Foreign Relations of the United States, 1969–1976, Volume III, Foreign Economic Policy; International Monetary Policy, 1969–1972

195. Information Memorandum From the President’s Assistant for International Economic Affairs (Peterson) to President Nixon¹

Washington, November 15, 1971.

SUBJECT

• Status of International Economic Negotiations—Your Meeting This Morning with John Connally²

1. At the informal news conference upon his arrival, John Connally is reported to have said that the current monetary uncertainty could continue for “an almost indefinite period”, that the U.S. would not suffer if it did and that the U.S. “is doing very well”.³

This precipitated telephone calls to me from a variety of sources expressing concern that we did not understand the “precarious” stock market situation and the other effects on U.S. companies of this continued uncertainty and impending European recession.

Also, Treasury has indicated that Connally’s speech before the Economic Club of New York tomorrow evening is a “major policy” statement. Apparently, the draft will not be ready until sometime today.⁴

In some of these calls to me, I am asked to do what I can with yourself and John Connally to “cool it”, quit the “saber rattling”, and stop the “don’t give a damn attitude”.

You might want to give John Connally some overall guidance on what you want our overall stance to be on the international negotiations.

2. Assuming that you decide that we should begin negotiations reasonably soon, I believe we should convene a small group in a setting that you think appropriate to resolve where we go from here.

There are a couple of open items.

I am having some intensive work done on the problems of selective lifting of the surcharge on a country-by-country basis, or hemispheric basis.⁵ State feels it cannot be done because it abrogates some of our international treaties and obligations. I have two other sets of lawyers trying to figure out how we can do it.

On trade negotiations, I thought the agencies were virtually in total agreement on what we wanted and how to go about it. This weekend, Treasury submitted a paper saying we should expand significantly our requirements from the European Community.⁶ Since a top Treasury man chaired the trade task force, it is of course possible that this rather surprising reversal is simply a signal that we may not really want to proceed with negotiations.

If you decide the time has come to get serious about some forward movement in these negotiations, we could be ready as early as next week to present you with negotiating options.

3. At Arthur Burns’ request, I met with the ex-Prime Minister of the Netherlands (now President of the Netherlands Bank and the Bank of International Settlements) who has been operating behind-the-scenes to see if he can suggest the elements of a deal with the Europeans that would have a reasonable chance of meeting both our requirements and their economic and political situation.⁷

He brought up the gold price question and I told him of your strong views on this. On the question of zero or very limited convertibility, he was reasonably confident that this would not be a serious problem. On the gold price question itself, he said he hoped you understood that, with impending recessions and significant political (labor) problems in some of the key countries, it would be extraordinarily difficult for them to initiate a revaluation. He is, at the same time, aware of your political problem here and is working on a way of doing this through an IMF action which might put off any requirement for U.S. legislative action until after next year’s election. A very similar approach was worked on by my coordinating group and shows some promise.

While I agree completely that we have very little to gain at this time by indicating flexibility on this gold question, I think it’s going to end up being a “crunch” issue. Each percentage point of exchange rate realignment vis-à-vis the dollar improves our balance of payments (trade) by about 800 million dollars. If, indeed, the difference between some or no gold price change, or its equivalent, is 4% to 5% in overall exchange rate realignment, this issue could mean as much as 3 to 4 billion dollars difference in our trade account.

To sum up, I think you will soon have to decide whether you want the U.S. to adopt a more positive stance on the international economic negotiations. To repeat what I’ve said elsewhere in more detail, beginning a serious negotiating process does not mean, in my view, “caving in” and certainly does not mean accepting a “bad deal”. It does mean, however, conveying to the U.S. public and foreign countries that it is in our mutual interests to take positive steps to try to resolve this situation constructively.

1. Source: Washington National Records Center, Department of the Treasury, Records of Secretary Shultz: FRC 56 80 1, Council on International Economic Policy—Peterson. Confidential. A stamped note on the memorandum reads: “The President Has Seen.” It is attached to a November 24 memorandum from Huntsman to Secretary Connally informing him that the President suggested Connally receive a copy but that “the President does not endorse any of the views expressed herein.”
2. According to the President’s Daily Diary, there was no meeting between the President and Connally on November 15. Connally had talked with the President twice by phone following his return from his Asian trip on November 14 and he and Mrs. Connally had dined with President and Mrs. Nixon that evening, probably obviating the need for a November 15 meeting. (National Archives, Nixon Presidential Materials, White House Central Files, President’s Daily Diary)
3. See The New York Times, November 14, 1971, p. 1.
4. Connally addressed the Economic Club of New York on November 16. The press reported that “the Treasury Secretary’s address had been billed in advance, perhaps mistakenly, as a major policy statement.” See ibid., November 17, 1971, p. 65. The text of Connally’s remarks is printed in Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year Ended June 30, 1972, pp. 232-236.
5. On December 1 Peterson sent President Nixon a paper on “Selective Lifting of the Surcharge.” Peterson referred to the President’s concern over relations with Latin America (see also footnote 4, Document 185), but noted that selective lifting of the surcharge would be contrary to GATT MFN obligations and similar provisions in many Friendship, Commerce and Navigation treaties. One option would be to lift the surcharge for all developing countries, which he thought would encounter little opposition from developed countries. (Washington National Records Center, Department of the Treasury, Records of Secretary Shultz: FRC 56 80 1, CIEP—Peterson)
6. Not found.
7. See footnote 2, Document 215, regarding the Working Paper Jelle Zijlstra sent Secretary Connally on November 23.