894.00/8–850
Memorandum by Mr. Robert A. Fearey of the Office of Northeast Asian Affairs to the Director of That Office (Allison)
Subject: Japanese Self-Support
During the past two days I have been endeavoring to determine what effect the Korean war and stepped-up U.S. and European rearmament [Page 1266] is likely to have on Japan’s economic prospects and probable date of self-support. Although I have no doubt that you are aware of the factors mentioned below from Mr. Doherty and other sources, it may be worthwhile to note them in the treaty connection.
The Korean war and western re-armament should have a heavy net favorable effect on Japanese economic prospects for the next few years:
- 1.
- Increased Dollar Resources of Primary Producing Areas—It is estimated that Malaya and Indonesia alone will each increase their dollar earnings 200–300 million a year through increased U.S. and European rubber, tin and other raw material purchases. Japan’s basic problem—insufficient availabilities of cereals, cotton and other products from south and southeast Asia—will not be improved by this development, hut Japan should be able to earn a good many of the increased supply of dollars through exports to the southern regions, using those dollars to buy essential supplies from the western hemisphere. How large a proportion of the dollars it will be able to earn will depend on its competitive ability, a department in which Japan is standing increasingly well.
- 2.
- Reduced U.S. and European Export Competition—Western rearmament can be expected on the basis of past experience to bring about a reduction of exports by the re-arming countries, caused by the same forces which will bring a curtailment of civilian consumption at home. This reduced competition will facilitate Japan’s acquisition of the dollars mentioned above and a general expansion of Japanese exports.
- 3.
- Earnings for Korea Support—Japan is being paid considerable dollar sums for the Korean support operation. According to one estimate materials have already been contracted for to the amount of 50 million dollars, and a total of 200–300 million dollars may be spent in Japan during the present U.S. fiscal year. When the fighting is over Japan expects to derive further earnings from Korean rehabilitation.
As against these favorable factors the terms of trade are moving against Japan. Prices of primary products have already risen considerably, supply being generally inelastic in face of the increased demand. Although prices of manufacturers are now beginning to rise, they will probably remain some distance behind. This factor is expected to offset only partially the gains under 1, 2 and 3, however.
As a consequence of these developments it looks as if Japan in U.S. fiscal 1951–52 would be almost bulging with dollars compared with previous years. When asked if Japan would need further appropriated; aid in that year a Japanese Government economist now visiting this country said “absolutely not”. If a plan of partial pay-as-you-go should be adopted this would be even better assured.
The significance in the treaty connection of Japan’s probable early achievement of self-support would seem to lie in the reduced amenability to occupation controls which is likely to occur as Japan approaches and achieves self-support, and the greater bargaining power [Page 1267] which a self-supporting Japan would have in the negotiation of a treaty. If we are going to have a treaty at all I would say that Japan’s more favorable economic prospects add to the weight of argument for having it soon.