237. Action Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon1
- Possible Crisis in Trade Policy
Paul McCracken indicates at Tab B2 that he fears we may be on the verge of a trade war with Europe and Japan, as a result of our decision to impose quotas on textile imports.3 He notes that the Common Market has already implied the possibility of retaliation against our soybean exports, and that our wheat sales to Japan are also extremely vulnerable.
Dr. McCracken also suggests that we make a concerted effort to set out a clear course for our foreign economic policy in view of the imminent trade problem, and expresses the hope that he will be able to discuss that suggestion with you shortly. (The Ash Council will shortly be making recommendations to you on our organization of foreign economic policy. I suggest that you defer any discussions on this topic until you receive their views.)4[Page 610]
I fully agree with the substance of Dr. McCracken’s memorandum. Textile quotas alone will cause us serious foreign policy problems, and may lead to retaliation. If we can limit the quota legislation to textiles, however, we will sharply limit these risks.
But there are strong Congressional pressures for broader protection. This is partly due to the normal protectionist effort, heightened in an election year; partly due to widespread feelings that other countries are cheating on the international trading rules; partly due to the slowdown of the domestic economy and the effects of inflation in stimulating imports; and partly due to feelings that textiles should not be singled out for favored treatment.
The strongest candidate for quota protection beyond textiles is shoes, the only industry besides textiles in the Mills quota bill. We have opposed shoe quotas vigorously and announced an alternative program, but Mills has just reaffirmed that his bill will include them. The result would be:
- —A major confrontation with the European Community, which would probably retaliate on over $200 million of U.S. exports (probably in agriculture) even if we offered to provide compensation through other tariff reductions.
- —A possible blowup of our base negotiations with Spain, since shoes are Spain’s leading export to the U.S. and the Mills quotas would roll them back by about sixty percent.
- —New gains for the Communists in Italy, since shoe (and textile) production is centered in the “red belt” and our quotas (which would roll back Italian shoe exports to us by thirty percent) would clearly create serious new unemployment there—which would be blamed on the U.S.
It is uncertain at this point whether the Ways and Means Committee will report out a bill including quotas on other industries, and/or an “orderly marketing” bill which would place limits on any imports which met certain statistical tests (growth rate of imports, imports as a percentage of domestic consumption, etc.). It is highly likely that the Senate will vote such a bill. Since the Ways and Means bill can only become more protectionist later in the legislative process, it is vital that it do a minimum amount of damage—to provide a basis for an acceptable compromise in conference.
Broad-scale protectionist legislation would effectively destroy the free trade presumption of both U.S. policy and the international trading system. We would undoubtedly suffer massive retaliation in return. More importantly, the rest of the world would regard such a step as the most concrete possible sign of U.S. isolationism, replicating our policies of the 1930s. Its impact on our overall foreign policy would be devastating—in Europe, Japan and the less developed world.[Page 611]
It is therefore essential to minimize the restrictiveness of the legislation which emerges from the Ways and Means Committee. Wilbur Mills and John Byrnes have been extremely cooperative with all previous Administrations on this score, but they need assurance that the Administration will play an active role in heading off restrictions. I therefore believe that the time has come for you to intervene personally with them, to try to limit the Ways and Means bill to textile quotas plus the Administration’s own trade proposals.
That you invite Mills and Byrnes to call on you, to urge them to limit the pending trade bill to textile quotas and the Administration’s own proposals. They will consider the shoe quotas tomorrow, so the call or meeting should come immediately. Bryce Harlow, Peter Flanigan, Bill Timmons, Paul McCracken, and Special Trade Representative Gilbert concur. Talking points are at Tab A.5
- Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 401, Trade General, Volume II 4/70-12/70. Confidential. A note by the President, written under the date, reads: “Right after vote.”↩
- McCracken’s July 2 memorandum is not printed.↩
- Reference is to pending legislation that the administration decided not to veto; see footnote 3, Document 233 and Document 235.↩
- Regarding the Ash Council, see footnote 9, Document 134.↩
- Not printed. The Approve option is checked, and the President wrote below it: “incl S & K only & T.”↩