Currency Wars_ The Making of the Next Global Crisis - James Rickards [47]
In late September, the council of the General Agreement on Tariffs and Trade (GATT) met to consider whether the U.S. import surtax was a violation of free trade rules. There was no justification for the surtax and U.S. deputy undersecretary of state Nathaniel Samuels made almost no effort to defend it, other than to suggest that the surtax would be lifted when the U.S. balance of payments improved. Under the GATT rules, retaliation would likely have been justified. However, the U.S. trading partners had no stomach for a trade war. Memories of the 1930s were still too fresh and the role of the United States as a superpower balance to the Soviet Union and military protector of Japan and Western Europe was too important to risk a major confrontation over trade. Japan and Western Europe would simply have to suffer a weaker dollar; the question was to what extent and on whose terms.
An international conference in London was organized under the auspices of the so-called Group of Ten, or G10, in late September. These were the wealthiest nations in the world at the time, which importantly included Switzerland, even though it was not then an IMF member. Connally put on a performance worthy of his Texas pedigree. He told the delegates that the United States demanded an immediate $13 billion swing in its trade balance, from a $5 billion deficit to an $8 billion surplus, and that this demand was nonnegotiable. He then refused to engage in discussions about how this might be achieved; he told the delegates it was up to them to formulate a plan, and upon his review he would let them know whether they had been successful. The nine other members of the G10 were left to mutter among themselves about Connally’s arrogance and to think about what kind of swing in the U.S. trade balance they might be willing to orchestrate.
Two weeks later, in early October, the key players met again in Washington at the annual meeting of the IMF. Little progress had been made since the London conference, but the implications of Nixon’s 10 percent surtax were beginning to sink in. The Canadian trade minister, Jean-Luc Pépin, estimated that the surtax would destroy ninety thousand Canadian jobs in its first year. Some dollar devaluation had already taken place on the foreign exchange markets, where more countries had begun to float their currencies against the dollar and where immediate gains of 3 percent to 9 percent had occurred in various currencies. But Nixon and Connally were seeking total devaluation more in the 12 percent to 15 percent range, along with some assurance that those levels would stick and not be reversed by the markets. The IMF, not surprisingly given its research-dominated staff, began vetting a number of technical solutions. These included wider trading “bands” within which currencies could fluctuate before requesting formal devaluation, and possibly the expanded use of SDRs and the creation of a world central bank. These debates were irrelevant to Connally. He wanted an immediate response to the immediate problem and would use the blunt instrument of the surtax to force the issue for as long as it took. However, he did soften his views slightly at the IMF meeting by indicating that the surtax might be lifted if the U.S. trade balance moved in the right direction even if its ultimate goals had not yet been achieved.
There was one other issue on which the United States seemed willing to show some flexibility and on which the Europeans were quite focused. While the United States had announced it would no longer redeem dollars for gold, it had not officially changed the dollar-gold parity; it still regarded the dollar as worth one thirty-fifth of an ounce of gold, even in its nonconvertible state. An increase in the price of gold would be just as much of a devaluation of the dollar as an upward revaluation of the other currencies. This was symbolically important