134. Memorandum From Karl Brandt of the Council of Economic Advisers to the Chairman of the Council on Foreign Economic Policy (Randall)0

In response to your request of yesterday, I hereby submit the following observations.

With reference to the economic relations between the United States and Western Europe it is obvious that in the coming years we will be in great straits to keep our balance of payments in such shape that we can maintain the free convertibility of a hard dollar and stick to a liberal trade policy. We have spent some $80 billion to get the Europeans on the road toward rising productivity, expansion, and hard freely convertible currencies. We have given them since 1948 the last word in our technology free of charge and our industries are investing over there to get more of it to them.

The Europeans, particularly the French and the Germans, but also the Belgians, the Swiss, and the Italians, do not fully understand yet that we are in a tough spot and need their cooperation for their own sake and security at least as much as for our own. They do not realize that unless they revise their policies they will drive the U.S. sooner or later to the same tragic situation which led to the collapse of the World Economic Conference in 1933 in London which blew up because the U.S. unilaterally did what Britain had done previously, namely, it devalued the currency. If this should arise again, it would do its part to blow up NATO and start the march on the slippery downgrade in the cold war.

If this situation shall be corrected and our burden be lightened, it calls for action on both sides, in Europe as well as the U.S.

The Germans must shoulder a larger share in the NATO defense budget, distribute more profits to the workers, and thereby reduce the over value of the D Mark. They must participate in financing underdeveloped countries at their risk, not by investing at 6 percent in the World Bank.
The EEC must refrain from agricultural autarchy, erection of a CCC and cartelization of the 6 countries’ agriculture. This is, however, the line of DeGaulle and Adenauer, who both subscribe to agricultural fundamentalism and the same policies our National Farmers Union and Mr. Kennedy’s advisers advocate here. The new German Minister of Agriculture, Mr. Schwarz, has defeated in Bonn the moderation of Mr. Mansholt—the former Dutch Minister of Agriculture and at present [Page 276] a Member of the EEC Council. DeGaulle has given in to the rioting French farm organizations and the combination of French and German agrarian protectionism and “parity policy” for small farmers will proceed very fast unless we stop it.
The U.S. must stem the tide of protectionism and negotiate under GATT and later under OECD further mutual liberalization of foreign trade. It must energetically promote its exports, boost the tourist traffic of Europeans in this country, cut down on foreign aid as the Europeans increase it, and stop borrowing from the future by holding the line on wages and costs in general.

If the latest turn in EEC policies cannot be averted by very massive action on our side, we have the best chance that the drive of all U.S. protectionists and all U.S. industries which are on the defensive against tough price competition from all sides (Asia, including Japan and Hong Kong, Great Britain, Continental Europe, Czechoslovakia, etc.) will lead us to a retreat into deliberalization of our foreign trade policy. Shutting the door to U.S. agricultural exports will have a tremendous echo in our industries, particularly all light industries.

It seems high time that we open the eyes of the European leaders who can do something about it by speaking much more bluntly and with less delicacy about these hard facts of life and security for the West. Perhaps one ought to say to Messrs. Erhard and Blessing when they come the next days to attend the International Monetary Fund meeting, that if the EEC countries want to do their part to shut their industrial goods out of the U.S. market (as the result of the U.S. internal politics and Congressional developments), all they have to do is to go ahead with their emancipation of their common market for agricultural products and the discrimination against all non-member nations, which include the U.S.

I consider this situation as extremely dangerous because it is politically most difficult to unlodge the agricultural interests from their new protectionist position in the EEC once they have entrenched themselves in it. This is just as much a fact in Continental Europe as it is in the U.S. The European farm organizations, particularly in France and Germany, are past masters in the riot techniques and all sorts of revolutionary pressure group tactics.

This is perhaps the last moment for averting the drift into new belligerent agricultural protectionism in the EEC countries. It should be utilized. To utilize it requires the abandonment of kid-glove tactfulness and fear of resentment of “dollar diplomacy”, etc. In the best interest of the EEC countries themselves, the U.S. should use maximum [Page 277] moral suasion and sternest warning against the consequences of building an EEC reservation for its heavily subsidized agriculture.1

Karl Brandt2
  1. Source: Eisenhower Library, CFEP Records. No classification marking. Attached to an October 12 memorandum from Randall to the Council stating he had requested this memorandum from Brandt following a conversation with him on U.S.-European economic issues.
  2. Brandt informed Randall in an October 12 letter that at a reception on September 26, he had discussed with Erhard and Blessing the “dangerous game they are playing with the agricultural protectionism in the common market. Both of them were much impressed by what I said and I have the feeling that my words added perhaps a little additional weight to what I am sure the Secretary of the Treasury and the Under Secretary of State, as well as others, had impressed upon them.” (Ibid.)
  3. Printed from a copy that bears this typed signature.