170. Telegram From the President’s Special Assistant (Rostow) to President Johnson, in Texas1

CAP 80060. Herewith Nick’s first contact with London. They are sympathetic but worried about the direct and indirect effects on the U.K.—direct via reduced U.S. direct investments; indirect, via higher European interest rates.2

Fred Deming, Bill Roth, David Bruce and I met for two hours this morning with Roy Jenkins and senior officials of British Treasury, Board of Trade, Foreign Office and Bank of England. I began my presentation by putting President’s strong action on balance of payments in its broad political context. I stressed that President is faced with many pressures to reverse U.S. political and economic policies and that these pressures would certainly have been exacerbated by news of our worsening balance of payments. Failure to act would have increased the possibility that our recent successes in the Kennedy Round would be lost and would probably also have led to increased demands to reduce troops abroad with a subsequent effect on our security and the security of our allies. The President’s decision to take these difficult actions was motivated by his keen desire to avoid this reversal of all that we have stood for in the post-war period. It is our hopes that the success of this program will enable us to avoid these consequences.
I also emphasized that the President feels very strongly that the longer term solution to the kind of problem we face in our balance of payments must be greater cooperation and a sense of responsibility, not just on the part of deficit countries, but more particularly by the surplus countries.
Throughout subsequent discussion, Jenkins and British officials stressed their sympathetic attitude and understanding for the problem we faced. They welcomed these measures as strengthening the dollar and therefore ultimately benefitting all trading nations. Jenkins recognized that such measures were bound to have unpleasant effects, even for those countries in a weaker balance of payments situation, but that this was certainly preferable to a return to protectionism. He welcomed the differentiation we were able to introduce into program in order to minimize effects on countries like the U.K. who have their own balance of payments difficulties, but he did not wish to hide from us the concern [Page 488] which Her Majesty’s Government feels. The more they studied measures, the more pessimistic their assessments became of the effect on the U.K. He stressed that they had not yet reached any definitive conclusion, but wished to maintain the closest consultation with us as they went through their calculations.
Main substantive concern appears to be with effect of investment controls, where British calculation shows higher effect than our estimate of $150–$160 million in 1968. British thinking in terms of possibly as high as 100 million pounds, but Deming felt that this calculation on direct effect was too high. However, British are already beginning to think of indirect effects due to drying-up of available capital in Europe and consequent out-flows from London Eurodollar market. Effect on European interest rates also stressed.
Jenkins agreed U.K. would not reach firm conclusions until they have opportunity discuss again with us results of our talks on continent. Tentatively we plan return next Saturday3 for talks with Harold Wilson.
Full report being sent by Embassy London.4 Fessenden.
  1. Source: Johnson Library, National Security File, Memos to the President, Walt Rostow, Vol. 56 [2 of 2], Box 26. Secret.
  2. Numbered paragraphs 1–6 below are taken verbatim from telegram 6778 from Bonn, January 2. (Department of State, Central Files, FN 12 US)
  3. January 6.
  4. Telegram 5143 from London, January 2. (Department of State, Central Files, ORG 7 U) A later report of discussions with British Treasury officials is in telegram 5269 from London, January 5. (Ibid., FN 12 US)