Foreign Relations of the United States, 1977–1980, Volume III, Foreign Economic Policy

124. Letter From President Carter to West German Chancellor Schmidt ¹

Washington, March 27, 1978

Dear Helmut:

I recently said good-bye to Jim Callaghan, who came to discuss with me ideas for concerted action to deal with our common economic problems. I wanted to write you right away about our conversation and about my views on these problems, which I have been considering for some time.

I found Jim concerned, as I am, by the global economic situation—particularly by the fact that many industrial countries are still caught in the grip of high unemployment and continuing inflation. While U.S. economic performance improved markedly in 1977, the slower growth of our main trading partners, together with heavy U.S. oil imports, contributed substantially to the U.S. current account deficit. That deficit, together with concerns about rising U.S. inflation, has brought about a decline in the value of the dollar on foreign exchange markets that troubles me, as I know it does you. Combined with doubts about governments’ ability to take corrective actions, these factors have created widespread concerns in some countries.

Jim and I both felt, and I hope you will agree, that in order to improve this situation the major industrial countries need to show that they are in command of the situation and are taking actions that will lead to a better future. I believe this means their developing a broad program of concerted action to deal with five problems: economic growth, long-term capital outflows, energy, trade, and greater monetary stability. Some of these problems can be met by collective action; others by individual national measures.

To have the maximum psychological impact, however, these national measures should be seen as part of a wider cooperative effort. If our peoples understand that this is the case, we shall have done much to restore confidence.

Here is what my advisers and I told Jim about our thinking on the specific elements of such a cooperative effort:

1. As far as growth is concerned, I believe the OECD Economic Policy Committee is on the right track in agreeing that the OECD countries should stimulate their economies in differing degrees, depending on how far each can go without fueling inflation or encountering balance of payments problems. I hope that European Community and OECD studies will help the Summit Preparatory Group to draw conclusions regarding the margin for growth² that is open to each of our countries.³ Based on this work, the Summit could discuss and announce appropriate future national policies. Even more important than quantitative targets will be national resolve to fulfill these policies. If national growth decisions taken between now and the Summit can be related to this agreed approach, this will add to our peoples’ sense of confidence that purposeful action is being taken to fulfill common purposes.⁴

2. In regard to energy, U.S. action to limit oil imports is the heart of the matter. I am determined to achieve progress as soon as possible. I intend to relate any announcement of this progress to the overall international approach discussed in this letter. Although the U.S. has the largest problem, the question of how to conserve and develop energy is also a concern of other Summit countries. In preparing for the Bonn Summit, I hope that our representatives can develop concrete ideas about how to fulfill the general energy commitments we made in 1977 at London—e.g., by carrying forward joint research and development, increasing investment to enhance energy production and conservation in the industrial world, and expanding aid to developing countries for the same purposes.

3. In the monetary field, it is essential to address the underlying causes of the dollar’s decline: large U.S. oil imports and the disparity between national growth rates, whose effect has been aggravated by rising concerns⁵ about U.S. inflation. I expect soon to announce further strong anti-inflationary U.S. measures, which can be related to our agreed international goals. While progress is thus being made on fundamentals, the U.S. will use resources generated by bilateral U.S.-German swaps, IMF drawings, and larger sales of SDRs, as announced in our joint statement of March 13, to counter disorder in currency markets.⁶

4. In trade, I hope the Summit Preparatory Group can define the areas that heads of government will need to address,⁷ in order to ensure successful conclusion of the Multilateral Trade Negotiations and to forestall any revival of protectionism.⁸ I was pleased by Jim Callaghan’s forthcoming posture on these issues. I am much concerned about growing government interventionism in matters of trade and production, in response to weak economic conditions.⁹

5. As part of this package approach, we should consider how to increase long-term capital flows to developing countries. I hope that you will agree the surplus countries have special responsibilities in this connection; I will be discussing possible increased Japanese aid with Prime Minister Fukuda when he comes here in early May.¹⁰

If a five-point approach along these lines commends itself to you, we might proceed as follows:

—In addition to launching preparations for the July Summit, the Bonn Preparatory Group could prepare a short statement for heads of government to issue in early April, committing themselves to hold a Bonn Summit in mid-July and indicating the main substantive purposes that they will be seeking to achieve—both at the Summit and beforehand.

—Relevant decisions that any of our governments take between then and the Summit (for example, U.S. action on energy and inflation) could be related to this broad statement of agreed purposes. Our governments would try to consult with one another beforehand about these national actions.

—The July Summit could then review actions that had been taken and decide what further steps were needed to achieve these common purposes.¹¹

How does this all strike you? I have asked Henry Owen to seek your views when he sees you next week. I look forward to hearing your thoughts, given your wide knowledge and experience in this field. The position and partnership that you and I shape in reviewing these issues will be critical to the outcome. There is no way to achieve lasting progress without the closest cooperation between our countries. That cooperation can only be achieved if you and I stay in very close and continuing touch.¹²

Sincerely,

Jimmy Carter

1. Source: Carter Library, National Security Affairs, Brzezinski Material, President’s Correspondence with Foreign Leaders File, Box 6, Germany, Federal Republic of: Chancellor Helmut Schmidt, 1–12/78. No classification marking. Sent to Carter for his signature under cover of a March 24 memorandum from Owen, who noted Fallows’ concurrence. Owen explained that the letter’s length arose from his concern that “a shorter letter might not persuade the heads of government that you were consulting with them as fully as you did with Callaghan about these matters, which are of critical importance to them.” (Ibid.) Similar letters were sent to Fukuda and Giscard on March 27; substantive differences are indicated in footnotes below. These letters are in the Carter Library, National Security Affairs, Brzezinski Material, President’s Correspondence with Foreign Leaders File, Box 11, Japan: Prime Minister Takeo Fukuda, 1–12/78, and Carter Library, National Security Affairs, Brzezinski Material, Brzezinski Office File, Country Chron File, Box 13, Germany F R: 1–6/78, respectively.
2. In Carter’s letter to Fukuda, this phrase reads: “margin for action on growth.”
3. In Carter’s letter to Giscard, this sentence reads: “I hope that preparatory studies will help us to draw conclusions regarding the margin for growth that is open to each of our countries.”
4. In Carter’s letter to Fukuda, an additional sentence was added to the end of this paragraph: “I look forward to discussing with you in early May the contribution that both our countries can make to this growth strategy.” Fukuda paid an official visit to Washington May 1–3.
5. In Carter’s letter to Fukuda, this phrase reads: “rising US concerns.”
6. In Carter’s letter to Fukuda, the final sentence of this paragraph was replaced by these two sentences: “I understand the economic difficulties that you now confront; I am hopeful that if progress can thus be made on fundamentals, currency disorders will subside. As you know, we do not intend to intervene to defend any fixed dollar rate or target range, but I believe our impending actions on energy and inflation will make a real contribution to improvement in global prospects.”
7. In Carter’s letter to Fukuda, the phrase “at the Summit or before” was added at this point in the sentence.
8. In Carter’s letter to Giscard, the paragraph ends here. In his March 24 covering memorandum to Carter (see footnote 1 above), Owen noted that “the letter to Giscard has less on trade than the others, given his views on this subject.”
9. In Carter’s letter to Fukuda, the final sentence of this paragraph was replaced by these two sentences: “I look forward to discussing with you in early May the further measures to be taken by both our countries in fulfilling the Ushiba–Strauss agreement, including the additional MTN offers required to meet the objective specified in that agreement. Given the size and continued growth of Japan’s current account surplus, I know you will agree that it is important that every effort be made to achieve progress in the areas listed in that agreement.” Regarding the Ushiba–Strauss agreement, see Documents 97 and 99.
10. In Carter’s letter to Giscard, the final sentence of this paragraph was replaced by this sentence: “I know of your own long-standing interest in aid to these countries.” In Carter’s letter to Fukuda, this paragraph reads: “As part of this package approach, we should consider how to increase long-term capital flows, particularly from the surplus countries, to developing countries. Expanded private investment and untied bilateral and multilateral aid to these countries would facilitate world economic recovery, particularly during this period of low growth in the industrial countries. I was pleased to hear that you have recently taken steps to this end. I hope that we can talk about further steps by both our countries in May.”
11. In Carter’s letter to Giscard, an additional sentence was added to the end of this paragraph: “This would be consistent with your view that Summits should only be held if they can do something useful—which must depend, in the end, on the heads of government themselves.”
12. In both Carter’s letter to Giscard and his letter to Fukuda, this paragraph is different. In the letter to Giscard, the final paragraph reads: “How does this all strike you? I look forward to hearing your thoughts, given your wide knowledge and experience in this field. In closing, Valery, I would like to express my personal admiration for your leadership as President of the Republic during recent months. Now that your elections are past—with such a remarkable turn-out of voters in support of the democratic process—I look forward to continuing our close and personal relations. I felt in January that you and I had helped to begin a new era in Franco-American friendship, and I shall do all that I can to strengthen that friendship in the days ahead.” In the letter to Fukuda, the final paragraph reads: “I look forward to learning your views on these issues when you and I meet, little more than a month hence. I greatly value your judgment, given your wide knowledge and experience in this field. There is no way to achieve lasting progress without the closest cooperation between our countries. That cooperation can only be achieved if you and I stay in close and continuing communication.”