Memorandum by the Chief of the Division of Far Eastern Affairs (Hornbeck) of a Conversation Between American and Chinese Representatives
Meeting at Department of State 3:30 p.m., May 10.
Present: Senator Pittman, Mr. Tugwell, Mr. Bullitt, Mr. Hornbeck, Mr. Feis, the Chinese Chief Representative, the Chinese Minister, Mr. Pei, Mr. Wei and Dr. Young.
Sen. Pittman asked whether Mr. Soong would open the conversation.
Mr. Soong said that from the standpoint of China, they were very anxious to see silver stabilized. They had much in common with the position of the United States. With regard to the question of the minimum reserve, the possibility of using silver in part was important. But if such use was to be merely optional, we could not estimate the effects. If some countries keep more than the legal requirement of gold, the influence on silver would be difficult to observe. With regard to debasing of subsidiary coins, they were in favor of restoration. (Sen. Pittman remarked that all were agreed on that). Mr. Soong continued that the effect thereof was difficult to estimate. The Chinese favored the idea of agreement between silver producers and the silver using countries. There was the possibility that India would allow free circulation instead of an export tax. The opinion had been expressed to him that this was not impossible of achievement. But we would want to know what amount would be offered per annum.[Page 524]
Sen. Pittman said that India would probably ask to sell fifty million ounces per annum for five years: India’s program had been to sell four hundred million ounces and she had already sold one hundred fifty million.
Mr. Soong said: limit the price beyond which India will not sell. The Chinese have noted that there is pending legislation in the United States to authorize receiving two hundred million ounces of silver on debts at fifty cents an ounce. He inquired about this.
Sen. Pittman explained. He said that the bill had been passed today.20 The debtors may or may not make use of it. We cannot count on this to take silver off the market. Mr. Soong asked how this would affect governments other than the British. He said that in the long run view, the power of China to absorb silver is the outstanding factor. Therefore, improvement of the China market would add to ability to absorb silver. He inquired whether the Senator thought that if the nations of the world made an agreement there would be a sudden rise in the price of silver.
Sen. Pittman explained the buying and selling process in relation to the question of stabilizing silver.
Mr. Soong asked whether Mr. Young had any observations.
Mr. Young emphasized the advantage of stabilizing silver, as fluctuations in silver interfere with and tend to reduce the volume of China’s commerce.
Sen. Pittman said that all have recognized that we must consider silver in exchange matters.
Mr. Tugwell said that we have not discovered much dissent. Sen. Pittman spoke of certain constant factors.
Mr. Soong wondered whether there could be a tax on production.
Sen. Pittman expressed doubt. Much of the product is a byproduct. He referred to past mining experience. Efforts to increase silver production have not been very successful. The average of many years indicates that silver is a rare metal.
Mr. Soong mentioned the accumulation of seventy million ounces of silver in the New York market.
Mr. Pei said that recent shipments out of China had been heavy.
Mr. Soong suggested danger lest if nothing be done this supply, if thrown on the market, might produce a slump.
Mr. Pei made inquiries with regard to the one-fifth silver reserve. He felt the reserve must be maintained up to the full one-fifth. In case any government did not wish to participate, would there be any alternative whereby to take up the slack?[Page 525]
Sen. Pittman said there had been a bill here authorizing the Government to buy two hundred fifty million ounces. It might be, if no plans were consummated, that the Government of the United States would make an agreement with the Government of India. India might agree to sell us fifty million ounces per year at a given price; the United States agree to take this over a period of say five years; and both agree that there be a limit to the melting up of silver coins.
Mr. Bullitt said the United States was not afraid of silver.
Sen. Pittman said we had $800,000,000 of silver currency.
Sen. Pittman asked whether a 2% silver reserve would facilitate exchange relations between the United States and China.
Mr. Soong replied “Yes”.
Mr. Pei said that stabilization would benefit the trade relations of China.
Mr. Soong said there had been a period when there was a panicky feeling about silver. China had bolstered silver up. This was when India put on an import duty. He hoped that phase was closed. We want achievement,—but the Economic Conference may fail.
Sen. Pittman referred to the resolution21 which he had introduced two years ago. He said four countries could have controlled the price. He explained what happened. He thought it would never be permitted to occur again. If the thing is not taken care of, five or six countries can have a conference of their own and control the situation. He also spoke of difficulties which China has encountered. He believes that China can be developed as a great market. He referred to the economists’ theory of international exchange (trade). He said that in a pioneer country, of which China is one, the theory does not hold: in such, they are not dependent in international trade solely on what they sell.
Mr. Soong said that, all speculation notwithstanding, the low price of silver has compelled China to do without many things that she would like to buy.
There came a suggestion that Senator Pittman introduce Mr. Soong to his colleagues in the Senate, especially of the Banking and Currency Committee. Sen. Pittman wanted Mr. Soong to answer to them certain questions which the Senators ask all the time.
Sen. Pittman said that he wished he were as satisfied that other questions could be settled at London as he was that the silver question can be settled.[Page 526]
Mr. Bullitt said that even if the Conference broke down completely the United States would make great effort to rehabilitate its trade with China.
Sen. Pittman said that action had been delayed by the American Government because of waiting for the Economic Conference. President Hoover had taken the position that we must wait because one or two governments important to the success of an agreement were holding back. When he, the Senator, was leaving for China the press stated that the American Government thought that some country more interested than the United States should call the Conference; on the day when he landed in China, the press stated that the American Government did not think China was the country to call a conference.
Mr. Soong said he wished to make a statement in regard to the Chinese tariff. China was going to make a change. At the time when the new treaties were made, Japan had held China up and compelled her to make a reciprocity agreement on various commodities for three years. This expires on May 16. China intends to bring up the rates on which the reciprocity limits have been fixed, to harmonize the schedules. This would affect chiefly cotton goods, rubber, fish products and other items in which Japan had been interested. They wanted the American Government to understand the spirit of their action.
Mr. Soong said that he had to have a press conference today. The press will ask about silver. What would be advisable for him to say?
Sen. Pittman said that he thought four questions would be raised, among which: Do you wish that silver be stabilized; what would be the effect on Chinese commerce; what would be the effect on American commerce? Mr. Bullitt explained some of our thoughts with regard to the tariff and to procedure; combined use of multilateral and bilateral agreements; most-favored-nation clause, etc. He said there would have to be exceptions. There are no fixed ideas with regard to what will be brought up. It is an open question—for debate. In principle, we favor the unconditional most-favored-nation clause. Bilateral treaties must be negotiated within that framework. Exceptions are problematical.
There followed some discussion, in which Messrs. Sze, Bullitt, Young and Feis participated, of the most-favored-nation clause.
Sen. Pittman said that Mr. Breckinridge Long22 has suggested that it be best first to find what are the exceptions and then to draw up the formula.
After some miscellaneous comments the meeting was adjourned.