Foreign Relations of the United States
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Compared with their ongoing preoccupation with international political and strategic policy, President Nixon and his Assistant for National Security Affairs, Henry Kissinger, did not express much interest in foreign economic matters. They nonetheless understood that domestic and foreign economic developments could have profound effects on their political programs and goals. In particular, the Nixon administration inherited a serious U.S. balance-of-payments deficit, which threatened to destabilize the international economic system. During the first term, 1969-1972, Nixon administration officials undertook an intensive re-evaluation of U.S. monetary and trade policies. From this reappraisal came several foreign economic initiatives, many of which were formulated in the Department of the Treasury, to try to stop the flow of U.S. capital abroad.
The first part of this volume documents the various foreign economic options that Nixon administration officials considered in trying to alleviate the balance-of-payments problem. Some of the following proposals were stillborn, but others became Nixon administration initiatives: reduction in non-military U.S. personnel stationed overseas; efforts to get Japan and especially West Germany to offset the costs of the U.S. military presence abroad with the purchase of more U.S. military equipment; reduction in the Interest Equalization Tax; revaluation of exchange rates of countries with trade surpluses; opposition to foreign governments' preferential trade policies; reductions in foreign aid; and reform of the international monetary system.
The second part of this volume treats the administration's interest in reform of the international monetary system. President Nixon and his economic advisers increasingly believed that the creation of a new economic system could alleviate major U.S. fiscal problems, such as tariff inequities and declining gold reserves. One proposal called for major European nations' acceptance of the International Monetary Fund's plan of Special Drawing Rights (SDRs). Another called for flexible exchange rates. Nixon administration officials hoped to persuade individual countries, especially in Europe, to devalue or revalue their currencies, abolish fund controls, and agree on common trading rules, all of which would avert a large-scale financial crisis and promote international trade. Ultimately, the collapse of the British pound and European disagreements over currency revaluation prompted President Nixon to announce his New Economic Policy in August 1971, which ended the convertibility of dollars to gold and imposed a 10 percent surcharge on imports, as well as imposing domestic wage and price controls for 90 days.
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