Foreign Relations of the United States, 1969–1976, Volume III, Foreign Economic Policy; International Monetary Policy, 1969–1972

51. Information Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon¹

Washington, February 9, 1971.

SUBJECT

• Foreign Attitudes Toward U.S. Economic Policies

Secretary Rogers has sent you a memorandum summarizing the views of our principal ambassadors on European and Japanese attitudes toward the U.S. economic situation (Tab A).²

The Europeans are, of course, very sensitive to the health of the American economy since it greatly influences their own situation. Most of them express strong recognition of a need for a resumption of U.S. economic growth—even the French, who because of their monetary and nationalistic investment concerns, have not generally felt this way in the past. There is great worry, particularly in financial circles, about the other side of the balance—the possibility of a resumed U.S. inflation—but the greater stress by officials with broader concerns is clearly on the need for an up-turn in the American economy.

U.S. inflation or an immoderate resumption of U.S. growth are most worrisome for their international monetary implications, and their exacerbating European domestic inflation. Many worry, for example, that a continued rapid lowering of U.S. interest rates will cause a massive flow of funds to Europe, weakening the international monetary system and their own efforts to restrain inflation. The Europeans are disturbed that our colossal monetary importance, combined with the inflexibility of international exchange rates, drags their interest rates behind ours and vitiates the effect of their monetary measures on their domestic economies or on their balance of payments.³ (To avoid some of these consequences, and to avoid charges that we don’t care about our balance of payments, we have already increased the Export-Import Bank’s borrowing abroad and reduced the margin requirements which were to some extent pushing U.S. banks to disgorge their previous foreign borrowings.)

Consequently, the foreigners tend to favor U.S. use of fiscal measures rather than monetary measures as medicine for our current problems. They disagree on the domestic effectiveness of incomes policies, and are therefore ambivalent about how the United States should use such measures. However, they do seem to favor some use of strict Federal Government power to help slow wage and price increases. State did not quiz the ambassadors on U.S. trade policy, but most ambassadors made a strong point about foreign concern over the direction these policies have been taking. Part of their interest in resumed U.S. economic growth stems from the belief that U.S. protectionism has gathered force from our economic slowdown.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 323, Foreign Aid, Volume I 7/70-1971. Confidential. At the top of the memorandum, the President wrote: “Be sure this gets to Peterson,” and Kissinger wrote: “Send comments to Shultz.” The memorandum is attached to a January 28 memorandum from Bergsten recommending that Kissinger forward the report to the President. Bergsten wrote that “responses reflect the usual foreign schizophrenia toward the U.S. economy,” especially the European perception of the threat of a continued U.S. slowdown.
2. Dated January 22; not printed.
3. The President drew a line in the left margin next to this paragraph and wrote: “Shultz—An early project for the Peterson Council should be examination of the need for a new Int’l Monetary system. This should be undertaken with the closest consultation with Treasury, C.E.A. and Burns.” On March 10 Kissinger sent a memorandum to Shultz and Peterson containing the President’s instruction. (National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 218, CIEP)