793.94/14671
The Ambassador in Japan ( Grew ) to the Secretary of State
[Received February 6.]
Sir: I have the honor to enclose for the strictly confidential information of the Department a copy of a secret memorandum31 made available to me by the British Ambassador and entitled “Possibilities of Economic Counter Measures.”
In sending the memorandum to me, Sir Robert Craigie wrote:
“In my view we have now reached a point at which it is no longer merely a question of protecting this or that vested or trade interest in China but of preventing, while there is yet time, the formation in East Asia of a political and economic entity which may have serious repercussions on the destiny of every Pacific Power. The ambitions of the elements which today are dominant in Japan will be limited by the degree of resistance which they encounter—and by nothing else.
The memorandum examines Japan’s international trade position and points out that her exports to the United States, the British Empire, and France comprise approximately 70 per cent of her total exports to those countries where foreign exchange necessary for the purchase of essential raw materials can be earned. From such figures that are available, it would appear that Japan will not have on hand sufficient gold to make up its unfavorable trade balance in 1939. The conclusion is reached that if an embargo were placed on Japan’s exports to the United States, British Empire, and France, “the effect would set in motion a process which must rapidly prove disastrous for Japan’s economy.” Refusal by the three nations above-mentioned to [Page 479] purchase gold from Japan is suggested as a first step if “arrangements could be made to prevent Japanese gold reaching those countries through third parties.”
We are now studying this memorandum, and I hope to be in a position in due course to submit comment thereon. However, I wish to make it clear, in forwarding this paper, that I have not modified the view which I have expressed on several occasions—that I do not favor the taking by the United States of any measure partaking of the nature of economic sanctions against Japan unless the United States is prepared to resort to the ultimate measures of force.
Virtually all of my colleagues who have discussed with me the possible effects of imposition on Japan of economic sanctions by the United States and Great Britain are of the opinion that, if markets in American and British areas for the important products of Japan were closed to that country and if, at the same time, the primary materials available in such areas were denied to Japan, the effects on her economy would be catastrophic, and that Japan would prefer to modify her position vis-à-vis foreign interests in China rather than to face the consequences of such sanctions. The fact that 65 percent of Japan’s trade with countries outside the yen bloc is represented by her trade with the United States and British Empire areas is impressive. However, it is from that point on that opinions cannot be conclusive.
My British, Belgian, Netherlands and other colleagues to whom I refer are confident that Japan could not face the loss, which these colleagues contend would have such far-reaching consequences to Japan, of the raw materials and of the markets which together represent the above-mentioned figure of 65 per cent. The arguments on the other side, which they discount, are largely—but not entirely—psychological. Japan has staked her entire future on the success of the China venture. Her defeat, not necessarily at the hands of the Chinese forces, but through the operation of factors which consume Japan’s resources, would eventually bring about in successive stages her retreat from the whole of China and perhaps even from the continent of Asia. This process of contraction, ending with the throwing back of Japan into her legal territorial confines, would result certainly in her relapse into the status of a minor power and probably in social and political upheavals of a revolutionary character. The question presented, when reduced to its elements, is this: Is Japan likely to make any concession to the United States and Great Britain which would prejudice the success of her China policy in order that her present standard of living might be maintained? An affirmative answer to that question would entail writing off the capacity of the Japanese people to discipline themselves and to make sacrifices and laying emphasis on the [Page 480] supposed attachment of these people to a standard of living higher than that which their indigenous mode of living requires. And it must be remembered, in connection with the question of the effect on the standard of living of the loss of Japan’s trade with the United States and Great Britain, that the remainder of her trade with countries outside the yen bloc, added to her trade with North and Central China and Manchuria, amounted in 1938 to a figure in yen equal to her total average foreign trade for the five years 1916 to 1920.
I cannot imagine that any intelligent Japanese contemplates with equanimity the prospect of economic sanctions by the United States and Great Britain. We have had instances where protests on the part of the American and British Governments have caused the correction by the Japanese of conditions in China which they themselves had created; but these conditions, such as the Menchiang oil monopoly and the embargo on the export of hides and skins, were not only illegal but of relatively small importance, and the concessions which the Japanese made could not have affected in either direction the ultimate outcome of the conflict. I am, therefore, of the opinion that if economic sanctions were in definite prospect there might be an even greater disposition on the part of the Japanese military authorities in China, who seem to have so much say in these matters, to correct conditions which also would not influence the course of events. If, however, the objectives which would be sought by the laying down of sanctions were not to be confined to the correcting of conditions of relatively small importance, or even to the removing of all the restrictions on the right to trade, but were to include a substantial restoration of the statics quo ante, an optimistic prediction would be permissible only if one could posit the ultimate authority in Japan lying with the “big business” elements.
Many of my colleagues are disposed to attach a significance which I consider extravagant to the complaints privately and secretly expressed to them by enlightened Japanese businessmen. The members of this group, along with others who are well-to-do, are being hard pressed. They are required to continue to pay the wages of those of their employes who are with the colors, 30 per cent of the annual bonus of corporation executives—usually many times greater than their nominal salaries—are required to be paid in non-transferable war bonds, and taxes are being increased; so that, along with growing international complications, the discontent and pessimism of this element are natural and understandable. The progress toward national socialism, however, has taken too definite form to warrant the assumption that the interests or the desires of the capitalist class, which forms a small part of the population, would constitute a controlling consideration in the event of an extreme economic emergency. It has [Page 481] previously been pointed out that a total cessation of trade with the United States and the British Empire would bring Japan’s trade down to the average annual figure of total foreign trade during the period from 1916 to 1920. It would seem a bold assertion to contend that the adjustments which Japan would have to make to conform to the conditions prevailing twenty years ago would be so great that she would prefer to prejudice, if not abandon, her adventure in China.*
I have presented these thoughts somewhat provisionally. The subject herein treated is receiving our continuous and careful attention, and, although the existence of intangible and unknown factors presents difficulties, I hope that I shall be in a position before long to submit to the Department my considered views on this important subject. Yet even in this provisional presentation I feel that certain psychological factors deserve a place, namely, that the Japanese are a hardy race, inured to personal and national sacrifice; that they have been accustomed throughout their history to meeting catastrophe and disaster; that in them the “do or die” spirit is more deeply ingrained than in almost any other people; that every one of their foreign wars has been a gamble as is the present one and that their spirit is to see the gamble through whatever the results, if only because the loss of face involved in defeat (other and more important consequences of defeat have also to be considered), a factor the potency of which can only be fully appreciated by those who have lived long in the Orient, would outweigh the logical calculations expected among western nations. For Japan to admit defeat in the present hostilities after pouring out so much blood and treasure in China, even though that defeat were brought about by the economic sanctions of third parties, and to return even approximately to the status quo ante, is an hypothesis which we in this Embassy find it very difficult to entertain. To support if not to prove this thesis by quoting figures and statistics is simple enough, and it is on the basis of figures and statistics that my colleagues rest their opinions concerning the effectiveness of economic sanctions. I should add parenthetically that these colleagues had been confidently predicting for the past two years that the economic collapse of Japan was about to occur. I do not think that they give adequate weight to the psychological factors herein set forth, and these factors, in my opinion, should be given the fullest consideration before we allow ourselves to reach conclusions.
Respectfully yours,
- Not printed↩
- The effects on Japan’s capacity to carry on hostilities of being deprived of certain raw materials have not been examined for the reason that, as Japan’s stocks of most of these materials are unknown, any conclusions which might be reached would have to be conjectural. [Footnote in the original.]↩