In the course (if our conversation with regard to the Tientsin position you asked me whether I could suggest any line which we might adopt in order to create more friendly relations with Japan.
I then made one or two suggestions to you. I have this morning dictated a very rough note with certain ideas in it which it might be worth your while to consider. I enclose it herewith for what it is worth.
Note by Mr S.M. Bruce, High Commissioner in London
LONDON, 21 September 1939
An improvement of our relations with Japan in view of the general world situation is of paramount importance.
I am convinced, however, that it is not possible to bring this about by small scale concessions or by gestures such as responding to the Japanese so called 'friendly advice' of 5th September.  The result of action of this character would only be to lower British prestige in China and throughout the Far East and to increase the dominance of the Military Party in Japan.
If we are to achieve anything in my view it will be necessary to attempt something big and in order to achieve it be prepared to make some sacrifices. I suggest a possible line worth exploring would be the following:-
That we should approach the United States Administration and frankly discuss the whole position with them and suggest that they should undertake with Japan an exploration of the possibilities of a general settlement.
If anything of the sort is to be attempted it is necessary to recognise the special problems that face Japan. The major Japanese problem is that of interior population pressure owing to the increase of her population from 31 millions in 1872 to 70 millions to-day with an annual growth of a million.
This problem cannot be dealt with by migration because apart from the difficulty of finding where the Japanese could migrate to we have to recognise the intense dislike of the Japanese to leaving their own country. The only way Japan can meet her population problem is by the development of her industries which means her being secured large export outlets. Those outlets can only be provided by Japan securing a large portion of a progressively developing China and by becoming the principal supplier of consumption goods to markets of low purchasing power. Japanese trade has, however, been largely excluded from the British Colonies and Colonial Territories, and owing to her own Military policies was before actual hostilities commenced subjected to frequent boycotts in China.
In order to secure her requirements for a market Japan has set out to endeavour to conquer China. This war has imposed a tremendous strain upon Japan and it must be clear to the Japanese Authorities that even a successful conclusion to her war in China is not going to offer a satisfactory solution of her population and market problems. If, however, Japan saw the possibility of a great expansion of her market in China together with an increased opportunity in Colonial Territories there would be every inducement to her to consider a settlement.
Would it not be possible to present that possibility to her by the U.S.A. and Great Britain, the United States of America acting as the intermediary, indicating their preparedness to co-operate in a developmental policy for China, the United Kingdom and the U.S.A.
providing the necessary finance. In such development the principal sources of supply for ordinary consumption goods to be (a) Chinese factories (b) Japanese imports, and the U.S.A. and the United Kingdom to provide the industrial and transport equipment necessary both to China and to Japan. At the same time it could be indicated that the United Kingdom would be prepared to facilitate Japan's acquiring necessary supplies of raw materials, including wool. The United Kingdom also should offer to remove restrictions against Japanese trade in the British Colonial Empire, thus accepting the view that a very low cost producer is the natural supplier of goods to markets where individual purchasing power is very low indeed.
An offer could also be made to forgo all extraterritorial rights in China or if necessary this could be limited to Northern China.
As part of a settlement it would probably be necessary for the Chinese Government to agree to recognise either permanently or for a period of years the existing status quo in Manchukuo.
[AA:AA 1975/223, 1939, PAR EAST POLICY (U.S.) JAPAN AND CHINA ]
1 See Document 236, note 1.
2 Bruce sent a copy of this note to F.K. Officer, Australian Counsellor at the U.K. Embassy in Washington. There is no evidence that a copy was sent to Canberra.