Foreign Relations of the United States Diplomatic Papers, 1938, The Far East, Volume III

711.94/1234½

Memorandum Prepared in the Department of State⁵⁰

[Washington,] December 5, 1938.

Diplomatic representations to Japan have not caused Japan to respect American rights and interests in China. Japan continues to injure those rights and interests. In view of this, it is suggested in various quarters that the United States should supplement its diplomatic representations by embarking on a course of retaliatory measures against Japan.

Any action along this line, if taken, should be based, it is believed, upon the principle of taking measures of self-defense against a country which is causing serious injury to American rights and interests, and be not based upon the principle of taking punitive action against an aggressor nation.

It may be helpful in determining the advisability and practicability of embarking upon a course of retaliation to list possible steps which the United States might take. Such a list follows, with comment in regard to each such possible step.

[Here follow sections on “Executive action,” “Cessation of gold purchases from Japan,” “Embargo on credit,” “Place Japan upon the ‘black list’,” “Give notice of termination of our commercial treaty of 1911 with Japan,” “Revision and subsequent application of section 338 of the Tariff Act,” “Embargoes on exports and imports,” “Exchange control,” and “Imposition of special duties against Japanese ships”.]

Conclusion

Mr. Sayre, Mr. Hawkins, Mr. Livesey and Mr. Hamilton⁵¹ have collaborated in the preparation of this memorandum.

They believe that a comprehensive and thoroughgoing program of retaliation is not desirable at this time.

Their reasons for this conclusion are:

(1) Such a program of retaliation would involve serious risk of armed conflict. Neither our interests in the Far East nor the effect of current events in the Far East upon our general world interests seems to warrant incurring such a risk.

(2) The embarkation by this Government upon such a program would be followed necessarily by widespread domestic economic dislocation and also would involve the risk of overthrowing the principles of commercial policy to which this Government is committed. The latter would be particularly true in the case of the adoption of some form of exchange control.

(3) They believe the whole-hearted international cooperation, especially on the part of the British Empire, would be necessary to accomplish the objectives in mind, and they do not believe that close and thoroughgoing European cooperation can be secured.

The views set forth above represent conclusions as to the subject of commercial retaliation as a whole. It is believed, however, that our choice of a course of action need not necessarily be confined to the alternatives of a complete and effective program of retaliation or no action at all. It is suggested that this Government might advisedly consider adopting certain intermediate steps which would undoubtedly be taken seriously by the Japanese and possibly have a sobering effect upon the Japanese, although such steps could not be expected to cause Japan to desist from its program of aggression in China. The measures under reference are governmental action in discouragement of loans or credits to Japan and, if the problem discussed in the last paragraph of Section 5^* can be satisfactorily disposed of, the giving of notice of termination of our commercial treaty with Japan. It is believed that these measures might not lead to retaliation by Japan. These measures would seem to be in a category entirely different from direct retaliatory measures such as the restriction or exclusion of Japanese trade, restrictions upon the exportation of certain commodities to Japan, etc. Restrictions upon trade with Japan affect the personal fortunes of firms and individuals in Japan and therefore create a solid basis for national resentment of the type which leads to counter-retaliation. The two measures mentioned, however, affect no interest immediately, are not unfriendly acts, and do not put this country in a position from which it must advance (but at the same time they would serve to clear our decks). Although there is little likelihood that American funds will be invested in Japan in the near future, the time may come when Japan will become more attractive as an investment field. Unless there is some settlement in the Far East based on the principles in which this Government believes, the Department could not view with equanimity the investment of American funds in Japan or Japanese-controlled areas. It seems preferable that a Government policy of discouraging loans or credits be announced while there is no substantial objection to it. A ban on loans and credits could be defended from either the isolationists’ or internationalists’ point of view. In regard to the cancellation of the commercial treaty, Japan is traveling rapidly along the road marked out by Germany, and Japan’s commercial methods are becoming so alien to those of the United States that the United States can hardly avoid denouncing the commercial treaty with Japan before another year or two has elapsed, and denunciation before that time might well be considered.

It is believed that announcement of a Government policy of discouraging loans or credits to Japan and the giving of notice to Japan with regard to termination of the commercial treaty are measures warranting favorable consideration. No definite recommendation is made as to whether either or both of these measures should be adopted immediately or at some given time in the future for the reason that it is considered important that decision with regard to adoption of the measures be correlated with consideration of other matters, both domestic and external, affecting our relations with Japan.

It is suggested, further, that endeavor might well be made at this time to obtain revision of Section 338 of the Tariff Act of 1930⁵² along the lines indicated in section numbered 5. The question whether the revised section should be applied against Japan need not be decided at this time.

The study made of the retaliatory steps which the United States might take against Japan has brought to mind the question of the advisability of the United States extending aid to China. Although no detailed study has been given to that question by those collaborating in the preparation of this memorandum, it seems to them that the extending of aid to China would not be likely to involve complications as serious as those which would result should the United States adopt a thorough-going and comprehensive program of retaliation against Japan. The granting of aid to China would not cause widespread domestic economic dislocation in this country and would not involve the risk of overthrowing the principles of commercial policy to which this Government is committed. Moreover, it is believed that, although Japan would undoubtedly resent the extension of aid by the United States to the Chinese Government, Japan’s resentment would not be likely to express itself in as drastic a form as would be the case should the United States adopt a comprehensive program of retaliation against Japan. It is realized, however, that embarkation by the United States upon a definite course of extending aid to the Chinese Government involves important questions of policy (such as the question of the advisability of deviating from the course hitherto pursued by the United States of not taking sides in a material way in the conflict between China and Japan, the question whether congressional authority would be needed, the question whether Congress and the country would support such a course, etc.). An examination of these questions of policy is outside the purview of this memorandum.

50. The memorandum was requested by the Under Secretary of State and submitted to him by Assistant Secretary of State Sayre, together with the memorandum of December 22, p. 425.
51. Respectively Assistant Secretary of State, Chief of the Division of Trade Agreements, Assistant Adviser on International Economic Affairs, and Chief of the Division of Far Eastern Affairs.
52. Note: Arranging for some satisfactory method of continuing to admit Japanese merchants to this country. [Footnote in the original.]
52. 46 Stat. 590, 704.