893.51/673622/8
Memorandum by the Chief of the Division of Far Eastern Affairs (Hamilton)
It is assumed that all officers of this Government who have considered the tung oil project in question desire that China be not defeated by Japan and that Japan not succeed in subjugating China. That certainly is the attitude of the writer of this memorandum. However, in examining the project in as nearly an objective manner as possible, factors as follows appear to be important.
1. The project is in my opinion not practical and is unsound from a business point of view.
The Chinese Government still controls about 75–80% of the wood-oil producing territory in China. However, the chief exporting center, Hankow, is under Japanese control, as are the chief communication outlets for this commodity, the Yangtze and Pearl Rivers. Hunan and Szechuan Provinces are the main producing areas. Hunan is in process of being conquered by the Japanese and will probably fall to them within two or three months. By the time the Chinese Government could put into operation any plan for assembling and exporting wood oil, its supplies would not be sufficient to meet the terms of the arrangement and it would be faced with very difficult transportation problems. The transportation facilities which would be available would not, in my opinion, be adequate and transportation could be effected only in an uneconomic way.
2. The project would project the United States into the conflict without, however, having any decisive effect upon the outcome.
The project would mean the abandonment by the United States of the course of non-involvement and impartiality which has heretofore been followed. It would thus mean action contrary to the thought underlying and the spirit of the Neutrality Act. But it would not vitally affect the outcome of the hostilities. If the United States wishes to do that, it must throw its whole weight behind China.
A tremendous event has occurred in China and it would be a mistake, in my opinion, to underestimate it. Japan has occupied the entire coast and all the most important centers. Whether Japan will be able in the long run to pacify the country and make effective its control, only time will tell, but the positional military struggle is nearing an end.
3. It is questioned whether Congress and the country would approve such a project.
It is believed that the isolationist and non-involvement sentiment in the Congress and in the country is still strong. Congress might with warrant take the position that it did not appropriate funds to be used [Page 570] for the purpose of enabling the United States to assist one party in a foreign conflict. Congress might see fit to restrict the Government agency (the Export-Import Bank) actively handling the project in such a way as to impair the future usefulness of the agency (in> for example, South America). Should the attitude of Congress and the country be unfavorable, the fact that the Administration had approved the project might serve to give added support to those who favor the adoption of the Ludlow amendment44 and might have seriously adverse effects on the question of our neutrality legislation.
4. The project might conflict with the provisions of the Nine Power Treaty.45
If the Chinese Government is to furnish the United States with large quantities of wood oil, the Chinese Government must virtually monopolize sales in and exportation from the territory it controls. As pertinent to the question of China setting up such a monopoly and the United States being party thereto, there is quoted article III of the Nine Power Treaty, as follows:
“With a view to applying more effectually the principles of the Open Door or equality of opportunity in China for the trade and industry of all nations, the Contracting Powers, other than China, agree that they will not seek, nor support their respective nationals in seeking—
- “(a) any arrangement which might purport to establish in favour of their interests any general superiority of rights with respect to commercial or economic development in any designated region of China;
- “(b) any such monopoly or preference as would deprive the nationals of any other Power of the right of undertaking any legitimate trade or industry in China, or of participating with the Chinese Government, or with any local authority, in any category of public enterprise, or which by reason of its scope, duration, or geographical extent is calculated to frustrate the practical application of the principle of equal opportunity.
“It is understood that the foregoing stipulations of this Article are not to be so construed as to prohibit the acquisition of such properties or rights as may be necessary to the conduct of a particular commercial, industrial, or financial undertaking or to the encouragement of invention and research.
“China undertakes to be guided by the principles stated in the foregoing stipulations of this Article in dealing with applications for economic rights and privileges from Governments and nationals of all foreign countries, whether parties to the present Treaty or not.”*
5. The project would serve to worsen relations between the United States and Japan.
Japan would naturally view the project unfavorably. She would probably make representations to this Government against what she would call an unfriendly act. Japan would also probably intensify her action in China against American lives and interests. New frictions and incidents between Japanese and Americans would be likely to develop, in China and to some extent in Japan. What the reaction of the American people to the worsened situation would be I do not know: the American people might call for stronger action by their Government; equally, they might press for isolationism. The adoption of this one project would not, in my view, lead to armed conflict between the United States and Japan. It would, however, lessen whatever chance there is of salvaging some of our rights and interests in China through processes of reason, argumentation, patience and skillfully applied pressure.
Japan might declare war against the Chinese Government, set up a blockade against third-power shipments, and by declaring war bring about invocation of our Neutrality Act. Would invocation of that Act stop the project in question? It would render illegal further carrying on of private transactions of that character. Should a governmental transaction be carried through, even though it might be exempt technically from the provisions of the Neutrality Act?
It is my view that to adopt a course of assistance to China now, after Japan has almost completed its positional warfare, would be of no decisive aid to China and would be a profitless irritant to Japan, unless the United States is prepared to give really substantial and long-continued assistance to China. And if that decision be made, it should be made with realization that that course may lead to armed conflict with Japan.
It seems to me that the wise course for the United States to pursue in regard to Japan’s actions in China is not to aid China, but bring pressure to bear upon Japan. Such a course would not be taking sides. We would retaliate against Japan because of Japan’s injuring American rights and interests. In my opinion, such retaliatory measures should be applied patiently and judiciously over a considerable period of time. They might have very little, if any, immediate effect upon the outcome of the conflict between Japan and China. They would, however, assist in there gradually emerging in China a situation whereunder the United States might continue to enjoy some measure of general equality of treatment.
I am not one of those who believes that war between the United States and Japan is inevitable. Nor even that war need be probable. I believe that the United States must keep itself amply strong in arms [Page 572] to ensure that Japan realize our strength. And with that strength in the background, I believe that the United States by tactful, patient handling of problems in relations between the two countries can avert, without loss of dignity, an armed conflict.
- For text of the so-called “Ludlow Resolution”, see Department of State, Peace and War: United States Foreign Policy, 1931–1941, p. 400, footnote 38.↩
- Signed at Washington, February 6, 1922, Foreign Relations, 1922, vol. i, p. 276.↩
- Note: Article XV of the Chinese-American Treaty of 1844 might also be considered pertinent. [Footnote in the original; for text, see Hunter Miller (ed.), Treaties and Other International Acts of the United States of America, vol. 4, p. 564.]↩