Foreign Relations of the United States, 1952–1954, General: Economic and Political Matters, Volume I, Part 1

411.003/7–1654

Memorandum by the Assistant Secretary of State for Inter-American Affairs (Holland) to the Secretary of State¹

confidential

[Washington,]July 21, 1954.

• Subject:
• Lead and Zinc—Conversation with Mexican Ambassador.²

I discussed thoroughly with the Mexican Ambassador and his Economic Counselor the relative effect upon Mexico of a tariff of approximately 1½ cents per pound on lead and zinc and a subsidy of 4 cents per pound on the first 200 tons of lead and zinc produced in this country.

The Ambassador was not at all concerned about a subsidy but urged that a tariff would very adversely affect Mexico.

The Ambassador and his Counselor regarded as entirely fallacious the argument that a tariff would increase the demand for imported lead and zinc because United States marginal producers would close down, thus reducing domestic United States production. His reasons were:

(1) The tonnage by which elimination of United States marginal mines would reduce domestic production is negligible in terms of Mexico’s exports to the United States. In any event, that tonnage would immediately be made up by increased production from mines remaining in operation.

(2) The real injury which a tariff increase does to Mexico is its effect on her ability to compete with United States producers who remain in production. Her competitive position would be seriously impaired. Any increase in the United States price that a tariff increase might cause would be more than offset by the increase in the tariff barrier that Mexico would have to overcome to reach that market. For example, if, as is expected, a tariff increase of 1½ cents per pound should raise the United States domestic price by ½ cent per pound, the net result would be:

(a) the loss of United States production caused by elimination of marginal producers would be immediately offset by an increase in production of the remaining producers,

(b) the existing competitive advantage that United States producers have over Mexican producers would be increased by the 1 cent by which the tariff increase exceeded the price increase,

(c) Mexico’s exports to the United States would be substantially reduced with the injuries to her which are indicated below:

(1) A reduction in Mexico’s exports to the United States would further impair her adverse balance of payments which is steadily undermining Mexico’s monetary reserves.

(2) A reduction in Mexico’s exports would create a more serious problem of unemployment there than here. Some 70,000 persons are employed in the lead and zinc industry in Mexico.

(3) A reduction in our purchases of Mexican lead and zinc would automatically operate to reduce Mexican purchases in the United States.

(4) There is a large amount of United States investment in lead and zinc mining in Mexico which would be adversely affected by a tariff. This might impair our whole program of encouraging United States investment abroad.

The Ambassador said that Mexico was prepared to go to great lengths to convince us of the undesirability of a tariff increase. He offered to have experts on the Mexican lead and zinc industry come to Washington to provide us with all of the data we might wish. As between the proposed tariff and a subsidy of 4 cents per pound on the first 200 tons produced by each mine, he and his Counselor strongly preferred the latter.

In analyzing the Ambassador’s statements regarding the effect of a tariff increase on Mexico, I urge that we bear in mind:

(1) In a recent meeting President Eisenhower expressed in the strongest terms his conviction that we must take those measures which will establish and preserve close and effective relations with Mexico. He emphasized our long frontier, as well as the history of misunderstandings and disagreements and the differences of culture and language which make that relationship incapable of sustaining the shocks that will our relations with Canada.

(2) The present administration began with a marked leftist trend which gave Communists greater influence than they have exerted in years. That trend accelerated during 1953. In the past six months it has been arrested and in recent weeks it has begun to move strongly in the opposite direction. There is reason to hope that some Communist sympathizers may be eliminated from some important government posts. This is an occurrence of crucial importance to the United States. Therefore, we should weigh carefully the effect on Mexico of our moves during the next few months.³

1. Drafted by Assistant Secretary Holland and Director of the Office of Regional American Affairs Cale.
2. Manuel Tello.
3. Telegram 312 to Mexico City, Sept. 10, 1954, reported that President Eisenhower had declined to accept the Tariff Commission’s recommendations to raise the duty on lead and zinc and had announced an alternative program of stepped-up U.S. Government purchases from domestic lead and zinc producers to increase the U.S. stockpile of these materials. The telegram continued that the President’s decision was difficult in view of the unemployment in small U.S. mines and the strong domestic pressure generated by the unanimous recommendation of the Tariff Commission. It therefore urged the Embassy to point out to the Mexican Government that increased Mexican exports of lead and zinc to the United States could frustrate the President’s program and make an eventual tariff increase inevitable. (411.003/9–1054) The text of the White House press release of Aug. 20, 1954, announcing the President’s decision is printed in the Department of State Bulletin., Sept. 6, 1954, p. 339.