893.50 Recovery/1–1049

Memorandum by the Director of the Office of Far Eastern Affairs (Butterworth) to the Acting Secretary of State (Lovett)

In the light of your conversation with Mr. Hoffman on January 7 regarding the China Aid Program, it is believed that the question of the continuation of the ECA program should be taken up in the Cabinet, with Mr. Hoffman participating, and a decision should be reached which will clarify the matter beyond any possibility of misunderstanding. The urgency of this matter is emphasized by its close relation to the formulation of our trade policy vis-à-vis areas of China which might come under control of the Chinese Communists or a Communist-dominated coalition government,41 and its bearing upon SCAP42 policies.43

It is recommended, therefore, that you submit this problem to the Cabinet at its next meeting with a view to obtaining reaffirmation of the decisions approved by the President, as set forth in my Memorandum for the Record of December 30, 1948 as follows:

[Here follows text of memorandum printed in Foreign Relations, 1948, volume VIII, page 667.]

The second sentence of numbered paragraph 1 quoted above means, of course, that aid should cease to those areas that come under the control of a government in which the Communists participate.

ECA has suspended procurement authorization for all industrial replacement and reconstruction projects under its China program. In view of the strategic importance of Taiwan to the United States and its physical separation from the area of conflict, it is recommended that the approval of the Cabinet be obtained for the implementation by ECA of its tentative industrial replacement and reconstruction program for Taiwan (Tab A44), unless the island should fall under the control of the Communists or a coalition government with Chinese Communist participation.

W. W[alton] B[utterworth]
  1. For correspondence on this subject, see vol. viii, “Political and military situation in China”, chapter II.
  2. Supreme Commander, Allied Powers in Japan.
  3. For correspondence on trade between Japan and Communist China, see pp. 973 ff.
  4. Not printed; it called for $13,500,000 for specific projects and an additional sum not specifically set forth for coal mine reconstruction.