260. Information Memorandum From the President’s Assistant for International Economic Affairs (Peterson) to President Nixon 1

SUBJECT

  • Progress Report—Trade Negotiations in Conjunction with Monetary Talks

I believe the US Government apparatus is operating well on this.2 Treasury, State, Commerce, etc. are all up to date and seem in agreement on both the negotiating positions and the specific people to be involved. Both directly and through Paul Volcker, we have tried to be sure John Connally was fully consulted and informed.

Japan 3

US-Japan trade negotiations are continuing with sessions to be held Saturday and Sunday in Honolulu, December 11-12. Both sides know [Page 664]the issues and have indicated a willingness to attempt to agree to a format for resolution at these meetings. The list of issues is long and resolution of all issues is unlikely but substantial progress is expected. It has been difficult getting the Japanese to start negotiating seriously but we are impressed with the quality and size of their Hawaiian delegation.

Canada

The Trudeau visit did two things for our trade negotiations with Canada:4 (1) reassured the Canadians on our objectives; and (2) conveyed our determination to get results. While clear progress has been made on most of our requirements, the critical agreement from Canada for complete removal of the important tariff on automobiles is lacking. Another negotiating session is anticipated early next week. I assume Trudeau’s euphoric press conference was for the home audience and to set the stage better for tough trade negotiations and, we hope, concessions.

The European Community

US-EC trade issues have been fully presented and the EC Commission has submitted to member nations a request for a formal “mandate” to negotiate. Favorable decision expected at Saturday, December 11 Ministerial Meeting, although French could hold up decision.5 Hopefully, EC negotiations will begin early next week with Bill Eberle in charge. Agriculture issues are high priority, along with tangible evidence of willingness to negotiate certain other trade issues in 1972. These negotiations will be difficult on grain pricing, and on how to protect us against trade discrimination as a result of EFTA neutrals’ association with EC. Also, latest input is that the Europeans have their own list of US discriminations they plan to talk about (sugar quota problems, dairy quotas, etc.). (See Tab A—Bill Eberle’s memo)6 In short, it is very early to predict likely progress and there are some tough issues.

Legislative Reactions

I’ve been taking some soundings on the Hill with Ways and Means Committee, Senate Finance Committee, and other international economic groups in an informal series of sessions.

Protectionist pressures—stimulated by the heavily restrictionist labor bill (Hartke-Burke Bill)—are strong and Labor is obviously hoping to trade off political support in 1972 for their support of this Bill. At [Page 665]the same time, there is enormous interest in the current monetary and trade negotiations—and an equally enormous lack of understanding, particularly of exchange rates, devaluation, etc. There is a vacuum here that we must all try to fill.

I’ve been experimenting with communicating the significance of the monetary negotiations in simple terms legislators are likely to understand, i.e., more US jobs. Here’s how it translates: it is estimated that a 10%-11% exchange rate realignment and the trade concessions we hope to get might over a few years result in an $8-$10 billion favorable trade swing. Various experts estimate 60,000-80,000 jobs per billion dollars of trade, so we could expect a ballpark 500,000 to 750,000 more jobs to result from your actions. Moreover, I’m stressing you seek to solve the imbalance problem by negotiation—not by permanent restrictive measures (like the Hartke Bill) that would reduce trade, encourage retaliation, and could easily reduce US jobs and competitiveness. I’ve talked to John Connally about translating a lot of this whole negotiation into jobs and he seems favorably inclined. As soon as I confirm the estimates, I think he would be an obvious public spokesman on this point.

Also, we think we should give your whole new foreign economic legislative package a “More Jobs” orientation. Aside from our export promotion efforts (incentives, East-West trade, etc.), we think we can try to make clear the economic-political equation that with fair exchange rates and your new programs to make US more competitive, less barriers equals more trade and more trade equals more jobs, and better paying jobs.

Shortly, we will make a schedule request for a brief meeting of the Council on International Economic Policy to review your legislative-political strategy.7 My current view is that when and if we get a good monetary settlement, and very importantly, when and if we get a good trade package, you and John Connally will have performed a miracle in converting the Administration’s position from a position of very low credibility and even low awareness of the international economic facts of life to a position of a realistic no-nonsense thrust.

In that environment, hopefully by the time of your State of the Union Message, we could be in a position where you could not only point out fundamental negotiating accomplishments, but go on the offensive with your own bold, positive program—a program of trade, investment and US competitiveness (e.g. technology) measures.

With negotiating progress and some luck on the domestic economy and particularly the unemployment front—you might be able to go on the offensive and put Labor on the defensive—for supporting the self-serving, inward-looking, defeatist, and non-competitive program that [Page 666]the Hartke Bill is. Perhaps I’m having a fantasy in a Presidential election year, but with some things breaking for us and US voter attitudes turning anti-big union, we might turn the foreign economic issue into another major Nixon initiative and act of forward-looking statesmanship.

  1. Source: Washington National Records Center, Department of the Treasury, Records of Secretary Shultz: FRC 56 80 A 1, CIEP (Peterson Executive Director). Confidential. Attached to a December 10 note from Peterson to Connally requesting Connally’s concurrence; Connally wrote: “Noted by JBC” at the top of Peterson’s memorandum.
  2. Documentation on the international monetary negotiations that were being held in conjunction with the trade negotiations is in Foreign Relations, 1969-1976, vol. III, Documents 200 ff.
  3. In his December 10 daily briefing memorandum for the President, Kissinger included an item on Prime Minister Sato’s forthcoming visit to San Clemente on January 6-7, 1972. Kissinger reported that Sato’s primary goal would be agreement on a joint statement that Okinawa reversion would take place in April 1972. The President wrote: “K—we should be prepared to go far on Okinawa—in order to get concessions on Economics—Have a meeting with your contact—Tell him—this time it’s cold turkey—They must give on trade, etc.—when we give on Okinawa.” (National Archives, Nixon Presidential Materials, NSC Files, President’s Daily Briefing, Box 37, 12/1-12/16/71)
  4. Connally and his Canadian counterpart, Edgar J. Benson, met on December 6; see Foreign Relations, 1969-1976, vol. III, Document 85.
  5. See ibid., Documents 217 and 218.
  6. Document 259.
  7. See Documents 263 and 264.