Foreign Relations of the United States, 1955–1957, Foreign Aid and Economic Defense Policy, Volume X

186. Memorandum From the Under Secretary of Commerce (Williams) to the Chairman of the Council on Foreign Economic Policy (Randall)¹

Washington, August 13, 1957.

SUBJECT

• Report of CFEP Committee to Study All Aspects of Policy on United States Trade with Communist China²

In accordance with the assignment set out in your memorandum of June 20, 1957 to the Council on Foreign Economic Policy³ and as further defined in paragraph 2 of your memorandum of June 25, 1957 to Admiral DeLany,⁴ the CFEP Committee to Study All Aspects of Policy on United States Trade with Communist China submits the following report.

A. Recommendations:

1. That there be no change in existing U.S. policy of complete embargo on trade with Communist China. For purposes of this recommendation the committee has included in “Trade”, all export, import and financial transactions between nationals, as defined by the respective regulations of the U.S. Government Departments and Agencies exercising control over such transactions, of the U.S. and Communist China. Accordingly, the Committee recommends that the existing paragraph 8 (This is Paragraph 7 in Tab A which results from EDAC combining Paragraphs 4 and 5 of NSC 5704/1) of NSC 5704/1 which reads,

“So long as it is considered to be in the U.S. interest, there should continue to be applied against Communist China more severe controls than are applied against the remainder of the Soviet Bloc. At such time as it is judged to be in the U.S. interest to do so, the controls toward Communist China should be revised,”

be retained.

2. That as a “Course of Action” to implement the above statement of policy, existing paragraphs 20 and 22 of NSC 5704/1 be combined to read,

“Maintain the current level of U.S. unilateral export, import and financial controls applied against Communist China and take all appropriate action effectively to enforce these controls toward Communist China and to prevent their frustration.”

Note: The Committee desires to point out that in making the recommendations set forth in A, 1 and 2 above it has confined itself to only the U.S. unilateral aspects of paragraphs 8,⁵ 20 and 22 of NSC 5704/1. The Committee presumes that EDAC will make recommendations with respect to the multilateral aspects of those paragraphs.

B. Conclusions:

The Committee examined the problem taking into account the economic/industrial, political (domestic and foreign), military and psychological factors involved. From an overall standpoint the Committee concluded:

There would be no significant advantage economic or otherwise to the United States in relaxing its total embargo policy. While the abolition of the China differential by our principal allies has made the United States embargo less effective than previously, that embargo still has some retarding effect on the Communist Chinese military/industrial build-up. Furthermore, the Committee is convinced that relaxation of the U.S. embargo would have far reaching political and psychological repercussions, which would seriously undermine our position in the Far East. The Committee has, accordingly, reached the conclusion that the only wise course is to retain our present controls. Additionally, the Committee concluded with respect to each of the factors as follows:

1. General

(a) Communist China is still an aggressor nation by United Nations resolution and is still in military occupation of North Korea.

(b) The conflict with Communist China has not been terminated. The fighting has been halted by a cease-fire agreement but the Communist Chinese have persistently refused political settlement except on terms which would stigmatize the United Nations as the aggressors in Korea.

(c) Communist China has shown its absolute contempt of world condemnation by its flagrant violation of the Korean and Viet Nam Armistice provisions, its refusal to renounce the use of force in the Formosan area, its continued imprisonment of illegally detained American citizens, and its continuing and expanding program of infiltration and subversion of Free Asian countries.

2. Economic/Industrial

(a) Relaxation of trade controls to the COCOM level would not lead to development of large scale trade between the United States and Communist China. Exports would probably range between 40 million and 75 million dollars annually while imports into the United States from Communist China would probably be somewhat higher but not substantially so. It was recognized that mainland China under favorable political conditions, might well represent an important potential market for U.S. products and that protracted U.S. unilateral abstinence from that market might create serious barriers to future development of that potential.

(b) From the overall economic standpoint there would be on a short term basis, only limited effect on the Communist Chinese economy, either from maintenance of complete embargo on trade or relaxation to the current multilateral level. However, from the industrial standpoint the maintenance of the U.S. total embargo is effective in retarding Communist Chinese industrial growth to the extent it denies them foreign exchange, limits their sources for goods in short supply and denies them items in which the U.S. has a total monopoly of production, production know-how or technology. With respect to the last named category, U.S. controls are effective only in so far as they are administered in a way to prevent frustration by other countries to which such commodities, production know-how and technology are permitted to go. The Committee recognized that the effectiveness of the U.S. total embargo controls on trade had been diminished by the recent abolition of the China differential controls but considered an economic defense advantage still accruing from their continuation.

3. Military

(a) Relaxation of U.S. unilateral controls to the current multilateral level would have little effect on the immediate military capabilities of Communist China, because armaments and most military equipment still would be embargoed.

(b) Relaxation of U.S. unilateral controls would contribute to Communist China’s war potential to the extent these controls deny them foreign exchange, limit their sources for goods in short supply and deny them items in which the U.S. has a total monopoly of production, production know-how or technology.

(c) That regardless of 3 (a) and (b) above, relaxation of U.S. unilateral controls would constitute an important advantage to the Communist Chinese military machine and a great disadvantage to the U.S. military program in the area because of psychological and political effects discussed below.

4. Political and Psychological

(a) Relaxation of U.S. unilateral controls without adequate and publicly known quid pro quo would increase the power, prestige and influence of Communist China within the area.

(b) Communist China would be encouraged to continue its present policies of infiltration, subversion and military threats with a greater degree of assurance of non-U.S. intervention than presently exists.

(c) Relaxation of U.S. unilateral controls would seriously damage the power, prestige and influence of the U.S. in the entire Far East area.

(d) Relaxation of U.S. unilateral controls would damage the military and political cooperation of many Free Asian countries with the U.S. thereby imposing an important additional burden to provide adequate military defense of the area which is a pillar of total U.S. policy toward Communist China.

(e) Relaxation of U.S. unilateral controls would create an impression that the United States was preparing to make still further concessions to Communist China and consequently there would be a strong tendency in East Asia to move away from reliance on the U.S. and in the direction of neutralism or accommodation with Communist China.

(f) That Overseas Chinese in Southeast Asia would be inclined to regard the Government of the Republic of China as a lost cause and there would be a sharp swing toward cooperation with Peiping.

(g) That while there has been some indication of change in attitude toward trade in non-strategic goods with Communist China on the part of a few individuals and public figures in the United States these indications appear to be far short of a trend and are likely to be the result of incomplete understanding of the overall problem or Communist inspired.

1. Source: Department of State, Economic Defense Files: Lot 61 D 282A, U.S. Economic Defense Policy, CFEP 557. Secret. This report was forwarded to the CFEP on August 14, under cover of a memorandum by Paul Cullen, as Tab B to CFEP 557/1. An 8-page proposed paper, entitled “Statement of U.S. Economic Defense Policy,” which contained the combined recommendations of the Williams Committee and the EDAC, was attached as Tab A. Also enclosed were Tab C, a memorandum from DeLany to Randall, dated August 7, which explained the general recommendations of the EDAC, and Tab D, another memorandum from DeLany to Randall, dated August 9, which contained the EDAC’s specific answers to the questions raised by the JCS in their memorandum of June 13. CFEP 557/1 was discussed at the CFEP meeting of August 20; see infra.
2. Communist China as used throughout this paper includes North Korea. [Footnote in the source text.]
3. See footnote 2, supra.
4. Supra.
5. This is Paragraph 7 in Tab A. [Footnote in the source text.]