641.116/2519: Telegram

The Ambassador in the United Kingdom ( Kennedy ) to the Secretary of State

2232. For the President, Secretary of State and Secretary of the Treasury. I had a talk with Sir John Simon this morning in which he stuck closely to the text of a memorandum which obviously had been prepared for him a copy of which I obtained on leaving. It really embodies all he had to say.

“The amount of gold and other foreign exchange resources at our disposal for the necessary purchases abroad for the prosecution of the war are by no means unlimited. The United States Government has been kept informed generally as to our gold resources, and the amount of our readily mobilisable foreign exchange securities has recently been discussed with you. Additional foreign exchange assets can, broadly speaking, only be obtained from the sale of exports, including newly mined gold, abroad, and it is inevitable that our export trade should be seriously restricted by war time conditions.

On the other hand, British Government purchases abroad are bound to be greatly increased. It is impossible at the present stage to make more than a very preliminary estimate of what these purchases will be, but on the basis of such estimates as we have been able to make United Kingdom expenditure in the United States is likely, during the first year of the war, to be round about 100 million sterling in excess of what is likely to be spent by the United States in the United Kingdom, and this figure will probably increase as the war goes on.

A similar position holds as regards Canada, where it is probable also that British expenditure will exceed Canadian expenditure in Great Britain, all transactions visible and invisible included, by not far short of 100 million pounds in the first year of war.

In view of magnitude of this excess expenditure it has been, as you know, necessary for us, in order to concentrate the dollar resources available to us on the purchase of commodities essential for the prosecution of the war, to prohibit the importation, except under license, of a large variety of goods. Faced as we are by the very grave exchange situation explained above, we feel that at a time when we have had actually to refuse dollars to the fighting services for purchases which they would otherwise have made abroad, we could not defend the further purchase in the United States of commodities not [Page 226] strictly required in this country and we propose to add a certain number of further items including apples and pears as from an early date to the list of goods which can only be imported under license. (Machinery is also being added to the list, but this is for the purpose of regulating not reducing the total imports.) We have already explained our position in respect of films and tobacco.

It is with the greatest regret that we feel bound to take action of this nature and you will appreciate that it is dictated solely by necessity, having regard to the state of our dollar resources. We have no intention whatever of using the reduction of certain imports from the United States which is forced upon us by the war for the purpose of altering permanently the channels of trade and we intend as soon as may be possible to return to our normal peace time commercial policy as laid down in the Trade Agreement with the United States, but as the war goes on and as the pressure upon our exchange resources increases it will we feel be inevitable that even more stringent restrictions should be imposed. As explained above there will be no overall reduction of imports, but purchases of certain goods must be reduced in order to enable other purchases to be increased. We wish to give the United States Government the earliest possible advance notice of the position and we confidently trust that the United States Government will appreciate the position in which we are placed and will understand that no discrimination against the United States is in our minds other than what is forced upon us by the exigencies of the war.”