172. Editorial Note

During the week following announcement of the New Economic Policy on August 15, 1971, most foreign exchange markets were closed. Beginning on August 17, over the signature of Executive Secretary Theodore L. Eliot, Jr., the Department of State sent daily memoranda to Henry Kissinger summarizing foreign reactions to the President’s program, and Hormats, in turn, summarized developments as he transmitted the memoranda to Kissinger. In general, media reaction was highly critical but official reaction centered more on how to cope with the new situation; criticism was directed more at the 10 percent import surcharge than at suspension of the dollar’s convertibility to gold. The European Community, at its Ministerial meeting on August 19, was unable to agree on a common approach, but decided that when foreign exchange markets reopened on Monday, August 23, each member would adopt its own approach. (National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 376, President’s Economic Program)

On August 18 Canadian Acting Prime Minister Mitchell Sharp, following consultations with Prime Minister Trudeau, wrote a letter to President Nixon endorsing the U.S. program’s objectives for improving the international monetary system, but expressing grave concern over the import surcharge, which he thought would be very damaging to the Canadian economy and the American economy in turn. A Canadian Ministerial delegation, headed by Minister of Finance Benson, was coming to Washington to discuss the program with Secretary Connally. (Ibid.) Mexican President Echeverria also wrote President Nixon that he was sending a delegation to Washington to seek exemption from the surcharge. Echeverria’s letter has not been found but is summarized in an August 18 memorandum from Executive Secretary Eliot to Kissinger regarding foreign reactions to the President’s program. (Ibid.)

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On Friday, August 20, Ambassador to Luxembourg Kingdon Gould, Jr., cabled that he would be seeing the Prime Minister on Saturday and thought that in view of the inconclusive and uncoordinated EC reaction to the U.S. program the United States had an opportunity to make an input to the “eventual nature and direction” of the Community’s response. Ambassador Gould asked for guidance on how the administration would like the Community to respond in both the short and long run. (Telegram 467 from Luxembourg, August 20; ibid., RG 59, Central Files 1970-73, FN 10 8/18/71) Telegram 153872 to Luxembourg, August 21, informed Gould the United States was not yet ready to put forward specific ideas on how the international monetary system might develop, and repeated the theme that in view of the “years of erosion” in the U.S. international position, substantial modifications in the international monetary and trading systems, which were interrelated, were required. Citing Connally’s response to a question on the August 19 Today Show, the cable noted that “other countries are going to have to recognize that so long as we bear the burden of providing the defense shield for the free world that one way or another they’re going to have to help pay for it.” (Ibid., FN 10 8/21/71)

In an August 21 memorandum to Kissinger summarizing foreign reactions to the NEP, Hormats reported on an August 19 request by the Canadian delegation for an exemption for Canada from the surcharge. Connally reportedly told the Canadians the United States thought it important to have no exemptions, but “for diplomatic reasons did not flatly turn down the request and assured the Canadians that we would consider their problem and that further discussions could take place.” Hormats concluded his memorandum by raising the danger of unleashing protectionist forces abroad if others chose to defend themselves against the U.S. actions. He noted that IMF Managing Director Schweitzer had proposed drawing up an integrated plan on exchange rates, the surcharge, temporary widening of margins, gold prices, and restoration of convertibility. Hormats agreed with the Treasury Department “that a large meeting at this time would probably not be productive” but continued that “if Treasury argues that an IMF paper would be unacceptable, since it might lean toward the European position, Treasury should come up with a similar document which lays out in broad terms what we expect of others and where we hope to come out of this exercise.” In sum, Hormats concluded, the United States needed to give its trading partners “a clear picture of what we expect from them” and develop an integrated negotiating scenario lest “protectionist forces get out of hand with the serious foreign policy and economic costs which will result.” (Ibid., Nixon Presidential Materials, NSC Files, Subject Files, Box 376, President’s Economic Program)