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131. Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon 1

SUBJECT

  • China Trade

The Under Secretaries’ Committee (USC) has forwarded at Tab A2 its recommendations on direct trade between the United States and the PRC, as you directed in your April 14 decision.3 The agencies have already put into effect the other elements of your decision: visas, shipping, cargoes, bunkering, and foreign assets controls.

U.S. Exports

You will recall that your decision in opening trade with the PRC was to proceed in three stages: Stage I, to establish a trade level below that of U.S. trade with the USSR; Stage II, to place trade with the PRC on a par with the USSR; and Stage III, to go beyond the level of trade with the USSR. (This last would have been via authorizing direct grain shipments to the PRC without requiring that they be shipped on U.S. vessels, as is now necessary for shipments to the USSR and Eastern Europe.) Your purpose was to provide us with an opportunity to assess the reactions of the PRC, the Republic of China, and the Soviets before proceeding to the next stage. The USC list (Tab A1)4 is intended to implement Stage I of your decision.

I believe that the list of items USC has recommended for direct U.S.–PRC trade meets your conditions. Its level of trade would be at a level lower than that with the Soviet Union, and there would be a number of significant items which could be added to the China list later. (The excluded items are at Tab A2.) The main differentiation is that the proposed China list leaves out several items which Defense, Commerce [Page 335]and AEC believed needed further review because of possible military use or of their greater strategic benefit to China’s low technological and industrial level. Examples are automatic welding machines for pipe over 19 inches, propellers, agricultural machinery with automatic transmission, cars with four-wheel drive, steam boilers, engines, gas containers, some chemicals, radar, cameras and lenses.

In addition, the USC list would appear to meet another issue which has arisen in connection with direct U.S.–PRC trade: the strong indications we have received that the Chinese will not be interested in such trade if we restrict our exports to them significantly more than exports to the USSR. The USC list contains 95 percent of the items allowed to go freely to the Soviet Union, and this is probably sufficient to make the Chinese feel that they are not being given second class status. If they should get a contrary impression, they would probably state publicly that this was the reason for their not sanctioning trade with the U.S., thereby causing American business interests to criticize you and not the Chinese for the failure of trade to develop.

On the other hand, by accepting the USC list, we should be able to avoid Chinese resentment by making it clear in the first announcements that we are still continuing to consider further additions to the China list, and that we will consider applications for special licenses for items not included on the general license list. Continuation of some differential in favor of the USSR will also help avoid problems with the USSR and Taiwan.

You should know, however, that Secretary Laird does not wish to release the USC list all at once but proposes instead to release it in segments over a period of months contingent on PRC reactions.5 In addition, Defense objects to the inclusion of two items, earth moving equipment and railway equipment, on the USC list. I have no particular brief on these items other than to keep the China list close enough to the Soviet list to obviate the difficulties I outlined above. A piecemeal release of the items on the USC list, though, would almost certainly result in a cold reaction from the Chinese. It would also cause delays and throw the question of what to release at any given time back to the interagency process.

If you should wish to make even more dramatic your implementation decisions, you could of course decide to go immediately to Stage II of our decontrol program and make the original Chinese general [Page 336]license list equal to the Soviet general license list without serious security problems, i.e., by adding the items at Tab A2. The Chinese could probably get these goods from other sources in any case. I do not believe it necessary, however, to move at once to the Russian list in view of the ample nature of the Under Secretaries’ recommendations with the State additions, provided we release all the items on our list simultaneously.

Grains

The Under Secretaries’ Committee, except Defense and Labor, strongly urges that you approve a proposal to add wheat and feed grains to the open general list not only for China, but for the Soviet Union and Eastern Europe as well. Maintenance of this restriction enables Commerce to demand that 50 percent of all shipments be in American bottoms. This eliminates the grain trade with Eastern Europe and will appear absurd with China until we allow U.S. ships to call at Chinese ports. (NSSM 124, Next China Steps,6 as it now stands in draft does, however, offer the option of U.S. carriers calling at Mainland China ports, and it is due shortly.) The China trade changes offer a good occasion to eliminate the 50 percent shipping requirement across the board, and it would be a gesture to the USSR.7

Grain is one of the principal potential exports from the Free World to China, and it is difficult to explain to U.S. farming interests why we refuse to allow that trade. Liberalization on this point may result in further pressure to relax Eastern European restrictions, and it will certainly increase pressure to allow U.S. ships to call at Chinese ports. The [Page 337]Labor Department is opposed to relaxation of these controls without first getting union agreement, since the move would antagonize the unions, particularly George Meany, and may result in a refusal by the longshoremen to load grain destined for the Communist countries. Pete Peterson strongly urges a positive grains decision, since it would have very favorable political results in border and agricultural states, and specifically with Senator Dole. Peterson believes the agricultural political aspects outweigh the costs with the unions and that the west coast unions are prepared to load grain.

The Under Secretaries’ Committee considered a fallback recommendation— that you include grain on the open list for China even if you do not do so for Eastern Europe, or that you authorize individual licenses for China without the 50–50 requirement. I cannot, however, recommend these fallback positions for they would reinforce suspicions that improvement in China relations is principally aimed against the USSR and would take us right to Stage III in our China control program— better treatment for China than for Russia.

U.S. Imports

The Under Secretaries’ Committee has considered three means of controlling U.S. imports from China. The Trading with the Enemy Act, by which we will control these imports, does not allow product differentiation.

Imports from China will face high Smoot–Hawley tariff rates. Cotton textiles will be held down by the long-term textile agreement. Before the U.S. embargo on trade with China, 80 percent of our imports consisted of items such as hog bristles, tung oil, wool, tungsten, feathers, eggs, and menthol. The USC believes that even without controls, our imports from China would take a few years to reach $100 million though they might eventually reach $200 million. In view of the nature of China’s exports to the Free World—mainly foodstuffs, crude materials, and semi-finished manufactures—the pattern of her shipments to the United States and the potential volume of imports, the Under Secretaries’ Committee recommends that you approve the issuance of a general license authorizing all imports from the PRC with an announcement that we may impose a global import restriction in the future should it become necessary.

Other options considered and rejected were that (a) all potential imports be licensed individually by the Treasury Department; and (b) a $50 million quota be now announced limiting such imports. The Committee rejected these recommendations as unnecessary until we have a better view of developing trade relations and because of the bad precedent that would be established by initiating such a cumbersome bureaucratic procedure.

[Page 338]

Further Review and Coordination

The Committee will review the results of your decisions in August and report to you on possible future steps. Meanwhile, the agencies will continue to make additions to the China list in the context of reviews for the Eastern European list and send to you only those items on which there is interagency disagreement. (I believe we can trust Defense to be sufficiently vigilant in this respect.) The agencies will also consider on their merits individual applications for export of items not yet included on the general open license list.

Announcing Your Decision

To obtain maximum domestic and international impact from your decision, we should issue a White House press release along the lines of the one at Tab B. Pete Peterson, however, has written to suggest that we would gain more domestic plaudits by first conferring with interest groups (Tab C). This, however, would open the strong possibility of press leaks.8

Recommendations

1. That you accept the Under Secretaries’ recommendation on items for the U.S. export list including earth moving and railroad equipment. Pete Peterson concurs.9

Approve

Disapprove, prefer the USG list without earth moving and railroad equipment [Page 339]Disapprove, prefer to accept USG recommendations but phase the announcements over several months as suggested by Defense

Disapprove, prefer to go immediately to the Soviet level in our Chinese export controls

2. That you approve the addition of grains for open general license export to China and the Soviet Union. Pete Peterson strongly concurs.10

Approve

Disapprove

Disapprove, open general license to China only ____, or, individual licensing for China without the 50% shipping requirement____. (I strongly recommend against these last alternatives.)

3. That we announce the licensing of all imports from the PRC under a general license subject to possible future import restrictions should these prove necessary. Pete Peterson concurs.11

Approve

Disapprove, prefer individual licenses, without dollar quota

Disapprove, prefer a global $50 million limit

4. That we announce the decision via a public release from the White House.12

Approve

Disapprove

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 521, Country Files, Far East, China, Vol. VII. Secret. Sent for action. According to a covering memorandum to Kissinger from Holdridge and Ernest Johnson, with the concurrence of Kennedy, Holdridge and Johnson wrote and then revised this memorandum for the President. (Ibid.)
  2. Attached but not printed is a 4-page May 13 memorandum signed by Irwin. The full report detailing trade options and a list of non-strategic items are ibid., RG 59, Office of International Policy and Planning, 1969–1971: Lot 72 D 504, NSSM 124.
  3. See footnote 3, Document 116.
  4. The tabs are attached but not printed.
  5. Laird’s comments on the May 13 draft Under Secretaries memorandum stemmed in large part from recommendations made to him on May 12 by Nutter, Moorer, and John W. Vogt, Director of the Joint Staff. (Washington National Records Center, RG 330, OSD Files: FRC 330 76 0197, China (Reds) 092, May)
  6. See Documents 117 and 129.
  7. The AFL–CIO and the International Longshoremen’s Association opposed any modification of the requirement that at least 50 percent of all grain shipments to Communist countries be carried in U.S.-registered vessels. The President and Kissinger discussed this requirement on June 4. Nixon complained, “It’s an archaic provision of law, the 50 percent of American bottoms. The American merchant marine, however, is a relatively, is a very patriotic union in support of other activities and it would be rough as hell.” Kissinger replied, “That’s true. I think then perhaps individual licenses would be better. Except that then every time we do it, we have hell to pay.” Nixon said, “Well, the point is, we just tell them we got it because of the enormous surplus of grain and so forth, we’ve got to do it for grain, we’re going to fight like hell to keep the 50 percent American bottoms for everything else.” (National Archives, Nixon Presidential Materials, White House Tapes, Recording of conversation between Nixon and Kissinger, June 4, 1971, 9:42–10:22 a.m., Oval Office, Conversation No. 512–4) Kissinger, Lord, Jay Love- stone, Director of the Department of International Affairs, AFL–CIO, and Thomas Gleason, President of the International Longshoremen’s Association met on June 9. Gleason informed Kissinger that he would instruct the longshoremen not to load any ships involved in grain trade with Communist countries. He added, however, that he did not want to embarrass the President. (Memorandum of conversation, June 9; Library of Congress, Manuscript Division, Kissinger Papers, Box CL 269, Memoranda of Conversation, June 1971)
  8. Peterson’s memorandum is Document 127. Nixon wrote a handwritten comment beside this sentence: “OK—Don’t worry about the leaks, they will only help build the story.” On June 4 Nixon told Kissinger that he wanted Peterson to confer with interest groups and that a leak would be “useful” in this case in order to build the story over time. (National Archives, Nixon Presidential Materials, White House Tapes, Recording of conversation between Nixon and Kissinger, June 4, 1971, 9:42–10:22 a.m., Oval Office, Conversation No. 512–4)
  9. The President initialed his approval. However, in a conversation with Nixon on June 4, Kissinger suggested delaying the approval on earth moving equipment and some other items: “You see, the advantage of not going immediately to the Soviet level is it gives you another story whenever you need it.” (Ibid.) Nixon apparently accepted this suggestion, as Holdridge wrote to Kissinger on June 4: “In accordance with your instructions. Ernest Johnson and I went to State this afternoon for a meeting of the Working Group on China Trade List in order to reduce the number of items on the China list significantly below the number on the Soviet list.” He added that items cut from the list included earth moving equipment, locomotives, petroleum products, copper products, and railroad signal equipment. He concluded: “We have stressed the need for keeping the reductions in the China list extremely closely held.” (Ibid., NSC Files, Box 521, Country Files, Far East, China, Vol. VII)
  10. There is no indication of approval or disapproval of any of the options, but the President wrote: “Pete [Peterson], [George] Shultz—earliest.” When discussing this issue on June 4, Nixon and Kissinger felt it unlikely that the Russians or the Chinese would buy significant amounts of grain from the United States. Nixon, however, emphasized that even a small shipment of grain to the PRC would have a major impact among farmers. (Ibid., White House Tapes, Recording of conversation between Nixon and Kissinger, June 4, 1971, 9:42–10:22 a.m., Oval Office, Conversation No. 512–4)
  11. The President initialed his approval.
  12. The President initialed his approval. Kissinger relayed these decisions to Irwin in a June 9 memorandum. (Ibid., RG 59, General Files on NSC Matters: Lot 73 D 288, NSC/U-Sec Memoranda, January 1971) The White House announced the trade policy on June 10. (Department of State Bulletin, June 28, 1971, pp. 815–817) Details on the new trade rules are in 36 Federal Register 11808. All diplomatic posts were informed in telegram 103604, June 10. (National Archives, RG 59, Central Files 1970–73, FT 1 CHICOMUS) The Republic of China expressed its dissatisfaction with these measures on June 11, when Ambassador Shen met with Green. (Telegram 104798 to Taipei; ibid.)