Foreign Relations of the United States, 1950, East Asia and the Pacific, Volume VI

493.119/11–3050

Memorandum by the Deputy Assistant Secretaries of State for Far Eastern Affairs (Merchant) and Economic Affairs (O’Gara) to the Ambassador at Large (Jessup)

secret

[Washington,] November 30, 1950.

Subject: NSC Senior Staff Meeting, November 30, 1950: Treasury Views Regarding Economic Sanctions

A delegation of Treasury Department representatives came to the Department this morning to discuss with Mr. Schaetzel (E),¹ Mr. Sanders. (UNA),² and Mr. Barnett (FE) our current thinking on economic sanctions for China.

We stated that unilateral economic sanctions would be relatively ineffective in hurting the Chinese Communist regime or its economy and, if taken unilaterally, would seriously prejudice the success of negotiating through the: United Nations the multilateral measures which would be measurably more effective, if it became necessary and it were agreed to apply them. We said that we understood that the Commerce Department accepted the Department’s view that a unilateral export embargo should not, at this time, be applied.

The Treasury representatives indicated that the Commerce position could easily change under domestic pressure, and that even in the absence of a top governmental decision to embargo might go ahead and apply restrictions by less conspicuous, but equally effective measures regardless of top level rulings.

They said that the Treasury Department would find itself subject to uncontrollable pressure to freeze Chinese properties in the United States were the export embargo applied by either of the above means; that export embargo and freezing were inseparable and that one would require the other.

They said that the President had made a grant of authority to Secretary Snyder under which Treasury was made responsible for handling the national interest where freezing and other financial measures were required.

They said that the Treasury had completed work setting up machinery for freezing and this machinery could be put in motion merely by signature by the Secretary of the Treasury of certain documents which have been prepared and which the Treasury had complete authority to issue.

We told the Treasury representatives that we have had some experience with being under strong domestic political pressure, that the time might soon come when economic sanctions would serve our national interest, but that in view of the delicacy of the Korean crisis and the vital importance, both in Korea and elsewhere throughout the world, of maintaining a unified front amongst the Free Nations, we felt most strongly that the measures being discussed should not be taken except after the Administration had considered their world wide implications for our national interests and national security and had then decided to take them.

We recommend that, if possible, you put our views to the Treasury Representative at the National Security Council Senior Staff before its session this afternoon. It would be unfortunate if, at that meeting, you were to find yourself in a minority position as the discussion of this question got under way.

The Treasury representatives made clear that they were not advocating economic counter-measures at this time, but wished us to know what, in their view, imposition of the export embargo implied in the field of our financial policies.

[Annex]

Memorandum Presented to the National Security Council Senior Staff by the Treasury Department

top secret

[Washington,] November 30, 1950.

Subject: Relation of Embargoing Exports to Communist China and North Korea to Blocking Assets of and Financial Transactions with Communist China and Communist North Korea

1. The Treasury Department believes that the policy decisions regarding export controls and blocking controls are inseparable and consequently must be reviewed simultaneously by the NSC. If the decision of this Government is made to impose an embargo on exports to Communist China, it is the view of the Treasury that parallel action on blocking Chinese Communist assets would be called for.

2. We have no precise estimate of Chinese long and short-term assets in this country nor any precise breakdown between Chinese Communists and non-Communist assets in this country. The total amount of Chinese assets in the United States, including both Nationalist Chinese and Communist Chinese, is roughly estimated to be about $200 million of which less than half is under Chinese Communist control. Imports from China to the United States currently exceed exports from the United States by about $7 million per month, thus providing additional dollar resources to the Communist regime. U.S. exports to China are now about $1 million per month and imports about $8 million.

3. In practice blocking of Chinese Communist assets would probably mean the cessation of direct imports to the U.S. from Communist China since it is unlikely that the Chinese Communists would be willing to continue exports to this country with the knowledge that the proceeds of the exports would be blocked. It is quite possible, however, that Chinese Communist exports might continue to come to this country indirectly through third areas.

1. J. Robert Schaetzel, Special Assistant to the Assistant Secretary of State for Economic Affairs (Thorp).
2. William Sanders, Acting Deputy Assistant Secretary of State for United Nations Affairs.