241. Telegram From the Embassy in Germany to the Department of State1
8885. Subj: US Trade Policy.
Summary. The present atmosphere of protectionism at home and abroad threatens to lead the West into a serious crisis in trade relations, and thus poses grave dangers for our political and economic objectives in Europe and elsewhere in the world. Moreover, in the absence of new [Page 617] departures in policy, protectionism threatens to increase in intensity. In addition to the wave of protectionism in the US reflected in the House Ways and Means Committee, Japan continues to avoid its trade obligations, and the European Community remains steeped in its highly protective agricultural policies. The Community is pressing ahead with its proliferating system of preferences. The enlargement of the Community, which we favor, will involve trade diversion and also raises the issue of the Community’s trade relations with countries now linked to the applicant countries via preferences.
In this context, I am convinced that we can only harm US commercial interests, as well as our broader political and economic interests, by protectionist action. In my view, the policy best designed to protect our interests should include a strong defense of our GATT rights, a renewed commitment to our GATT obligations and the early proposal of a Nixon Round of comprehensive trade negotiations.
- The President’s reassuring statement regarding US trade policy2 has been a source of considerable satisfaction in Germany. The Germans, and Europeans generally, hope that the President will be successful in stemming the tide of protectionism. For, as seen from Bonn, the dangers of a marked shift by the United States toward protectionism are of such a magnitude that it is difficult to exaggerate them.
- German officials have made it clear that the Community would react initially to American quotas on its exports by retaliation, at a heavy cost to US domestic economic and political interests, particularly agriculture. They fear that retaliatory action may not be confined to one or two rounds and that a trade war may result. The adverse economic consequences of a trade war, including the impairment in the efficiency of world production, the reduction in economic growth and employment and the distortion of international trade patterns, need not be dwelt upon. But the adverse effects would not be limited to the economic front. Our political objectives within the Atlantic Alliance and elsewhere would be seriously threatened.
- For Germany a trade confrontation in the West of such a magnitude would have serious implications for its Eastern policy and for political and security relations in Europe. Greater accommodation of Soviet entreaties would be a possible outcome. The Soviet Union is already pressing its case. As Pravda said on July 25: “Little Europe will be perhaps unable to break free from the American trap if it acts separately from other European countries. It would be quite different if all-European economic cooperation on the scale of the entire continent [Page 618] reached such proportions that would counterbalance the present ‘Atlantic’ orientation of Common Market countries.”
- A trade confrontation would obviously hurt those dimensions of Atlantic interdependence that have been developed over the past 20 years based on mutual trust and cooperation. The Germans recognize these interdependencies, and over several years have assisted us in dealing with mutual problems. Without German cooperation, several international monetary crises in the recent past could have meant disaster for all. Moreover, protectionism in trade policy would not be without its nationalistic repercussions in industrial policy, balance of payments programs, and policies towards foreign investment.
- In attempting, from Bonn, to assess the trade situation in which we find ourselves and to recommend courses of action, I hope I do not seem unmindful of the exceedingly difficult pressures in Washington. There is a confluence of forces in America today that provides a stronger impetus, and a seemingly more persuasive logic, to protectionism than we have seen for a long time. Among other factors, evidence of stubborn protectionism abroad has lead many to the conclusion that we should respond with protectionism of our own.
- There are many present and prospective developments that will seem to support this conclusion. Japan is clearly not carrying its weight in international trade and investment. Canadian tariffs remain high. The EEC is bogged down in a massively expensive, highly protective agricultural system that greatly erodes its own and others’ abilities to take liberal trade policy initiatives. Additionally, the EEC continues to develop a system of preferential trade arrangements in Western Europe and around the Mediterranean basin. The enlargement of the Community, which we favor, will have trade diverting effects and also opens up questions about the nature of the trade relations between the enlarged Community and countries with preferential trade links to the applicant countries.
- We face therefore an intensification of trade policy problems that will provide aid and comfort to protectionist forces in the United States. The question for US trade policy is how to protect US commercial interests and, thereby, the broader political and economic interests of the United States. I do not see that the answer lies in protectionism.
- In my view the policy best designed to protect our interests
should combine several elements, including the following:
- strong defense of our GATT rights;
- renewed commitment to GATT obligations by ourselves and others; and
- an effort to launch a Nixon Round of trade negotiations encompassing tariffs, non tariff barriers, and specifically agricultural policies.
- Strong Defense of GATT Rights: Protectionism, and the proliferation of preferential arrangements that impair our GATT rights should continue to be countered by strong reactions by the United States. I favor the use of all legal means at our disposal to maintain, and when appropriate to redress, the balance of concessions in our reciprocal trade arrangements. I have Japan specifically in mind, for I believe that we should have a show-down in the GATT, if necessary, to press the Japanese to live up to their obligations. Similarly, I think we should move against patently discriminatory EC arrangements with, for example, Lebanon, UAR, and Israel. I recognize that the EEC may have sufficient votes to deny us a GATT finding that such arrangements are illegal under GATT Article XXIV. But I think that we must have the courage to press an issue such as this to the point where we would act under GATT Article XXIII to seek satisfaction. We might again try the arbitration panel approach used to settle the “chicken war.” Obviously, political arguments can be made against this general approach and against its application in specific cases. It seems to me, however, that the political disadvantages we now have in the current atmosphere of protectionism and neo-isolationism at home require us to take the political risks of an aggressive defense of our commercial interests.
- Renewed Commitment to GATT: As a corollary to the above approach we must live up to our own liberal trade commitments. In this connection perhaps the first case to be cited is ASP, which has become a symbol of US protectionism in the eyes of our trading partners; repeal is essential to show our good faith commitment to a liberal trade policy. Above all, we would have to forego actions such as the mandatory, unilateral quotas that the House Ways and Means Committee seeks to impose on our imports.
- A Nixon Round of Trade Negotiations: An integral, and essential part of any successful program to protect our commercial interests in the environment I have attempted to describe is a judicious, balanced trade policy approach noteworthy for its liberal direction. Otherwise, our efforts to achieve liberal solutions by our trading partners will come to naught. We should begin now to prepare a Nixon Round of trade negotiations. There will be cries that proposals by us for trade negotiations put forward in the course of negotiations for the enlargement of the Community might endanger the latter. We will certainly want to take soundings at the highest level before putting forward our proposal formally. There are other aspects of timing that require consideration. We will have to resolve the immediate textile problem. However, while my proposal is not tied to an immediate initiative on our part, I do not think it should come any later than early 1971. What we are witnessing in the United States today is proof of the thesis that we cannot stand still in US trade policy without substantial backsliding and political cost. Moreover, we cannot expect that [Page 620] any other country will provide the initiative that is required to maintain, on a global scale, the momentum toward international, as opposed to regional, economic integration.
- I believe that the benefits of such a new initiative would be very substantial in terms of longstanding political and economic objectives we have had vis-a-vis Western Europe. We could look forward to a phased introduction of trade free of customs duties across certain industrial sectors and greatly liberalized trade generally among the developed nations of the Western world. Hopefully, the trading problems of the neutrals and of the countries in the Mediterranean basin could thereby be eased in a worldwide rather than in an exclusively regional context. The resultant enlarged Community would enjoy improved prospects for political integration. I believe the negotiation would reduce the danger that rival, antagonistic trading blocs might develop across the Atlantic. Such a negotiation could provide further benefits to the developing countries and put North-South relations in an improved multilateral context. The resultant trade links would bind us more closely to Western Europe, where our security interests are so intensely engaged. I believe that this is the right course for us to take, and I urge that we begin immediately to turn toward it.
- Source: National Archives, Nixon Presidential Materials, NSC Files, Country Files-Europe, Box 684, Germany, Volume VII 8/1/70-11/70. Confidential. Repeated to Brussels, The Hague, London, Luxembourg, Ottawa, Rome, Tokyo, and Geneva and to the Missions to the EC, OECD, and NATO.↩
- Reference is to the President’s remarks during his news conference on July 20; see footnote 6, Document 239.↩