Foreign Relations of the United States, 1958–1960, Volume III, National Security Policy; Arms Control and Disarmament, Microfiche Supplement

161. Memorandum of Discussion at the 409th NSC Meeting¹

Washington, June 4, 1959

SUBJECT

• Discussion at the 409th Meeting of the National Security Council, Thursday, June 4, 1959

Present at the 409th NSC Meeting were the President of the United States, presiding; the Vice President of the United States; the Acting Secretary of State (Dillon); the Acting Secretary of Defense (Gates); and the Director, Office of Civil and Defense Mobilization. Also present and participating in the Council actions below were the Secretary of the Treasury; the Director, Bureau of the Budget; the Secretary of Commerce (Item 1); and the Chairman, Council on Foreign Economic Policy (Item 1). Also attending the meeting were the Chairman, Atomic Energy Commission; the Chairman, Council of Economic Advisers (Item 1); the Special Assistant to the President for Economic Affairs (Item 1); the Deputy Assistant Secretary of State for Economic Affairs (W.T.M. Beale) (Item 1); General Thomas D. White for the Chairman, Joint Chiefs of Staff; the Director of Central Intelligence; the Director, U.S. Information Agency; the Assistant to the President; the Special Assistants to the President for National Security Affairs and for Security Operations Coordination; the White House Staff Secretary; Mr. Howard Furnas, Department of State; the Assistant White House Staff Secretary; the Executive Secretary, NSC; and the Deputy Executive Secretary, NSC.

There follows a summary of the discussion at the meeting and the main points taken.

1. EFFECTS OF U.S. IMPORT TRADE POLICY ON NATIONAL SECURITY

Mr. Gray reminded the Council that the President had recently asked the State Department to prepare for the Council a report on the effects of our trade policy, primarily our import restrictions, on the national security. He then indicated that Mr. Beale, the Deputy Assistant Secretary of State for Economic Affairs would make the presentation.

(A copy of Mr. Beale’s report is filed in the Minutes of the Meeting). (A copy of Mr. Beale’s report is also attached hereto).

When Mr. Beale had concluded his report, the President commented that while a number of business interests were seeking import restrictions on a number of products, Mr. Saulnier and the Council of Economic Advisers were reporting to the President such a boom in our U.S. economy that we were actually concerned about a real runaway boom. It therefore seemed a good time for the U.S. to try to develop a better feeling and sentiment about our trade policy insofar as it concerned friendly foreign countries. The President pointed out that no less than eleven foreign countries were affected by our import restrictions on clothespins yet the President believed that all the clothespins in the U.S. were made by six small companies in the State of Maine, employing as the President recalled, only some 260 employees. This kind of situation seemed silly to the President.

The President then observed that meetings have been occurring designed to devise some kind of an adjustment policy which would enable us to find a solution for some of our domestic industries in the face of foreign competition. For example, it might be possible to change from the manufacture of clothespins to the manufacture of baseball bats. Most such suggestions, however, get turned down. Secretary Dillon pointed out certain difficulties which lay in the way of making the kind of adjustments mentioned by the President.

The President next observed that in effect what we have to do is to bribe the Congress by agreeing to the restriction of imports in order to induce Congress to agree to extending the Trade Agreement Acts.

Secretary Anderson commented on an interdepartmental study of our trade policy. He believed that we ought to take a look, industry by industry, to try to calculate the gains and losses in the light of our current trade policy. Once such a painstaking examination had been made, continued Secretary Anderson, there ought to be a broader consideration before the study was made public. Specifically, Secretary Anderson recommended that the findings of the interdepartmental study should be looked at by the National Advisory Council (NAC) in the light of our balance of payments situation and the out-flow of American gold and dollars. There had been a very significant change with respect to our balance of payments situation even since 1956. In most of the highly developed foreign countries at the present time, as well as in a number of less well developed countries, there had ceased to be any such thing as a dollar shortage. Altogether they held some sixteen billions of our dollars at the present time. To these facts must be added commercial balances, the cost to the U.S. of maintaining soldiers and other U.S. Nationals abroad, and payments made abroad by American tourists. The total result was that the U.S. is confronted by a consistent balance of payments running against us. The acid test of a sound economy and of a sound currency as well, was the balance of payments situation. In fact, what we are now tending to do is to have the U.S. finance European exports. These European countries should themselves be urged to take some of the same measures we take to finance our own exports. Secretary Anderson said that he was not really concerned at all at present about encouraging the export of U.S. capital to the Western European countries. They were doing very well. He was, however, concerned about Asia and Africa.

Secretary Anderson went on to say that if the balance of payments disparity continues for any considerable number of years, we in the U.S. would be in for real trouble. We have bitten off rather more obligations than we can chew even in the opinion of some foreign experts. In conclusion, Secretary Anderson repeated his request that the results of the interdepartmental study be examined in the light of our whole policy.

The President inquired whether in effect Secretary Anderson was advocating higher U.S. tariffs. Secretary Anderson replied in the negative but said he was advocating that we cut down on our U.S. expenditures in certain foreign countries.

Mr. Dillon, the Acting Secretary of State, commented that the State Department fully recognized the seriousness of the balance of payments problem. We could not continue running a deficit indefinitely. He also expressed himself as in close agreement with Secretary Anderson’s suggestions as to what to do about the problem. There were, however, still other things that might be done, notably, to increase our own U.S. exports. He added that the State Department was working hard on this objective and had experienced a real measure of success as the published figures would ultimately show. In support of this point, Secretary Dillon cited examples of agreements by foreign countries to permit an increase in the quotas of U.S. exports to these countries. Thus we were getting rid of some of the examples of discrimination against the dollar and Secretary Dillon believed that the effort should continue to have priority status.

Secondly, continued Secretary Dillon, if it was necessary to go still further to solve our problem, we must consider amending our current policy on world-wide procurement, as Secretary Anderson had said. We should perhaps furnish goods rather than dollars because when we furnish dollars to other countries they often use these dollars to purchase goods in Europe rather than to purchase them from the U.S.

Lastly, Secretary Dillon pointed to the problem of U.S. investment in Europe. He believed that some sort of action, other than trade restrictions, might have to be taken to cut down U.S. capital investment in industrialized foreign countries, although not in the underdeveloped countries. These several possible remedies all recommended themselves to Secretary Dillon as being better than resort to further restrictions on the U.S. imports from foreign countries.

Secretary Anderson commented that Secretary Dillon’s statements seemed to him to be very fair.

Secretary Strauss stated that in the study that is being made, he agreed on the need for an overall policy review and in that respect the Department of Commerce did not hold views at variance with the views of Secretaries Anderson and Dillon. On the other hand, an overall review could not ignore separate and individual cases, problems, and situations. For example, a certain industry might actually constitute the sole support and living for an entire U.S. community. One could not ignore either the political or the sociological considerations relating to such communities. They are factors to be weighed in looking at individual instances of appeals for restrictions in the import of specific commodities.

The President then referred to the National Security Amendment designations in the Trade Agreements Act. He was sure that in this connection there was one consideration which, while it could not be accurately weighed, was nevertheless of very great importance. This was the consideration of our national defense and the effect of restrictions under the NSA designations on the vitality of our military alliances. In illustration of his point, the President cited what he described as the near hysteria occasioned in the U.K. by our decisions against importing British electrical equipment. The President believed that trade restrictions which tend to drive away an ally as dependable as Great Britain would do much more harm in the long run to our security than would be done by permitting a U.S. industry to suffer from British competition. Thus, while intangible, this factor must always be weighed in NSA cases. Yet another illustration of the point that he was making, said the President, was represented by the various stages in the development of atomic weapons. In the early stages of this development, there had been very real and very complete cooperation between the British and ourselves. This superb cooperation had now been destroyed by a law which greatly restricted exchange of atomic energy information with the British. The effect of this restriction on the British had been very serious indeed and because of their own contributions in the early stages, they had felt severely let down when the U.S. imposed its restrictions in the Atomic Energy Act. Thus, said the President, we have got to take account of these intangibles as well as of the tangibles and he certainly agreed likewise that the U.S. must increase the volume of its own exports and improve its own competitive position. The President added that every time he declared a restriction on the import of a commodity from abroad, he was occasioned considerable mental anguish even though approval of the restrictive action had been unanimously recommended to him.

With respect to the National Security Amendment, Mr. Gray pointed out that even though Secretary Beale had reported that our organizational arrangements were adequate, there were some of us who were worried about such matters as TVA purchases of electrical equipment. The President replied that the role of such independent agencies as the TVA had bothered the Administration for quite a while inasmuch as the Government could of course not control such agencies and there was doubt about the nature of their relation to the Presidency. In this connection Governor Hoegh commented on the effect of the Buy American Act. The President again expressed himself as puzzled about the relation to the President of such entities as the TVA and the GAO (General Accounting Office) which he added, laughingly, did not seem to have any. Nevertheless, such entities the President thought were rather minor and exceptional causes of friction.

Mr. McCone predicted that the problem of foreign competition with American business was a problem that was going to grow rapidly in the future. The costs of production abroad of competitive products were shockingly lower than costs in the U.S., mostly as a result of cheaper labor costs. Our shipbuilding industry for example has totally lost its foreign markets. The President commented that one reason for this situation was that it had become so easy for a Board of Directors to think that it can safely pass on added costs to the consuming public. As a result these Boards of Directors soon price their product right out of the market.

Mr. Gray asked Mr. Clarence Randall whether he wished to make any comments. Mr. Randall replied that he certainly did but he would try to spare the President and the Council a lengthy recital of his very strong feelings on the subject. Mr. Randall then expressed himself as very deeply concerned about the erosion of the U.S. trade position. He was convinced that what was really vital above all else was a continuation of the policy of liberalizing trade which the President had proclaimed and stood for since the beginning of his first term. There was another matter which concerned him, said Mr. Randall, and which had not thus far been mentioned in the discussion. This was our obvious and increasing dependence on overseas markets for certain very important raw materials. As for the National Security Amendment, Mr. Randall [illegible in the original] it was never intended to apply other than in a very broad sense. We must therefore continue to look upon its application in the broadest possible sense. The President expressed thorough agreement with Mr. Randall’s position on this point.

The National Security Council:

a. Noted and discussed the subject in the light of an oral presentation by the Deputy Assistant Secretary of State for Economic Affairs.

b. Noted the President’s statement that, in reaching decisions as to restrictions on U.S. imports, one important consideration should be the damage to national security which could result from restrictions which might weaken the ties which bind us to our allies in the collective security effort.

c. Noted the President’s agreement that the interdepartmental study of the U.S. competitive position in world markets, being conducted under Department of Commerce auspices, should when completed be referred to the National Advisory Council for consideration of the implications for the U.S. domestic economy and finances as well as the U.S. balance of payments.

NOTE: The action in b above, as approved by the President, subsequently circulated for the information and guidance of all departments and agencies.

The action in c above, as approved by the President, subsequently referred to the Secretaries of Treasury and Commerce for appropriate implementation.

[Omitted here is the remainder of the memorandum.]

S. Everett Gleason

1. Source: Agenda item 1: Effects of U.S. Import Trade Policy on National Security. Top Secret; Eyes Only. Extracts—7 pp. Eisenhower Library, Whitman File, NSC Records.