156. Memorandum From the Deputy Secretary of the Treasury(Simon) to Secretary of the Treasury Shultz 1

The Administration has been proceeding on the assumption that trade legislation should be sent to the Hill early this year. I believe this assumption bears close re-examination.

Admittedly, there are persuasive reasons for proposing legislation, principally the fact that the failure to submit a bill would leave a vacuum which the protectionists would be certain to exploit. It is the old story of not being able to beat something with nothing.

At this moment, however, it is difficult to determine what kind of bill to send up. A bill which fails to deal strongly with legitimate concerns in the trade area would tend to weaken the Administration’s goal of heading off restrictionist trade legislation. If enacted, such a bill would also fail to provide the authority the President would need to shape a genuinely equitable trading system in the coming years. On the other hand, too strong a bill would feed "red meat" to the protectionists. It would, in effect, lend legitimacy to their position and thus might lead in the end to the enactment of an unacceptably restrictive bill.

These problems aside, there are other, more basic reasons for reconsidering our position. The conflict with the European Community and Japan over trade issues is rapidly taking on an important political dimension. Increasingly, trade issues are affecting the political relations between ourselves and our trading partners and, in turn, the economic climate is being affected by political developments.

We have probably passed the point, if it ever existed, where the outstanding trade issues could be successfully dealt with in an economic forum apart from a broad consideration of political/military issues. [Page 599]A successful resolution of economic issues would most likely be achieved if it were possible to offer acceptable trade-offs in the political/military area.

A striking example of the link between economic and political developments is the action taken by Japan to reopen economic relations with China following the President’s actions of August 1971 and his trip to China last May.2 In Europe the enlargement of the EC and its effort to create a massive preferential trading system is only in part economically motivated. To a significant degree, the EC is seeking greater foreign policy independence from the United States. With respect to the preferential system, members of the European Commission have often stated their objectives of designing the system, in part, to relieve the United States of its foreign policy "burden" in the Mediterranean and Africa.3 Even in the United States, our weakening international economic position is seen as diminishing our prestige and our ability to influence events in the world.

If it is true that the trade conflict has a larger meaning than the domestic "meat and potato" issues usually cited, then our efforts to settle them on this basis is likely to lead to frustration. Our relations with our trading partners are likely to grow more embittered, threatening achievement of the President’s major goals in the political/military area.

The experience of the past several years would seem to bear out this proposition. For the most part, we have been conducting trade negotiations with the EC at a relatively low level of representation and largely on a technical basis. Whatever progress has been made has been slight. It has served to paper over underlying differences rather than to resolve them. As for the future, serious doubts exist about the willingness of the EC to make meaningful concessions at the new round of trade talks scheduled to begin this fall—not to speak of their interest in having talks at all.

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With the EC in particular we seem to be on a collision course with both sides digging in for a confrontation which in the end can only be mutually damaging.

Our goal is clear enough: to avoid damaging restrictive legislation while giving the President the time and the means to deal constructively with the very real issues that do exist.

With 1973 to be "the year of Europe," what better way to begin than for the President to visit the European capitals early this year. From the point of view of the dilemma facing us on trade, such a trip could offer substantial advantages:

  • —Having begun the process of "normalizing" relations with the Communist powers and with the Vietnam war behind him, the President has a rare opportunity to make significant gains in Europe.
  • —Economic and trade issues could be discussed at the highest level and in the context of major political/military issues of mutual concern.
  • —The protectionists in the U.S. could be held at bay while such talks were in preparation and underway.
  • —The Administration could defer sending up trade legislation which might reduce the President’s flexibility in the event he goes to Europe this year.
  • —A decision on trade legislation—whether to send up a bill and, if so, what kind of bill—could be made against the background of any breakthroughs or understandings which the President might achieve. A significant gain on agriculture, for example, would have a dramatic impact on the Hill and substantially improve chances of getting constructive legislation.
  • —A trade bill sent to the Hill following a European summit would stand a far greater chance of passage if the President were able to say that it was a necessary part of mutually beneficial agreements or understandings of a broad foreign policy nature.
  • —A trade bill would stand a better chance of enactment if considered later in the year after unemployment had fallen even further in response to the economic upturn now underway.

This approach offers potentially important advantages and relatively modest risk. I believe it should be given careful consideration as an alternative to sending up a trade bill in the near future. A "Nixon round" on trade talks would be far more likely to succeed than under the current conditions.

  1. Source: National Archives, RG 56, Records of Secretary of the Treasury George P. Shultz, 1971–1974, Entry 166, Box 6, GPS Trade—Volumes I & II 1973/74. No classification marking. Simon did not initial the memorandum, but a handwritten note at the top of the memorandum reads: "Orig ret’d to Simon 2–12–73." Another handwritten notation appears to be a "G" written in Shultz’s hand.
  2. On July 15, 1971, President Nixon announced that he would travel to the People’s Republic of China in the first half of 1972 "to seek the normalization of relations between [the United States and the People’s Republic of China] and also to exchange views on questions of concern to the two sides." The full text of the President’s announcement is in Public Papers: Nixon, 1971, pp. 819–820. A month later, on August 15, Nixon announced his New Economic Policy. Both announcements came as great shocks to the Japanese Government. President Nixon visited the People’s Republic of China from February 21 to 28, 1972; from May 22 to 30, 1972, he visited the Soviet Union. In referring to Nixon’s May trip to China, Simon has confused the President’s trips to the two leading Communist countries.
  3. The EC concluded a number of preferential trading arrangements with non-EC countries, such as Spain, as well as with LDCs from all over the world, including those in Africa.