73. Editorial Note
Pursuant to a request arising from the August 6, 1971, Senior Review Group meeting on Japan (see Document 69), State Department Executive Secretary Eliot, under cover of an August 16 memorandum, sent Kissinger an undated Addendum to NSSM 122, “The Possibility of a Looser Relationship With Japan and Its Consequences.” (National Archives, RG 59, S/S Files: Lot 80 D 212, NSSM 122) The paper, which had not been reviewed by the East Asia Interdepartmental Review Group, dealt primarily with political-military-security issues and included the following language: “The purpose of a deliberate decision on our part to loosen ties with Japan would presumably be: a) to improve our chances of achieving a detente with China; b) to give us greater freedom of action to deal with Japan’s commercial aggressiveness; c) to force Japan, once out of the hot house of association with the United States, to realize that its own interests require Japan to assume a major degree of responsibility for the welfare and progress of its neighbors; and d) to reduce our defense expenditures in the rest of Asia…. The postwar US/Japan relationship has been a unique arrangement. It has permitted Japan to conduct an unprecedented experiment in the development of national power and influence by economic growth without commensurate military power.” The paper was distributed to members of the SRG under cover of an August 26 memorandum from NSC Staff Secretary Davis informing them it was an “additional paper” for consideration at the SRG meeting on August 27 in San Clemente. (Ibid., S/S Files: Lot 73 D 288, SRG Memos)
On August 24 Peterson sent members of the CIEP Review Group a 22-page paper, with three annexes, entitled “The Approach to Japan—Next Steps.” (Ibid., S/S Files: Lot 80 D 212, NSSM 122) Also on August 24 Eliot, in response to an oral request from Holdridge, sent Kissinger a more concise summary of the NSSM 122 Response in reply to four questions Kissinger posed at the August 6 SRG meeting. (Ibid.) The questions were: “Where is Japan Going?; What Kind of Japan Do We Want?; How Do We Get It To Go There?; and What Are the Costs?” Eliot noted that the State Department paper commented in only a very general way on economic matters because the CIEP was preparing a more detailed paper on the economic aspects. Peterson’s and Eliot’s papers were circulated to members of the SRG under cover of an August 24 memorandum from Davis informing them they would be the basis for discussion in the SRG meeting in San Clemente on August 27. (Ibid.)
Peterson’s paper considered a variety of issues, including those in the trade area and military procurement, and included the following language on yen revaluation:
[Page 172]“From the standpoint of achieving significant reduction in Japan’s overall trade and payments surpluses—and corresponding if somewhat smaller improvement in the U.S. balances (both directly and through effects in third-country markets)—revaluation of the yen is our highest priority negotiating objective. In fact, it is contemplated that the surtax will remain until we get a satisfactory resolution of the exchange rate problem. We estimate, assuming general rate equilibrium, that a 15% Japanese revaluation by itself in terms of the dollar will improve our 1972 bilateral trade balance by about $1.5 billion or perhaps $2 billion. Thus, by itself, yen revaluation could be expected to help attain about 20% to 30% of our overall U.S. trade balance improvement target of about $6-$8 billion.”
The paper listed some advantages to revaluation including “substantially strengthen[ing] the precedent for revaluations within the world monetary system, clearly of special interest to the U.S.” The paper then continued:
“Revaluation would have certain disadvantages, however, relative to other less comprehensive objectives and measures:
- “—It may lessen or counteract pressures on Japan for accelerated removal of restrictions on product (but not capital) imports, and of promotion techniques for exports, especially if a large revaluation is taken. Also, over the short run, a revaluation could have some perverse effects.
- “—While a substantial yen revaluation could make a decisive difference in the impact of imports on some of our basic U.S. industries—such as steel and automobiles—it is unlikely to have a sufficient effect on a few specific U.S. industries such as textiles where Japan already appears to have a substantial cost advantage. Therefore, some, but fewer U.S. domestic political problems raised by Japanese import penetration in particular sectors will remain to be handled with supplementary measures, either quantitative restrictions (such as the President’s commitment on textiles) or other voluntary and adjustment assistance measures.”