402. Memorandum From the Chairman of the Council of Economic Advisers (McCracken) to President Nixon 1
- The International Wheat Situation and Its Domestic Implications
The wheat situation continues to be very unsettled. The EEC reduced some of its export prices in retaliation for our cut of July 18, but the European cut was not as deep or as extensive as we expected. On Friday and Saturday the five leading exporters, (the U.S., the EEC, Canada, Australia and Argentina) met in London. Although little concrete progress was made the atmosphere was good and press talk of a “price war” is premature. Another meeting is scheduled for August 11.
Behind the apparent calm the danger of a major confrontation with the EEC and of friction with Canada, Australia, Japan and Brazil remains as real as ever. We have sold little if any wheat for several weeks now, which increases the impatience of the U.S. Department of Agriculture to make further cuts. Since the other exporters would undoubtedly follow us down, it is not clear that we would sell any more wheat as a result. The EEC would have further evidence for its accusation that we are bent on wrecking the International Grains Agreement, and we would lose the support of Canada and Australia. On the other hand Japan and Brazil, both major importers, are complaining that we have reduced prices to Europe but not to them.
The IGA crisis is also beginning to have domestic repercussions. Senator McGovern last week urged the Administration to uphold the agreement; Senator Mansfield is reported to be of the same opinion. The announcement of the 1970 wheat program is already overdue; it will undoubtedly generate more heat.
The interagency Task Force on Agricultural Trade is preparing an options paper for the Cabinet Committee on Economic Policy.2 Pending a consensus on this matter it would be highly undesirable to cut wheat prices any further. If you agree, I suggest that Secretary Hardin be informed of this.