18. Memorandum From Secretary of the Treasury Blumenthal to the President’s Assistant for National Security Affairs (Brzezinski)1

SUBJECT

  • U.S.–P.R.C. Trade Relations

Total U.S. trade with the P.R.C. has fluctuated wildly since 1973, reflecting sharp changes in the volume of U.S. agricultural exports. Agricultural commodities accounted for more than 80 percent of U.S. exports to the P.R.C. in 1973 and 1974, but dropped to around a third of total exports in 1975 and to virtually nothing in 1976. U.S. exports of manufactured goods also declined in 1976, after showing a consistent [Page 53]rise from 1973 to 1975. As you correctly pointed out in your memo of March 7,2 the U.S. trade balance with the P.R.C. registered a negative balance of $66.5 million in 1976, the first such deficit since 1971.

The reasons for the reduction in U.S. exports to the P.R.C. in 1976 are numerous and to a large extent reflect China’s global trade policy last year. Partial returns from most of China’s major Western trading partners show 1976 Chinese imports down 7 percent from 1975. In 1976 Peking tried to hold down imports because of a tight foreign exchange situation and rising debt service obligations. A drop in agricultural imports from Canada, Australia, and the U.S. and lower fertilizer imports from Japan accounted for most of the reduction in imports. Relatively good harvests served to decrease dependence on foreign sources of agricultural commodities. Failure to increase oil exports, dampened export earnings in 1976 thus adding to existing hard currency difficulties. Earthquakes and the deaths of Premier Chou and Chairman Mao and the succession struggle all have had negative effects on the trade sector.

The controversy between the radicals and moderates within the P.R.C. in 1976 over foreign trade policy apparently stalled the drafting of a new five-year plan that was to begin last year. Although many foreign trade corporations—particularly the one handling imports of whole plants and technology—remained active throughout the year, uncertainty over the overall plan undoubtedly constrained trade flows.

Recent public and private statements by Chinese officials suggest a new emphasis on foreign trade. Trade initiatives, sidetracked since 1974 by foreign exchange constraints and planning delays arising from the political power struggle, appear to have been resolved. Peking’s financial policies nonetheless will remain quite conservative, and the effects on trade flows probably will not show up until late this year.

With regard to trade with the U.S., it appears that the Chinese will not increase dramatically their imports until normalization of our bilateral political relations takes place. In fact, because we do not have diplomatic relations with them, the Chinese appear to favor other sources of supply, when available, in purchasing commodities from the West.

Until the obstacles blocking normalized relations with the P.R.C. are overcome, the U.S.G. has a limited role in expanding economic relations. We can, however, continue to encourage U.S.–P.R.C. trade and economic cooperation within the existing framework by supporting the U.S. business community in their attempts to increase trade with the P.R.C. We should take an active role in supporting the activities of the National Council for U.S.–China Trade, a private organization founded in the spirit of the Shanghai Communique (February 28, 1972) to facili[Page 54]tate the development of Sino-U.S. commerce. We should also continue to make clear to the leadership of the Peoples Republic of China that we strongly favor increased economic and political cooperation between our two countries.

W. Michael Blumenthal 3
  1. Source: Carter Library, National Security Affairs, Brzezinski Material, Country File, Box 8, China (People’s Republic of): 3–6/77. Confidential.
  2. See Document 15.
  3. Blumenthal signed “Mike” above this typed signature.