Foreign Relations of the United States, 1955–1957, Foreign Economic Policy; Foreign Information Program, Volume IX

42. Minutes of a Cabinet Meeting, The White House, Washington, August 5, 1955, 9:30 a.m.–12:15 p.m.¹

Washington, August 5, 1955, 9:30 a.m.–12:15 p.m.

THE FOLLOWING WERE PRESENT:

• President Eisenhower
• Vice President Nixon
• Sec. Dulles and Under Sec. Hoover
• Sec. Humphrey
• Sec. Wilson
• Atty. Gen. Brownell
• PMG Summerfield
• Under Sec. of Interior Davis (for Sec. McKay)
• Sec. Benson
• Sec. Weeks
• Sec. Mitchell
• Sec. Folsom
• Director Hughes
• Dr. Flemming
• Chairman Young
• Amb. Lodge
• Dr. Burns
• Gov. Adams
• Gen. Persons
• Gov. Stassen
• Mr. Anderson
• Gov. Pyle
• Mr. Shanley
• Mr. Morgan
• Mr. Harlow
• Dr. Hauge
• Mr. Snyder
• Mr. Rabb
• Mr. Patterson

[Here follows discussion of budget policy for fiscal year 1956 and the President’s State of the Union message.]

US Policy with Respect to CCC-owned Cotton—The Secretary of Agriculture opened the discussion of this subject by reminding his colleagues that under the law he has the responsibility and legal authority to dispose of agricultural surpluses. He pointed out that the proposal he would make to dispose of some of our cotton surplus ought to be accepted and implemented now in order to avoid much more drastic and unacceptable action by the Congress later. If we say we will never make a move if it adversely affects any nation, then we will never get rid of any of our surpluses. We have disposed of a great deal of surplus goods already and most of them have gone abroad. If we don’t make some kind of move now we will be faced, during the next session of Congress, with a law which will undoubtedly set up a permanent two-price system for cotton, and representatives of the cotton and wheat states will form an alliance to get such a law written. Naturally, the last thing we want is a permanent export subsidy on wheat and cotton. Stories are being spread that this Administration is dedicated to Big Business and that Agriculture is not important. In the last session of Congress we got 90% of what we wanted—in the Agricultural Adjustment Act of 1954. Because of certain gimmicks in the law, however, cotton price supports themselves could not be changed.

Mr. Benson stressed we have now made progress in getting the public to understand that high rigid price supports are evil. We even find some leaders saying that the 90% price support is hurting the cotton industry. Now, it is up to us to show our good faith and help move some of the cotton now in storage. The Secretary felt that if we do this Congress will move at its next session to give us some legislation which will be permanently helpful. Mr. Benson then read the statement of Agriculture’s position on this subject (see attached)² and a copy of the statement was at this time distributed to each person in the room.

The President inquired what was meant by the phrase “competitive prices”. The Secretary explained that this meant the process of bids which we reserve the right to reject if the prices are so low as to disrupt world markets. The resulting export price is, of course, usually lower than the domestic price. He reminded the President that the government is now exporting quite a sizeable list of surplus commodities at prices lower than domestic prices, but that we have refused to sell these commodities in ways which would disrupt world markets. The President reaffirmed that this was still Administration policy.

The Secretary summed up by saying that Agriculture wished to be authorized to move not more than a million bales of this low-grade cotton within the next marketing year—probably after the first of March, 1956.

In response to the President’s request for his comments, Sec. Hukmphrey explained that, from the short-range point of view, naturally Treasury would like to see us sell the surplus commodities and get our money out of them. In the long-range, however, the problem is essentially one of timing, procedure and method. If we announce now that we are going to sell cotton at less than domestic prices, it will certainly frighten domestic textile producers who pay domestic prices and will be against the Administration basic trade policy. He pointed out that the growers who want an export subsidy for cotton have teamed up with the domestic producers who want import quotas on cotton textiles, and that what we are faced with is the double-barrelled pressure. He did not believe that much of this surplus cotton would move without wrecking world markets. It is true that we are losing cotton markets to other nations, and this is wrong: we should certainly fight this at some point. The method he proposed, however, was to go to the Congress next year with an urgent request for a reduction in the support price for off-grade cotton. If we get this law we can then sell this surplus abroad without starting a two-price system and without dumping. This would be preferable to making any announcement now that we are going to sell cotton, especially since the proposed sale would not take place until March, and we might also prejudice our chances of selling our regular export of 31/2 million bales. Meanwhile, of course, we should continue to use every device to get rid of our surpluses under P.L. 480, etc.

When the President asked if fats and vegetable oils were examples of recent “dumping”, Mr. Stassen explained that world demand for fats went up just as we started to put these commodities up for sale, so that we were just lucky with respect to them.

Mr. Benson stressed that to announce our selling policy now would serve notice to the world that we are not going to sit by and continue to lose our fair share of world cotton markets to foreign competitors. Mr. Humphrey still objected to making the announcement five months ahead of time, and then commented that we are in the strange position of having, through technical assistance programs, taught people all over the world how to raise cotton more efficiently and even supplied them the tractors with which to grow it. The Secretary of Agriculture emphasized again that we will not permit this million bales to disrupt world markets and that in disposing of surplus commodities to date, no markets have been disrupted yet. He questioned the cited alliance between the farmers and mill operators, and pointed out that they have promised us they will help support legislation which will get support prices down. Mr. Stassen made the suggestion that we get some of the other cotton producing countries to limit their production as we have limited ours.

Sec. Weeks stated the case of American business men who would, paying domestic cotton prices, find themselves completely undercut by foreign textile mills who could buy US cotton cheap and sell the cheaper finished product in the United States. The Secretary of Agriculture commented that we are doing this to all sorts of commodities except cotton, and that many of them would come back in the form of finished goods if the price spread were too wide. He emphasized, however, that we will regulate the price differential in accepting the bids and will not allow the price disparity to be too much. He again emphasized that selling this million bales will help us get the support of Members of Congress, who are the only ones who can help us achieve a permanent solution to the problem of surplus cotton. Sec. Weeks, however, pointed out that Japanese competition has made US business men very much afraid; an export subsidy for cotton will appear to them as just another advantage given to foreign producers.

The President asked for State Department comments, and Mr. Hoover read a statement (copy attached).³ He ended with the comment that this two-price system that we have has resulted in a virtual ban on the import of so many agricultural commodities into the US and that this import limitation caused us no end of trouble in negotiating GATT.

Sec. Benson commented that we would not expect to move any great quantities of cotton immediately, but that announcement of this course of action would tend to put a stop to world market expansion at our expense. He emphasized that what Agriculture was proposing was not a radical measure and that Agriculture would not have suggested it had we not insisted, with the Congressmen involved, that we had to have them tackle this problem of support prices. The sale of a million bales, he was convinced, was the surest route to the objective we all want without the threat of extreme legislation. It would be a token of our good faith, while the alternative would be a highly unacceptable law. The President commented that some sixty Senators signed Senator Thurmond’s bill for an out and out two-price system—this would be almost enough to override a veto.

Mr. Stassen suggested that we privately warn these other producing countries that, if they keep expanding at the expense of our markets, we would have to do something. Sec. Humphrey emphasized there were just two ways to solve this problem: either by an export subsidy, or by reducing our domestic support price on off-grade materials. He warned against our trying to do for cotton what Brazil did for coffee. This export subsidy technique broke Brazil and would in time break us, too. He renewed his proposal to say or do nothing now but make a determined fight in the Congress next year for new legislation. Mr. Weeks pointed out that there were many people even in the cotton industry who were against an export subsidy. Mr. Benson commented that many, however, were in favor of it. He assured his colleagues that Agriculture could terminate the sales overnight if necessary; they have that authority. Mr. Lodge expressed sympathy with Mr. Stassen’s suggestion about consultation with other countries. Mr. Benson explained that we routinely invite in the Agricultural Attaches of the interested countries—and further commented that even the Netherlands privately admits we will have to sell our dairy surpluses at less than world prices.

Under Sec. Hoover commented that Egypt has already cut back her acreage but other countries are not in a position to do this. In response to a question from Mr. Hoover about timing, Mr. Benson explained that we would make this announcement now but not sell the cotton until all the crop was in this year, i.e., next March. Mr. Hoover commented that the effect of this would be to keep prices depressed all over the world. The Secretary of Agriculture said he was convinced, however, that there would not be any great reaction if we announce only this modest program. He pointed out that other countries subsidize their cotton exports; Pakistan, for example, used as one of its reasons for devaluating its currency the helpful effect which this devaluation would have on cotton exports. Mr. Wilson asked if the cotton in storage deteriorated. Mr. Benson said it did not. Mr. Wilson then suggested that we offer some of this cotton on the domestic market at a cut rate. Mr. Humphrey pointed out that the law prevented us from doing this and that was the law that we wanted to get changed and thus be able, later, to sell off-grade material domestically at a low price. The Vice President queried whether we can really get through a law next session which would reduce the price support level. The President said he was not completely convinced that this particular sale would help that legislation. The Secretary of Agriculture pointed out that we are engaging in this type of sale with respect to every other surplus commodity except cotton—and now cotton presents us with the worst problem. Mr. Wilson asked about the feasibility of having long credit terms for export, and the Secretary of the Treasury pointed out that there may be dozens of ways to move cotton and still keep the prices up but one of our major problems is to dry up some of the foreign competition—and the only way to do that is to get the domestic price support level reduced.

The Vice President suggested that we announce (1) that our policy is to get the law changed in January, and (2) that at some time we are going to make some foreign cotton sales. This latter announcement might encourage other countries to reduce some of their cotton production.

The Secretary of Agriculture pointed out that if we go to the Congress and ask for new legislation, Congress will simply ask us what have we done under the authority we now have; we have sold everything else but cotton—why haven’t we sold cotton?

The President said we must get notice out to the world in some way that we are not going to sit back and lose all our cotton markets. He cautioned, however, against making an announcement now and taking all the disadvantages which would be provoked in our international relations while not being sure that we will get any advantages domestically or legislatively. Somehow, however, the world should be given the picture as we see it. While other countries’ cotton production is expanding we have reduced our acreage in order not to embarrass our friends abroad. Perhaps nothing more formal than a press conference statement should be used to put the world on notice—not as a statement of fixed policy but as a warning. The President then suggested that we abandon the practice of making a specific policy announcement about the cotton market. Messrs. Hoover, Benson, and Humphrey pointed out that while perhaps this was not a good position for the US to be in, the whole world, both importing and exporting countries, was nevertheless waiting tensely for the US marketing policy announcement which was actually due a month ago. Mr. Humphrey pointed out that with eleven million bales of cotton in surplus we are the market. He suggested that, in announcing our prices for this year, we should say we are going to the Congress in January and ask for a cut in price supports. Mr. Benson commented that people already know that this is our policy.

The Secretary of Commerce felt that if we could hold out for four or five months more, we could get some legislation which would finally help us. The President commented that this was not the temper of the group who came to see him last week in his office about this very subject. When he had suggested to them that the real solution was to reduce the 90% price support, he didn’t get a single bit of support from that group. Even so conservative a Senator as Mr. Russell⁴ said he was in favor of a two-price system. Mr. Benson repeated his belief that the President would have a two-price bill on his desk next year unless we make some token move of cotton now. Mr. Hoover commented that a two-price system for other commodities was not the same as that for cotton, since the other surplus commodities do not “rebound” to the same extent in the form of manufactured imports.

The President mentioned that Senator Anderson told him that he had disposed of seven million bales of cotton when he was Secretary of Agriculture—without even making a ripple in world markets. The Secretary of State asked if it was not one of the objectives of this proposal to make a ripple in world markets in the sense of putting the world on notice that the expansion of foreign cotton production at our expense has got to stop. Unless this proposal makes a splash, so to speak, it will not have the beneficial effect of preventing some of that foreign expansion. The Secretary of Agriculture said we simply want to announce to the world that we will sell cotton competitively and fairly—under controlled conditions. The Secretary of State again asked if this would be enough and done in such a way as to slow up foreign production. Mr. Benson said it would have that effect since the world knows that we have eleven million bales of cotton behind us. Mr. Hoover asked how much of a price spread Agriculture would expect between the domestic price and the export price. If it were something like 3¢ a pound this would not disrupt markets very much but it also would not discourage very much foreign cotton acreage expansion. Mr. Benson commented that the cotton we hold is even over-priced domestically and thought that the export price would not be much lower than the domestic price.

The President commented that if we think we have a problem now, then just wait until next year when we will really have pressure from the Congress. He pointed out that we have been holding eight million bales of cotton up to now and we could continue to hold it. Announcing this new policy, however, would let the world know we are going to enter world markets competitively—but not with the whole eight million bales.

Mr. Humphrey summarized the problem as: finding the way which will most helpfully influence the development of constructive legislation. Perhaps, he said, we should export some of this cotton at a lower price and at the same time tell the American manufacturers there will be no import quotas. This would certainly arouse our domestic manufacturers to yell for changes in the law.

Returning to the question of how to make this announcement palatable, the President suggested that the State Department take the line that we are protecting our friends abroad against the threat of very harmful legislation; we are taking a step such as this now rather than being faced with something much worse later. Mr. Benson added that we could emphasize that we are selling only one grade and only a certain quantity.

The Secretary of State then stated that he was not so much concerned about what we said or how this was announced; his true point of concern was what would actually happen to the economies of Pakistan and Egypt, for instance, if these economies should fall into a tail-spin just at the time when neutralism is gaining ground in the Near East. This would jeopardize the whole oil situation. If we handle this cotton export proposal in such a way as would not disrupt world markets, it will probably work out all right. He commented, however, that this conservative proposal will probably not achieve our objective of drying up foreign expansion. It would be unlikely that we would achieve this goal unless we engaged in a drastic dumping program. The Secretary of State said that as far as State was concerned he could live with the kind of proposal Sec. Benson had in mind.

The President asked if we could put a limit on sales in any one month. Mr. Benson replied that this might not be wise. Mr. Humphrey again summed up by pointing out that a combination of foreign export subsidy-import quotas would be wholly bad. A reduced support price and an increased participation in world cotton markets would be good, but that we would be voluntarily doing a little of the bad to achieve the good. The President commented that we ought to put US growers on notice that they should try to switch more from lower grades of cotton to the long staple grades where we have much less of an export problem.

The President then requested the Secretary of Agriculture to lay the question out in black and white for Cabinet next week in the form of a specific policy statement for the government to follow for one year and also, in the same document, a proposed press release which would be as persuasive as we can make it toward the climate of opinion we want to produce. Mr. Benson added that we could even say that we disfavor a policy of export subsidies.

The President explained that he was convinced that next year we might get very bad legislation which we might not be able to handle. The Secretary of Commerce said he could still bring forward evidence which would show that we would be better off by waiting until the first of the year. Secretary Dulles pointed out that he would very much like to see this laid out in writing. The President commented that perhaps we should call in some of the countries involved and talk frankly to them, thus giving our friends some preparation for what our policy may be.

It was agreed that Agriculture would draw up the paper requested by the President and would submit it to State, Commerce, and Treasury for comment during the week. The President said he wanted the document for press release in mild terms without any commitment to a two-price system. He ended the discussion by pointing out that every time the United States, it seems, tries to do anything to get its own economy back in shape, after the mismanagement of twenty years, foreign countries always set up a chorus of “this will break us”—even though we have given them millions in aid. For us to acquiesce constantly is to get ourselves in a complete box. He closed the discussion by asking everybody to consider not only his own Department’s particular views but all the pros and cons of Mr. Benson’s proposal, remembering that we face a very hostile Congress on this subject.

[Here follows a section concerning the 1957 budget ceiling.]

Bradley H. Patterson, Jr.

1. Source: Eisenhower Library, Whitman File, Cabinet Meetings. Confidential. Prepared by Bradley H. Patterson, Jr., Assistant to the Secretary to the Cabinet.
2. Not printed.
3. Not printed. The statement reads in part: “The damage that can occur in our foreign relations would seem to be out of proportion to the increased amount of cotton that it is proposed to sell under this program.”
4. Senator Richard B. Russell (D–Ga.).