339. Information Memorandum From the President’s Assistant for International Economic Affairs (Peterson) to President Nixon1
- East-West Trade—Between Western Industrialized Countries and Eastern Europe and the Soviet Union
Our interagency CIEP study assessing potential economic gains for the United States were we to make specified changes in our East-West trade policies is now completed.2 CIA played an important role in developing these estimates which were agreed on, at staff level, by all agencies that participated. (Chaired by Commerce, with CIA, Defense, State, Labor, Treasury, NSC, FRB, Interior, Ex-Im Bank, Agriculture and OMB.)
It is perhaps surprising that the Defense representative, who is opposed on security grounds to relaxing our restrictions on trade with the USSR and Eastern Europe, agreed.
The main points made by the study follow:
East-West trade in goods grew faster during the sixties than either world or U.S. trade, reaching $15 billion in 1970.3 At less than $600 million of exports and imports, the U.S. level and share in East-West trade of about 4 percent remained relatively insignificant. Expansion of the U.S. share in East-West trade depends largely on the removal of U.S. legal and administrative restrictions consonant with overall U.S. policy goals.
It is estimated that the following effects on U.S. trade by 1975 would result under varying assumptions.
- The United States continues its present restrictions. Total annual trade of goods would reach $800 million, U.S. exports of $440 million and U.S. imports of $360 million. U.S. trade surplus of $80 million. In [Page 863] addition, a gain of $75 million from sales of technology but a loss of $35 million from tourism would result in a positive balance of payments of $120 million.
- The U.S. removes the 50/50 shipping requirement on grains. U.S. exports would increase by some $62 million. (This has been done.)
- The U.S. reduces export controls to the COCOM level. U.S. exports would increase by $260 million.
- The U.S. removes the embargo on Soviet furs and the prohibition on the use of Federal funds for buying goods from Eastern Europe. U.S. imports of furs could rise to $50 million annually. No benefit to U.S. exports by 1975 of lifting the prohibition on the use of Federal funds; however, possible gains by the East in bidding on some U.S. Government contracts.
- The U.S. removes the prohibitions on Government credits and credit guarantees (Ex-Im Bank). U.S. exports would further increase by about $100 million.
- The U.S. grants Most Favored Nation tariff treatment to all Eastern European countries. U.S. imports would increase by about $90 million. U.S. exports would grow considerably less.
- The United States removes all unilateral restrictions on trade by the end of 1971; i.e. steps 2-6 made all at once rather than gradually. Total trade of goods would reach $1.6 billion. U.S. exports would reach $1 billion and U.S. imports some $600 million by 1975. Secretary Stans feels these numbers are conservative and the actual U.S. exports would amount to $2.5 billion.
To sum up the effect on trade of goods:
|1975 Present Level Restriction||1975 If U.S. removes all unilateral trade restrictions by end of 1971|
|(millions of dollars)|
|Total Trade of Goods||$800||1,600|
|Surplus or Balance of Trade||80||400|
The attached table shows the estimated composition of this $1 billion worth of U.S. exports in 1975. (Tab I)4
In addition, a gain of $150 million from sales of technology but a loss of $50 million from tourism would result in a total increase in U.S. exports of $950 million and a total positive U.S. balance of payments surplus of $500 million—or about four times the estimated amount under status quo conditions.
Thus, for ease of remembering, you might say that more or less complete liberalization would add by 1975 about $1 billion to exports and something like $400 million to our balance of trade as compared to leaving the restrictions where they now stand.
The agencies agree that the principal limitation on the overall level of East-West trade in 1975 is the ability of the Eastern countries to earn hard currency foreign exchange. It was assumed that these countries would not expand substantially their credit buying in Western countries. If this assumption is wrong, i.e., if the USSR for example, were to depart from its traditional conservative policy on credit, then total exports from the West would be very considerably higher, as would exports from the United States.
You know I’m sure that [sentiment in?] the U.S. business community and the Hill is growing daily to liberalize East-West trade, and our second successive month of trade deficits is being used as another reason.
As you know, I am working closely with Henry Kissinger on this whole matter, starting with the Kama River project. My input is essentially that of the economic possibilities. Henry, of course, is handling the contacts with Dobrynin and the linkage to other negotiations with the Russians.
Thus, I fully understand the primacy of demonstrated progress on the other negotiations. Accordingly, I am doing what I can to restrain any premature Administration enthusiasm on this subject of East-West trade.
- Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 218, CIEP. Confidential. Attached to a July 12 memorandum from Howe to Haig bringing to his attention this memorandum as well as two others from Peterson. On July 27 Huntsman sent Kissinger a memorandum informing him that the President had read this memorandum “with interest” and had requested that a copy be sent to Kissinger for his information. Johnston brought Peterson’s memoranda to Kissinger’s attention under cover of a July 28 memorandum. (Ibid., Subject Files, Box 402, Trade, Volume IV 7-12/71)↩
- The study was requested in Document 327.↩
- This becomes $17.2 billion if we include trade between Eastern European countries and less developed countries. [Footnote in the source text.]↩
- The one-page table, disaggregated with estimates on food and tobacco ($235 million), crude materials ($150 million), mineral fuels ($50 million), chemicals ($50 million), machinery and equipment ($465 million), and miscellaneous manufactured goods ($50 million), is not printed.↩