Memorandum by the Assistant Secretary of State for Economic Affairs (Thorp) to the Assistant Secretary of State for Far Eastern Affairs (Butterworth)

E99 has been asked for clearance of a memorandum1 which proposes that a possible trade transaction between the Chinese Communists and Japan be used by the United States Government to apply leverage on the Chinese Communists to release Mr. Ward, Consul General at Mukden, and Messrs. Smith and Bender, held by the Communists for more than a year. Our comments are as follows:

The proposed transaction in trade involves the purchase of steel rails and accessories (class 1–B) from Japan by the Communists in exchange for soy beans and other goods which are in demand in Japan. General MacArthur has recommended that the transaction be approved. On its merits, the proposed arrangement appears satisfactory from the standpoint of the Japanese economy, and its consummation would not violate our principles governing trade with Communist controlled areas.
The relevant documents which set forth United States policy in this field, NSC 41,2 and the recent report on NSC 41 which was filed by the Department,3 indicate that the transaction should be approved. They also indicate that it is not appropriate to use trade controls or transactions to solve incidents or points at issue in non-economic fields between the United States and the Chinese Communists. Thus the proposal in the FE memorandum seems contrary to NSC 41 and to the report on it.
The amount of leverage furnished by the trade proposal is very limited. There are other sources for steel rails which we do not control, and the countries which might sell them would not refrain from such sales if we requested it. There are also other markets for soybeans and other goods the Communists offer. If the transaction is not undertaken, the trade will not be prevented.
If the transaction were to be used in the manner proposed, the United States would be in a quandary if the Communists refused to [Page 999] release the three Americans. We would then face the alternatives of (1) dropping the use of trade as a lever, by which we would lose face, and admitting we wanted the trade, or (2) increasing economic pressure by other means.
Increasing economic pressure would obtain no support from other countries, would shut off business which would be taken by competing commercial interests, and would be ineffective in impairing the Chinese Communist economy. It would also mean increased pressure upon the Japanese economy, and increased costs for the American taxpayer. We lack legislative authority to impose import controls Freezing funds can be arranged, but in the absence of cooperation from other countries its effect is zero. In general, there is not much we can do to increase economic pressure upon China, and any measures we took would in final effect be futile. They would also not necessarily obtain the release of our people.
Our general policy in the use of trade controls in Europe does not extend beyond the security concept of keeping important goods away from potential enemies. We have recognized over a long period of time that such controls are not adapted to use for bargaining purposes in any field, because a concession in such controls is necessary if anything is to be gained, and because our national security interests do not warrant the concession. Also, we cannot defend our position in public if we use trade for political purposes, or act in a manner which appears capricious to other nations.
As we understand it, SCAP is an allied authority, not a United States agency. As an allied authority, SCAP can presumably be called to account for its trade policies. It will be difficult enough to arrange for essential security controls. It will be much more difficult to use trade controls for the purpose of extricating United States personnel] from the clutches of the Communists in China, and it would be extremely hard to explain why we are jeopardizing Japanese rehabilitation.
The case of the imprisoned Americans is a difficult one indeed, and obviously something should be done to get them out. Trade controls seem inappropriate and ineffective as a means, and we therefore urge that they not be used. The use of them might as a matter of fact exacerbate the situation, and the Communists might seize more Americans so as to improve their terms of trade. It is hard to see where such a course would end, except in disaster.
Similar proposals have been made with respect to Americans taken into custody by the Czechs and the Russians in Germany. The methods proposed, in the economic field, were not undertaken; other measures produced the release of the people.

  1. The Assistant Secretary of State for Economic Affairs.
  2. Supra.
  3. February 28, p. 826.
  4. November 7, p. 890.