160. Memorandum From the President’s Special Assistants (Rostow and Califano) to President Johnson1


  • Balance of Payments Program

At Tab A is Secretary Fowler’s memo recommending an action program for the balance of payments.2 It was completed today and is now being staffed out. Our objective is to get the Cabinet Committee recommendations to you within a week.

The following elements of the program have been worked out and are not likely to be controversial:

Export expansion measures through:
  • —improved financing facilities through the Ex-Im Bank. (This will require earmarking $500 million of Ex-Im’s new authorization for an export expansion fund (which probably would have strong support in Congress) and a more liberal Ex-Im policy on rediscounting export paper. (Linder will object)
  • —a bigger export promotion program (with a gradual increase in the Commerce budget from $11 million this year to $50 million a year by 1973).
  • —setting up Joint Export Associations to help U.S. companies get into the export business. (No legislation)
Reducing the foreign exchange cost of government programs through:
  • —squeezing more offsets on military expenditures;
  • —new techniques for tying aid and making sure that it does not replace commercial exports.
Promoting foreign investment in the United States.

The controversial issues in Fowler’s package are:

Border tax adjustments. This means calculating the amount of indirect taxes manufacturers pay and rebating it on exports and adding it as a levy on imports. The amount being discussed ranges from 2% to 4%. The ultimate trade effect would be significant if the other countries stood still for it. If they did not, we would be in a trade war. (Legislation required)
Measures to reduce capital exports through tightening the voluntary programs on direct investments and on bank credit. A lot can be done [Page 455] here even without legislation, but it will be rough going with Trowbridge’s clients.
Increase repatriation of earnings through a temporary tax on earnings retained abroad where they exceed 25% of the total earned abroad. (Legislation required)
Reduce the travel deficit through a temporary tax on tourists to expire December 31, 1969. (Legislation required)

During the course of this week, we will set out for you how much we believe may be needed, how much each of these actions might bring in, the advantages and disadvantages of different mixes and what we may expect in the Congress.

Secretary Fowler is setting up small task forces for each of the major questions.

The Deming Group3 will look at the program as a whole and seek to put it in numbers. Fowler will ask you whether you have any objections to his showing his memo to you to the Deming Group. They will need it to do a proper job of assessment and will handle it with care.

The Deming Group met in both the morning and the afternoon of December 19, and again on December 20, 22, and 23. George H. Willis’ handwritten notes on these meetings (see footnote 3, Document 64) are in the Washington National Records Center, RG 56, Assistant Secretary for International Affairs, Deputy to the Assistant Secretary and Secretary of the International Monetary Group:FRC 83 A 26, Willis’ Notes 66–69, notebook entitled Deming Group, Dec. 1967.

In line with your talk with Joe Califano, we will outline for you separately what could be accomplished through a program that did not require new legislation.

  • Ed Fried 4
  • Joe Jr.

Mr. President:

Ed Fried and I will work on this while you are away. We will also develop a package of the maximum program we can have without legislative action.

Joe 5
  1. Source: Johnson Library, National Security File, Subject File, Balance of Payments, Vol. IV, January 1967 [2 of 2], Box 3. Secret; Sensitive.
  2. This 20-page memorandum is not printed.
  3. In a telephone conversation with President Johnson on December 19, much of which was a procedural discussion of the next steps in the balance of-payments program, Fowler indicated that the members of this small committee, chaired by Deming, were Fried, Daane, Okun, Knowlton, and Solomon. He mentioned that Ambassador Roth would also participate in its meeting that morning at 10:30 a.m. President Johnson asked that Goldstein be added to the committee, and Fowler readily assented. (Johnson Library, Recordings and Transcripts, Recording of Telephone Conversation between President Johnson and Secretary Fowler, December 19, 1967, 9:17 a.m., Tape F67.15, Side B, PNO 1)
  4. Fried signed for Rostow above Rostow’s typed signature.
  5. The postscript is handwritten by Califano.