Foreign Relations of the United States, 1952–1954, Western Europe and Canada, Volume VI, Part 1

611.41/3–553

No. 385
United States Delegation Minutes of a Meeting of the Secretary of Commerce (Weeks) and the Chancellor of the Exchequer of the United Kingdom (Butler) at the Department of Commerce, March 5, 1953, 9:45 a.m.¹

top secret
WET MIN–6

March 5, 1953, 9:45 a.m.

Participants:

• United Kingdom

  • Chancellor of Exchequer Butler
  • Sir Leslie Rowan
  • Sir Frank Lee
  • Mr. Dennis Rickett
  • Mr. Clarke
  • Mr. Charles Empson
  • Mr. Armstrong

• United States

  • Secretary Weeks (Commerce)
  • Mr. Williams, Deputy Under Secretary (Commerce)
  • Mr. Anderson, Assistant Secretary (Commerce)
  • Mr. Douglas (State)
  • Mr. Burgess (Treasury)
  • Mr. Bissell (MSA)
  • Mr. Leddy (State)

[Here follows a list of the subjects discussed.]

Commerce Department

American Tariff and Trade Policy

Secretary of Commerce Weeks: The Secretary inquired what the U.K. had in mind with respect to action by the U.S. on the matter of tariffs and trade policy.

Chancellor of the Exchequer Butler: The Chancellor said he thought two things were required. First was the general level of the American tariff, which might be reduced, and second, the question of customs simplification. It was the feeling of the U.K. that the measures which had been suggested for customs simplification were not adequate to do an effective job.

Secretary of Commerce Weeks: The Secretary said that the U.S. had reduced its tariff from about 25 percent in 1930 to an average of only 13 percent today, or an over-all cut of about 50 percent. Approximately 55 percent of our imports were duty free. He wondered what the reaction of the U.K. would be if the U.S. were to maintain its present tariff rates but were prepared to take more drastic action on customs simplification.

Sir Frank Lee: Mr. Lee said that such action would of course be useful and no doubt ought to be taken. Nevertheless it fell far short of what seemed to be required by the situation. In the U.K. view an effective approach along the lines of trade not aid would require, in addition to adequate customs simplification, a substantial reduction of American tariff levels, some action on Buy American, and a departure from the principle of strict reciprocity in tariff negotiations. In other words, an over-all approach seemed to be the only one which promised to make a real contribution to the problem.

Assistant Secretary of Commerce Anderson: Mr. Anderson inquired just how much good it would do, in quantitative terms of increased U.K. exports, if the U.S. adopted a substantially more liberal import policy.

Sir Frank Lee: Mr. Lee was doubtful that it would be useful to try to make a quantitative estimate. He said that so far as U.K. exports were concerned, the main benefits would be felt in light manufactures and consumer goods. U.K. exports to the U.S. had now reached a peak level of about $400 million annually. The real benefit of a liberalized American import policy, however, was not so much in terms of direct imports from the U.K. as from larger imports over all, which would contribute to the total volume of dollars made available to foreign countries.

Assistant Secretary of Commerce Anderson: Mr. Anderson stated that according to one expert a substantial reduction of the American tariff might be expected to produce somewhere around an additional billion dollars a year of imports.

Sir Frank Lee: Mr. Lee said he thought that that figure might be about right.

Secretary of Commerce Weeks: The Secretary said that we were very much interested in the question of third country trade and inquired as to the prospect for the U.K.’s earning additional dollars in this way.

Chancellor of the Exchequer Butler: The Chancellor said that the U.K. was conscious of the need for increasing its dollar earnings from third countries and expected to make substantial progress in this area. Among the immediate efforts being undertaken was a drive to increase exports to the Caribbean countries to which little attention had been paid in the post-war period.

(It was pointed out on the U.K. side that U.K. exports to Canada were at about the level of $800 million annually, or about twice the level of exports to the U.S. Over-all U.K. exports to third countries had increased to a level which offset the loss of exports to the rest of the sterling area following upon the imposition by Australia of restrictions on sterling area goods.)

Investment

There was general discussion of the possibilities of increasing private investment in the underdeveloped areas, including U.S. private investment in the sterling area. The Chancellor of the Exchequer stated that with respect to U.K. investments overseas, the U.K. Government was going to keep a very tight rein on this to see that capital exports from the U.K. went into industrial investment that would contribute to the solution of the balance-of-payments problem. They were going to cut out the kind of “milk bar” development which had been allowed to take place in Australia in past years. With respect to U.S. private investment as a solution to the dollar problem, the Chancellor said that investment “was the practice of wisdom—it was perhaps the noblest way”; but unfortunately it would take a very long time. He did not feel that it could make a large contribution in the near future.

In connection with the question of protection for American investors, the British officials stated that they did not believe that there was any serious degree of discrimination against American investment, such as tax discrimination, in the sterling area except in connection with the handling of film royalties which was a special arrangement. Secretary Weeks said that the manufacturing firm which he had headed (Gillette Safety Razor Co.) had had serious difficulties in Australia, but he did not elaborate.

Tourism

There was little discussion of this. Secretary Weeks indicated that we were interested in helping to increase dollar earnings through tourism. It was recognized on the British side that this was one of the largest dollar earners at the present time.

(Mr. Walter Williams, Deputy to the Under Secretary of Commerce, who had to leave to meet another engagement, broke in to say that he attached a very great importance to these discussions that were going on between the U.S. and the U.K. He felt that regardless of the difficulties, or of the differences between us as to the methods which might be pursued, some way must be found to make progress in this area. He felt that we must at all costs move forward together on both sides of the Atlantic and avoid economic failures which might tend to split the Commonwealth and the U.S.)

Raw Materials

Assistant Secretary of Commerce Anderson: Mr. Anderson expressed the view that the U.S. would be an increasingly larger importer of raw materials in the future and referred in this connection to the Paley Commission report.² The U.K. people did not comment on this except to state their understanding that this was a relatively long term matter.

Finance

Secretary of Commerce Weeks: The Secretary said that in reading the U.K. proposals he was curious to learn what the U.K. had in mind with respect to the additional financial resources which might be necessary in order to make their plan work.

Chancellor of the Exchequer Butler: The Chancellor replied that he had not, up to that moment, given a precise figure. He said that it was very largely a matter of judgment as to what would be required. He stated that the U.K. quota in the Monetary Fund was $1.3 billion and that his own view was that a minimum of an additional $1.3 billion would be needed in order to avoid undue risk.

Western Europe

Secretary of Commerce Weeks: The Secretary asked whether the U.K. thought that the Western Europeans would be prepared to go along with these proposals if they should prove acceptable to the U.S.

Chancellor of the Exchequer Butler: The Chancellor replied that he thought that the continental Europeans would be centrally concerned about the maintenance of trade liberalization and satisfactory payments arrangements. He thought that the question was one of marrying the wider trade and payments plans in the U.K. proposals with the OEEC and the arrangements which had grown up under the OEEC and EPU. He said that there would of course have to be discussions and negotiations with the European countries but that the U.K. had felt it was first necessary to have talks with the U.S. to see whether an approach such as the U.K. had outlined had enough of hope in it to warrant further serious consideration.

Federal Reserve Board

The Federal Reserve Board presented for the benefit of the British visitors a series of four lectures, and accompanying charts, covering (a) production, consumption, price and inventory trends in the U.S. up through early 1953, (b) trends in the dollar balance of payments showing the narrowing of the gap between 1947 and 1952 and methods of financing, (c) trends in the gross national product and (d) monetary and credit conditions. There was not time for questioning by the U.K. officials, although they expressed some interest in the possible future impact on U.S. imports of current developments in the inventory and credit situation. According to the Federal Reserve presentation a substantial inventory accumulation is taking place, consumer credit is rising and there is some concern that this situation may lead to deflationary pressures later on. The text of the Federal Reserve commentary is attached.³ (Note: Several members of the U.K. delegation later expressed apprehension over the possibility of a downturn in the U.S. economy which they felt was likely on the basis of the Federal Reserve presentation.)

Director of the Budget

At 11:30 Mr. Dodge, the Director of the Budget, gave a presentation, with charts, of the past, present and prospective budgetary situation of the U.S. One of the major concerns of the Government was the very high proportion of total U.S. national income which is now going into Government expenditures. There has been a substantial increase not only in federal taxation but also in state and local taxes so that the percentage of national income going into Government revenue of all kinds has increased from about 22 percent in 1940 to 30 percent in 1952. Mr. Dodge said that it was a real question as to how long we could keep this up and still maintain the kind of economy which has made the U.S. productive.

The federal deficit for fiscal 1954, on the basis of current budget estimates, would be about $5.9 billion. This compares with a deficit of $9.9 billion in the original (Truman) budget. He then went on to explain that even if no new legislation for tax reduction were enacted, the deficit would increase to about $15 billion in 1955, thereafter falling to $12 billion in 1956, $6½ billion in 1957 and winding up in a balanced situation in 1958. He explained that this very large increase in the deficit was due to the fact that under present laws certain taxes would automatically expire. On these projections the public debt, which now stands at $254 billion, would rise to $275 billion by the end of 1954 and to $307 billion by 1958.

In the course of the presentation by the Federal Reserve Board and the Director of the Bureau of the Budget Mr. Butler asked for a further explanation of one point: What is likely to happen when the defense program starts to decline? He said that the U.K. watched with a great deal of interest the developments in the U.S. economy, which was now clearly in a flourishing situation, and there was some concern as to what the effect of decreased defense expenditures might be on the domestic economy and hence on American demand for imports. Mr. Thomas, of the Federal Reserve Board staff, said that the hope is that consumer and business demand will expand to the extent necessary to take up the slack. This is why the Federal Reserve Board is placing so much emphasis on the importance of a sound credit policy. They wish to avoid a situation in which the country would be faced simultaneously with a decline in defense demand and an undue credit burden on business and consumers.

Mr. Dodge added that the answer to Mr. Butler’s question also depended on how the budget problem was handled. According to present plans the peak of defense expenditures would be reached in 1954 with a total outlay for defense of $47 billion. By 1958, by which date the budget is projected to be in balance, defense expenditures would have come down to $35 billion. Foreign military and economic aid would drop over the period from a peak of $7 billion to $3 billion. Mr. Dodge thought that while the public might want early tax reduction and quick budget balance, the Government would have to take into account the broad effects of budget policy on the domestic economy. Today we are in a situation of production imbalance resulting from the post-Korean situation. Too sharp a curtailment in expenditure might throw the economy down too fast. While it was necessary to keep the objectives of budget balance and tax reduction clearly in view it was also important to avoid the bad effects of a meat-axe approach.

Mr. Butler inquired whether our agricultural price support policy was going to go on as it is now. Mr. Dodge replied that it would have to continue through 1954 but that the objective of the Administration is to get price support levels down, that they should be regarded rather as an insurance against disaster than as a means of continuous subsidy. He pointed out that the present rigid supports were in some cases pricing commodities out of the market (e.g. butter).

1. According to a notation on the source text, the meeting began at the Department of Commerce, but went to the Federal Reserve Board at 11 a.m. where the group met with Chairman Martin and members of his staff. Joseph Dodge, the Director of the Bureau of the Budget, joined the meeting at 11:30.
2. Under reference here is the five-volume report, “Resources for Freedom”, submitted to President Truman in June 1952 by the President’s Materials Policy Commission, which had been established on Jan. 22, 1951, with William S. Paley as Chairman. For additional information, see Department of State Bulletin, July 1, 1952, pp. 54–60.
3. No copy of this commentary was found attached to the source text, nor has it been found in Department of State files.