Foreign Relations of the United States Diplomatic Papers, 1940, The Far East, Volume IV

893.51/7087

Memorandum by the Chief of the Division of Far Eastern Affairs (Hamilton) to the Secretary of State⁷⁰

[Washington,] June 3, 1940.

Referring to the comments which you made to Mr. Hornbeck yesterday in regard to the further extension of aid to China, it is suggested that we might take action along one or more of the following lines:

1. Currency stabilization loan. Although the Secretary of the Treasury stated some weeks ago that he did not think it advisable to proceed with the extension of a currency stabilization loan to China, a move of this sort, unless the Treasury Department definitely feels that it would be unsound from a financial point of view, would seem to have more to commend it than any other move of this character which we might make. Mr. Morgenthau feels that he could not proceed with such a matter unless he should obtain release from the appropriate committees of Congress of commitments which he has given to those committees orally. In view of the change in temper during the last few weeks among the American people and among the Congress, it is suggested that it might be feasible for Mr. Morgenthau to obtain at this time release from the commitments which he previously gave. It is suggested that the most practicable way toward exploring this whole situation would be for you to speak to the President about it and to suggest that the President discuss it with Mr. Morgenthau.

2. Purchase from China of additional strategic materials. The defense legislation now under consideration in Congress is undergoing constant amendment. It might be feasible to have incorporated in that legislation a provision making available additional funds for the purchase of strategic materials and for the provision to be worded in such a way that this Government could purchase certain supplies of such commodities from China and pay for those supplies in advance.

3. Increased appropriations for the Export-Import Bank. The Export-Import Bank has already extended all the credit which existing legislation permits toward financing the export of commodities to China. It is possible that Congress might give favorable consideration to increasing the funds available to the Export-Import Bank in such a way as to make possible the extension of further credits to cover the sale of American exports to China.

4. A rehabilitation and reconstruction loan to China. As the American people have during recent months and especially during recent weeks become increasingly aware of the potentialities of the international situation, it might be possible now, with vigorous Administration support, to have legislation passed authorizing the extension of a rehabilitation and reconstruction loan to China. Any funds so provided should, of course, be specifically allotted for use at the present time in “free” China. There might, however, be definite advantages in so wording the legislation as to provide for later use of funds in any portion of China where American rights and interests were respected. Such wording might (1) constitute something in the nature of “bait” to the Japanese to influence them to remove economic restrictions which are in derogation of our rights and which are not entirely profitable to Japan; and (2) indicate to the Japanese that this country, motivated by no special enmities or friendships, has interest in assisting, for the benefit of all, in the return of economic stability to the Far East. The introduction of such a bill at this time, even though not acted upon, might have beneficial results.

5. Freezing of Chinese deposits in the United States. It will be recalled that some days ago consideration was given by the Treasury Department and by this Department to the practicability and advisability of this Government’s freezing Chinese deposits in this country. At that time we told the Treasury Department that we thought it best to hold any such move in abeyance because we doubted whether such action would be productive of sufficiently advantageous results to outweigh the disadvantageous results.

M[axwell] M. H[amilton]

70. Initialed by the Adviser on Political Relations (Hornbeck).