740.0011 Pacific War/3082

Memorandum of Conversation, by Mr. Horace H. Smith of the Division of Far Eastern Affairs

Under instructions from Dr. Herbert Feis, Economic Adviser, I called upon Mr. Harry White of the Treasury Department at 11:00 a.m. today to inform him of Brigadier General Arthur H. Carter’s suggestion with regard to the establishment of a “reverse Lend-Lease” arrangement under which American Army supplies which must be purchased in China would be supplied by the Chinese Government either in kind or through advances of Chinese currency along with the elements now provided for through the US $15 per diem granted to our Army officers in China. (See memorandum of conversation of December 4.)

Mr. White said that he was much interested in General Carter’s suggestion and saw no reason why it could not be implemented. He understood that the Chinese Government was not unfavorably disposed toward “reverse Lend-Lease” and that this request was so reasonable and relatively small in magnitude that he saw no reason why some such arrangement could not be worked out in from three days to a week of negotiation. He suggested that I should tell this to Dr. Feis and General Carter. He then said that for the past two months he had been rather expecting that General Carter would arrange some solution of this nature and was glad to see it developing, although he had preferred to “sit back and let General Carter work it out in his own way.”

Mr. White next mentioned the problem that was facing our Foreign Service officers in China and the single Treasury representative there due to the rising cost of living and asked me to assure the Ambassador and the Far Eastern Division of the State Department that the Treasury was not only aware of the problem but now had its legal experts at work on a possible solution (possibly through loss by exchange compensation).

Mr. White in closing the interview urged that if a “reverse Lend-Lease” arrangement was worked out the Embassy should try informally and personally to “educate the American Army officers in China to understand that per diem in kind or in Chinese currency is the fairest and most satisfactory method of handling the matter from an over-all as well as a personal point of view.” He stated that the morale factor in this connection appeared to him most important.

Horace H. Smith