Memorandum by the Secretary of State

The British Ambassador2 called upon my invitation. After some preliminaries leading up to the matter, I proceeded briefly to rehearse the fundamentals of our international trade agreements program, which the Ambassador well understood, and to emphasize the extreme importance and urgency of world economic rehabilitation. I stated more than once the necessity for such rehabilitation both from the standpoint of world peace and of prosperity, in both of which Great Britain and this country were tremendously interested, and concluded very earnestly with the statement that if the present movement to restore international trade should not be carried forward because of Great Britain and other important countries not being disposed to share in it, I was not prepared to say what might happen to the world after this movement should break down through lack of support from important commercial nations, especially those greatly interested in international trade, as was Great Britain.

The Ambassador seemed entirely in accord with these statements and objectives.

I proceeded then to add that I knew the Ambassador would not think I had in mind any seriously controversial purpose in what I was about to say, but that I felt constrained, in the same cooperative spirit that I hoped might be even further developed economically between our two countries, to bring to his attention and that of his Government certain methods and practices in trade on the part of his Government which I felt were seriously handicapping the prosecution [Page 630] of our international trade recovery program. I continued by saying that this Government, in carrying forward its program, had been governed entirely by the long view in contrast with narrow, shortsighted, trade objectives; that this, of course, had been expensive to this Government, but that we had felt and still did feel that the broad program for full, permanent and sound international economic recovery was the only program that could either consistently or safely be considered, especially by important commercial nations like Great Britain and the United States; that, as an illustration, when this Government entered into its trade agreement with Brazil3 it had it in its power to take over a large and unequal share of exchange and let the nationals of this country apply it on their indebtedness existing in Brazil, but instead this Government had steadfastly clung to its policy of equality and proceeded to share its much less but equal portion, while the British correspondingly benefited from this American sacrifice; that we had foregone sales of vast quantities of cotton to Germany rather than adopt a narrow, temporary, shortsighted trade practice.

I then stated that in most cases the clearing arrangement had an inevitable tendency to drive trade straight into the bilateral channel alone; and that this course if adhered to by Great Britain and numerous other countries would not only cripple but gradually break down the entire program of the favored-nation policy for the restoration of bilateral, triangular and multilateral trade on a full and stable basis. I said I had recently observed in our efforts to induce Spain to liberalize her economic mind and attitude, where we were striving to enter into a very limited trade arrangement under which we would be called upon to buy more in dollars and cents than we would sell to Spain,4 that the result would be that the increased exchange Spain would realize would go to Great Britain under her clearing arrangements and at the loss of the United States; that a number of similar clearing arrangements on the part of the British Government were understood to have like obstructive and handicapping effects upon the efforts of this Government to carry forward its broad program with the favored-nation policy underlying it. I stated that of course the British Government had a perfect right to take these shortsighted steps, as we considered them wherever practiced and by whom, and that I must not be understood as criticizing now or hereafter, but that I deeply felt that being more interested in the recovery of wholesome international trade than any other nation, Great Britain might probably decide to gradually desist from clearing arrangements such [Page 631] as I had referred to and collaborate correspondingly more with this Government and others in carrying forward the broader economic policy which our trade agreement program embodied. I set out the names of the Argentine, Germany, Italy and two or three other countries, including the Scandinavian countries, where the British by unusual and objectionable methods were forcing the bilateral trade practice at the expense of healthy triangular and multilateral trade.

The Ambassador replied that he was under the impression that the effect of the British Government’s action in the instances mentioned, not to include others, was more or less natural, due to the unfavorable balance of trade on the part of the British Government. I, with some deference, pointed out how, according to my understanding of the facts, the whole tendency in a majority of most of these clearing house cases was to drive straight towards bilateral trading and correspondingly to restrict and obstruct the sum total of world trade.

I said further that of course the British Government could go along with the expectation of a more or less favorable development in their domestic economy, sitting behind tariff walls and Empire preference; that the building construction boom and artificial, but in my opinion temporary, advantages would make this possible for another year or two; that the British Government had been thus pursuing a rather isolated economic policy with no manifestation of interest, as stated, in the program of this Government for international finance and trade recovery; that while thus pursuing this course of aloofness, the British Government suddenly had their attention attracted to an astonishing development in world affairs in that they saw a million heavily armed men on the march from Italy to Ethiopia.5 I stated the result was that at once the British Government had felt obliged to order its Navy to assemble posthaste, from every part of the earth, on the Mediterranean; that today the British Government had felt obliged to prepare a huge budgetary increase of 1½ to 2 billions of dollars for heavily increased armaments; that both his Government and mine would have to agree that if Italy had had even near her pre-panic quantity of exports there was a real possibility that her armies would not be on the march today; that, of course, the British Government could continue to proceed leisurely with respect to cooperating in the restoration of world trade, including exchange stabilization, waiting for every possible development desired before proceeding with the fundamentals of economic rehabilitation; but that there was a real probability that the German military forces would be on the march before this leisurely policy of restoring trade [Page 632] and employment had been taken sufficiently in hand and dealt with; and that the experience with Italy should be a warning to all of our governments alike. I emphasized the view that when people are unemployed, and with their families in more or less economic distress, they fall a ready prey to agitators, revolutionaries and dictators, who in turn are liable to throw them into war; that the most incomprehensible circumstance in the whole modern world is the ability of dictators, overnight almost, to stand 35 million Italians and 65 million Germans on their heads and so dominate their mental processes that they arise the next morning and insist on being sent to the first-line trenches without delay; that when people are employed and they and their families are reasonably comfortable and hence contented, they have no disposition to follow agitators and to enthrone dictators.

I then added that the world today was producing and consuming substantially less than it did six or eight, or possibly ten, years ago; that after every country had developed its domestic economy as fully as practicable in the light of the disposition of the various peoples, there would remain ample occasion and room for 20 billions of mutually profitable international trade and immense investments—immense investments that a hard-headed business man would consider sound; that restoration of such trade would mean the reemployment of the chief portion of unemployed and more or less distressed wage earners in such countries as Germany, Italy, Great Britain and the United States; that this action would probably mark the difference between war and peace in Europe in the not distant future; that in any event this course of trade restoration and of reemployment of 12 to 14 millions of unemployed persons offered the only possible alternative to the old order supplemented by extremely dangerous possibilities of war already in existence.

I then suggested that, unless the Ambassador had a contrary view, I had in mind to prepare a memorandum containing the true facts as to these clearing arrangements and get it before the British Foreign Office; that I was wondering whether to clarify the matter most effectively I should, while giving the British Ambassador here a copy, send the memorandum to Mr. Atherton6 at London who would converse in person with Mr. Runciman7 in the office of the Board of Trade. The Ambassador promptly expressed the view that it would be more satisfactory to have a full conversation back and forth between Mr. Runciman and Mr. Atherton. The Ambassador seemed entirely sympathetic all the way through the conversation with the exception of the one statement above set out.

C[ordell] H[ull]
  1. Sir Ronald Lindsay.
  2. For text of agreement, signed February 2, 1935, see Department of State Executive Agreement Series No. 82, or 49 Stat. 3808.
  3. See vol. ii, pp. 785 ff.
  4. See vol. iii, pp. 34 ff.
  5. Ray Atherton, Chargé in the United Kingdom.
  6. Walter Runciman, President of the British Board of Trade.