22. Minutes of the Cabinet Meeting0
[Here follows a list of 39 persons present, including President Eisenhower; Vice President Nixon; Secretaries Herter, Anderson, McElroy, Seaton, Benson, and Mitchell; Secretary of Commerce Frederick H. Mueller; Secretary of Health, Education, and Welfare Arthur S. Flemming; Attorney General Rogers; Postmaster General Summer-field; Under Secretary Dillon; Assistant Secretary of the Treasury T. Graydon Upton; William McChesney Martin, Chairman of the Board of Governors of the Federal Reserve System; and Raymond J. Saulnier, Chairman of the Council of Economic Advisers. The first item of discussion concerned an unrelated subject.]
Internal [International] Balance of Payments—Sec. Anderson made it clear that no decisions were being sought at this meeting, but that it seemed desirable to keep the Cabinet informed of this very sensitive [Page 51] problem. He thought that study of the problem ought to be continued on a very high level of government until any necessary decisions were made.
Sec. Anderson then reviewed the situation generally, stressing that the dollar gap no longer exists with regard to the industrial countries of Western Europe and that for the underdeveloped countries, it is a capital gap rather than a dollar gap, meaning that British pounds or German marks, etc., will serve equally well as dollars. Mr. Anderson reviewed the situation of foreign holdings of United States dollars in much the same terms as at the Cabinet presentation some months earlier.1 He stated that the gold outflow had not been large in the first quarter this year but that it had increased somewhat in the second quarter.
Mr. Anderson pointed out that the balance of trade does remain in our favor by a slight margin but that other outgoing payments, such as United States troop support, tourist expenditures, private investment overseas, and utilization of P.L. 480 payments, produce a deficit for us in the balance of payments.
He noted that foreign countries do most of their financing in short term loans, whereas much of our lending is long term.
Sec. Anderson asserted that we have reached the point where it is necessary to re-examine the kinds of things we are doing, including the problems we generate for ourselves. He thought that export increases as large as could reasonably be hoped for would still be insufficient to solve the problem. He felt that our allies must share more and on a longer term in providing capital to underdeveloped countries, and we need to bring about a change in their point of view. Also, it is important that the other free nations of the world liberalize many of their policies toward the United States, such as quotas against American automobiles, high tariffs, etc.
Mr. Upton then presented a series of charts giving the statistical backup for Sec. Anderson’s presentation.
Sec. Anderson then summarized three areas of possible action: (1) other countries should eliminate quotas and reduce tariffs on American goods, they should bear a larger share of military costs, and they should have a larger part in helping underdeveloped countries; (2) private business in the United States should be encouraged to develop a new state of mind toward increasing exports of American goods and being competitive with overseas rivals, also the activity of the Export-Import Bank should be increased; (3) the federal government must maintain its will and capacity to control inflation and insure that other countries know this, it should reexamine its military expenditures overseas, and it should make a rigid review of Development Loan [Page 52] Fund activities, including attention to insuring that government loans are utilized in such a way as to increase procurement from the United States; similarly, P.L. 480 sales need to be reexamined. Mr. Anderson noted in passing that the practices of U.S. industries in establishing overseas factories have resulted in some lack of concern with tailoring U.S. production for overseas markets.
Sec. Herter and the President ascertained that the P.L. 480 problem appeared primarily in terms of barter arrangements which sometimes replace purchases from the United States—often involving a third country in the transaction.
Sec. Anderson then stressed the importance of the September meeting of the International Bank and the International Monetary Fund, when foreign officials will be observing United States policy and statements closely.2
Sec. Anderson urged that study of the problem be continued through the mechanism of the National Advisory Council on International Monetary and Financial Affairs, with other interested officials to be included on an ad hoc basis. The major conclusions and recommendations when necessary would be brought to the President for approval.
The President recalled how the United States had tried to grant funds without attaching strings but that it now seemed desirable to review that policy. Any change that might result, however, need not be a sudden one, hence the State Department should not be overly concerned. The President called attention to Russian practices in this regard.
Mr. Martin was invited to comment and he expressed his concurrence in the importance and validity of Sec. Anderson’s remarks. He felt this balance of payments matter had to be considered in all of our domestic and foreign activities.
Dr. Saulnier stated that the Council of Economic Advisors had been working on the problem and is participating in the work of the Committee chaired by Assistant Secretary Kearns of Commerce on the limited problem of exports. Dr. Saulnier believed that it was an overstatement to describe the situation in terms of “we have priced ourselves out of world markets,” since that is not the whole story. He too stressed the psychological aspects of the problem. He thought that the steel dispute and outcome was extremely significant since it was painfully evident that we had lost a competitive advantage in this particular [Page 53] industry. A rise in the price of steel because of this dispute would be very disadvantageous in the light of the balance of payments problem.
The President referred to the copies of Chester Bowles’3 letter that he had sent to interested officials, urging that the steel industry ought to reduce prices $10 per ton. Mr. Saulnier believed that a good argument could be made for this action. The President noted how he was endeavoring to avoid any charges of favoritism in the steel dispute, since he did not feel that he could approach any of the steel leaders, even for the purpose of passing along Chester Bowles’ suggestion. The President concluded his remarks by referring to the great inflation that has occurred in recent months as regards defense procurement.
[Here follows discussion of an unrelated subject.]
- Source: Eisenhower Library, Whitman File, Cabinet Series. Confidential. Drafted by Minnich.↩
- On March 13; see Document 44.↩
- The Boards of Governors of the International Bank for Reconstruction and Development, the International Monetary Fund, and the International Finance Corporation met in Washington, September 28–October 2. For text of President Eisenhower’s welcoming remarks and the texts of statements by Anderson, Dillon, and Upton, see Department of State Bulletin, October 19, 1959, pp. 531–541.↩
- Representative from Connecticut; the letter is not further identified.↩