Foreign Relations of the United States, 1969–1976, Volume XXXI, Foreign Economic Policy, 1973–1976

131. Memorandum From Robert Hormats of the National Security Council Staff to the President’s Assistant for National Security Affairs (Scowcroft)¹

Washington, March 19, 1976.

SUBJECT

• Suggested Meeting on International Economic Situation

As I indicated in my memorandum of March 18, 1976,² serious economic problems appeared to be on the horizon in both the monetary and trade areas.

Yeo, Greenspan and I yesterday discussed in detail the monetary situation, in particular the enormous internal problems in Britain and Italy which have given rise to the current instability on European money markets. Trade is no less worrisome; a very substantial percentage of European exports to the US are now subject to investigations pursuant to complaints filed under the Trade Act of 1974. If we impose import restrictions on even a minor part of this trade, the Europeans will more than likely retaliate, and we could be faced with an escalating series of restrictions on both sides of the Atlantic and Japan.

I suggest we deal with the problem in the following way:

• —First, that you ask George Bush to pull together some analysis on the political impact of the currency instability in Europe and on the likely impact of new US trade restrictions imposed under the 1974 Trade Act.³
• —Second, in order to underline the seriousness of the situation, that you call together a meeting to include Seidman, Simon, Dent, and Kissinger to explore the dimensions of the currency problem, and its fundamental causes, as well as the potential for further restrictive US trade actions.⁴
• —Third, that at the meeting Dent, Simon, and Kissinger be asked to have their people pull together an itemized list of the outstanding trade issues being investigated under the Trade Act, the amount of trade for individual countries, and the timing of future Treasury, ITC, and Presidential decisions. And that the same group be asked to explore the advisability of a comprehensive USG position spelling out the political and economic implications of new protectionist actions (i.e., the implications of our erecting the maximum barriers pursuant to potential findings under present trade investigations), and how we might convey to the Congress and public the need for a restrained approach in implementing the countervailing, dumping, escape clause and 301 provision of the Trade Act.
• —Fourth, that Treasury be asked to pull together a list of the actions the United States, unilaterally or with its trade partners, might take to ameliorate the present instability in currency markets, and what measures we should encourage the UK and Italy to take to stabilize their internal situations.
• —Fifth, that you and Seidman make preparations for meeting with the President to discuss the aforementioned papers and the overall situation at the middle or end of next week.

The present situation remains highly unpredictable. A further weakening of the lira will further erode confidence in the Christian Democrats, possibly forcing them to request large-scale financial assistance from the US, a rejection of which could further erode the CD. Conceivably, also, the OPEC countries might withdraw sterling deposits forcing a precipitous drop in the pound which only massive American intervention could limit. Yeo is currently exploring with the Europeans means of stabilizing the situation and should be able to report on his efforts by early next week. If the situation rapidly deteriorates, tough decisions must be taken here, and we should have all the facts and alternatives before us on a contingency basis.

On trade, we need to have a better understanding of how to limit protectionism by looking at the problem in the aggregate and adopting an “umbrella approach” under which the President could more easily justify restraint in respect of individual problems. Unless we do, we could be ad hoced into protectionism on each item that comes along.

1. Source: Ford Library, National Security Adviser, Trip Briefing Books and Cables for President Ford, Box 21, June 27–28, 1976—Puerto Rico Economic Summit, General (2). Secret. Sent for action.
2. Presumably Document 130.
3. This paragraph has a checkmark next to it.
4. This paragraph has a checkmark next to it.