Foreign Relations of the United States, 1969-1976, Volume XIX, Part 2, Japan, 1969-1972

88. Memorandum From John Holdridge and Robert Hormats of the National Security Council Staff to the Deputy Assistant to the President for National Security Affairs (Haig)¹

Washington, August 10, 1971.

SUBJECT

• CIEP Review Group Meeting on Japan

The CIEP Review Group meeting which we attended today brought out the following:

—There is disagreement amongst the agencies as to precisely what reforms we wish Japan to undertake. Commerce would like Japan to allow in more American private investment; however, Treasury believes this would have a negative effect in the short run on our balance of payments. A number of agencies are pressing Japan to revalue the yen, although the amount of the revaluation acceptable to the agencies varies from Treasury’s 20 to 25 percent (which Japan could not possibly accept) to State and DOD believing a 7 to 10 percent revaluation could be acceptable (which, if Japan liberalizes its import requirements and provides more foreign aid, seems to be a more logical position). Other suggested measures include a liberalization of imports and voluntary restraints by Japan on her exports. However, it is obvious that Japan will not do everything we seek and the agencies do not seem to be able to focus on which reforms we should press hardest for at the September Ministerial meeting.

—All agencies seem to agree that we have little effective leverage short of the threat of quota legislation or the Administration’s imposing quotas under existing legislation (which Peterson and Commerce advocate).

—There is a great deal of concern with the U.S. balance of payments and trade situation in general, and with Japan in particular. Last year the U.S. balance of payments deficit was $3 billion and in 1971 the estimate is approximately $8.5 billion, while Japan is expected to realize a balance of payment surplus of approximately $7 billion in 1971. Approximately $2.5 billion of the U.S. deficit will be with Japan.

—There are basically two schools of thought as to how to handle the above problem: one advocates solving our balance of payments problems primarily through export incentives and border taxes on imports—which would not be directed specifically against Japan—but would affect trade with all our partners, along with requesting Japan to conform to accepted rules of international trade. The second school of thought says that since Japan is quite obviously the major problem, we should exert strong efforts to improve our trade and balance of payments with her and avoid invoking measures which would affect trade with the Europeans.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 536, Country Files, Far East, Japan, Vol. V, 1 Jul–Sep 71. Secret. Sent for information. Haig’s initials on the memorandum indicate he saw it. An account of this meeting, drafted by Winthrop Brown, is ibid., RG 59, Central Files 1970–73, E 1 JAPAN–US.