Foreign Relations of the United States Diplomatic Papers, 1941, The Far East, Volume IV

711.94/254015/35

Memorandum by the Secretary of the Treasury (Morgenthau)³⁵

[Washington,] November 17, 1941.

An Approach to the Problem of Eliminating Tension With Japan and Insuring Defeat of Germany

i. foreword

It is becoming increasingly evident that “all out” diplomatic preparedness is as important an instrument of defense as is adequate military preparedness. Military activity may win battles, diplomatic activity can make the fighting of these battles unnecessary; military victories can gain raw material and equipment and can weaken the enemy, diplomatic victories can achieve similar gains. Without major diplomatic victories Germany could not have attained her spectacular success. Had they not suffered major diplomatic defeats neither England nor France would be in their present predicaments.

An “all out” effort involves in diplomacy as in military strategy the fullest use of every economic and political advantage. Just as our military forces in preparation for an “all out” defense or in actual warfare must make intelligent use of our geographical position, our rich resources, our vast labor power, technical equipment and democratic traditions, so must diplomacy utilize those advantages to the full if it is to have any chance of success.

We are rich—we should use more of our wealth in the interests of peace and victory. We are powerful—we should be willing to use our power before our backs are to the wall. We need no nation’s lands—we should make full use of that fact. We keep our national pledges—now is the time that record of integrity should stand us in good stead. We are protected by two oceans—let us exploit that protection while distance is still a potent barrier. We are a democracy—let us take full advantage of the strength of just covenants openly arrived at.

If ever there was a time when diplomacy could secure its most brilliant victories for the United States, now is that time! The longer we wait the less chance will we have to use diplomacy as an aid to our defense. The patterns of relationship jell; plans become irrevocable; opportunities lost are gone forever. A nation committed irrevocably to a course of action loses the power to exercise choice, to accept offers and make conditions.

If the President were to propose something like the appended agreement and the Japanese accept, the whole world would be electrified by the successful transformation of a threatening and belligerent powerful enemy into a peaceful and prosperous neighbor. The prestige and the leadership of the President both at home and abroad would skyrocket by so brilliant and momentous a diplomatic victory—a victory that requires no vanquished, a victory that immediately would bring peace, happiness and prosperity to hundreds of millions of Eastern peoples, and assure the subsequent defeat of Germany!

The proposal is workable and could be spectacularly successful, if Japan could be induced to accept the arrangement, and the great advantages it offers to Japan, and the fact that the likely alternative is war might induce Japan to accept the arrangement.

The proposal is given below only in bare outline and in only enough detail to indicate the essential points. What is most needed at this moment is not a carefully worked out program, but rather a decision to employ an all-out diplomatic approach in the current discussions with the Japanese.

ii. self-evident propositions concerning united states and japan

1. War between the United States and Japan would cost thousands of lives, billions of dollars; would leave the vanquished country bitter and desirous of revenge; would foster social disruption, and would not insure peace during our children’s lives, nor permanently solve troublesome problems now standing between the two countries.

2. The United States prefers a just and peaceful settlement to war as a means of settling international difficulties, and is willing to go more than half way to settle peaceably the issues that stand in the way of more friendly intercourse between the two countries.

3. The United States recognizes that Japan, because of the special nature of its economy, is greatly in need of opportunities for increased foreign trade, and in need of capital to repair the ravages of four years of warfare, and in need of assured sources of basic raw materials.

4. The United States recognizes that our immigration laws have in fact unjustly discriminated against the Japanese people.

5. The United States believes that in the long run the interests of both the Japanese people and the American people can best be served by establishing fair and peaceful conditions under which Japan and her neighbors can prosper.

6. The United States is rich enough in funds, raw material, equipment, and technical skill to build, if necessary, and maintain a Navy and air force ten times as strong as that which Japan can build, and the United States is, because of numerous circumstances, powerful enough to destroy Japan should the United States be forced against her will to take up arms against Japan.

7. Should Japan force the United States to fight, Japan would have actively arrayed against her not only the United States but the British Empire, Netherlands East Indies, China, and probably Russia. In addition, the peoples of Indo China, Thailand, Manchuria and Korea would become much more difficult for Japan to control. In such a war victory for Japan would be impossible.

8. Defeat of Japan would bring bankruptcy, revolution and chaos in Japan. It would cost Japan her empire and her navy, and leave her a fourth-rate power with little chance of regaining her present world position for decades to come.

9. The United States wishes so much to avoid unnecessary bloodshed and destruction and to attain friendship between the Japanese and the American people, that it will pay well to help Japan’s economy back to a peaceful and healthy basis.

10. The United States believes there is no basic obstacle to permanent and more friendly relations between the United States and Japan and believes that the Japanese people will welcome an opportunity to restore peace, to reconstruct Japan’s industry and trade, and to promote friendly relations with her neighbors on a basis fair both to Japan’s needs and the needs of her neighbors.

11. The United States wishes to help China maintain her independence and attain peace so that she may go forward in her political and economic development, so unfortunately interrupted a few years ago.

And finally—and of most immediate importance—

12. The United States wishes to concentrate as soon as possible her naval force in the Atlantic so as to be prepared for any emergency against a potential enemy with whom there is no current basis for friendship.

iii. proposed agreement

Because of the foregoing facts, the United States proposes to enter into an Agreement with Japan at once under which the United States and Japan will agree to do certain things, as follows:

A. On her part, the United States Government proposes to do the following:

1. To withdraw the bulk of the American Naval forces from the Pacific.

2. To sign a 20-year non-aggression pact with Japan.

3. To promote a final settlement of the Manchurian question.

4. To actively advocate the placing of Indo-China under the Government of a joint British, French, Japanese, Chinese and American Commission, which will insure most-favored-nation treatment for those five countries until the European War is ended, and which will govern the country primarily in the interests of the Indo-Chinese people.

5. To give up all extra-territorial rights in China, and to obtain England’s agreement to give up her extra-territorial rights to China, and give Hong Kong back to China.

6. To present to Congress and push for enactment a bill to repeal the Immigration Act of 1917 [1924] which prohibits immigration into the United States of Japanese, and place the Japanese and the Chinese on the same basis as other peoples.

7. To negotiate a trade agreement with Japan, giving her (a) most-favored-nation treatment and (b) such concessions on imports as can be mutually satisfactorily arranged, including an agreement to keep raw silk on the free list for 20 years.

8. To extend a $2 billion 20-year credit at 2 percent interest, to be drawn upon at the rate not to exceed $200 million a year except with approval of the President of the United States.

9. To set up a $500 million stabilization fund half supplied by Japan and half by the United States, to be used for the stabilization of the dollar-yen rate.

10. To remove the restrictions on Japanese funds in the United States.

11. To use its influence to the full to attempt to eliminate sources of potential friction between Japan and her neighbors, and to assure Japan access to the raw materials of the world on the same basis as now enjoyed by United States and Great Britain.

B. On its part, the Japanese Government proposes to do the following:

1. Withdraw all military, naval, air police forces from China (boundaries as of 1931) from Indo-China and from Thailand.

2. Withdraw all support—military, political, or economic—from any government in China other than that of the national government.

3. Replace with yen currency at a rate agreed upon among the Treasuries of China, Japan, England and United States all military scrip, yen and puppet notes circulating in China.

4. Give up all extra-territorial rights in China.

5. Extend to China a billion yen loan at 2 percent to aid in reconstructing China (at rate of 100 million yen a year).

6. Withdraw all Japanese troops from Manchuria except for a few divisions necessary as a police force, provided U.S.S.R. withdraws all her troops from the Far Eastern front except for an equivalent remainder.

7. Sell to the United States up to three-fourths of her current output of war material—including naval, air, ordnance and commercial ships on a cost-plus 20 percent basis as the United States may select.

8. Expel all German technical men, military officials and propagandists.

9. Accord the United States and China most-favored-nation treatment in the whole Japanese Empire.

10. Negotiate a 10-year non-aggression pact with United States, China, British Empire, Dutch Indies (and Philippines).

C. Inasmuch as the United States cannot permit the present uncertain status between the United States and Japan to continue in view of world developments, and feels that decisive action is called for now, the United States should extend the above offer of a generous and peaceful solution of the difficulties between the two countries for only a limited time. If the Japanese Government does not indicate its acceptance in principle at least of the proffered terms before the expiration of that time, it can mean only that the present Japanese Government prefers other and less peaceful ways of solving those difficulties, and is awaiting the propitious moment to attempt to carry out further a plan of conquest.

iv. advantages to japan and united states of such an agreement

The advantages accruing to each government are listed below:

A. To the United States

1. In the event that Japan elected to reject the offer of peaceful solution under terms herein indicated, the United States would have a clearer idea of what to expect and would therefore know better how to shape her own policy.

2. Our naval power will be greatly increased at once by the freeing of our Pacific fleet for duty elsewhere.

3. We would be able to send more of our equipment to England and Russia without increasing our vulnerability to an attack from the East.

4. We will have stopped the war in China and have regained for her her freedom.

5. We will have paved the way for a substantial increase in postwar trade.

6. We would greatly strengthen the Allied position vis-à-vis Germany.

7. We will have saved ourselves from a war with Japan.

8. The money it would cost us would be a very small part of what we would save by not having to fight Japan, or by not having to be prepared for a two-ocean war.

9. A prosperous Japan and China can greatly help to restore our normal trade, and thus make easier our own transition to a peace time economy.

10. Insure for ourselves an increased supply of tin, antimony and wood, oil and rubber from the Far East.

11. Handicap Germany in its present military campaign and at the same time give great moral encouragement to the British and Russian people.

12. Finally, military and naval experts who now fear a “two front” naval threat will be more enthusiastic about all-out help to England and Russia. There will be much less cause to oppose the administration’s foreign policy.

B. To Japan

1. Instead of being confronted with prospect of a more serious war and certain defeat in the end, she can have peace at once.

2. She can proceed at once to shift from a war economy to peace economy and at the same time experience prosperity rather than a serious depression.

3. She can withdraw from the China incident without loss of “face”.

4. She can strengthen her currency and reduce her public debt.

5. Her foreign trade will greatly increase.

6. She can devote her energies and capital to reconstructing Japan, building up Manchuria, and developing new trade possibilities at a time when other countries are engaged in war or preparation for war.

7. She will at one stroke have solved some of her thorniest problems in her international relations.

8. She will avoid the social disruption that is bound to take place in Japan after an expanded and prolonged war effort.

The one danger inherent in the proposed concessions is that if accepted by Japan it would provide her with a breathing space during which she could greatly strengthen her military and economic potential. She might then be a greater threat to us a year or two hence than she is now.

Against that possibility are the following factors:

1. Owing to the scarcity of many raw materials she will not be able to expand her navy and air force during the next year nearly as much as we can—particularly in view of the provision in the agreement that we can buy 80 percent of her current output of armaments.

2. The next two years are crucial for us. If we can obtain the release of the Russian, British and American forces now being tied up in the Far East by Japan’s threatening, we will have done more to strengthen United Kingdom and Russia vis-à-vis Germany than we could with a whole year’s output of planes and tanks and ships.

3. The Japanese people would be so relieved by the settlement of the China “incident”, and the end of the threat of war with major powers, and would be so happy at the cessation of economic strangulation and the emergence of real prosperity, that it is hardly likely that any military clique could stir up significant trouble for years to come.

Altogether, the likelihood of Japan’s strengthening her position and re-entering the world scene as a belligerent aggressor in the next few years seems very slim—provided Germany is defeated.

It would, of course, be necessary to obtain Congressional approval before making definite offers, but through preliminary confidential conferences with leaders of both parties and with appropriate committees, the ground could be quickly prepared so that negotiations could go forward.

A completed document could in a week or two be offered to the Japanese Government. The world, including the Japanese people, would know the motives and the contents of our offer. If the Japanese Government would not accept, it would have at least the great advantages of (1) clarifying our own policy and rallying support behind the President, (2) create serious division in Japan.

If the Japanese Government were to indicate its tentative acceptance in principle, the President could at once call a conference in Washington to be attended by Chinese, British, Russian, and possibly Dutch East Indian and Philippine representatives. Inasmuch as all the important concessions are to be made by United States and Japan, the participation of other governments in the conference need not complicate negotiations.

The above-proposed program of mutual concessions can be successful only if certain vital concessions are not left out. If adopted with those concessions peace in the Pacific would be gained, whereas if adopted without them “appeasement” would be the result, the threat of war would not be averted, and an exceptional opportunity to settle the issue on terms favorable to defeat of Germany would be lost.

Minimum concessions to be obtained from Japan should be withdrawal of troops from the mainland of Asia and sale to us of the bulk of her current production of armaments. If we do not achieve this, we shall not obtain any significant relief to allied military forces in the east while we would be making it possible for Japan to strengthen herself for possible later aggression when the situation is more propitious for aggressive acts on her part. The minimum objectives must be to free the American, British and Russian forces from the Pacific.

35. Drafted on November 17 by Harry Dexter White, Special Assistant to Mr. Morgenthau. Copy transmitted to the Secretary of State in covering letter dated November 18 by the Secretary of the Treasury, with the statement that the memorandum was being sent to President Roosevelt in a separate letter.