Office of the Historian

171. Telegram From the President’s Special Assistant (Rostow) to President Johnson, in Texas1

Washington, January 5, 1968, 1639Z.

CAP 80116. Herewith Nick and the Germans. On the whole, positive.2

1.
We met Tuesday afternoon3 with Foreign Minister and Vice Chancellor Willy Brandt in a large meeting attended by six of the German [Page 489] Government. An obvious effort had been made to bring together this leading group of officials, some of whom had been on their holidays. The atmosphere was friendly and began with my presentation along the lines of the one I reported from London.4 The two-hour meeting covered a series of detailed questions on specifics of the President’s program. Most of the meeting was conducted by Lahr in highly methodical fashion moving through the program point by point. The questioning centered on possible effects of the U.S. investment actions which the German side clearly felt would tighten their capital market (although at one point Lahr seemed to be saying that very little American capital had come to Germany directly from us—a point refuted by facts). I welcomed their assurances that they were interested in promoting a high growth rate, which they considered to be a responsible position for a surplus country to take.
2.
On border taxes, the German side made an effort to disclaim that German actions have a serious trade effect, but listened attentively to my strong political arguments that regardless of whether and how much we can show trade effect to be, the fact of their rebates was a potential political issue in the U.S. which would enhance protectionist pressures. Bill Roth explained in detail that we wish to discuss in GATT and related this to the adjustment process.
3.
I would summarize the large initial meeting as revealing the Germans to be sympathetic to our goals of avoiding a resurgence of protectionism and of wishing to do all that is required to assure the continued presence of U.S. forces for the security of Europe. On offset, the Germans were interested in my mention of possible multilateral arrangements in the longer term, but agreed that we should concentrate on bilateral discussions to meet the immediate problems of the next several years.
4.
Following the large meeting, I asked Brandt for a more restricted session attended only by Fred Deming, Bill Roth, Russ Fessenden and me and on the German side by Brandt, Lahr, Harkort and Duckwitz.
5.
I explained to Brandt that, in political terms, two steps from the Germans are really essential to us.
(A)

First, I stressed the prime importance which we attach to maintaining our commitments for the common defense. In this context I said, it is essential that we have full neutralization of the foreign exchange costs of our troops in Germany. I did not mention a specific figure, but spoke in terms of a two-year agreement that would cover us fully.

It was clear from what I said that we were not speaking only of continuance of this year’s arrangements. I also made clear that we needed an understanding on this in the very near future.

(B)
Second, I described the heavy protectionist pressures in the U.S. and our political need to have something which could forestall these pressures. I then referred to our consideration of new legislation which would give a 2 percent-2-1/2 percent tax rebate to American exporters as something positive which could enable the administration to contain protectionist pressure. What we needed, I stressed, was a German commitment to stand still if we put into effect such legislation. If German and other countries were to retaliate, obviously the whole effect would be lost. I added that in addition we need to have a full exploration in GATT of the whole question of inequalities in the tax field as far as international trade is concerned. The 2 percent-2-1/2 percent border adjustment plus re-examination of the GATT rules could provide a means for keeping protectionism under control.
6.
I stressed that, in making these two requests of the German Government, I hoped consideration would be given to the politically courageous steps the President was taking in the balance of payments program, especially in an election year. I pointed out that the 10 percent tax increase, the stoppage of all direct investment to Western Europe and the tourist measures are all of them politically very difficult.
7.
In his reply, Brandt said that serious and urgent consideration would be given to these request by the German Government. He commented sympathetically on the principle of the first in particular, and fully understood the significance of the second. He added that these matters would be considered at the next Cabinet meeting, January 10, after which the German Government would be in contact with the Embassy.
8.
In a later conversation at the dinner which he gave for us, Brandt told me that the two requests which I had outlined to him in the private meeting presented “no real problem.” Lahr, in somewhat more cautious terms, made similar comments to Fred and Russ Fessenden.
9.
Brandt’s toast at the dinner was unusually warm. He dwelt at some length on German appreciation and sympathy for President as he carries immense burdens of free world leadership. Brandt also spoke of high regard for you and asked that I send best wishes for the new year.
10.
Full report being sent septel on large meeting.5
  1. Source: Johnson Library, National Security File, Subject File, 1968 Balance of Payments Program, Memos and Miscellaneous [2 of 2], Box 4. Secret. The telegram was received at the LBJ Ranch Communications Center on January 5 at noon (CST).↩
  2. Numbered paragraphs 1–10 below are taken verbatim from telegram 6782 from Bonn, January 3. (Department of State, Central Files, FN 12 US)↩
  3. January 3.↩
  4. See Document 170.↩
  5. Telegram 6792 from Bonn, January 3. (Department of State, Central Files, ORG 7 U)↩