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

72. Memorandum of Conversation⁰

PET/MC/12

Bonn, June 24, 1963.

PRESIDENT’S EUROPEAN TRIP
June 1963

PARTICIPANTS:

• United States
  • The President
  • The Secretary of State
  • Ambassador George C. McGhee
  • Assistant Secretary Tyler
  • Assistant Secretary Manning
  • Minister Martin Hillenbrand
  • Mr. Pierre Salinger
  • Mr. Robert Creel EUR/GER
  • Mr. Lissance (interpreter)
• Germany
  • Chancellor Konrad Adenauer
  • Vice Chancellor Ludwig Erhard
  • Foreign Minister Gerhard Schroeder
  • Defense Minister Kai-Uwe von Hassel
  • Ambassador Karl Heinrich Knappstein
  • State Secretary Globke
  • State Secretary Carstens
  • State Secretary von Hase
  • Counselor Weber (interpreter)

SUBJECT

• Trade and Fiscal Policy Matters

The President said a third subject he wished to bring up, in addition to the MLF and nuclear test ban,¹ was the general area of economic relations, including such matters as monetary policy, offset arrangements and the Kennedy Round of trade negotiations. The President said that these economic subjects were possibly even more important to us now than nuclear matters. This was because our nuclear position was very strong indeed and entirely adequate to discourage any attack on the West.

The President said we would not wish to repeat the experience of the 1920’s, which had had wide repercussions in Europe. If international trade could be expanded, this would help bring prosperity both to the US and to Europe. It was very important that the coming trade negotiations be successful. While foreign trade was not inherently as important to us as to the Europeans, it was nevertheless important in that it played a key role in enabling us to earn enough to maintain our overseas commitments. The President hoped that the coming negotiations could be conducted at the highest level. They should involve heads of government and Foreign and Defense ministers, and not just be left to technicians such as agricultural experts and tariff commissioners. Unless we could maintain international liquidity and a balanced trade situation, there would be difficulties which could possibly lead to a collapse. For example, he added, had it not been for the constructive role played at the Geneva trade talks by the Federal German Government we would have had a breakdown there.

Continuing on this theme, the President said that in America, we lose $1-1/2 billion a year in tourist trade alone. On the other side of the coin, we send more agricultural products to Germany than the Germans sell to us. What was needed was to look to the overall balance of international trade and to make every effort to maintain this balance. At the present time the US economy was in a strong position and the dollar in good shape. The redistribution of assets internationally over the past 10 years had been healthy. The President added: “We must conduct these negotiations at the top level—otherwise we’ll be ruined by bookkeepers”.

Foreign Minister Schroeder said that the German deficit in tourist trade was running around $700 million a year. The President commented maybe we had better include Directors of Tourism in our discussions. It was in any case important to get the whole balance of trade out on the table. The French, Italians and Spanish had favorable tourism balances. Our overall purpose was to maintain general liquidity and upward movement in the economy on an international scale in a balanced way.

Professor Erhard entered the discussion at this point. He said he wanted to tell the President that the problems of the US in the field of trade and balance of payments were well known to the Germans and they appreciated our concern. He wished to stress, however, that this was not just a US problem but one for the entire free world. Should the dollar encounter difficulties, this would affect us all just as the solar system would be disrupted were the sun no longer to stand still. In Germany, efforts had been made to take our balance of payments problem into account. For example, present German reserves totalled DM 29 billion, with a ratio of DM 15 billion in gold and only DM 14 billion in US dollars. This ratio was the most favorable to the US of all European countries. The Germans did not wish to change this because they laid great stake on their good relations with the US. They were constantly seeking ways of strengthening international liquidity and making better use of available resources. For example, the German Central Bank was already taking steps to acquire US Treasury Bonds in large amounts. The Germans were interested in strengthening not only the dollar but the international economic cohesion of the free world. The Germans would do all they could so long as the problem was bilateral in scope. Foreign trade was very important for the Germans—it represented 15% of GNP as contrasted with only 4% for the US—because it was so large a percentage of the total effort and their own economy was more vulnerable. He felt there was a complete identity of interest with us in this area.

Professor Erhard then said that one of the big difficulties lay in the agricultural field. The German Government had problems with its own farmers, who spoke with a loud voice. He hoped the FRG could grapple with this problem before the end of the year. If they were not successful, it would make the Kennedy Round more difficult. He attached great importance to the success of the Kennedy Round. He thought his efforts with Governor Herter in Geneva had borne witness to this. Many other problems came to his mind in this area, although some of them concerned US internal policies, such as trade and financial policies, tax policies, etc. Maybe he would have a chance to discuss some of these with the President in Wiesbaden tomorrow.² In such event he hoped the President would consider him to be speaking not as German but as an expert in the field of international economics.

The President agreed this might be useful. He cited the valuable contributions the Germans had made in the past on such things as military offset arrangements, general financial and monetary policy, the Geneva GATT negotiations, preparations for the Kennedy Round, etc. He had sometimes wondered why this was called the Kennedy Round and why it should not be called the Adenauer Round or the De Gaulle Round. But whatever it was called, it must be a success. We needed the cooperation of all countries, but the Federal Republic was in a particularly important position. We had been glad to have the views of the Federal Republic and would take them into account. The problems were considerable but it would amount to a failure of will and nerves if we did not solve them successfully.

The Chancellor said he would like to add a word “as a layman but also as a politician”. He agreed that these matters should be the responsibility of the leading Ministers. This could cause some difficulties, however; witness the fact that the French Foreign Minister always attended the EEC meetings, and this sometimes had the effect that other countries would listen more to him than to the German technical experts. The Chancellor was not sure the President was fully aware of the great difficulties the Germans were having with the French in the field of agricultural trade matters, particularly as concerned grain prices. The French were producing more wheat than they needed and at a lower price than the Germans because they had better soil and better weather. There were problems with the German trade unions, where their boss was not George Meany but Herr Brenner. The metal workers were a very big union with a dominating position, and recent agreements on wages and hours had affected German production. Coal was no longer the source of wealth it had once been, and mining operations were expensive. The Federal Government had to look to its future economic position with some anxiety and ask whether it was going to be in a position to carry out all of its obligations. The Germans wanted to do all they could in the economic and agricultural fields and would work together for the common good. After all, we were all threatened by the same adversary. But the Germans had problems. The days of large German export balances were gone. German exports were coming down close to imports and the German trade balance was delicate. But the Germans had good will, which was an asset which counted for much. The President could count on German good will in the Kennedy Round. But it should be remembered that the Germans were not as rich as some people believed.

The President said the Chancellor sounded like someone coming to a bank for a loan. The Chancellor smilingly replied that if that were the case he might talk differently.

The President said that a further difficulty was that we spent $200 million a year on bases in France, where there were no offset arrangements. In France we had to earn our money somehow to maintain our bases. The French Finance Minister should know better than to accuse us of trying to dominate the French economy or trying to dump our goods there. Exports were only a small percentage of our total products. Our GNP had increased from $500 billion to $585 billion in recent months. We could lose $20 billion a year in trade without hurting. Trade was important to us only in that it enabled us to earn balances to carry out our world commitments and play a world role.

Erhard said he wished to mention other things which might be done to help the situation. The Germans had revalued their currency not long ago, which had helped US exports to Germany. It was important to maintain a stable price level. The problem could not be solved by inflation of currencies all over Europe. He had suggested to Governor Herter the possibility of setting up world commodity agreements for cereals and cattle as we had on coffee and cotton. It was important to work together in GATT. We must open the doors wider to international trade; this would require less manipulation of currencies.

In essence, Erhard said, he had a single request—for more open-mindedness on our part in developing instrumentalities for handling international trade and business—instrumentalities to control, direct and supervise international economic development.

The President said he completely agreed. It was necessary however to make a judgment as to which tools to use. He hoped to talk further with Erhard about this tomorrow.

At this point the President excused himself in view of the imminence of his scheduled press conference.³

0. Source: Department of State, Conference Files: Lot 66 D 110, CF 2275. Confidential. Drafted by Robert C. Creel (EUR/GER) on June 24 and approved by S on July 6 and by the White House on July 8. The meeting was held in the Palais Schaumburg. President Kennedy and Secretary Rusk arrived in Bonn on June 23 for a 4-day visit, including a trip to Berlin.
1. A telegraphic summary of the President’s conversation with Adenauer on the MLF is printed in vol. XIII, pp. 597–598. A memorandum of their conversation on the nuclear test ban (PET/MC/14), June 24, is in Department of State, Conference Files: Lot 66 D 110, CF 2275.
2. President Kennedy spent most of June 25 with Erhard and others on a trip to Wiesbaden and environs. (Kennedy Library, President’s Appointment Books) For a record of the conversation, see Document 73. For a memorandum from Ball to President Kennedy, June 21, which contained talking points for the President’s meetings with Erhard, see the Supplement.
3. For the transcript of the President’s press conference beginning at 5:30 p.m., see Public Papers of the Presidents of the United States: John F. Kennedy, 1963, pp. 505-511.