48. Information Memorandum From C. Fred Bergsten of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)1

SUBJECT

  • The Absurdity of Possible Reductions in U.S. Forces Overseas for Balance of Payments Reasons

I was shocked to learn that Paul McCracken and Peter Flanigan had seriously raised with you the possibility of U.S. troop cuts abroad for balance of payments reasons.2

I take no stand on whether our overseas troop levels are correct. I do take the firmest possible stand that we should never reduce them for balance of payments reasons.

The last Administration had a major hangup over the balance of payments. It did everything from implementing mandatory capital controls, to proposing a tax on foreign travel by American citizens, to requiring the Defense Department to pay 50% higher prices to purchase U.S. commodities, to bringing down Erhard over the offset issue, to the additionality requirements on foreign aid. Even it, however, never reduced U.S. troops abroad for balance of payments reasons—though it considered the possibility repeatedly throughout its eight-year life.

The arithmetic demonstrates why. It is true that our foreign expenditures for military purposes are high. However, drastic reductions in our military capabilities would be required to produce small net gains for our balance of payments. When our deficit is running in the $3-$5 billion range, as it has for twelve years with temporary aberrations on either side of the range, the saving of a few hundred million dollars gets lost in the shuffle—and even a saving of that relatively small magnitude would require major shifts in troop deployments.

In view of the difficult decisions already made to maintain our troop levels in Europe, Vietnamize as rapidly as possible, and pull out of Korea at a pace which already causes major foreign policy problems, I do not see how we could seriously consider additional withdrawals for balance of payments reasons.

What would be the signal to the Soviets if we were to do so? It could only be that the U.S. had become so pitifully weak on the economic [Page 120]and financial front that we could no longer make any pretense of maintaining our defense posture around the world.

It is bad enough to make overseas troop decisions on budgetary grounds, but this at least involves real resources and alternative uses of money. To do so for balance of payments reasons, in order to juggle the statistics marginally and enable us to tell the European financial officials “that we are doing something about our problem”, would be criminal.

The underlying problem, as always, is the failure to properly perceive our balance of payments situation—and I deliberately do not say “balance of payments problem”. An effort to clarify perceptions on this issue will be the first task of the new International Economic Policy Committee,3 as worked out yesterday at George Shultz’s meeting on the subject in which I participated. Hopefully, that exercise will dash any notions of troop cuts or other changes in serious policies for balance of payments purposes.

In addition, however, I urge you to stand firm against any such nonsense. I assume you will need little urging in this direction, but wanted to restate the case to you because of the absurdity of the proposal.

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 309, Balance of Payments. Secret. At the top of the memorandum, Haig wrote: “Amen!” when he rerouted it to Bergsten. Kissinger wrote: “I agree.”
  2. Not further identified.
  3. Reference is to the Council on International Economic Policy (CIEP) established in January 1971; see Document 49.