493.006/6–2551
Memorandum by W. Park Armstrong, Special Assistant for Intelligence to the Secretary of State, to the Director of the Policy Planning Staff (Nitze)1
secret
[Washington,] July 12, 1951.
Subject: Adverse Economic Effects on Non-Communist Countries of an Embargo on Trade with China
There is attached for your information a June 25 memorandum on the above subject, prepared for internal use within CIA.2
Our own analysts are in substantial agreement with the analysis and conclusions of the memorandum. The reservations noted below represent relatively minor differences in emphasis.
- 1.
- In the context of current trade, the immediate adjustments required in Japan as a result of a total embargo on trade with China would be somewhat less than is implied in the subject report. Japan has received considerably less coking coal and iron ore from China thus far in 1951 than it received in 1950 and consequently has already been forced to increase its imports of these commodities from alternative sources of supply. On the other hand, the report is perhaps too sanguine in examining the longer term outlook for Japanese trade in the event that Japan does not have access to lower cost raw materials from China.
- 2.
- The report notes that a total embargo would seriously undermine the economy of Hong Kong to the point where a British subsidy for the Colony might become necessary. Should this occur, the strain on the UK’s financial position might be more serious than the commodity trade data imply since Hong Kong currently is a significant source of British earnings on invisible accounts (shipping, insurance, profits).
- 3.
- The report contends that although a total embargo against China conceivably might cause a drop in crude rubber prices and thus adversely affect the economies of Indonesia and Malaya, such a decline in price is not anticipated since the world demand for rubber is high. In fact, however, the price of rubber has recently declined and may decline further as a result both of US pressure on the rubber market and British restrictions on the shipment of rubber to China and the USSR. In this context, it is to be noted that China’s record imports of rubber in 1950 represented only a small proportion of total world exports of rubber.
W. Park Armstrong, Jr.