Foreign Relations of the United States Diplomatic Papers, 1939, The Far East, Volume III

793.94/14818½

Memorandum by the Ambassador in Japan (Grew)⁸²

Tokyo , March 13, 1939.

Reference is made to a departmental intraoffice memorandum dated February 15, 1939, copy of which was enclosed by Mr. Hamilton in his letter of February 17, 1939.⁸³ The memorandum addresses itself to what is described as the “economic analysis” in our despatch No. 3591, January 7, 1939, on the question of the application of economic sanctions against Japan.

In part of the memorandum under reference there are presented comments on the conclusion reached in the study of the British Embassy⁸⁴ which are substantially, if not precisely, similar to the comments made by us in our despatch No. 3679, February 14, 1939,⁸⁵ and are, therefore, to be noted with satisfaction. In part I of the memorandum, however, there appear certain observations which need to be noticed.

The position taken therein by the officer who prepared that memorandum is that in our No. 3591 we gravely under-estimate the economic consequences to Japan of the sanctions suggested by the British Ambassador to Japan. Unfortunately, no unqualified and definitive statement supporting that judgment can be found. The officer does indeed suggest that “sanctions might shake the Japanese economy from top to bottom”, but he is “not prepared to assert positively the degree to which economic sanctions would have these graver effects”; and again “if she (Japan) suddenly became unable to obtain imports from the United States and the British Empire, her industry would receive a serious shock”, and “more tardily her military efficiency would be impaired”. The consideration on which the officer appears principally to have based the position which he suggests but does not espouse might be briefly, and not unfairly, reduced to this: Japan’s industry is far more highly geared than it was in 1920^* and, therefore, her industrial and economic systems could not be made to operate on the basis of raw materials purchasable outside the United States and the British Empire with the proceeds of goods exported to the value of average exports between the years 1916 and 1920.

We have now under preparation a despatch⁸⁶ supplementing our 3591, January 7, 1939, and presenting at some length our more considered views with regard to the problem of sanctions, and it is proposed, therefore, in the present memorandum to address ourselves principally to the expression of belief contained in the memorandum under reference, that the question of the economic consequences of sanctions cannot legitimately be reduced to: “Is Japan likely to make any concessions to the United States and Great Britain which would prejudice the success of her China policy in order that her present standard of living be maintained?” In this connection we note that the officer who prepared that memorandum agrees that sanctions would be unsuccessful “if the only consequence of sanctions should be a reduction in the standard of living”. The question which needs to be examined is whether there would be other consequences and, if so, what those consequences would be.

The first point to be considered is the degree to which sanctions would deprive Japan of primary materials in general, as distinct from materials necessary for continuing military operations.

We have already presented to the Department in our despatch No. 3679, February 14, 1939, the conclusion that sanctions, if applied, would put into operation certain forces which would prove ultimately disastrous to the existing economic system, but we did not go into the question of what new economic system might be devised to meet a condition of extreme emergency, nor did we go into the question of the uses to which Japan could put new resources available in the occupied areas in China. It might be pointed out, however, that the nationalization of mechanical industry is not the least drastic of the measures which are actually under preparation and which are intended to be promulgated in the event of such emergency. Japan is self-sufficient in the matter of food supplies: she cannot be starved out, and, with the necessary reorganization in the systems of supply and demand, food can be made available for all. Again, the capital invested in Japan’s mechanical industry derives from only a very small proportion of the population: the incidence of nationalization of mechanical industry would, therefore, fall largely on the numerically unimportant investing classes. Further, as the continuation of the capitalistic system has already been mortgaged and now depends on the grandiose Japanese plans in China being successfully carried out, the failure of the aims in China because of either a military defeat or the effects of sanctions, would inevitably result in the collapse of the capitalistic system. If her economy were doomed in either case, would Japan persist in her China campaign or “fold up”? The choice which the Japanese Government intends to make has been authoritatively indicated.

The elements now in power in Japan have repeatedly declared their intention to evolve, if necessary, a new economic system, which would enable Japan, notwithstanding the restrictions imposed in the matter of sanctions, to continue with her present program in China. The question whether the Japanese people would readily support and accept the new system is one which can be answered only by estimating the capacity of the Japanese people to accept the necessary sacrifices and their readiness to support their leaders. This is, therefore, a political question and not an economic one.

Although we agree that sanctions would deprive Japan of the markets and raw materials necessary for the operation of her mechanical industry under a capitalistic system, we do not know the extent of Japan’s stocks of military raw materials and we doubt whether any one not a Japanese has any reliable knowledge of such stocks. For more than twenty years military attachés in Tokyo have noticed that the appropriations for both the Army and Navy have been in excess of computed costs of operation (including costs of construction and purchase of new equipment) of military and naval establishments, and the conclusion is reasonable, if not certain, that the surpluses have been applied to the purchase of reserve materials. It is doubtful whether even an intensive examination of export returns to Japan of various countries over a period of, say, twenty years, would result in producing a reliable estimate of Japan’s reserve of military raw materials. In any event, we have made no such study and we cannot assume that the stocks are negligible. In one respect at least they are known to be large: the reserve of fuel oil of the Japanese Navy is known to be sufficient to meet naval needs under conditions of war for a period of not less than three years nor more than four years. We believe that there are too many unknown and political and other intangible factors† involved in the question of determining whether Japan could, under the conditions envisaged, have access to sufficient materials to carry on military operations, and that, therefore, speculations on this score should be eliminated from our calculations.

The conclusion that consequences of sanctions would be so severe as to bring about a modification or abandonment of Japanese policy in China, postulates a choice for the Japanese only between preserving their present economy and modifying, if not abandoning, their present policy in China to avoid the imposition of sanctions and hence a collapse of the existing economic system. Those who hold this view deny or overlook the fact that there is implicit in the problem any such alternative as that above outlined. As above suggested, they are content to assume that as sanctions would effectively deprive Japan of necessary primary materials or alternatively war materials, she would inevitably be brought to her knees by the operation of sanctions. Only two days ago, the Minister of War and the Minister of the Navy declared that economic and social adjustments calculated to meet emergency conditions would be made if necessary, and we have no reason to discount such declarations. Nor can we assume that the Japanese people would not accept and support such changes. We cannot say whether the new economic system, if established, could be made to operate successfully under the conditions created by sanctions, but all the indications of developments occurring under our immediate observation are that the Japanese Government and people are prepared to face the lower standard of living which would inevitably follow these changes sooner than modify materially or abandon their policy in China.

82. Transmitted to the Department by the Ambassador in Japan in his letter of the same date; received April 3. In his letter the Ambassador stated that the views in his memorandum represented also those of the Counselor and the Second Secretary of Embassy in Japan, Dooman and Coville, respectively.
83. Neither printed.
84. See telegram No. 53, January 31, 3 p.m., from the Ambassador in Japan, p. 497.
85. Not printed.
86. Notwithstanding the depreciation since 1920 of the yen in terms of foreign exchange or of gold, the relatively small decline since 1920 in its internal purchasing power makes it a useful standard of comparison of volume of exports in 1920 and 1938. [Footnote in the original.]
86. No. 3756, March 15, infra.