No. 646
Editorial Note
On April 28, the NSC Planning Board
submitted to the Council NSC 125/5,
“United States Objectives and Courses of Action With Respect to Japan”.
(S/S–NSC files, lot 63 D 351, NSC 125 Series) Attached to NSC 125/5 is a Progress Report on NSC 125/2 (Document 588). The
paper and the Progress Report were submitted in response to NSC Action No. 761–a, taken at the Council
meeting
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held on April 8.
(For extracts from the memorandum of discussion at this meeting,
including text of NSC Action No. 761,
see Document 642; volume XV, Part 1, page 892;
and volume XII, Part 1, page
298.)
NSC 125/5 differs in only two passages
from NSC 125/6, Document 657. The differences are shown in footnotes 7 and 9
to NSC 125/6. Unlike NSC 125/5, NSC 125/6 has no financial appendix. For a revision of the
financial appendix to NSC 125/5, see the
enclosure to Document 654.
The Progress Report submitted with NSC
125/5 was a modification of the Progress Report originally submitted to
the Council on February 19 as part of NSC 125/3. (S/S–NSC files, lot 63 D 351, NSC 125 Series) The revised portion is
paragraph 7c., of which particular note is taken in paragraph 2 of
NSC 125/6. The entire economic
section of the revised Progress Report reads:
- “5. United States economic policy toward Japan is
concerned with Japan’s basic long-run economic problem—how,
without undesirable trade with Communist areas, Japan can
increase its trade sufficiently to become self-supporting
and to maintain adequate living standards and defense
forces. Progress toward economic viability is essential to
political stability.
- “6. Progress
- “a. Industrial production has reached an index of
140 (1934–36 equals 100) and average living
standards are now only slightly below
pre-war.
- “b. The achievement of self-support by Japan
requires the expansion of food and raw material
production in the free world, particularly in
Japan’s natural trading area of South and Southeast
Asia. United States and United Nations economic and
technical assistance programs are assisting in this
development and Japan is anxious and able to
participate by providing machinery (on a commercial
basis), technical knowhow and, to a limited extent,
investment funds.
- “c. In the field of the modernization and
technological advancement of Japan’s industries,
United States corporations have concluded numerous
technical assistance arrangements with Japanese
firms and have provided some dollar financing.
Japan’s recently liberalized Foreign Investment Law
will serve to attract additional foreign investments
to Japan. A United States Government productivity
assistance program is under consideration in
connection with the Mutual Security Program for
1954, and off-shore procurement of military and
economic aid supplies is serving as a stimulus to
industrial development.
- “d. The United States is strongly supporting
Japan’s accession to GATT and is negotiating a Treaty of
Friendship, Commerce and Navigation1 and a Treaty for the Avoidance
of Double Taxation
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with Japan.2 The
United States, Canada and Japan have concluded a
Fisheries Convention for the North Pacific.
- “e. Japan was recently admitted to the
Coordinating Committee for Export Controls and is
cooperating fully in maintaining security controls
over exports to the Soviet bloc.
- “f. Within the United States Government steps have
been taken to assure adequate attention to economic
and financial problems affecting United
States–Japanese relations. A summary of the National
Security Council economic policies with respect to
Japan has been circulated to all interested
agencies, with a request for assistance in
implementation; and a preliminary analysis of
Japan’s long-range potentials for trade and industry
has been completed recently and will help give
guidance to United States efforts to assist.
- “7. Adverse factors
- “a. Foreign trade remains far below pre-war
levels. Imports, in real terms, are only about
one-half and exports about one-third of the 1938
volume, Japan’s commercial trade deficit totaled
approximately $750 million in 1952; its deficit with
the dollar area was even larger. For at least the
next two years earnings related to United States
military activities in Japan and Korea will probably
be sufficient to offset Japan’s trade deficit and to
obviate the need for economic assistance.
- “b. The Japanese trade deficit with the dollar
area results partly from its dependence for such
vital raw materials as wheat, cotton, iron ore and
coking coal upon dollar area sources. Its trade
imbalance comes largely from being cut off from its
pre-war markets in China and from the greatly
reduced volume of Japan’s trade with Formosa and
Korea. These factors point up the necessity for
developing new and expanding old trade patterns with
South and Southeast Asia.
- “c. In the long term, Japanese economic viability
is of critical importance to the security of the
United States. This viability will be extremely
difficult to achieve. Unrestricted trade with
Communist China would not of itself solve Japan’s
economic problem. Although Japan may achieve
substantial gains in foreign trade, those gains will
not, for the foreseeable future, be so great as to
remove the necessity for substantial direct or
indirect assistance, part of which could come from
expenditures in Japan for U.S. forces.
- “(1) Japan must import about twenty percent
of its minimum food requirements. Although for
several years it may be possible to expand food
production sufficiently to offset the population
increase, in the long run it is probable that the
rate of population growth will exceed the rate of
increase in domestic food production, thus making
Japan increasingly dependent on food imports. In
addition to food, Japan must import most of its
industrial raw materials. Japan must trade if it
is to live. The two most likely areas for Japanese
trade expansion are South and Southeast Asia and
the mainland of China, although
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the United States,
South America and other free world markets are
likewise important.
- “(2) Trade with South and Southeast Asia
will be limited for a time by such factors as
political instability, the difficulty of speeding
economic development, balance-of-payments problem
sensitivity to outside “interference”, and
antipathy for and fear of the Japanese. In
addition, the need of the United Kingdom and
Germany for expanding export trade may result in
increasing competition for the export markets of
Asia.
- “(3) Before World War II about 18 percent of
Japanese exports went to the China mainland
(including Manchuria) and about 25 percent of its
imports came from there. Even if Japanese
strategic trade controls were relaxed, the extent
to which this volume of trade could be restored is
problematical, partly because prewar trade rested
to some extent upon Japanese political and
economic control, and partly because the Communist
Chinese may not themselves be willing to allow
extensive trade with Japan unless strategic goods
can be included. Nevertheless, if all restrictions
on trade with Communist China were removed it
could probably be developed to a volume of
$200–300 million each way in two to three
years.
- “(4) Such an expansion of Japanese trade
with Communist China would threaten attainment of
United States strategic and political objectives
by providing the sinews of war to Communist China
and would also increase Japanese vulnerability to
Communist pressures by creating a dependence upon
Communist China either as a market or as a source
of raw materials.
- “(5) China is important to Japan not only as
a supplier of raw materials but as an outlet for
Japanese manufactured goods. Although China could
become an important supplier of iron ore, coking
coal, soybeans, salt and other items of lesser
importance, it is not an important potential
source of Japan’s major imports (in terms of
value) such as rice, wheat, cotton and petroleum.
Japan must continue indefinitely to import large
quantities of these materials from the dollar
area; therefore Japan’s economic dependence upon
the free world will remain.
- “(6) Strong pressures already exist within
Japan for freer trade with the Chinese mainland,
and as a result of the present obstacles to
Japanese accession to GATT, its fear of a drastic decline in
United States special procurement following a
Korean armistice, and its failure to regain more
than 30 percent of its prewar export volume, the
pressures for relaxing restrictions on trade with
Communist China are expected to increase. These
pressures have been intensified by the recent
change in Communist tactics and could be increased
further by anticipated Communist trade overtures
to Japan.
- “(7) In order to give some chance of
viability to an economy deprived of the raw
materials and markets of the Chinese mainland,
Japanese efforts in their own behalf must include
rigorous measures to divert Japanese resources to
the most essential purposes, increasing food
production within Japan, improved
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efficiency of
production in Japanese industry, and possibly some
moderate decline in living standards. These
efforts would be aided by:
- “(a) An expanding economy in South and
Southeast Asia, so that necessary food and raw
materials can be procured there instead of from
the dollar area, and so that Japan, as well as
other industrialized countries, can find an
increasing market there for its manufactured
products:
- “(b) Increasing access to markets in the
United States and the rest of the dollar area,
including necessary and appropriate action by the
United States on tariffs and Buy American
legislation;
- “(c) Japanese accession to GATT as soon as
possible, and a general lowering in the free world
of trade barriers against Japanese products;
and
- “(d) A general and sustained increase in
world trade, accompanied by convertibility of
major currencies.
- “(8) There is no assurance that the
foregoing measures will produce economic viability
for Japan in the face of the 70% increase in the
Japanese labor force which will come about in the
next 25 years. Since economic deterioration and
falling living standards in Japan and the lack of
a foreseeable solution will create fertile ground
for Communist subversion, the United States may be
faced with the necessity of providing direct or
indirect economic aid to Japan. One important
element of indirect economic aid which should be
set in motion as soon as possible is a long-term
program of offshore procurement in Japan of
military supplies for Japanese forces and for
other free world forces. This program, which will
probably require Congressional authorization,
should be so planned as to build an adequate
industrial base in Japan for the contemplated
Japanese defense forces.
- “d. The most difficult immediate problem is reach
an understanding with the Japanese Government with
respect to rearmament. This problem is essentially
but also involves important economic considerations,
the chief of which is the level of budgetary support
for rearmament which the economy can afford. The
Cabinet has approved and sent to the Diet a request
for an appropriation of 145 billion yen (the
equivalent of $400 million) for defense for the
fiscal year beginning April 1, 1953. This includes
the yen equivalent of $180 million for maintenance
of United States forces stationed in Japan, which is
the same amount that the Japanese provided in the
previous year. In addition, a carryover of
approximately 65 billion yen ($180 million) will be
available for defense in the coming year. Although
these funds will be adequate for the maintenance of
present Japanese forces, they are not considered
sufficient to provide all the equipment, facilities,
and training areas which will be required.”
The remainder of the Progress Report is primarily a summary of trends and
developments.
