600.0031 World Program/147

The Secretary of State to Diplomatic and Consular Officers

Diplomatic Serial No. 2807

Sirs: I wish to convey to you the present attitude and anticipations of the Department in regard to the international economic program of our Government, and to suggest that you use opportunities, as they may arise, to see that it is clearly understood, and to endeavor to impress the responsible officials of the Governments of the countries to which you are assigned, as well as other interested and influential persons, with the soundness, importance and desirability of all countries embracing similar programs to bring about economic rehabilitation and thus lay a firm foundation for durable peace.

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The program developed around the central idea that many of the economic difficulties of every country have arisen as a result of the great decline of international commerce, and the growth of restrictions upon that commerce. Upon a flourishing world commerce the livelihood of many sections of the population in every country is directly dependent; when that commerce greatly declined, the economic condition of these groups correspondingly grew worse. The reduction in the income of these groups, and the resultant direct unemployment created many other economic troubles in other branches of production in every country. The general result was vastly lowered production, unemployment, and greatly increased budget deficits despite taxation growing ever more burdensome. Furthermore, even as the decline in trade in those commodities which customarily move in large volume into world markets brought about a great fall in their prices and in the income of their producers, the indirect effects within each country likewise depressed prices, thereby in turn causing general depression.

In attempts to deal with these difficulties, country after country resorted to further measures of trade and monetary restriction which while perhaps easing the situation in some particular direction, accentuated it in others. Furthermore, as a result of the character of some of the new trade-control measures, trade itself has been diverted from the lines of natural economic benefit to forced bilateral lines; it does not therefore to the same extent contribute to the improvement of economic conditions.

Despite some recent progress in the lowering of trade restrictions and a very extensive growth in production throughout the world, the improvement in international trade has lagged and remained unsatisfactory. It is essential that the effort to bring about a lowering of trade restrictions be carried on with greater vigor than ever before, also that the restrictive type of exclusive and artificial bilateral arrangement be gradually modified so that trade can again freely develop along lines of economic benefit. If this can be achieved, the increase in trade will create an expansion in the economic life of all countries corresponding to the great destruction which resulted from the interruption of trade. It will restore employment, and lead to improved and better-balanced prices, to more stable world markets, and to improved public finances.

This can be accomplished, I am convinced, without seriously disturbing any economically important branches of production in any country. It must be done gradually and with due care at every stage. Naturally all countries will wish to retain reasonable and moderate restrictions; but many of the present restrictions are excessive and unreasonable. Further, it must be remembered that the longer national [Page 843] economies shape themselves up behind the vast and intricate series of restrictions, and the greater the dependence of the economic structure in each country upon these restrictions, the more difficult does the task of reducing these restrictions become. Hence while in the execution of the program patience and moderation is essential, to begin to make real headway everywhere at once seems to be imperative.

The methods by which this course can be successfully applied as a world program are several. Up to the present I believe I am safe in saying that the method which the Government of the United States has been using, and the principles which have guided its policy have proven as practical as any available, and the record of their use shows substantial achievement. That method is the negotiation of agreements between countries embodying reductions of specific restrictions, exchanging mutual pledges to the effect that specified rates and other types of restrictions shall be the maximum applied, exchanging pledges of unconditional most-favored-nation treatment, and furthermore, in accordance with the principle of equality of treatment, generalizing to third countries concessions granted under the agreements. Such agreements and the generalization of their benefits to third countries which do not pursue discriminatory trade policies result not only in the reduction of obstacles facing the direct trade between pairs of countries but also in a widening circle of lowered trade restrictions. If the important trading countries of the world would concurrently develop their policy along these or similar lines, it would speedily come about that the whole system of restrictions would be substantially modified.

Furthermore, if this policy obtains headway, it will in its course enable many countries to give up completely types of restrictions that arise primarily from anxiety regarding their ability to meet their payments for foreign goods, or which seem necessary because of exchange controls existing elsewhere, or for similar reasons. I refer to such controls and systems of trade arrangements as quotas, regulation of foreign exchanges, clearing and compensation agreements. Further enlarging volume of world trade under improving price conditions may change the disposition of countries, based on necessity or otherwise, to supervise their trade on closely restrictive lines of bilateral balancing.

I realize that the obstacles to the achievement of this program are not solely economic. In a substantial number of countries today, trade policies are being dominated by political considerations. Calculations of economic welfare are being definitely subordinated in some instances (a) to assure the execution of armament programs, (b) to direct trade in a way that it is hoped will cement political relations, (c) to divert trade from those who are potential enemies. In the [Page 844] trade policy of the country to which you are assigned you may recognize some or all of these tendencies. I do not believe that the existence of these difficulties should be permitted to slow up or discourage the attempt to develop this economic program. Growing appreciation of the economic possibilities may induce governments to modify political policies which frustrate economic improvement. It may stimulate the wish to find the terms of political agreement. It may happen that economic counterweights can be used to bring about adjustments in the political field that otherwise would be impossible.

Further, it will not have escaped you that an enlarged proportion of even the reduced volume of international trade today is in materials of war or raw materials important in the development of armaments or for the conduct of war. This is of course the least desirable form of international trade, not only because of its ultimate import but also because of the fact that in its very nature it cannot be permanent, and its diminution will in turn create economic problems. The rate at which many countries are diverting their man power and their productive energy into the armament field, and the consequent problems of public finance that result, indicate that the current rise in armaments cannot be indefinitely carried on.

Through every source of persuasion and in every act of policy, within the limits of our established independent foreign policy, this Government is exerting itself in the effort to safeguard against having the armament race eventuate into catastrophic war. Barring such a calamitous event, the constant increase in armament must be halted either by agreement or merely by exhaustion and mutual consent. I think that the maintenance of the most zealous insistence and emphasis upon economic questions may serve to bring nearer the time when the armament race can be halted. It should serve to awaken and to strengthen all of those in every country who are aware of the terrible sacrifices being required for armament. When and if a promising opportunity comes to bring about a halt thereon by agreement, I hope this Government will be able to share in the leadership of that move. The development of international trade of a more normal character will serve to replace the ominous trade in war materials that has been growing in importance.

The horrible destructiveness of modern warfare is another reason why the world must not be permitted further to habituate itself to the thought that war is inevitable. We can avoid such habituation by recalling both by word and action the possibilities of the advancement of both individuals and nations through peaceful economic interchange. Governments which really desire peace can find in this program an instrument for greatly improving the chances of assurance. This they can do without at any time weakening unwisely their [Page 845] power to defend themselves against any who may threaten. Certainly, today in a world which appears so largely to have resigned itself to the idea that there is no basis of trust between nations, it is extremely urgent that some program be advanced with the utmost of energy that will bring nations together for their mutual benefit.

Each of you can contribute to the success of the program I have outlined by interpreting to influential persons with whom you come in contact and who desire information upon the subject the considerations set forth above.

Very truly yours,

Cordell Hull