The Consul General at Tientsin (Caldwell) to the Secretary of State
[Received 11:44 p.m.]
17. Commissioner of Customs has expressed the following personal opinion for confidential information only:
Press reports that trade and currency restrictions will be imposed on exports from North China on March 10 are probably substantially correct and the customs must refuse to pass goods unless requirements are fulfilled.
Restrictions are based on barter system but governments using that system have complete control over the entire national trade whereas here the banks, merchants, consumers and producers control the trade especially in the extensive areas not controlled by the Japanese military or any government.[Page 366]
The trade of North China ports will probably be killed by the restrictions but the trade of China will not be appreciably affected as it will flow through ports such as in Shanghai where the restrictions will not be in effect. The large firms may survive but the small concerns will probably be ruined.
Although in theory the yen and the Reserve Bank dollar are exchangeable at par the Yokohama Specie Bank, with rare exceptions, refuses such exchange. Yen notes have been removed to leave the Tientsin market for the Reserve Bank notes. If these notes are the only accepted currency in North China areas controlled by the Japanese military there will have to be a greatly increased issue with an undesirable inflation and an eventual unlimited depreciation.
There will be a great reduction in exports from Japan to North China as the present North China imports much exceed exports and the difference will be increased by the restrictions.
Japanese commercial firms disapprove of the military policy, the dangers of which are realized even by the military, who have decided on a mad course in the hope that the third countries affected might subordinate political considerations to immediate gain and make the first move toward cooperation. Reconstruction cannot be effective without stabilization on a cooperative basis of currency, credit and trade throughout China.
Repeated to Peiping, Chungking and Shanghai.