloc countries, prepared by the Economic Cooperation Administration with the assistance of the Department of State and other agencies.*

The report contains a series of substantive recommendations for immediate action to strengthen our own controls and those of friendly countries. It also recommends further exploration of a number of lines of action which there has not yet been time to consider fully.

As activities in this field require constant review and consideration and as the possible lines of action are of interest to several departments and agencies of the Executive branch, it is also recommended that an interdepartmental Economic Defense Strategy Board be established for the purpose, among others, of considering proposed economic defense programs and their relationships to foreign policy objectives and other foreign operations. If you concur in this recommendation, it would be desirable for this Board to be established promptly.

Pending the establishment of any new mechanism, I suggest that the report be considered by the National Security Council. I believe this particularly desirable as certain aspects of this subject are already before the Council.

The pressure of time has made it impracticable for us to seek and obtain final approval of the report from the other departments and agencies interested in this subject. We did, however, seek their comments and suggestions on our preliminary draft and have endeavored to reflect their views. We have also had the benefits of the views of the Bureau of the Budget and of Mr. Harriman’s office in the development of the recommendations.

. . . . . . . . . . . . . .

Sincerely yours,

Dean Acheson
[Page 1906]
[Attachment]

Report Prepared in the Department of State

[Extracts]6
secret

Report to the President on U.S. Policies and Programs in the Economic Field Which May Affect the War Potential of the Soviet Bloc

. . . . . . . . . . . . . .

part ii

recommendations

It is not possible to make final recommendations covering the entire subject under review without further study and consultation with other agencies of the Government. However, the following recommendations are submitted with a view to setting a pattern for immediate action and establishing machinery for carrying forward the consideration and development of policies and programs. Because of the interests of certain other departments and agencies of the Government in this subject, and because some aspects of it have been before the National Security Council, it is suggested that these recommendations be referred to the Council for review and consideration by it and other appropriate departments and agencies.

A—Recommendations on Substantive Measures

Export Controls

1. The U.S. Government should, pending further developments in the U.N., continue to prohibit all exports to communist China, Manchuria and North Korea, but should apply licensing controls so as to permit Hong Kong and Macao to procure from U.S. sources imports for local uses and for transshipment to non-communist destinations.

. . . . . . . . . . . . . .

7. The U.S. Government, in view of the Chinese Communist aggression in Korea, should press for the application of effective controls on exports to China. Its efforts through the United Nations should be directed at achieving agreement on economic sanctions by the maximum number of countries; if necessary to achieve a wide measure of agreement, such sanctions may be confined to a list of goods including atomic energy materials, arms, ammunition and implements of war, petroleum, and industrial equipment useful in producing war materials.

. . . . . . . . . . . . . .

  1. Infra.
  2. Enclosure 2.
  3. Enclosure 1.
  4. NSC Action No. 443, taken by the National Security Council at its 84th meeting, February 21, 1951, with the President presiding, recorded discussion of NSC 104, as well as of NSC 102, NSC 91/1, and accompanying memoranda. It also referred these documents to the Special Committee on East-West Trade for further study and revision in the light of discussion at the meeting. (S/S Files: Lot 62 D 1: NSC Actions)
  5. W. Averell Harriman, Special Assistant to the President.
  6. Transmitted separately by memo for NSC from Executive Secretary, same subject, dated February 12, 1951. [Footnote in the source text. The Department of State analysis is not printed here; for text, see vol. i, p. 1035. The Economic Cooperation Administration analysis is printed as Appendix B, infra.]
  7. Transmitted separately by memo for NSC from Executive Secretary, same subject, dated February 12, 1951. [Footnote in the source text. The Department of State analysis is not printed here; for text, see vol. i, p. 1035. The Economic Cooperation Administration analysis is printed as Appendix B, infra.]
  8. Extracted here are only those portions of the document relating to China and North Korea. For another portion of this document, see vol. i, p. 1026.