160. Memorandum of Conversation1

PARTICIPANTS

  • President Nixon
  • Vice President Agnew
  • Christopher Soames, EC Commissioner
  • William P. Rogers, Secretary of State
  • George P. Shultz, Secretary of the Treasury
  • Roy L. Ash, Director, Office of Management and Budget
  • Elliot L. Richardson, Secretary of Defense
  • James T. Lynn, Secretary of Housing and Urban Development
  • Peter M. Flanigan, Assistant to the President
  • Brent Scowcroft, Deputy Assistant to the President for National Security Affairs

SUBJECT

  • Cabinet Meeting: Vice President’s Briefing; Trade Relations; Aid to North Vietnam and Amnesty

[Omitted here is discussion unrelated to trade policy.]

Soames: The upcoming negotiations are enormously important, especially from the political standpoint.

The important thing is if this leads to a political confrontation, no trade gains can counterbalance the damage that is done.

Here I have the impression the United States expects unrequited concessions because of its adverse trade balance. The British had an adverse balance for a long time. We didn’t take this position, but we got on our hind legs and fought for markets.

It would be a great pity if the undoubted difficulties with Japan—and we have them also; they are moving into Europe—continue. They take sections of the market in different countries. We can’t let this go on, but we can’t gang up on Japan—but we have to open up the Japanese market. That is the only solution.

In presentation of your trade bill—

  • —I hope it is a trade liberalization bill. Of course you need safeguards, but the bill should be liberal with safeguards, not vice versa.
  • —With respect to Europe, look for doors which could be opened; don’t think of locking doors.

[Page 607]

The President: It is important for all to know that there is a strong isolationist sentiment both here and in Europe. We will not give in to that, and we don’t want a confrontation—with Europe or Japan.

As world tensions abate, we must realize this couldn’t have happened if US-European relationship had not been strong.

Nothing could be more harmful than if we let economic competition offset our political and security relationships.

[Soames and the President left at 10:44. The President returned at 10:45.]2

[Omitted here is discussion unrelated to trade policy.]

The President: What did you think of Soames?

Rogers: He’s good, but I told him if we call a bill a liberalization measure, it will never get through Congress.

The President: Yes, I told him that Agriculture would dominate Congressional action, and if they don’t give on agriculture, there’ll be no bill.

Rogers: Soames is a good man and it’s good to have a single voice for Europe to speak with.

Shultz: It’s isn’t true that our problem is just with Japan, our balance of trade with Europe has deteriorated more recently than with Japan.

He says we shouldn’t lock doors. Most of the locked doors are theirs—in agriculture, computers, etc. They have to unlock the doors.

Economic factors mean a relentless push, and unless they are handled they will push everything aside. We’re reaching the point where aid recipients won’t take aid in US dollars anymore. Rich as we are, if we don’t have foreign exchange, we can’t give it away, so there is a big stake for us in the economic and trade aspects.

The President: Soames has a point. Because the American market is so rich, our companies have not pushed foreign trade adequately.3

[Page 608]

American companies set up too many multinational companies, instead of manufacturing in the US and exporting, so we don’t export jobs.

In the end, the fundamental issue is whether or not we have competitive companies and costs in the world. Devaluation, etc. are symptoms, not the cause. This is the cause and we must get at it.

The Japanese have controlled the economy and they can pick off various markets with loss leaders.

We will probably have Tanaka here, and the Emperor, but Japan is not being a good partner. And Europe. We must find a way to get at this.

Ash: There are things we can do, but it will be a tough fight.

The President: George is the biggest free trader but for me, but we have to make our economy competitive.

Rogers: How do we give the American industry incentive to export, when the market here is so easy?

Ash: That’s a good point, and it’s especially difficult with smaller companies.

Rogers: Labor says the multinational companies export jobs and the product still comes into the US.

Ash: That’s true, but the alternative is to have foreign-owned companies send those same products into the US. This way, we at least have the investment, if not the labor. If we are to lose markets, it’s better to retain half.

Technology is no longer exclusive to the US. It’s knowledge, and it’s equalizing around the world.

The President: While our exports are only 4% of our GNP, that can be the cream of our profits.

Flanigan: Over 19% of our production is for export and that is large.

The President: I want DOD to look hard at this. Where small countries are going to buy arms anyway, let’s not let them be French, British, etc., but American.

What tipped the balance in Indonesia was the Indonesian military. We had resisted stopping military aid in Indonesia just because of Sukarno, and this was important.

When people like Peru want an aircraft, they want the most sophisticated. Smaller countries need different arms programs from what we need ourselves.

Even for us, but mostly for allies, we are pushing too exotic weapons. I applaud the development of AX, for example.

Richardson: I am investigating Congressional restrictions on these sales. We should approach the Congress on a balance of payment basis.

[Page 609]

These countries will buy anyway, and they should be ours.

The President: Have the Navy look into the Styx missile and its little boat. Why sell battleships when this would do?

The highest priority for CIEP is to find how to make American industry be competitive in the world.

If the US turns inward, the world will be in a mess, because the Soviets and Chinese still look outward.

George, go ahead.

Shultz: We have had a basic plan for revising the system.

We closed the gold window last August. We then achieved the Smithsonian agreement.

We must talk not only about deficits, but also surpluses. We must talk not only of the monetary system, but security, aid, and everything. The monetary system can’t carry the load by itself.

We should try to get away from controls on capital.

We tried to put our philosophy into operation to meet this crisis. We had a group—Roy, Schlesinger, Flanigan, Burns. These are the possibilities:

  • —A joint float by Europe.
  • —Unilateral action by US. We preferred this but would accept either.

We couldn’t be hurt because the gold window was closed. Europe and Japan had to bite the bullet. With Japan it was a 35–40% change in exchange rates. With Europe it was a 20–25% change in exchange rates. The real change in the rate is not this big, but it is still substantial.

We have to worry now about domestic prices. Devaluation tends to raise the price level.

The President: What is a safeguard system?

Shultz: Protection against inundation by a particular product.

A natural increase is okay, but not a precipitate one. The Hill must have a procedure for determining when this is excessive and give the President authority to act swiftly. The President could declare an emergency and either apply a general surcharge or a particular one.

Also, we may change the present authority to retaliate—to broaden it.

The President: We want bargaining chips to help us in our negotiations. These negotiations differ from the Kennedy Round in that this time we can go up as well as down on tariffs. We want freer trade, but we won’t jeopardize American jobs and business.

Lynn: We must reorganize that, once we have Presidential authority. The pressure from individual companies for increases will be tremendous.

[Page 610]

The President: We can’t save really non-competitive industries. Just those which are basically sound.4

[Omitted here is discussion unrelated to trade policy.]

  1. Source: Ford Library, National Security Adviser, Memoranda of Conversation, Box 1. Secret; Nodis. The meeting took place in the Cabinet Room. The President began the meeting with his Cabinet at 9:39 a.m.; at 9:44 he and Soames went to the Oval Office to meet separately (see Document 159). The President returned to the Cabinet Room with Soames, Flanigan, and Sonnenfeldt at 10:33 a.m. Soames and Sonnenfeldt left the meeting at 10:42 a.m. (National Archives, Nixon Presidential Materials, White House Central Files, President’s Daily Diary)
  2. Brackets are in the original.
  3. On January 18, Flanigan wrote President Nixon that Ambassador to Japan Ingersoll had recently suggested to him "that U.S. trade suffers as much from a lack of desire to export on the part of American businessmen as it does from other countries’ barriers to U.S. exports. Ingersoll feels that such a desire needs to be stimulated at the highest level through the creation of an organization similar to the National Alliance of Businessmen." Flanigan had also "discussed the problem of stimulating the export efforts of U.S. business, including Administration involvement," with Carl Gerstacker, Chairman of the Board, Dow Chemical Company; David Packard, Chairman of the Board, Hewlett-Packard Company; and Dent and they had agreed to formulate a plan either to improve the National Export Expansion Council "or to create a new organization to invigorate U.S. exports." Nixon wrote on the bottom of Flanigan’s memorandum: "Pete: Good—get Kendall + some of the business people with guts + patriotism involved." (National Archives, Nixon Presidential Materials, White House Special Files, Staff Member & Office Files, President’s Office Files, President’s Handwriting, Box 20, Jan 1973)
  4. Haldeman described this meeting in his February 16 diary entry, noting: "There was considerable discussion then on the international economic situation. The P[resident] made an aside to Richardson as it was going on, ’Isn’t this a fascinating discussion?’" ( Haldeman Diaries: Multimedia Edition)