Foreign Relations of the United States, 1969–1976, Volume XLI, Western Europe; NATO, 1969–1972

108. Memorandum From Secretary of the Treasury Connally to President Nixon¹

Washington, December 6, 1971.

SUBJECT

• Visit of Prime Minister Trudeau

Canada plays a critical role in our monetary negotiations. As our largest trading partner, with whom we have 24 percent of our trade, Canadian actions are vital not only to us directly but in the achievement of a total solution. The visit of Trudeau could well provide the key to crystallizing this solution.

Essentially the Canadians have the choice of participating in a general realignment by pegging their dollar at $1.06 or more, or of opting out of a multilateral solution by continuing to float.² Thus far they have tried to play it both ways: supporting the Europeans on the gold price and other issues but insisting that they will continue to float. I believe the time has come for them to make this choice. We could accept their desire to float providing that the float is “clean,” i.e., that they will allow their dollar to float up to where market forces dictate, and providing they give us active support in future monetary negotiations.

Whichever course they choose, the Canadians should accede to our requests outlined below for symmetry in trading arrangements.

If the Canadians do not wish to cooperate actively with us in the monetary and trade areas and at the same time refuse to participate in a general rate realignment, we should impress upon them that the U.S. would have no choice but to continue the surcharge for Canada even in the event that the surcharge would be removed generally.

Active Canadian support is of great tactical importance. In Rome³ we won all of the debating points. However, the EC and the U.K. opposed us individually and collectively, while Japan and Canada remained mute. At the next session, it would be helpful to receive strong Canadian support on such critical issues as convertibility.

Monday⁴ we have the opportunity to resolve our problems with Canada. In turn, they should be in a position to support us in the monetary negotiations.

In trade questions what we need from the Canadians is reciprocal treatment:

Trade⁵

1. Actual removal or formal agreement to remove all three “transitional safeguards” of the Automotive Agreement.

Canada is prepared to remove the first two—Canadian production to Canadian sales ratio, and Canadian content requirements—but is still sticking on the third—no duty-free import by individuals. Americans are free to import cars under the agreement; Canadian individuals must still pay a 15 percent duty on cars imported from the U.S. The principle of “symmetry” requires that Canadians remove this third safeguard.

In return the U.S. could indicate our intention to use your prospective Presidential authority to waive for Canadian automotive products the U.S. preference contained in the pending Job Development Credit. This would be an important achievement for Trudeau.

2. The Canadians are probably prepared to make a substantial move toward symmetry in tourist allowances.

3. The Canadians should be prepared to reciprocate the preferential treatment (no duty plus a waiver of Buy America provision) we give them on defense procurement.

4. Removal of the Canadian ban on the import of used cars and used aircraft.

The Canadians may be prepared to effect a staged removal of the used car import ban. The used aircraft import ban has so many exceptions that its removal would be a concession which would cost the Canadians little.

In return we could waive the Job Development Credit discrimination on Canadian agricultural machinery.

Monetary

Unless Canada appreciates her currency it may well be impossible to achieve the multilateral realignment which we seek. So far they have adamantly refused this course. However, Canada is presently floating at 99 and Finance Minister Benson may be prepared to allow a float up to 105 or even higher if the market, over time, developed in that manner.

On the issue of gold price and convertibility the Canadians have thus far given us no support. Yet, the Canadians have a great interest in beating down the European bid for convertibility: failure to do so would mean continuation of the surcharge. If Canada and Japan can be persuaded to take our side on these issues, the Common Market countries will be forced into the public posture of standing out alone against a reasonable settlement. My judgment is that they will not be able to withstand this pressure. On the other hand, if Canada is unwilling to cooperate with us in arriving at a reasonable settlement, they should know the costs of this position.

Canada has even more at stake in seeing the U.S. position prevail. Revaluation of European and Japanese currencies will benefit Canadian trade—including their highly important agricultural sector—while Canada even more than the U.S. is threatened, economically and politically, by any division of the world into regional trading blocs.

In return we could accede to the Canadian request that she be permitted to abandon her restrictions on capital outflows. These were introduced to justify a Canadian exemption from the U.S. capital controls.

Trudeau—with only a little more give than what we now know to be present—could greatly help our monetary negotiations. In return, he too would receive important visible achievements.

If you approve,⁶ I would propose to explain these views in detail to Finance Minister Benson. However, in your conversation with Trudeau I believe it would be most helpful for you to impress upon him the need to implement long-delayed moves towards symmetry in trade, as well as the fundamental choice of siding with us more actively on monetary negotiations or participating directly in the multilateral realignment by effecting a substantial revaluation.

John Connally⁷

1. Source: National Archives, RG 56, Classified Executive Secretariat Files, 1966–1974, Box 19, Memo to the President, Sept.–Dec. 1971. Confidential; Limdis. For the memorandum for the record of Connally’s meeting with Canadian Finance Minister Benson at 4 p.m. on December 6, see Foreign Relations, 1969–1972, volume III, Foreign Economic Policy, 1969–1972; International Monetary Policy, 1969–1972, Document 85.
2. On May 31, 1970, the Canadian government announced that it would allow the Canadian dollar to float.
3. At the G–10 Ministerial meeting, November 30–December 1.
4. December 6.
5. Sub-Cabinet meetings on trade irritants took place in Ottawa November 4 and 15. The Embassy reported on them in telegrams 1816 from Ottawa, November 6, and 1871, November 17. (Both in the National Archives, RG 59, Executive Secretariat, Daily Staff Summaries, 1944–1971, Lot 73D153, Box 124, Morning Summaries)
6. No evidence of Presidential action is on the original. Nixon did meet with Connally, Shultz, Burns, Rumsfeld, McCracken, and Stein from 11:07 to 11:57 a.m., December 6, for a discussion of the economic situation. (National Archives, Nixon Presidential Materials, White House Central Files, President’s Daily Diary)
7. Printed from a copy that indicates Connally signed the original.