The Endangered Asian Century
America, China, and the Perils of Confrontation
ECONOMIC warfare has the same purpose as warfare in the field -- to beat our enemies. Since December 7, 1941, we have been openly at war. All our forces, military, economic and moral, are now engaged, without disguise and without qualification. But even before the attack on Pearl Harbor we were using economic weapons to weaken our potential enemies and to help our potential allies. In the two-year interval of non-belligerency, we set in motion various emergency devices to control our international economic relations: export control, the freezing of foreign funds, blacklisting, shipping control. At first we used these economic weapons defensively, hoping that with their aid we might ward off a fighting war. But as the Germans overcame the European democracies, one after another, and the Japanese pushed farther down into southwestern Asia, that hope gave place to the conviction that eventually we would have to fight the menace to our way of life with all the weapons at our command. Thus economic warfare was converted from a substitute for fighting into a preparation for armed conflict.
We are continually reminded that this war does not repeat the conflict of 1917-1918; and indeed the contrast is striking in the field of economic warfare. Before April 6, 1917, when Congress declared war, we had taken practically no measures of economic preparedness, and at least a full year was required to bring into effective action the weapons of economic attack. But on December 8, 1941, our foreign trade and financial relations were already controlled by administrative agencies set up months in advance. Every foreign business transaction had already been placed under a system of licensing, designed to permit only such transactions as promoted national defense or were otherwise "in the national interest." In a gigantic Lease-Lend program, moreover, we had appropriated $13 billion for the aid of countries which were the object of aggression, actual or potential, and had already begun shipments of munitions, machinery and food for these purposes to over a dozen countries as widely separated as Brazil and 'Iraq. Finally, as early as August 1941, we had established the Economic Defense Board, to coördinate our new economic actions in the international field.
This is why as we look back at the crowded record of events of the first few weeks of this war we find there was little need for immediate action on the foreign economic front. We did freeze the funds of Thailand, and we proclaimed a blacklist of 700 Japanese firms in Latin America. We changed the name of the Economic Defense Board to "Board of Economic Warfare." The President invoked the war powers granted him under the 1917 Trading with the Enemy Act so as to operate more directly the controls of trade, finance and communications which had already been set in motion. But, on the whole, very few new powers and little new machinery were necessary. Except in one vital matter, the provision of adequate reserves of strategic materials, we were fairly well mobilized for operations against our enemies on the economic front.
To sum up: in 1917, we first got into a shooting war and then began fighting on the economic front; this time, we had been waging economic warfare for well over a year before we began actual hostilities.
I. THE BEGINNINGS OF EXPORT CONTROL
The outbreak of war in Europe in September 1939 found the United States short of raw materials essential to its rearmament program. Yet an active reëxport trade, principally to Russia, was under way in materials such as tin and rubber which we ourselves had imported. The British Government showed a lively interest in checking this trade, fearing that essential war materials were eventually finding their way via Russia into German or Italian factories. An initial attempt to check reëxports by moral suasion was not successful. The President's request of September 26 not to reëxport rubber, tin, manganese and chromium, although heeded by regular traders, was largely ignored by speculators. In contrast, the President's request that exports of aluminum and molybdenum be discontinued met with a prompt compliance. National defense was the dominant aim in these early attempts to restrict exports by extra-legal means. In each case, however, the shutting off of supplies of critical war materials also tended to weaken somewhat the striking power of an aggressor nation.
In the spring of 1940 the fall of France and Britain's dangerous plight caused the United States to awake more fully to the Nazi menace. It soon became obvious that for effective export control a law was needed with teeth in it. This was forthcoming in the Act of July 2, 1940, which authorized the President "to prohibit or curtail the exportation of any military equipment or munitions, or component parts thereof, or machinery, tools, or materials or supplies necessary for the manufacture, servicing, or operation thereof . . ." On its face, the section quoted reads like only limited control. But in a total war practically every commodity entering into foreign trade is important, directly or indirectly, to the war effort. So it is not surprising that export control was steadily extended until before December 1941 at least 95 percent of all goods shipped out of the country required licenses.
From the outset, the granting or withholding of export licenses was not determined solely by the demand-supply situation for the goods in question in the United States. Considerations of foreign policy were also present, although not officially stated. For example, in July 1940 it was generally known that licenses could be obtained for the export of machine tools to Great Britain, but not to Japan. The selective character of export control was officially recognized in three limited embargoes: on aviation gasoline, proclaimed July 31, 1940; on iron and steel scrap, all grades, September 30, 1940; and on iron ore, pig iron, ferro-alloys and certain iron and steel products, December 10, 1940. Each proclamation announced that licenses for the products listed would be issued only for exports to the nations of the Western Hemisphere and Great Britain. The President's authorization on January 16, 1941, of general licenses simplified the administration of export control, and at the same time further clarified the underlying policy. General or "blanket" licenses were at once issued for trade with the United Kingdom and Canada; later, general licenses of a more limited character were issued for trade with a number of countries, including Brazil, Argentina, Cuba and Soviet Russia.
Licensing exports to Latin America proved a thorny problem. Cut off from their usual sources of supply in Germany and other European countries, our southern neighbors soon developed shortages in many lines of consumers' goods as well as in machinery and equipment. They looked to the United States to supply their urgent needs, and, for the first time in a decade, owing to our huge purchases of copper, wool, tin and many other primary products, they had plenty of dollars. They resented our restriction of exports; on the other hand, business men in the United States whose operations were badly cramped by priorities protested against exports of machinery and materials to Argentina and other Latin American countries where their use was unrestricted by any priority regulations. The solution of the difficulty was sought in a formula. Mr. Sumner Welles gave assurance, August 25, 1941, that "goods of which the United States is the principal or sole supplier . . . will be made available on an equal basis to the people of the other American republics as liberally as they are to the people of this country." In practice, this statement meant that after the requirements of our Army and Navy and those of the Lease-Lend program had been met, exports to Latin American countries should rate equally with the needs of industries supplying civilian consumers in the United States. This was not a hard and fast rule, however, and in particularly urgent cases (e.g., steel, chemicals and certain types of machinery) exports have been accorded preference.
Priority ratings assured Latin American buyers that their needs would receive attention according to a certain order of preference, but gave them no assurance that when prior needs had been satisfied anything would remain for them. They asked that fixed quotas of certain commodities be allocated to them. The first of these allocations was made on December 2, 1941, when 218,600 metric tons [i] of tin plate were set aside as a twelvemonths' export quota to meet Latin American needs. Allocations were later announced on 26 commodities, assigning the amounts which it was permissible to export during the first quarter of 1942.
Usually one of the major aims of strategy in economic warfare is to influence the actions of neutral states. How far our export control actually has been used for this purpose cannot be determined. Limited quantities of petroleum products [ii] were allowed to go to Spain in an effort to keep that country from entering the war on the side of the Axis powers. In the hope of bolstering the morale of General Weygand's troops in French North Africa the State Department in June 1941 began issuing licenses for the export of foodstuffs and other supplies to that area. The British agreed to this, although with some reluctance; and the French funds frozen in the United States were unblocked for payment of approximately $12 million of exports quarterly.[iii] However, upon Marshal Pétain's dismissal of General Weygand in November 1941, the Economic Defense Board revoked all export licenses for French North Africa. A second reversal of policy came at the end of January 1942, when trade was again resumed between the United States and "Vichy Africa." There already had been one change in the policy toward Spain. In November 1941 all licenses for the export of petroleum products to Spain were revoked. This was interpreted as meaning that the Board anticipated closer coöperation between General Franco and the Axis powers. However, some oil was subsequently permitted to move to Spain from Venezuela.
II. FREEZING FOREIGN FUNDS
The freezing of foreign assets in this country, which began in April 1940 when Germany invaded Denmark and Norway, has developed into a comprehensive system of exchange control and a most effective engine of economic warfare.[iv] Originally, the dominant aim was to protect the owners of the funds. But even at the outset another motive was present in some measure; it was recognized that to keep several billions of dollars out of German hands was indirectly a way of aiding Britain.
The original freezing order did not tie up the several hundred million dollars of German and Italian funds on deposit in New York. Secretary Morgenthau advocated freezing these funds as essential to our policy of Aid to Britain, but the Department of State opposed this step. Hence, for more than a year after the funds of the invaded countries had been blocked, the invaders were free to use their own funds in New York to finance propaganda in this country and in Latin America; to purchase valuable strategic commodities outside the United States -- for shipment through the blockade via neutral ports -- to buy up their own bonds; and to acquire interests in United States firms in Europe. They were able also to transfer substantial sums to banks in South America. Finally, the views of the Treasury prevailed; the barn door was locked after most of the horses were gone. On June 14, 1941, the President froze German and Italian assets in this country as well as those of all other Continental states not affected up to that time. "This step," according to Edward H. Foley, Jr., General Counsel for the Treasury Department, "changed the emphasis of freezing control from a defensive weapon primarily intended to protect the property of invaded countries, to a frankly aggressive weapon against the Axis."
This is perhaps as good a date as any to mark our commitment to the full implications of economic warfare.
The freezing of Japanese assets on July 25, 1941, which was our retort to Japan's new aggression in Indo-China, resulted in a complete embargo on Japanese trade with the United States. Thus the action which pro-China groups in this country had vainly sought from Congress for years was suddenly effected by a simple administrative order from the Secretary of the Treasury.[v] Like previous freezing orders, the Secretary's action did not, in form, prohibit trade or financial transactions with Japan; it merely subjected all exchange transactions, and all transfers of commercial documents, to licensing. But actually within a few months all import and export trade with Japan dried up.
Freezing, like export control, threatened to damage our relations with Latin American countries. The sweeping terms of the President's orders of June 14 laid an interdict on all unlicensed trade or financial transactions between nationals of the United States on the one hand, and any of the blocked states or their nationals on the other. And "nationals" was broadly defined so as to include all nationals, wherever they might be residing and doing business. Many Italians and Germans in Latin America occupied prominent positions in commerce, industry and banking. But an American exporter of radios could not be expected to know whether somebody named Schmidt in Bogotá was Colombian by nationality, or German. And even if the exporter had had that information, he would not have been safe in filling the order; for a $10,000 fine and 10 years in prison hung over him if he sold to any firm in which a German had a substantial interest, as, for example, through stock ownership. Under these conditions, many American firms thought it wise not to accept any Latin American orders, and for a short time it seemed that the flow of American goods southward would be interrupted, with a consequent weakening of the political and economic ties which the Administration was so intent upon strengthening. The problem was to keep open the channels of trade and finance and yet prevent transactions which might benefit, directly or indirectly, the Axis powers.
For this problem a very old device in economic warfare afforded at least a partial solution -- it was the blacklist. On July 17, 1941, the President issued a "Proclaimed List of Certain Blocked Nationals" which contained the names of some 1,800 [vi] persons and business institutions deemed to be, or to have been, acting for the benefit of, or under the direction of, or in collaboration with, Germany or Italy or German or Italian nationals. It included also certain persons and firms to whom exportation from the United States was deemed "detrimental to the interest of national defense." All shipments of controlled exports to blacklisted firms were prohibited. At the same time, a general license was issued permitting inter-American trade transactions, and financial transactions incidental thereto, with persons not listed. After publication of the original blacklist, German and Italian firms tried to "cloak" their activities by engaging Vichy French, Spanish and Latin American firms to place orders for them. Firms suspected of these practices were placed first on a "gray list" until more conclusive evidence was obtained; then they were transferred to the blacklist. Thus several hundred additional firms have been proscribed, including some of the largest and oldest trading firms in South America.
It seems difficult to explain why the application of blacklisting to Japanese firms was delayed until after the attack on Pearl Harbor.[vii] The reason must have been the desire not to force the Japanese into a final break, even though that policy seemed to have been abandoned, at least in part, four months earlier when the Japanese funds were frozen. Soon after the new year began, economic warfare was carried into Europe by the blacklisting on January 14, 1942, of 1,800 Axis-affiliated firms in Sweden, Spain, Turkey, Switzerland and Portugal.
The publication of the original German and Italian blacklists naturally provoked some unfavorable reactions in the other American republics. So large a number of Guatemalan coffee fincas were blacklisted that, had not the Banco Central intervened, the entire industry might have been threatened with bankruptcy. A committee of the Colombian Senate called attention to the injustices and injuries suffered by the business men of that country. Branches of United States firms incorporated under Brazilian law were threatened with lawsuits if they refused to sell to German-owned firms. In Mexico, a prominent labor leader urged nationalization of the blacklisted firms in order to prevent "financial domination of the Western Hemisphere" by the United States. In various countries complaints were heard that by blacklisting the Yankees were endeavoring to drive out German competition so that after the war they might have the field to themselves. But the response was not altogether unfavorable. In some cities anti-Axis groups used the information which the proclamation of the blacklist afforded to set in motion boycotts of German firms.
III. BUYING STRATEGIC MATERIALS
The Japanese attack on Pearl Harbor revealed weaknesses in our economic as well as in our military preparedness. Suddenly we became aware that our supplies of two vital war materials -- tin and rubber -- and several others hardly less important -- coconut oil and manila hemp, for example -- were endangered. For, as the Japanese rapidly pushed into the Philippines and Malaya and the Dutch East Indies, they invaded a region which had supplied 98 percent of our rubber, and 80 percent of our tin. The threat to our source of supply was all the more serious because it was accompanied by a huge increase in our requirements. In the new Victory Program, President Roosevelt early in January called for 60,000 planes to be made in 1942, 45,000 tanks, and other war matériel in proportion. To achieve these results would require doubling the rate of production in war industries which had been attained at the end of 1941, with a consequent doubling of our already huge requirements for raw materials. But when we looked at our stockpiles we saw all at once that we, too, had become a "have-not" nation.
At the beginning of 1942, we had in the country between 500,000 and 600,000 tons of crude rubber, about one-half of it in government stockpiles. At the 1941 rate of consumption, our entire crude rubber supply would have lasted only eight months. The supply of latex (milk of the rubber tree) was good for only five months. The tin situation was not quite so bad. Our supply, about 120,000 tons, most of it in private hands, would last at the 1941 rate of consumption for a year or 15 months; but private and government stocks combined were only half of the 242,000 tons that had been estimated by OPM as necessary for government stockpiles alone. The situation in other strategic materials -- chrome, manganese, manila fiber, graphite and tungsten -- was no better; in some cases it was worse. Moreover, the new production program had caused many additions to the list of materials in short supply. Copper suddenly became scarce. We had produced 1,000,000 tons, a record output, in 1941 and had raised imports to over 500,000 tons; but we had consumed practically all of the supply. The OPM stockpile had been set at 500,000 tons, but our supplies at the end of 1941 were far below that figure. The scarcity of tin, zinc, copper and aluminum caused a drive for lead. At the end of October 1941, according to a newspaper report, our lead supply would have satisfied only four days' consumption.[viii] Yet the OPM had recommended that we have a stockpile of 500,000 tons, about a seven-months' supply at the 1941 rate of consumption.
It is not the purpose of this paper to attempt to apportion blame for the stockpile fiasco.[ix] Certain general principles, however, can be laid down. The formation of stockpiles involves three procedures: (1) purchase of the strategic material; (2) transportation to this country of materials produced exclusively, or in large part, abroad; (3) conservation for defense purposes of the stocks thus acquired. Looking back at our experience over the past two and one-half years, we can see that buying, although it did not start nearly soon enough, eventually proceeded vigorously, and on a really large scale. Then the shortage of shipping threatened to wreck the program until the Maritime Commission, using a rating list prepared and kept up to date by an interdepartmental committee, began to allocate cargo space. But after Congress had finally appropriated adequate funds and government agencies had actually purchased rubber, tin, copper and many other materials by the hundreds of thousands of tons, and after the cargoes had been landed at our ports, the principal idea of the stockpile, i.e., conservation of supply, seems to have been lost from sight. The disposition of strategic materials of both foreign and domestic origin was the province of the Office of Production Management. In accordance with OPM priority orders, the Metals Reserve Company and the Rubber Reserve Company funnelled out rubber and metals not only to defense industries but, on a huge scale, to those producing for civilian consumption.[x]
The Army and Navy Munitions Board had long emphasized the importance of preparing stockpiles in its mobilization plans, and the State Department had lent the idea vigorous support. But Congress until 1940 had provided only meager funds for the purpose and had so limited their use as to make the appropriations ineffective.[xi] Substantial purchases of strategic materials date from June 25, 1940, when Congress authorized the Reconstruction Finance Corporation to form subsidiary corporations "to produce, acquire and carry" such materials. These broad powers were even further extended a year later, and at the same time the list of strategic and critical materials was expanded.
But the purchasing of supplies was not entrusted to the RFC alone. Associated in the execution of the program, and bearing part of the responsibility, were the State Department and the Office of Production Management and, more recently, the Board of Economic Warfare. Recommendations for purchase came from OPM, after prior consultation with other government agencies. The State Department had a hand in making these recommendations, and its aid was indispensable also in arranging through its foreign service for the actual purchases. In many cases, these arrangements involved difficult and prolonged negotiations with foreign governments. With the establishment in August 1941 of the Economic Defense Board, now the Board of Economic Warfare, a fourth agency was brought into the stockpiling program. At present the Board's efforts in this field are directed principally toward the search for new sources of materials and the expansion of their production in the countries of the Western Hemisphere.
With four agencies engaged in a single task, and with lines of authority not always clearly defined, delays and confusion were to a certain extent inevitable. But the most serious defect was the failure to lay sufficient emphasis on the accumulation of stockpiles and to distinguish this objective from other objectives of the buying program. These other objectives seem to have been, if we can judge by results: (1) to furnish defense industries and those producing for civilian consumption with essential raw materials on better terms than they could be obtained by private buying; (2) preclusive buying, i.e., buying to prevent Germany, Italy and Japan from obtaining needed materials.
No one can object to the release of imported materials to defense industries. After all, tanks, guns and airplanes are worth more than heaps of copper, tin and manganese. But looking backward from this distance, there seems no excuse for the prodigal liberality with which rubber and metals known to be vital to national defense were distributed to manufacturers of automobiles, refrigerators and a thousand and one types of consumers' goods. It was acceptance of the "guns and butter" philosophy in extreme form. The experience of Germany and England and Japan should have taught us that stockpiles are never accumulated simply by buying. In each of these countries buying had to be supplemented by rationing of domestic consumption.
Indirectly, buying for supply was also preclusive buying. When we took Chilean copper for our own needs, we took it away from the Japanese. But in exceptional cases (Mexican fluorspar and mercury, Colombian platinum), we went out of our way to buy up stocks for which at the time we had no immediate or foreseeable need, but which we knew were of vital importance to the Axis powers or to Japan. To begin with, the preclusive aspects of our buying were not fully appreciated; in buying for supply, it was not considered important to sweep the foreign market clean. Recently, however, this objective has figured more prominently.
We began by buying up all the available surplus of particular commodities. In June 1940 contracts were signed with the International Tin Committee and the International Rubber Committee, by which the Government acquired 430,000 long tons of rubber and at least 75,000 tons of tin. In November 1940 the Metals Reserve Company made a five-year deal for substantially all the Bolivian tin currently produced, except the output of the Patiño mines (50 percent of the total) which is under contract to Great Britain. Several months later, the entire Bolivian tungsten output, about 3,500 tons annually, was acquired for three years. By a similar arrangement we have secured for a period of three years all of Argentina's tungsten, up to a maximum of 3,000 tons yearly. (Before the agreement was made, Japan was buying half of Argentina's tungsten.) As a result of contracts signed at the end of 1940 with four American copper companies, the Metals Reserve Company secured substantially the entire copper production of Chile, Mexico and Peru. The entire platinum production of the Republic of Colombia, which was leaking out to Axis powers by Japanese ships or by LATI airplanes was contracted for at the end of 1941.
The rapidly expanding scope of the purchasing program led to overall agreements with certain countries covering their entire exports of all important strategic materials. In these contracts preclusion is the keynote. For in each case the vendor prohibits all export of the materials in question except to the United States, to other American republics which also impose export controls satisfactory to the United States Government, and, in some instances, to the British Empire. The first agreement of this type was made with Brazil in May 1941. In it the Metals Reserve Company and the Rubber Reserve Company guaranteed over a period of two years the purchase of Brazil's entire exportable surplus (up to fixed maxima) of 11 materials, including bauxite, ferro-nickel, manganese ore, mica and rubber; and Brazil, on its part, agreed to impose an export embargo on those same commodities. Purchase agreements on the Brazilian model have since been concluded with Mexico (covering 17 metals and a number of vegetable fibers), Peru, Chile and Bolivia. An agreement with Argentina has been under negotiation for some time.
To begin with, our buying program was focused principally on Latin America, the source from which needed materials could be secured with least danger of destruction in transit by enemy action. But even before Pearl Harbor, the geographical scope of operations was greatly enlarged. The Federal Loan Agency agreed to purchase the entire exportable surplus in the Philippine Islands (less the amounts sold to private purchasers in the United States and other approved destinations) of certain grades of manila hemp, copper, manganese and chrome. More recently, negotiations have been undertaken for the purchase of a wide category of commodities from various parts of Africa, from India, from Spain, Portugal and Turkey.
The coördination of British and American purchasing programs was taking shape, informally, several months before the establishment on January 27, 1942, of the Combined Raw Materials Board. It may be a development of great significance, for possibly the combined diplomatic action of the two governments in presenting a joint purchasing program to a vendor state might greatly strengthen the bargaining position of the would-be purchasers. Already, joint purchase negotiations are being conducted in Argentina and Turkey. In Argentina our needs and those of the British dovetail neatly. We want wool, hides and glycerin; the British want meat and wheat. In Turkey at the beginning of the war the supply of chrome ore was a bone of contention between Britain and France on one side and Germany on the other. When France collapsed, we acquired, through agreement with Great Britain, one-half of the 1941 Turkish output. The 1942 production is now under contract to the British; the status of the 1943 output is not yet clear, but by making a joint approach to the Turkish Government we and the British ought to have a better chance of blocking the Germans than we would by acting separately. Joint purchasing, also, obviates price competition and assures an equitable distribution of scarce products.
At present, the buying program is laid out on a vast scale. Like the war, it is world-wide, and it applies to practically all the primary commodities which usually enter into world trade. In fact, the United States is now in the market to buy all that any country can export of practically every raw material and foodstuff, except certain farm products of which there is an adequate supply in the United States such as cotton, wheat, corn, meat and tobacco. But that is not the limit of our buying, for our 1942 and 1943 demands for certain commodities, e.g., copper, will exceed the entire world production of 1941. That means for many products that old sources of supply must be enlarged and new sources brought into production. Merely bidding up the price, however, will not bring the needed output soon enough. We must improve production and transportation facilities in the mountains of Bolivia, in remote areas in Brazil, and in any other part of the world where expansion of the supply of needed materials depends upon such action. Thus our expanding purchases may lead to significant changes in the economic organization of the selling countries. This is one of the reasons why we may have to promise to continue buying certain materials for a period of years after the war has ended.
IV. THE CONTROL OF SHIPPING
It would go beyond the scope of this article to discuss our shipbuilding program which, after all, is a matter of mobilizing domestic resources. But the requisitioning of ships and the policy of the Maritime Commission involve our foreign relations; they are matters of economic warfare which deserve mention here.
When the shipping shortage reached alarming proportions in the early months of 1941, the Government began turning covetous eyes on the foreign ships lying idle in our harbors. There were 84 of them in all with an aggregate tonnage of 450,000,[xii] including two small German boats, 28 Italian vessels, 39 Danish and 11 French. In the national emergency, the United States Maritime Commission had authority to requisition ships owned by citizens of the United States, but it had no similar authority over foreign vessels. However, the crews of certain Italian and German ships themselves solved this problem by acts of sabotage, giving the Administration legal ground for seizing them.[xiii] Then an Act of Congress on June 10, 1941, gave the President authority for putting all idle foreign owned vessels in our ports to use as a part of the United States merchant marine.
The requisitioning of foreign-owned ships contributed relatively little to the relief of the shipping shortage. That could be cured only by building vast new fleets of merchant vessels. But while new ships were building, it was essential that our existing fleet should be utilized with maximum efficiency. Obviously, this could not be accomplished under unrestricted private ownership. Requisitioning the entire merchant marine by the federal government was advocated, but Congress preferred milder measures, and in the Ship Warrants Act (approved July 14, 1941) instituted a priority system to be administered by the United States Maritime Commission. The key to the Commission's power is the warrant which entitles a vessel to preferential treatment in ports of the United States and its possessions, in loading and discharging its cargo, as well as in bunkering and in the use of overhauling and repair facilities. Without a warrant, no ship, whether owned abroad or here, can be sure of getting coal or oil in any American port, or even the services of a pilot to take it out of the harbor.
V. THE LEASE-LEND PROGRAM
The positive or beneficent aspect of economic warfare, the business of aiding our friends, although present in export control and freezing of foreign funds, appears in its most striking form in the Lease-Lend program. Since the Act of March 11, 1941, the total aid authorized by Congress has exceeded $30 billion. The countries which have already received aid under this program include Belgium, Brazil, Chile, China, Colombia, Cuba, Dominican Republic, Egypt, Greece, Netherlands, Norway, Poland, Russia, Turkey and the United Kingdom. They are receiving not money, but the war matériel, the foodstuffs and the industrial and transportation equipment which they need to strengthen their military effort, improve their defenses and sustain their civilian populations. By far the bulk of the Lease-Lend aid, of course, has been destined for the United Kingdom.
In his 1941 Armistice Day address Mr. Churchill referred to the Lease-Lend legislation as being without question "the most unsordid act" in human history. This is high praise. But lest we become too well satisfied with ourselves, we should recall two facts. First, in economic warfare it is goods, not dollars, that count. The real measure of our effective aid to Britain is not the money Congress appropriates but the tanks, airplanes, guns, machines and food which our factories and farms can produce and our ships can transport across the Atlantic. Thus Lease-Lend remains largely a gesture until we have stepped up production of war materials far beyond our present output. Secondly, it is perhaps too early to call the Lease-Lend program "unsordid." Mr. Churchill implied that the shiploads of war supplies already arrived in England, and the huge tonnages now in production and in transit, are a gift. Probably most Americans accept the implication; they know the United Kingdom could not pay a huge war debt without adding terribly to its burden of postwar reconstruction, and they do not want to be repaid. But Congress, failing either to understand or to reflect public opinion, left the question of compensation dangerously ambiguous.[xiv] Now is the time to remove that ambiguity while we are still in a mood to share the costs of the war. If we wait until after the war, bitterness and disillusionment may transform what was meant for a gift into a loan, and repayment may be demanded in terms that may poison American-British relations for generations to come. We should recognize formally and at once that our entry into the war requires a new policy of financial coöperation, based not on lending or giving, but on the sharing of common resources for a common purpose.
VI. STRENGTHS AND WEAKNESSES OF OUR POLICY
Statesmen and diplomats have never pinned as high hopes on the effectiveness of economic warfare [xv] as a substitute for armed conflict as have the lay public. The popular classification of Germany, Italy and Japan as "have-not" nations gave the impression that they were vulnerable to economic sanctions. But vulnerability, we have learned, is a relative matter. Germany by long and careful planning in prewar years, by extending the area under her control, by systematically looting invaded countries, by the ingenious use of substitutes and by restricting civilian consumption at home, has thus far successfully resisted the Anglo-American blockade.
Japan, in the early stages of her aggression, was less successful than Germany in supplementing by conquest her domestic supplies of food and raw materials. Hence, she suffered more from economic sanctions. It is true that our early moral embargoes on airplanes and octane gas were more effective in giving us an outlet for righteous indignation than in weakening the Japanese war effort. But the legal prohibitions on exports to Japan beginning in July 1940 were more serious: they cut off, successively, supplies of American iron and steel scrap, iron ore and pig iron, copper and finally all petroleum products. But Japanese trade was not vitally affected until July 25, 1941, when the Japanese assets in this country were frozen, and parallel action was taken by the British Empire and by the Netherlands East Indies. Japan, thrown back on the resources of the yen-bloc area, then found it almost impossible to procure from outside essential materials such as aluminum, copper, lead, zinc and scrap iron. Raw material shortages were sharply aggravated, and all business and industrial activity in the Empire was disrupted. "Japan," said a New York Times editorial on December 4, 1941, three days before the attack on Pearl Harbor, "is facing international economic siege and she is very vulnerable. . . . Now, after four years of exhausting war, she finds her economic and industrial life strangling."
But those who believed that our trade and financial restrictions would force Japan to abandon her political ambitions and military adventure were deceived. The truth is that economic warfare is not a substitute for a shooting war. Proud peoples give in, they back down, only when their armies have been defeated. Hence, a non-belligerent country that engages in economic warfare must, if it values its national existence, be prepared -- in its public opinion, in its industrial mobilization and in its military and naval establishments -- for armed conflict. We were not so prepared. That was a major weakness in our policy in the years 1939-1941. By its discriminatory export controls, by its freezing and blacklisting policies, the United States Government pursued a vigorous and aggressive foreign policy. But on the home front the philosophy of business-as-usual, guns-and-butter, still prevailed. Scarce materials were not rationed; instead, our consumers' goods industries were allowed to devour mountains of rubber, copper, tin and aluminum in an orgy of non-defense production. When war broke, the lack of these materials held back the production of all the munitions of war.
Once again the fallacy and the danger of acting as if foreign policy could be divorced from domestic policy has been demonstrated. Actually, each is only one of two prongs of national policy; neither can operate effectively unless it meshes closely and continuously with the other.
[i] The quantity allocated represents between 90 and 95 percent of all 1940 imports of Latin American countries.
[ii] See New York Times, September 5, 1941.
[iii]New York Herald Tribune, September 24, 1941.
[iv] See Judd Polk, "Freezing Dollars Against the Axis," FOREIGN AFFAIRS, XX, 113-30, October 1941.
[v] After the freezing order went into effect, applications for licenses to ship two tankers of oil to Japan were granted by the Division of Controls of the State Department. But since the Treasury refused to unblock funds for payment, the Japanese did not get their oil.
[vi] This number included 300 Argentine firms, 265 in Brazil, 200 in Colombia and 181 in Mexico. On the proscribed list were such well-known trade names as Agfa, Bayer, Fiat, Mercedes, Benz, Borsig, Siemens, Bata, Krupp and Skoda.
[vii] Seven hundred were listed in the proclamations of December 9 and 23, 1941.
[viii]New York Herald Tribune, January 4, 1942.
[ix] The Faddis Committee in its report of July 21, 1941 (Strategic and Critical Materials. Interim Report pursuant to H. Res. 162, 77th Congress, 1st session, House Report No. 982), ascribed the delays and failures in the accumulation of raw materials for the government stockpile to (1) the tardy beginning of the stockpiling program; (2) failure to centralize responsibility for stockpiling; (3) lack of a sense of urgency on the part of officials of purchasing organizations; (4) delay in establishing conservation methods and use of substitutes for fear of creating unemployment; (5) unwarranted delays in building plants and facilities, particularly for the production of synthetic rubber and aluminum.
[x] OPM had been directed, in an Executive Order of May 25, 1940, to "plan and take all lawful steps necessary to assure the provision of an adequate supply of raw materials essential to the production of finished products needed for defense." (Faddis Report, op. cit., 14.) The Office through its Priorities Board attempted to administer priorities on a voluntary basis from January 1941 until May 31, 1941, when it was given legal authority to enforce priorities. The first exercise of this authority with respect to a strategic material was the order on zinc, June 11, 1941. The rubber priority dated from June 21, 1941. Tin was not put under legal priority control until December 17, 1941. Commenting on the delay in imposing priorities, a writer in Fortune, December 1941, said: " . . . there was not sufficient political courage in the U.S., until very recently, to make effective stock piles of such materials as were brought in by mandatory priorities cutting down on civilian requirements."
[xi] An act of June 7, 1939, authorized the expenditure of $100 million, but only $10 million was made available in 1939.
[xii]New York Times, June 8, 1941; a table in the League of Nations' World Economic Survey, 1939/41, 255, shows 87 ships of 474,000 tons.
[xiii] Twenty-seven Italian and two German ships were "taken into protective custody" by the United States Coast Guard on March 30, 1941; 17 Italian and one German ships were seized July 11.
[xiv] The Act provides that "The terms and conditions upon which any . . . foreign government receives any aid authorized . . . shall be those which the President deems satisfactory, and the benefit to the United States may be payment or repayment in kind or property, or any other direct or indirect benefit which the President deems satisfactory." Public No. 11, 77th Congress, Sec. 3(b).
[xv] In this brief survey it has been impossible to describe all the varied aspects of the new policies which make up economic warfare. A full treatment of the subject would include the activities of the Department of Justice in uncovering and voiding illegal agreements between German and American firms by which the prices of commodities essential for national defense, such as magnesium, fire control instruments, tungsten carbide and beryllium, had been fixed and their production in the United States restricted. It would include also the fascinating story of the negotiations with South American governments by which German-controlled air lines were eliminated from Colombia, Ecuador, Bolivia and Peru and their services replaced by American-flag liners.