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

91. Minutes of a Senior Review Group Meeting¹

San Clemente, California, August 27, 1971, 10:54 a.m.–1:25 p.m.

SUBJECT

• Japan

PARTICIPATION

• Chairman—Dr. Henry A. Kissinger

• State

  • Mr. U. Alexis Johnson
  • Mr. Winthrop Brown
  • Mr. Philip Trezise

• Defense

  • Mr. G. Warren Nutter
  • Rear Adm. William R. Flanagan

• JCS

  • Adm. Thomas H. Moorer

• CIA

  • Mr. Richard Helms
  • Mr. Maurice Ernst

• Treasury

  • Mr. John R. Petty
  • Mr. John McGinnis

• CIEP

  • Mr. Peter Peterson
  • Mr. Richard Allen
  • Mr. Deane Hinton

• OMB

  • Mr. Kenneth Dam

• NSC Staff

  • Col. Richard Kennedy
  • Mr. John H. Holdridge
  • Mr. Robert Hormats
  • Rear Adm. Robert Welander
  • Mr. Mark Wandler

SUMMARY OF CONCLUSIONS

It was agreed that:

—The NSC Interdepartmental Group for East Asia would prepare a paper² comprising:

a) a statement of objectives which the U.S. seeks in its relations with Japan over the next year and a half;

b) a list of specific political and economic steps which the U.S. should take;

c) a similar list of steps which we would expect Japan should take to reinforce its close relationship with the U.S.;

d) a statement from the Japanese point of view of the “do’s” and “don’ts” we should follow in regard to our China policy.

—A paper setting forth the specific negotiating positions to be taken by the U.S. Delegation in the Econ Com meeting would be prepared.³

Dr. Kissinger: We have two issues to discuss today. Where’s Treasury?

Mr. Petty: We’re here.

Dr. Kissinger: I see they sent the tough guys.

Mr. Petty: The good tough guys.

Dr. Kissinger: We now have the revised paper, and I suggest that we discuss it in two parts. First we should talk about the general political framework. Then we should talk about the economic issues, but in more detail than we did last time⁴ [August 6 SRG meeting on Japan].⁵

I wonder, Alex, [Johnson] whether you can begin the discussion by telling us where Japan is heading, so we can see if we agree on that. Then we can try to see if we can agree on where we want Japan to go.

We agreed last time, if I recall, that we were not eager to see Japan’s economic power translated into military and political power. They are sweating out September 15 [Econ Com meeting], especially after the way they’ve been hit on July 15 and August 15.

Mr. Johnson: The Econ Com meeting won’t hurt them. Anyway, it’s scheduled for September 9 and 10.

Dr. Kissinger: (to Mr. Johnson) Alex, do you want to comment about where we stand with Japan after the two shocks [July 15 and August 15]? Is there anything you want to say about the evolution of Japan?

Mr. Johnson: I don’t have much more to say than I had at the last meeting. Where Japan is headed and where we want her to go will be largely determined by the interaction of our policies. Since Yoshida’s day, all Japanese Prime Ministers have followed the traditional path of having close ties with the U.S.—of having “faith” in the U.S. The Japanese have depended on us for leadership. There has been a gap in Japan, however, about recognizing the position they have now achieved. There is an enormous dichotomy there. Halaby [Najeeb] found this out when he met with some leading Japanese businessmen last week in Honolulu.⁶ Incidentally, he thought this meeting was very useful.

Dr. Kissinger: I saw Halaby’s picture, but I couldn’t figure out whether he was playing polo or golf.

Mr. Johnson: The Japanese are saying: “Tell us what you want us to do, but don’t apply any pressure.” Even when I was in Tokyo, they would always speak that way. Now, of course, the foundation of our relationship has been shaken in the last couple of months.

Sato has been discredited. He has always based his position on an intimate personal relationship with the President, as well as an official relationship. He feels that he has been let down. The Japanese I have talked to recently say that Sato has lost his power of leadership, and they say it is time for a change.

I talk to the Japanese about taking bold moves. I talk up the Econ Com meeting on September 9 and 10 as an opportunity for the Japanese to take a bold, dramatic move to restore our deteriorating relationship. These Japanese agree that they should do something, but they claim it is not possible in their system.

Sato is a lame duck. It is a question of how much longer he will stay on, and the betting is that he will be out by early 1972. If the Party [LDP] breaks up on the Okinawa reversion issue, he will be out sooner.

Dr. Kissinger: How would the Okinawa issue cause the Party to break up?

Mr. Johnson: Some break-up has already occurred as a result of the reversion agreement and legislation which will be required to implement it. The implementing legislation—some 600 bills—will be tough to get through the Diet. Two bills will be particularly difficult. The first one deals with eminent domain, and it means the Japanese will have to take over the property needed for them to implement the base agreement. Many of our bases are on private land. The second bill concerns the VOA agreement.⁷

Now that a dramatic shift is taking place in the U.S.-China relationship, the Japanese feel that our bases are not needed and that they [the bases] will prove to be a hindrance to Japan.

Still another reason for Sato being discredited is that Peking has said it would not do business with him. It all adds up to whether Sato will turn over power to Fukuda [Foreign Minister], which would be good from our point of view, or whether he will turn the power over to somebody less tied to maintaining a close relationship with the U.S.

Dr. Kissinger: Who would that be?

Mr. Johnson: It could be Ohira. He is not unfriendly to the U.S., but he would be more independent. It could also be Tanaka, although this is unlikely. The worst would be Miki, who was Foreign Minister when I was there. He is very difficult to deal with.

In brief, the problem now is what degree of independence they will take, and this will be determined in large part by the interaction of our policy. A more independent Japan is probable. We have to be reconciled to it. They will be looking very closely to see if we are discriminating against them, to see if we are following a punitive policy instead of maintaining the close ties. If we take steps which they think are punitive, it will have an effect on our relations.

Dr. Kissinger: This has been very helpful.

Mr. Johnson: I am not saying we should not take steps which we think are wise.

Dr. Kissinger: We should take into account the price we will have to pay if we take measures which the Japanese regard as punitive.

Mr. Johnson: Our action of August 15 did not discriminate against Japan. We imposed across-the-board measures. Yet Japan thought we had hit her hard. The Japanese now want to take action in a multilateral framework. To the degree that we can, we will be better off by doing so. This is not to say, though, that we should not deal bilaterally with Japan.

Chirep is still another issue that’s tearing the Party apart. They are in anguish—and their position has not been made clear. They are very concerned about being associated with the U.S. in a losing venture at the UN. If our resolution fails, it will be bearable here. In Japan, however, it will be another indication of Japan following a U.S. policy that is defeated. The LDP is split on this issue.

Dr. Kissinger: Is the Party in favor of the Albanian resolution?⁸

Mr. Johnson: Various elements favor the Albanian resolution, but the Party as a whole does not support it. One element in the Party feels a sentimental attachment to Taiwan. This arises from a feeling of obligation and appreciation for the way Chiang treated the Japanese forces after the war.

Adm. Moorer: I think that over one million men were returned to Japan.

Mr. Johnson: That’s right. The Japanese were well-treated by Chiang’s forces, and there were no reparations, either.

Other elements in the Party want relations with Peking, regardless of the cost to Taiwan. These are strong issues: the Japanese are in a state of flux and great debate.

Dr. Kissinger: You agree, then, that under any hypothesis, Japan will be more autonomous. How will the Japanese express this autonomy?

Mr. Johnson: For one thing, there will be less association with the U.S. in the UN on the Chirep issue. On the military side, I would not expect any immediate reaction. A more autonomous, independent Japan, over a period of time, will create some difficulties, however, in military relations. In spite of demonstrations and some anti-U.S. outbursts, the Japanese Government has had good relations with us on all issues. Their instinct has also been to help us in the Vietnam war. In the future, they will probably be less cooperative.

With Fukuda or Ohira, a new government would be no problem for us. With Miki, the situation could get to the point where our bases would be vulnerable.

Dr. Kissinger: To what extent would our actions influence the outcome?

Mr. Johnson: What we do and how we do it, can to some degree help reestablish the validity or credibility of the policy of close association with the U.S. This will pay off, but the outcome is within certain parameters.

Dr. Kissinger: In any case, the Japanese leadership will change next year.

Mr. Johnson: That’s right, possibly even this fall.

Dr. Kissinger: Between now and next spring, when the China trip takes place or is imminent, we will have to avoid jangling the Japanese nerves.

Mr. Johnson: Yes. They are afraid we will shift our affections from them to the Chinese.

Dr. Kissinger: Until we go to China, we will have to think of doing some ostentatious thing for the Japanese. Yet we will have to follow a fine line vis-à-vis Japan. If we were asked how to restore close ties with Japan, we could make a list of ten things we should do.

Mr. Johnson: The President’s visit to Anchorage is one.

Dr. Kissinger: Yes. That’s excellent. What about if we crank in military maneuvers, even though nobody has proposed them?

Mr. Johnson: Japan doesn’t want these maneuvers. This is part of the problem: the Japanese feel that if we “make up” with China and at the same time keep our bases in Japan, Chinese hostility and pressure will focus on Japan because of the U.S. bases.

Dr. Kissinger: (to Johnson) Tell the Japanese they need not be so humble. The Chinese are ambivalent as hell.

Mr. Johnson: On the one hand, the Chinese want us out of Japan. On the other hand, they want a weak Japan, but they don’t say they want our presence in Japan. This is much the same way the Soviets regard our presence in Europe.

Dr. Kissinger: This is a delicate problem. We would be fools to exchange a long-time friend [Japan] for an outright opponent. Even at best, China will not be the anchor of our Pacific policy.

Mr. Johnson: I say to the Japanese that we are just trying to establish communications with the Chinese.

Dr. Kissinger: Putting this in cynical terms and leaving aside the historical ties with Japan, it’s good to dangle close Japanese ties in front of the Chinese. It would be crazy to throw over Japan, and it serves our Chinese policy to have close ties with Japan. This should not be done, however, in a blatant way because we don’t want the Chinese to feel we’re ganging up on them. This is the line we should generally follow. Such things as the Anchorage visit contribute to this policy. (to Johnson) You said that we would have trouble with a more autonomous Japan in the future.

Mr. Johnson: The Japanese have already said that the bases are a favor to us. They perceive no sense of threat, and the bases are only valued for what they bring in terms of relations with us. They feel the bases are a cost they must bear in order to maintain close ties with us.

Dr. Kissinger: What would happen if we closed the bases?

Mr. Johnson: They [the Japanese] would be scared as hell.

Dr. Kissinger: We would not do that [close the bases], even if they saw no threat.

Mr. Johnson: They value the bases as a hostage to the nuclear umbrella. This is the price they pay for having our nuclear protection.

Dr. Kissinger: What do you mean? Do they think we would use nuclear weapons if Japan were attacked?

Mr. Johnson: Yes, if the attack came from China or the USSR.

Dr. Kissinger: Would they expect a nuclear response to a conventional attack?

Mr. Johnson: The Japanese do not see a conventional threat. They don’t think the Chinese would launch a conventional attack for at least a generation to come. Instead, they are much more concerned about the Chinese nuclear threat. They are also becoming more and more interested in the security of South Korea, which they see as a hostile dagger pointed at Japan. They now feel South Korea is vital to their security, and they value our presence there. If we were to withdraw completely from South Korea and Japan, this would inevitably lead to major Japanese rearmament.

Dr. Kissinger: Couldn’t such a withdrawal also lead to a Finnish-type neutrality?

Mr. Johnson: Initially, yes. In the long-run, though, it would lead to rearmament.

Mr. Nutter: Wouldn’t the Japanese see the threat growing as we withdraw?

Mr. Johnson: Yes. And this is also part of the problem. If you recall, my argument against the withdrawal of our forces from Korea was based more on the way the Japanese would look at it than the way the Koreans would.

Dr. Kissinger: You won that argument.

Adm. Moorer: I think we would have more latitude in the use of our Japanese bases in the event of war between North and South Korea. We have had some difficulty in staging forces for Vietnam, though.

Mr. Johnson: We have been rotating forces without trouble since 1964.

Adm. Moorer: The paper indicates the opposition is talking about creating problems.

Mr. Johnson: We have not had problems. About a million men have been moved. Take the Pueblo incident, for example. When we wanted to move forces, I talked to Sato and there was no problem.

Dr. Kissinger: May I be the devil’s advocate for a moment? If I understand the paper, we want to maintain close ties with Japan. Nobody disagrees with that. What do we want Japan to do? We want Japan to: (1) continue to provide the bases and facilities essential to our Pacific security posture; (2) spend more for a conventional defense; (3) play a more constructive role in the economic development of Southeast Asia; (4) continue to seek great power status through nonmilitary means and without nuclear weapons. At the same time, we say that Japan will be more autonomous, and this means they will not follow us as much as they have in the past. How do the Japanese perceive all of this? How do they see the role we have assigned to them in the paper? What would a Japanese Prime Minister say to his people to enable them to carry out this assigned role? I am not objecting to these goals, if we can get them. But is it likely?

Mr. Johnson: The Japanese don’t have to justify any action they take in Southeast Asia to the U.S. We went to war in 1941 over such actions. It’s possible that we could have a bad Japan. We must recognize that the Japanese are an emotional people, and the pendulum can swing between the extremes: in 1930 they were militant, but in 1945 they were for complete disarmament. The Japanese want to feel a sense of belonging. If they feel isolated and cornered—as they did in 1930—they will strike out one way or another. In Southeast Asia, any Japanese Government can justify actions on its own grounds.

Dr. Kissinger: We want them to follow an economic policy which places more emphasis on development than exploitation. What incentive is there for them to follow that policy?

Mr. Johnson: The incentive would be to tie Southeast Asia closer to them. It would be a recognition that a development policy is in their interest. More and more Japanese are coming to realize that this type of economic policy is in their interest.

Concerning Southeast Asian policy, we have to be careful not to talk in terms of what the U.S. wants, but in terms of their interests. Like any country, Japan does what is in her own interest.

On the military side, they can justify the bases as the price they must pay for our nuclear umbrella.

Dr. Kissinger: Are you saying they won’t raise the questions about our nuclear umbrella that were raised by the Europeans?

Mr. Johnson: No. They will raise these questions eventually.

Mr. Peterson: If I were a Japanese looking ahead at the next five years, I would probably feel that America has been torn apart by the Vietnam war, and I would probably think that the chances of America keeping her conventional forces in Asia will be reduced. I would worry, therefore, more about the conventional threat posed by other forces in the area.

On the nuclear front, I would be concerned by the MRBMs and ICBMs the Chinese will have by 1975.

Dr. Kissinger: They [the Chinese] won’t have a hell of a lot.

Mr. Johnson: And they wouldn’t need ICBMs to attack Japan.

Mr. Peterson: One could argue that the more the Chinese develop their nuclear capability and the more we move closer to China, the more the credibility of our nuclear umbrella becomes central to Japan. How do we foresee the pressures on Japan to develop her own nuclear capability?

Mr. Johnson: As far as a conventional attack goes, as I said before, they don’t feel the homeland is threatened.

Mr. Peterson: What about Southeast Asia? Wouldn’t their interests be threatened there?

Mr. Johnson: Not greatly. They feel they can get along with China in Southeast Asia.

Dr. Kissinger: What about South Korea?

Mr. Johnson: That’s a different story, and so is Taiwan. In Southeast Asia, though, they feel they can accommodate the Chinese.

Dr. Kissinger: Even if the Chinese take over?

Mr. Johnson: Yes. They have already demonstrated their ability to do business with the Chinese. I tell the Japanese who come in to see me that we are merely trying to catch up to them in their dealings with the Chinese. (to Peterson) What you said about the nuclear weapons is correct. It’s a question of our maintaining a relationship of sufficient confidence so that they don’t feel they have to get nuclear weapons.

Dr. Kissinger: Aren’t they headed in the direction of getting nuclear weapons anyway?

Mr. Johnson: Much less so than they were a few years ago. For one thing, they will never develop a credible deterrent against the USSR, their number one enemy. They will also have difficulty developing a force to be used against the Chinese. What will impel Japan to go nuclear is not fear of the USSR or China, but the need for great powers to have nuclear weapons. The desire to gain admittance to the great power club will provide the strongest influence to obtain nuclear weapons.

Dr. Kissinger: We are speculating about what will motivate Japan in this regard. This reminds me of what we went through with De Gaulle. We took his independent stand as a reflection on our trustworthiness. As I understand it, he didn’t say that he didn’t want the U.S. protection. He said that in the nuclear age, one country protected another when it felt its vital interests were at stake. He thought that the United States would protect Europe, and, therefore, he felt that he didn’t have to pay for our nuclear umbrella. During a crisis—Cuba, for example, or the 1960 summit—he always supported us. In fact, he was often better than the English.

There are pressures to develop nuclear weapons in Japan. Is it out of the question that the Japanese will take the position De Gaulle took?

Mr. Johnson: No, it’s not out of the question. The Japanese have never had a De Gaulle—thank God. They have never had a Hitler or a Napoleon. They don’t take to strong leadership. I guess Prime Minister Yoshida is the closest they’ve come to such a strong leader. A Japanese prime minister is more of a spokesman for the consensus.

Mr. Peterson: On the question of credibility, we refer to Japan as our close partner in Southeast Asia.

Mr. Johnson: Let’s just say we have a partnership.

Mr. Peterson: Okay. We cooperate. Anyway, if there is a new Japanese leader, he will try to reassess what we will do in a crunch, and I wonder what he will think. I don’t think public opinion here will be in favor of defending Japan in a crunch. A new Japanese leader would probably come to the conclusion that our defending Japan in a crunch would be unlikely.

Mr. Johnson: It will surely go through the Japanese mind, but we can only influence that type of thinking in degrees. Even the way we handle the situation will have some influence.

Mr. Nutter: (to Johnson) You said before that the Japanese don’t perceive a threat. If that is so, why should Japan be concerned about having the nuclear umbrella?

Mr. Johnson: Because of the nuclear allergy.

Mr. Nutter: They obviously feel it is important to have some kind of deterrent. If they lose faith in ours, then, the pressures on them to develop their own will increase.

Mr. Johnson: Of course. Still, their biggest concern is great power status.

Mr. Peterson: If you assume that their perception of the threat changes, you also have to assume that their attitude to defense costs changes. Will they share the costs of maintaining U.S. forces?

Mr. Johnson: That’s unlikely to be the case during the next four or five years.

Dr. Kissinger: Maybe we need a Mansfield resolution on Japan.⁹

Mr. Johnson: It would be foreign to their thought to pay more of the cost for maintaining our forces.

Mr. Peterson: I sense an important American attitude developing. The more competition the Japanese economy provides, the more the attitude is likely to develop here that Japan is getting a free ride on defense expenditures—and the less palatable this will become. Is a larger share of defense costs in their interest?

Mr. Johnson: I’m not so sure Japan is getting a free ride. We have to ask ourselves if a heavily armed, nuclear Japan is in our interest. I don’t think this is necessarily so.

Dr. Kissinger: There’s no way they will increase their defense expenditures, unless we cut ours down. This is not like the situation in Europe, where we can threaten to reduce our ground forces.

Mr. Trezise: Actually, they are increasing their defense spending.

Mr. Johnson: The line projections for the Japanese GNP are now of course out the window, but we can make a rough projection. Some people want them to spend 1.5 percent of the GNP on defense, and, by the mid 1970’s, this will be a large figure in absolute terms.

Dr. Kissinger: The French spend 4.8 percent of the GNP on defense, but their GNP is smaller than Japan’s.

Adm. Moorer: The Japanese, I believe, are spending 0.8 percent on defense now.

Dr. Kissinger: Given the delicate balancing act we have to perform, we need a statement of objectives which are obtainable. Can we get from the IG a more detailed set of things to be done during the remainder of this term, during the next year and a half? We need a formulation of steps which will take into account the political sensitivities of the situation and which will not drive the Chinese up the wall. We also need a statement from the Japanese viewpoint on the “do’s” and “don’ts” we should follow in regard to our China policy.

Mr. Johnson: We’re fortunate that Fukuda is now the Foreign Minister and that he stands a good chance of becoming Prime Minister. He is the best Foreign Minister from our standpoint because we can deal authoritatively with Japan.

Dr. Kissinger: Leaving aside the Chinese considerations, can we also get a list of measures we should take? What about space cooperation?

Mr. Johnson: I am the father of space cooperation with Japan because the program started when I was in Tokyo.

Dr. Kissinger: Frankly, I think that a space cooperation program would have only a marginal effect.

Mr. Johnson: I agree. We should cooperate, but we should realize that this will have no great impact on the Japanese.

Dr. Kissinger: What about a Security Council seat for Japan? I think this is a bad year to pursue that goal.

Mr. Johnson: We really can’t do anything to get the seat for Japan. We can tell them that we sympathize with them and that we will support them, but that we can’t take any initiatives. If we were to go through the exercise of taking an initiative for Japan, we would end up in a thicket of brambles. When Fukuda is here, we can talk to him and try to come up with a feasible means of seeking the seat.

Dr. Kissinger: Even if we develop a feasible means of doing so, I don’t know if this is the right year to do it, considering the China visit.

Mr. Johnson: We’re not going to develop anything. The thought of Japan getting a Security Council seat would anger Peking.

Dr. Kissinger: I think it’s best to duck the whole issue this year.

Mr. Johnson: Yes. Nevertheless, we can tell the Japanese that we support them in principle. We should ask them what they think they should do to obtain the seat.

Dr. Kissinger: I wonder if we can take a short break? The President wants to see me for a few moments.¹⁰

Meeting adjourned at noon and reconvened at 12:30 p.m.

Dr. Kissinger: Can we discuss the CIEP paper now? (to Mr. Petty) Why don’t you start the discussion while we’re waiting for Peterson to rejoin us?

Mr. Petty: It’s his paper, and he should really be the one to talk about it. Let me give you a few of our impressions, though.

Japan is breathing a sigh of relief because the surcharge is across-the-board and world-wide—and not directed solely against her. The initial reports of the impact there on August 15 were slightly exaggerated.

Mr. Johnson: Don’t forget that the news hit them when their markets were open on Monday morning.

Mr. Petty: That’s one reason the program was put together over the weekend. One point the Japanese are making is that any adjustment in exchange rates should be done on a multilateral basis, and we seem to be going in this direction. By holding bilateral talks with Japan, we will be strengthening her multilateral negotiating position.

Dr. Kissinger: Now that the Japanese are floating the yen, will it be revalued?

Mr. Petty: Yes. It will be pushed up a little bit.

Dr. Kissinger: Can they defend the yen enough to keep it from going up?

Mr. Petty: Not for very long. Now that they have made the decision to float the yen, their negotiating position vis-à-vis Europe is stronger. They can be recalcitrant like the French, and not be the only country holding up the negotiations.

(Mr. Peterson rejoined the meeting at this point.)

Dr. Kissinger: (to Mr. Peterson) We were just beginning the discussion of your paper. Would you care to make some comments on it?

Mr. Peterson: I think there is general agreement that the Econ Com meeting should be held in a conciliatory atmosphere. As part of the exercise, we should decide how forthcoming we want to be on such matters as Okinawa reversion. We should stage the meeting in such a way so that Sato can play it back as symbolic evidence of U.S. attitudes. I think the Japanese should come away from the meeting with something tangible.

I had a recent meeting with some Japanese, including Ambassador Ushiba, and they expressed concern about the communiqué that will come out at the end of the meeting. On the economic-political front, there are a few issues we can’t discuss at that meeting. But there are also several issues which can be brought up. One of them is space cooperation. The Japanese want access to our new booster technology and guidance systems.

Mr. Johnson: I think we can deal with this issue.

Dr. Kissinger: Should we do for the Japanese what we are doing for the Europeans in the space field?

Mr. Johnson: It’s applicable, but I don’t think we need to get into the subject now. We agreed to sell them certain items. They want the best technology available.

Dr. Kissinger: Do they want this technology for space purposes or for short-range missiles?

Mr. Johnson: For space purposes.

Dr. Kissinger: Why?

Mr. Johnson: Because first-class powers have space programs. Even the Chinese have a space program.

Mr. Peterson: Is there a correlation between what they can use for space purposes and for medium-range missiles?

Mr. Johnson: Yes. But we can deal with it.

Dr. Kissinger: Before our delegation to the Econ Com gets any guidance, does any inter-agency group review this subject?

Mr. Johnson: Yes. We have an IG which considers this. There is some difference of views.

Dr. Kissinger: Can one of my boys be put on this group?

Mr. Johnson: You already have someone on it. I think it’s Wayne Smith.

Mr. Peterson: The Japanese “wish list” also includes the post-Apollo program and a medium-sized jet for the commercial field. We would like to help them with the commercial jet.

Dr. Kissinger: Would they build the jet?

Mr. Peterson: No. It would be a joint project. They will propose it shortly.

Dr. Kissinger: My concern is the Presidential point of view. I don’t think we should do so many things. Although they all might be good individually, they might have the total effect of tying us up. We should wait until the China visit is behind us, and I don’t want to get into any of these areas during the next three months.

Mr. Johnson: Hopefully, I will finally be getting off my letter to Lefevre on the post-Apollo program on Monday. Last Friday Comsat voted not to sign the letter because they thought I had double-crossed them.

Dr. Kissinger: Has that been straightened out?

Mr. Johnson: Yes. They finally signed it.

Dr. Kissinger: No one has ever worn you out.

Mr. Johnson: I don’t think we have a problem with the Japanese on post-Apollo. In another area, we made an offer to supply them with enriched uranium, and we are prepared to go ahead with it. The proposal for a medium-sized jet is new to me. It seems that this is strictly a commercial project—and that we already have too many types of jets.

Mr. Peterson: I was talking to Schlesinger recently about our offer to supply the Japanese with enriched uranium, and he mentioned that the Econ Com was not the proper forum in which to discuss the offer, considering its sensitive defense aspects. He has several important questions about this particular proposal.

Mr. Johnson: We already made an offer to begin discussions on gas diffusion plants.

Dr. Kissinger: But wasn’t that a year ago?

Mr. Johnson: It was. The Joint Committee on Atomic Energy, however, only cleared the proposal six weeks ago. Now the ball is in the Japanese court.

Dr. Kissinger: Has this been announced?

Mr. Johnson: Yes.

Mr. Allen: This would be a good item for the Ministerial communiqué.

Mr. Johnson: You’re right. We can add it to the communiqué.

Mr. Peterson: Schlesinger says that he has several questions to raise before we go ahead with it. I suggest that we have a group take a closer look at the proposal.

Mr. Johnson: I can write one paragraph for the communiqué right now. The Japanese consortium is a long way down the road, and the ball is in their court. Now they have to talk to the Australians and Canadians. I think we can say something about it in the communiqué.

Mr. Peterson: A major issue at the meeting [Econ Com] will be the balance of payments goals problem. The U.S. has certain requirements for balance of payments objectives. Right now we are in disequilibrium with the rest of the world, and much of our deficit is due to our large defense obligations.

The Japanese are also in disequilibrium with the rest of the world. Their balance of payments projections suggest that they desire a large surplus. They should have a trade surplus of nearly $7 billion this year. By 1975 the surplus should be about $11 billion. It is difficult to reconcile balance of payments goals this far apart.

There seems to be Agency agreement to sit down with Japan and discuss this problem. I think it would be desirable to discuss our mutual goals, using the Econ Com meeting as a setting for this discussion.

Dr. Kissinger: Is it our goal to negotiate a bilateral balancing with them at the meeting?

Mr. Peterson: No. They will probably talk about multilateral steps which will have to be taken.

Mr. Petty: They will keep the yen floating for a while. The first thing we have to decide is what kind of world monetary system do we want to have. There are three choices: (1) a floating world; (2) a fixed exchange rate system; and (3) a flexible fixed exchange rate system. Right now everyone is floating. The hope is that we will all reestablish relatively fixed exchange rates.

Mr. Nutter: We shouldn’t come out for that type of system too soon because we could lose some of our negotiating leverage.

Mr. Peterson: We can spend all afternoon discussing what kind of system we want.

Dr. Kissinger: The President’s basic view is that he doesn’t want to patch up the old system. He wants to take a good look at a new system. What this system is, I don’t know.

Mr. Peterson: It will take at least a month to examine the alternatives.

Mr. Petty: We said that we want to adopt a new system because we wanted to have surpluses after fifteen or twenty years of deficits. If we have surpluses, though, somebody else must have deficits. The IMF thinks the U.S. should have a relative devaluation of 10 percent and that Japan, therefore, should revalue the yen 15 percent.

According to our figures, we require a higher revaluation for Japan because we have higher objectives for our balance of payments problem. If we say that the U.S. has to have a relative devaluation of 10 or 15 percent, you have to ask what that means for other countries. For Japan, it would mean a 17–22 percent revaluation.

Mr. Nutter: If we are all floating, why do we care if the Japanese buy dollars? That won’t hurt us.

Mr. Peterson: We can’t assume that we will stay on a floating system.

Dr. Kissinger: We have to know what kind of a system we want. A floating system is one choice. In the summer of 1969, we came up with some proposals which were technically feasible, but which were bad politically. At that time the President decided we didn’t have a chance of getting this system. We have to take a careful look, therefore, at the political aspects of whatever system we restructure now. (to Peterson) We can give support to your group.

Mr. Peterson: Let me try to summarize the arguments on the balance of payments problem. Theoretically, in a free-trade world, the idea of each country achieving a balance of payments equilibrium with other countries is unrealistic. We want some things from some countries, and we may have a deficit with them. On the other hand, we may have surpluses with countries we don’t want things from. Some people feel that discussion between two countries on how to achieve bilateral balance of payments equilibrium could be a dangerous precedent. If we do this with Japan, they say, we might be forced into doing it with Europe—where we have a surplus.

In view of these arguments, let me tell you why we want bilateral balancing with Japan. First, we are in fundamental disequilibrium with Japan. Our bilateral trade deficit with Japan for 1971 is going to be about $2.4 billion. Second, if our overall situation is going to improve as much as we think it has to, much of the improvement must come in the trade account. Third, in the past, there has been a gap in Japan between their rhetoric and their actions. Even if we get trade liberalization, specifically, their eight-point program, we still may face the possibility of a gap in their implementing actions.

In the paper, we were simply trying to see what the balance of payments would be in the theoretical, free world.

Dr. Kissinger: Who would conduct these negotiations?

Mr. Peterson: At the Econ Com meeting, we have to tell the Japanese to put their primary emphasis on multilateral goals.

Mr. Petty: We could state our multilateral objectives and then deal with them [the Japanese] on a bilateral basis.

Dr. Kissinger: Isn’t the floating of the yen the first step to revaluation?

Mr. Peterson: We hope so. With a scenario that imagines what would happen if everything goes according to the rules, the biggest factor is revaluation of the yen.

Dr. Kissinger: Is it likely that the yen will just be revalued a little bit?

Mr. Petty: Look at it this way. We need a relative improvement in our trade balance of X percent from the rest of the world, and Y percent of this must come from Japan.

Mr. Nutter: But we won’t need this change if we keep floating.

Mr. Petty: You’re assuming we will stay on a floating system, but we won’t.

Dr. Kissinger: What’s wrong with a floating system? Won’t it enforce internal discipline among countries with regard to their currencies?

Mr. Trezise: John [Petty] is right. We need certain changes.

Dr. Kissinger: I’m just trying to understand what we want. We tell the Japanese that a certain percentage of our deficit belongs to them. They agree, and they ask us what we want them to do. Let’s assume now that they revalue, but that the revaluation isn’t high enough. What do we do? Do we say that they must revalue 20 percent? Then they can answer with a “yes” or “no.”

Mr. Dam: There are certain things we want, such as liberalization of trade, opening up for investments, etc. The only question is whether it is best to make progress on these issues in a multilateral way or a bilateral way. I do not see any advantage in the bilateral approach. In fact, I see sizable dangers in that approach, and it wouldn’t make much economic sense, either, because Japan could redirect her exports. There could be very great implications if we take the bilateral goals seriously.

Mr. Petty: The reason Canada is afraid to change her exchange rate is that if she revalues and Japan does not, she will be hurt. Our multilateral objective is composed of bilateral elements. Is it wrong to point that out to Japan?

Mr. Dam: We can point it out, but we should not take it too seriously.

Dr. Kissinger: Why should we even talk about it?

Mr. Nutter: If our target is to restructure our trade balances, then it should also be our target to change the exchange rates.

Mr. Petty: We should establish new fixed exchange rates. Would you accept the idea that the U.S. needs new exchange rates, at least with the industrial countries?

Dr. Kissinger: Couldn’t we let the President get a crack at this issue?

Mr. Johnson: I am not sure that getting new exchange rates is our objective.

Mr. Petty: The President said in his August 15 announcement that he wanted a major realignment of exchange rates.

Dr. Kissinger: In my experience, the worst thing you can do is take a sentence out of a speech and then lock it in concrete. If this is a contested point, let’s give the President a crack at the issue. If he says we should stay with a floating system, this won’t be an issue. If he wants a fixed exchange rate, it will be an issue. And then we will have to tell the Japanese how much of the deficit they must make up. Supposing they agree, can we then say: “You must do the following?”

Mr. Petty: Not necessarily. The progress can be measured by the liberalization they undertake.

Mr. Dam: I think a major question for us is how we fix our goals.

Mr. Petty: This [zero balance] is the way we have done it.

Mr. Johnson: No matter how the argument comes out, we all agree that we want the yen to be revalued.

Mr. Peterson: We want a major revaluation. As we all know, there are different degrees of floating. The Japanese can float the yen a little bit, but then add controls and still have a disequilibrium with us. The U.S. does not want a major trade deficit with Japan for political and economic reasons.

Mr. Johnson: We want the yen revalued; we want them to help relieve our aid problem in Southeast Asia; we want them to undertake more military procurement in the U.S.; we want them to implement the eight-point trade liberalization program. We all agree on these things.

I just happen to have a piece of paper here which was written in the Japanese Foreign Office. It contains all of these items, almost as if they were lifted right out of the CIEP paper. The Japanese Foreign Ministry with Fukuda’s support, is fighting other elements of the Government over these items. I think that what the Foreign Ministry is proposing would make an excellent agenda for the Econ Com meeting.

Mr. Peterson: What does that paper say about yen revaluation?

Mr. Johnson: It proposes that the yen be revalued 10 percent.

Mr. Peterson: That’s unacceptable.

Mr. Johnson: OK. But the principle for revaluation is there. The program the Foreign Ministry is fighting for is what we want to discuss in the Econ Com. This has Fukuda’s support, and I think we should pattern our meeting strategy on this program—their program.

Dr. Kissinger: Twelve years ago when I first began seeing Presidents, I went in to see Kennedy. I did a good job in telling him what his problem was. Afterwards, somebody told me that I should never tell a President about his problems: I should give him solutions.

What do we tell Japan? Can we separate the immediate and long-term issues? Would it be possible to prepare a detailed scenario for the meeting?

I can detect two contradictory trends in today’s meeting. The first is that we undertake so many face-saving steps that we worry China. The second is that we impose so many demands that we get a “no” from Japan.

Can we get a coherent document giving our objectives and the points we propose to make? Who would be in charge of getting this paper together?

Mr. Johnson: We would be. I just happen to have another paper here which we have prepared on this subject. It doesn’t say that we want a 22 percent revaluation or a 5 percent revaluation. It merely sets up goals, and these goals are consistent with those of the Japanese Foreign Office. Once the goals are agreed upon, it would be a matter of negotiating a 10 or a 15 percent revaluation. Incidentally, the Secretary has not yet seen this paper.

Mr. Peterson: This is where a difference in degree creates a great problem. A 10 or a 15 percent revaluation is absolutely fundamental to our balance of payments problem.

Mr. Trezise: The negotiation wouldn’t be done in the Econ Com. It would be done in the Group of Ten.

Dr. Kissinger: I want the President to look at this whole issue. When he meets the Japanese at the dinner, he will need the basic trend of opinion. We need a coherent design. Can somebody get it done?

Mr. Johnson: I would say that the principle issue is the order of magnitude of the revaluation.

Mr. Petty: The study on the overall adjustment goals should be out here [San Clemente] next week. Within those goals, there should be implications for other countries. I don’t think we can move until we know what Japan will do.

Mr. Johnson: We will not negotiate in the Econ Com.

Dr. Kissinger: Before we are driven by the pace of negotiations, can we get a look at the problem and choices? If we don’t do that, there is a great danger of being sucked into one technical position after another. (to Mr. Johnson) Alex, can you get a paper ready?

Mr. Johnson: Yes. The big issue of what kind of world monetary system we want has not yet been decided. When that has been decided, we have to find out what adjustments in exchange rates we seek from each country. Once we get those two problems solved, everything else will fall into place.

Dr. Kissinger: That’s true on the economic side. But we have to consider the political side, too. I want to make sure we keep a balance between China and Japan.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–112, SRG Minutes, Originals, 1971, [2 of 6]. Secret; Sensitive. The NSC staff sent Kissinger a briefing memorandum for this meeting, which took place at the Western White House. (Memorandum from Holdridge and Hormats to Kissinger, August 25; ibid., Box H–059, Senior Review Group Meetings, SRG Meeting—Japan 8/27/71) Kissinger noted the minutes of this meeting. (Memorandum from Davis to Kissinger, September 2; ibid., Box H–112, SRG Minutes, Originals, 1971, [2 of 6]) The Department of Defense also prepared a record of this meeting. (Rear Admiral Flanigan memorandum for the record, undated; Washington National Records Center, RG 330, OSD Files: FRC 330–76–197, Box 67, Japan, 123, Tab D2 from briefing material for CIEP meeting of September 7, 1971) U. Alexis Johnson also prepared an account of this meeting and sent it to Rogers as an information memorandum. Johnson wrote, “Discussion on economic issues was brief and inconclusive.” (Memorandum from Johnson to Rogers, August 31; National Archives, RG 59, Lot Files, General Files on NSC Matters, Box 4, NSC–SRG Memos, 1971) The Department submitted to the SRG a paper on political issues in response to an oral request from Holdridge for answers to four questions posed by Kissinger at the August 6 Senior Review Group meeting: “1. Where is Japan Going? 2. What Kind of a Japan Do We Want? 3. How Do We Get It To Go There? 4. What are the Costs?” (Memorandum from Eliot to Kissinger, August 24; ibid., Nixon Presidential Materials, White House Special Files, White House Central Files, Subject Files, Confidential Files, CF, CO 75, Japan 1/1/71–9/30/71) The CIEP submitted a paper addressing “next steps” for approaching U.S.-Japan economic relations. (Memorandum from Peterson to CIEP Review, August 24; ibid.) On August 26, Davis distributed a paper entitled “The Possibility of a Looser Relationship with Japan and its Consequences,” for consideration at the meeting. The NSC Inter-Departmental Group for East Asia apparently drafted it. (Ibid.)
2. See Document 99.

3. This request was made officially in a memorandum that stated:

   “At the SRG meeting [of] August 27, 1971, it was agreed that a paper would be prepared setting forth the specific negotiating positions to be taken by the United States Delegation in the ECONCOM meeting in September. Accordingly, it is requested that:

   “—The Department of State prepare a negotiating paper comprising its proposed positions on all issues other than the economic issues to be raised at the conference.

   “—The CIEP Working Group prepare a negotiating paper on the specific economic questions to be discussed at the meeting.

   These papers should be prepared for the President’s consideration and be submitted not later than September 3.” (Memorandum from Kissinger to Irwin and Peterson, September 1; National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–059, Senior Review Group Meetings, SRG Meeting—Japan 8/27/71) For the response, see Document 92 and, CIEP, a paper from Peterson, August 24. (Ibid., White House Special Files, White House Central Files, Subject Files, Confidential Files, CF, CO 75, Japan 1/1/71–9/30/71)

4. See Document 87.
5. All brackets in the source text.
6. The Meeting of Joint Executive Committees of the Japan-U.S. Economic Council and the Advisory Council of Japan-U.S. Economic relations occurred at Makaha Inn, Hawaii, on August 21.
7. The United States and Japan had negotiated the post-reversion status of a Voice of America Broadcasting facility on Okinawa.
8. The United States and Japan opposed efforts, led in the United Nations by Albania, to admit the People’s Republic of China to membership of the United Nations and to expel the Republic of China (Taiwan).
9. Reference is to Senate Majority Leader Mike Mansfield (D–Montana) who had proposed an amendment to the Draft Extension Act that would have reduced U.S. military forces in Europe by about half.
10. According to the President’s Daily Diary, Nixon met with Kissinger from 12:04 until 12:18 p.m. and with Peterson from 12:04 until 12:25 p.m. (National Archives, Nixon Presidential Materials, White House Central Files)