Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

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

Washington, January 6, 1968, 0044Z.

CAP 80132. Subject: Reactions to balance of payments program.

Market—quiet again yesterday and today.

Gold pool made no sales yesterday. Took in $4 million today.

Dollar and sterling quiet.

Official Reactions

1. Katzenbach Mission

A. Belgium—great concern over prospective cut in U.S. investment. Want to work out special arrangement with us. Non-committal on border tax but recognize problem. Accepted principle neutralizing U.S. military spending.²

B. European Community (President Jean Rey)—Commission reaction sympathetic and positive but made no commitments. Agreed Europeans suffer from surplus psychology. Fear moves toward protectionism in U.S. Rey is interested in more regular U.S.-European Community consultations and will probably raise this subject with you during his visit in February.³

C. Berlin problem—Germans worried effect investment moratorium on new U.S. investments in Berlin, which they believe necessary to keep up morale in city. (Berlin Mayor Schuetz coming here in February to promote U.S. investment in Berlin.)⁴

D. Netherlands—Dutch worried about discrimination in investment and tourism but attitude cooperative. Said we should make IMF drawing and discuss question outstanding U.S. dollar balances in IMF. Katzenbach believes Dutch will accept border tax if we can make GATT justification.⁵

E. Italy—Foreign Minister Fanfani in effect told Italian press that deficit and program linked to Vietnam. Nick Katzenbach in airport press conference on leaving Rome rebutted Fanfani statement. Said U.S. would have balance of payments problem without Vietnam.⁶

2. Rostow Mission

A. Japan—Further reporting emphasizes concern others would follow border tax move by U.S. Japan has raised discount rate as defense measure against balance of payments pressures.⁷

B. Australia—Accepts need for U.S. action but expressed strongest concern yet received over serious consequences program could have on domestic economy. Requested special treatment insuring that capital inflow into Australia should not fall below 1966 levels, semi-annual Ministerial consultations, recognition that reserves should not fall below June 1966 level, exemption from 5 percent cut in lending by banks and financial institutions, expansion of EXIM arrangement enabling Australia to float loans in U.S. free from IET, and assurance that the U.S. trade policy will attempt avoid injure Australian exports. Said restrictions on capital flow could make it difficult for Australia to continue its efforts in aid and defense fields, including participation in Vietnam. Reacted negatively to U.S. consideration of border tax and indicated Australia likely emulate any such U.S. action.⁸

McEwen told press Australia supports program and said both countries consulting on problems posed for Australia.

3. Trezise Mission

A. Norway—Worried about cut in U.S. investment and effect of U.S. program on European interest rates. Want to be put in category of countries heavily dependent on U.S. capital. Said U.S. could count on Norwegian support and cooperation.⁹

European Press

Program continued to draw voluminous comment abroad. Many found U.S. measures justified in spite of “painful consequences”. Press opinion was divided over whether measures would achieve the desired effect. These major themes emerged:

• —U.S. was determined to defend the dollar and with it the international financial system.
• —Measures might slow down world economic expansion.
• —Action was in response to European criticism and pressure.
• —Vietnam war was a main cause of the U.S. deficit.
• —Impact on the developing countries was uncertain.
• —Those advocating reduced U.S. investment in European industry might soon be eating their words.

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 8:12 p.m. (CST).
2. Reports of Katzenbach’s meeting with Belgian leaders on January 4 are in telegram 3856 from Brussels, January 4, and telegram 3493 from Rome, January 4. (Both in Department of State, Central Files, ORG 7 U)
3. Reports of Katzenbach’s meetings with Rey and other EC Commissioners on January 3 and 4 are in telegram 3855 from Brussels, January 4, telegram 3861 from Brussels, January 5, and telegram 3499 from Rome, January 5. (All ibid.)
4. No report on this issue has been found.
5. Katzenbach’s report of his meeting with Netherlands leaders on January 4 is in telegram 3500 from Rome, January 4. (Department of State, Central Files, ORG 7 U)
6. This statement has not been found. A summary of the Rome discussions on January 5 is in telegram 8727 from Paris, January 5. (Ibid.)
7. See Document 169 and footnote 2 thereto.
8. A memorandum of Eugene Rostow’s meeting with Australian Prime Minister McEwen and other Australian officials, January 7, is in Department of State, Conference Files: Lot 69 D 182, CF 270.
9. No other report on the Norwegian reaction has been found.