The Ambassador in Canada (Atherton) to the Secretary of State
A–189. The Embassy has learned from a responsible source that as one measure to prevent further deterioration of her United States dollars position Canada is considering the imposition of restrictions on imports from the United States and that studies of various commodities likely to be affected are now being made. Specifically suggested as likely items for restriction are fresh and canned fruits, fruit juices, and automobiles, as well as such key imports as steel, gasoline and other fuels. There will probably be many others.
Rather than restrict imports it is probable that Canada would prefer to receive a dollar loan as the lesser of the two evils. The Embassy understands, however, that feelers put out recently in Washington by Mr. Graham Towers, Governor of the Bank of Canada, did not give rise to much optimism for a loan of the size needed by Canada to tide her over the next six or eight months. Mr. Towers reportedly was talking in terms of a loan of $750,000,000 but received encouragement only to the extent of $250,000,000. The Canadians apparently regard $500,000,000 as their minimum needs in the form of a United States Government loan, and this amount they would probably attempt to supplement by means of private loans in New York. It is more than likely that the initial list of imports proposed for restriction would be impressive in the hope that Washington would view a loan application in a more favorable light. Even if Canada should be successful in obtaining a loan this step would undoubtedly be coupled with a number of domestic “austerity” measures.
There seems to be little doubt that the Canadian dollar position vis-à-vis the United States is rapidly approaching a critical point, and evidence of this situation is the fact that high Canadian officials are considering the restriction of American imports and/or seeking an American loan, or loans, both of which steps are considered drastic. The present record high level of Canadian production and income is, of course, due in a large measure to exceptionally heavy imports from the United States, and the restriction of American imports, doubtless involving decreased Canadian production and lower incomes, as well as the virtual certainty of rationing many commodities, would be extremely unpopular. A loan is equally unpalatable in view of the excellent financial condition in which Canada emerged from the war and the creditor position which she has assumed with many [Page 117]countries. Nevertheless, the Embassy believes that the Canadian Government will take some affirmative action in the near future to protect its dollar exchange position. Devaluation of the Canadian dollar is unlikely unless the United Kingdom should devalue the pound.
The press in recent weeks has given unusual prominence to the growing American dollar shortage. Official figures just released disclose an adverse balance of $488,000,000 for the first six months of 1947, and since July 1 the rate of deficit has been reportedly higher. Although the Minister of Finance1 announced yesterday that no change has yet been made in the United Kingdom-Canada Agreement under which the British since early this year have been paying half the purchase price of Canadian goods with United States dollars, giving the Dominion in the first six months of this year U.S. $220,000,000, Canadian officials apparently feel that some modification will now have to be made in this agreement thus drying up an important source of American dollars.
Such measures as restrictions on imports and loans are temporary expedients at best. Canada’s real hope is to increase her exports to the United States and thus offset her large volume of exports on credit to the United Kingdom and other areas. Food shipments which could be integrated in our relief problem [program?] might be one solution. There may be other commodities that present similar opportunities. In any event it seems to us that the broad considerations affecting our relations with Canada justify the most energetic efforts to assist her constructively at this time.
- Douglas Abbott.↩