894A.00–R/4–1151: Telegram
The Chargé in the Republic of China (Rankin) to the Secretary of State
1381. Fol text handed Chi Govt today:
The exec branch of the US Govt has under consideration requesting additional funds from the Amer Congress, during its present session, for econ and mil aid to the gen area of China, Such funds, if requested and approved by Congress, wld be appropriated for the entire area and not firmly allocated or committed to any particular country.
It has been brought out in detailed discussions between officials of the Chi Govt and of the US that the absorption of mil aid cld have an inflationary impact on the economy of Taiwan unless all possible precautionary methods are taken. The US Govt has noted with gratification the improvement in the econ position of Taiwan during 1950, such improvement having resulted partly from the efforts of the Chi Govt and partly from ECA assistance in a naturally rich environment. However, it is considered that if these gains are to be retained and further advances achieved, it will be necessary for the Chi Govt to exert still further efforts to expand exports, to control imports, to increase tax revenues by raising rates wherever possible and by improving tax collection methods, and to reduce non-essential govt expenditures.
The US Govt proceeds on the assumption that it will be possible, in [Page 1628] the visible future, for the US to reduce and eventually discontinue econ subsidies to Taiwan. Undoubtedly the Chi Govt will appreciate the impossibility of the underwriting of Taiwan’s economy by the Amer Govt for an indefinitely extended period of time. Especially while the US itself is engaged in a large expansion of its own mil establishment, at heavy cost to its own people, the US Govt is not in a position to guarantee to offset the effects on Taiwan living standards of the supply of Amer mil material for defense against aggression. The US Govt considers that Taiwan has substantial assets already available to it and would be deeply concerned over any evidence that the Chi Govt is not exploiting those assets consistently, to the best of its ability, in achieving econ stability and security for Taiwan.
The standard by which the US Govt determines econ and/or mil aid to any country is the capacity of each recipient to make effective use of such aid, with a maximum of self-help, in producing durable results. Moreover, the US Govt holds that continued assistance to any country can be justified only as long as it undertakes econ and other sacrifices proportionate to the Amer aid extended.