Foreign Relations of the United States, 1961–1963, Volume IX, Foreign Economic Policy

34. Memorandum From Secretary of State Rusk to President Kennedy⁰

Washington, undated.

SUBJECT

• Department of Defense Proposals for Further Reductions in Balance of Payments Drain

1. Secretary McNamara has submitted his memorandum to you dealing with reduction in DOD expenditures entering the balance of payments.¹ The reduction proposed totalling approximately $380 million in FY ’66 would be additive to those previously coordinated with the Department of State and subsequently approved by you on July 16, 1963.²

2. It is my considered judgment that a significant proportion of these additional proposed reductions can be effectuated with some, but not undue, foreign policy risks. Since I share with you and Secretary McNamara the view that corrective action must be taken to alleviate our current gold and dollar deficit, I am prepared to concur in these proposals and to join Secretary McNamara in recommending your approval of them. These would include:

a.	Return of B-47 aircraft from the UK and Spain	$37
b.	Reduction in US military headquarters abroad	5
c.	Reduction in foreign procurement of goods and services	103
d.	Cancellation of the activation of one squadron of reconnaissance aircraft for Japan	25
	Total	170

In connection with these items I have requested that when the Department of Defense has developed specific, detailed, country proposals, they be submitted to the Department of State so that the timing and tactics of their implementation may be carefully coordinated.

3. With regard to the remainder of the proposals, specifically those involving major redeployments of aircraft from Europe back to the US, substantial reductions in our ground forces in Europe, withdrawal of our two divisions from Korea, a reduction in foreign procured POL, particularly from Venezuela (all of which would realize a net balance of payments savings of approximately $210 million), I have concluded that our basic national security posture and foreign policy interests would be so seriously jeopardized through their acceptance that I recommend that they not be approved.

4. In brief summary, my reasons are as follows:

a. Whether or not the military risks involved are deemed acceptable, the magnitude and nature of the adjustments will raise immense political problems which no amount of effectively devised and assiduously implemented diplomacy and public relations will be able to contravene.

b. Our European Allies, some of whom are critically examining our every move for signs that the recent initiation of East-West negotiations is in fact to be at the expense of our commitment to the Western Alliance, will read into the major adjustments a first step in US disengagment from Europe. Particularly if the Soviet Union, independent of our actions, effects certain force withdrawals from the Satellites (this is predicted in some quarters) the notion of US-USSR collusion will be even more difficult to confront. Whatever intrinsic military strength and protection is provided by the US forces stationed in Europe, the major significance of this deployment has always been associated with the symbolic, but nevertheless real and unequivocal commitment of the US to involvement in any future aggression in Europe. Though large forces would remain after this withdrawal, the magnitude and nature of the proposed reductions (over 50% of US air forces, 15% of US ground forces amounting to 100,000 US military personnel and dependents would be withdrawn from Europe alone) coming at this time, would prove to many that this was the forerunner of future additional withdrawals, perhaps based upon explicit or implicit agreement with the Soviet Union. It would confirm the De Gaulle thesis that Europe, in the last analysis, cannot rely for its security upon alliance with the U.S. Moreover, recalling the violent FRG reaction to the projected reduction of 600 men in the Berlin garrison, as sweeping a series of force adjustments as proposed in the DOD memorandum, can be expected to ignite anew German doubts and suspicions with dangerously unpredictable consequences.

Even if technical military arguments can be adduced to support the moves, such as the longer range of the F4C aircraft, they will not be politically persuasive.

There are, in addition, two special circumstances connected to the European force adjustments which require separate consideration:

(1) With regard to the aircraft withdrawals, it is possible that SACEUR and our Allies would consider redeployment back to the US as inconsistent with the effective fulfillment of the commitment of these forces to NATO. Should this eventuate, it would represent the first time in the history of the alliance that the US abrogated its previous commitment to meet specified NATO force requirements.

(2) With regard to the 30,000 ground troop removal, as well as with regard to the aircraft redeployment, the US would be accepting a degradation in its capacity to respond immediately with fully effective forces to an enemy attack unless it was preceded by a considerable period of warning and mobilization time. While such an adjustment may or may not eventually prove to be militarily advisable, it represents a significant shift in our past position vis-a-vis our allies. It represents at least partial acceptance of a need for greater reliance on nuclear weapons, a view the US has consistently fought, and thus warrants very careful study before adoption as US policy. Indeed, if adopted on the basis of what appears to be a fiscal rather than military motivation, it may well prove doubly unsettling to our allies. It could, moreover, lead to increased pressure on their part for more nuclear weapons.

c. In the Far East, removal of additional fighter aircraft will compound the delicate negotiating problem we are already seized with in relation to the previously proposed aircraft reductions. However, the additional number of aircraft to be removed (from Japan and the Philippines) are relatively so limited in number that the problems involved should be politically manageable. The same cannot be said for the Korean proposal.

The present junta government in Korea contains untrustworthy elements some of which may be pro-Communist, and we would find it hard to maintain the UN command, and its authority, if we withdrew our divisions. Military rule has introduced factionalism into the ROK command. The UN command is needed to moderate that factionalism; we dare not increase the risk that important elements of the ROK armed forces may fall into armed conflict against each other. Moreover, we must be able to use fullest possible United States influence to prevent ROK forces from being used to perpetuate military rule if it becomes apparent that the populace would revolt rather than accept it. Our two divisions and the United Nations command give us opportunities for exercise of control at the 38th parallel we cannot afford to surrender. Otherwise the present or prospective ROK leadership might, advertently or inadvertently, get into a border clash with the Communists. Alternately, a tempting opportunity might be presented to North Korea if ROK forces fell to fighting each other or the civil populace. In either situation, especially if accompanied by indications of possible Chinese Communist intervention, we might well, [2 lines of source text not declassified]risk their being overrun while we tried to evaluate what might be an obscure situation.

Moreover, [2-1/2 lines of source text not declassified] our position in Japan (given Japanese aversion to nuclear weapons, this policy adjustment could trigger a major reassessment of Japanese policy toward the US), the Far East in general and other areas of the world populated by the colored races, could be substantially undermined.

The Department recently made a thorough study of the proposal to remove the two US divisions from Korea, summarizing its analysis and conclusions in a letter to the Chairman of the Joint Chiefs of Staff. I commend this document to your attention as a means of gaining a full appreciation of the complex series of issues which the proposal raises. (Attachment A)³

d. I have similarly taken exception to that portion of the proposed DOD reduction in procurement of foreign POL which would probably fall within the Caribbean, specifically on Venezuela. It will take full measure of our very best efforts to forestall the political instability, which typifies the Venezuelan problem, from turning into complete chaos. A reduction in revenues from US purchases of Venezuelan oil exports is bound to be highly destructive of the accomplishment of our objectives.

e. Moreover, the magnitude of balance of payments savings which would be realized from effecting these decisive retractions in our military power, particularly in Europe and the Far East, would represent less than 1/10th of the annual current gold and dollar deficit. In the case of Korea, for example, the military budget savings would be almost fully offset and the gold savings partly nullified by requirement for additional US foreign aid without which the Korean economy could not survive. In the context of sharply constricted aid appropriations this could become an acute crisis. Thus, in this as well as other areas the risks involved are out of all proportions to the prospective savings.

5. Recognizing that there is no easy solution to the difficult balance of payments problem which we currently confront, I would far rather accept the adverse foreign policy consequences of taking certain actions in the non-security, fiscal and monetary fields. These actions which have been previously studied by the Balance of Payments Committee would at least have the virtue of making a far more substantial dent in the existing problem.

Accordingly, I have instructed my staff to prepare detailed programs for pursuing our balance of payments savings operations in these areas, along with a time schedule for implementation. I would propose to provide this for your consideration within thirty days, as an alternative to acceptance of those portions of the DOD proposal which I have discussed in paragraph 4. above.

Also, though my preliminary review has cast doubt upon the utility of removing one of the two divisions from Korea, I would be prepared to join in a thorough State-Defense study of the advantages and disadvantages of taking such an action. Since the balance of payments savings to the US Government of removing our forces from Korea is likely to be relatively negligible (as noted previously) the delay occasioned by a careful examination of the security policy implications of a one division withdrawal would not adversely prejudice our efforts to rectify the balance of payments imbalance.

6. Pending submission of the fiscal and monetary program proposals referred to in paragraph 5. above, I feel I would be derelict in my responsibility to you if I did not advise you that, in my considered judgment, the implementation of the DOD proposals alluded to in paragraph 4. above would be the gravest sort of mistake, fraught with adverse political and psychological consequences, perhaps out of all proportion to the intrinsic military significance, but, nevertheless, carrying a real danger of jeopardizing our entire existing national security posture.

Dean Rusk⁴

0. Source: Kennedy Library, National Security Files, Subjects Series, Balance of Payments and Gold, 8/63-9/63. Top Secret. The source text is undated, but a copy is dated September 18. (Department of State, Central Files, FN 12 US)
1. See Document 28.
2. The President’s approval has not been further identified.
3. Not attached and not found.
4. Printed from a copy that bears this typed signature.