Repeated to Washington No. 49.
JAPAN. At meeting with Halifax  last Wednesday I expressed the view that fundamental difficulty was that neither the United Kingdom nor the United States had a definite policy with the result that consultation that had taken place had never achieved anything effective. This Halifax challenged and at his request I next day sent him a memorandum amplifying my views. As this memorandum has caused considerable discussion desirable, although long, that it should now be sent to you.
Begins. 'The position is clearly deteriorating and present indications point to the British Empire being forced into a war with Japan.
Such a development would not only be extremely serious for the British Empire but is one which the United States have a vital interest in preventing.
In view of these facts and the seriousness of the situation not only should there be the closest consultation between the United Kingdom and the United States but it is essential that our two nations should be agreed upon and resolutely follow a common policy.
The immediate comment on the last paragraph would be that what is suggested is exactly what we have been striving to do but United States will not play.
Is this, however, quite the position? To arrive at a common policy both countries concerned must know with precision what is the objective they are seeking to attain; must have a definite individual policy for achieving it; must disclose that policy to each other and in frank discussion hammer out differences and smooth away difficulties.
As for objective, although possibly it has riot been defined with precision, I presume it might be broadly stated that the United States and the United Kingdom are striving for the establishment of a durable peace in the Far East, based on a free and independent China, and which safeguards legitimate rights and interests of other nations.
Assuming that both Governments have the common objective indicated above, the following questions arise:-
(a) What is the policy of the United Kingdom? (b) What is the policy of the United States? (c) Has there been any mutual disclosure of these policies? (d) Have they been fully and frankly discussed between the two Governments? With regard to (a) frankly I do not know. It has been suggested that agreement to close the Burma Road for three months was to afford time for negotiation of a wide settlement. What, however, is meant by a wide settlement? Craigie put forward five points in his cable of 22nd June, No. 1068.  I have put forward various suggestions from time to time. Is the idea of a wide settlement still being pursued? If yes, is it contemplated to use any of Craigie's points, or of my suggestions, or what alternative ideas would be embodied in the proposals to be submitted to the Japanese? If the idea of a wide settlement has been abandoned what is the policy it is contemplated to pursue? With regard to (b)-I have never been able to understand what the United States' policy is. From time to time they expressed high moral sentiments of giving no aid to an aggressor and it is clear that with strong inspiration from Hornbeck  the Administration is hostile to Japan. Presumably, however, the United States desire a sorting out of the position in the Far East. Do they contemplate that this should be brought about by such economic and financial pressure as will force Japan to behave reasonably? If they do is it not essential that pressure should be greatly intensified as if continued only on its existing level present indications point to increasing dominance of military party in Japan with results of unpredictable seriousness both to the United Kingdom and to the United States? With regard to (c) I suggest that this has not been done and could not have been done owing to neither the United Kingdom nor the United States Governments having arrived at general definite decision as to what their respective policies are.
This has led to a most unfortunate situation. The United States has a suspicion that owing to our existing embarrassments we are [prepared to]  truckle to a[n aggressor] and would be prepared to extract ourselves from our difficulties by selling China.
We, on the other hand, regard the United States as adopting high moral attitude, to a great extent from political motives, of telling us to stand up to Japan while refusing to afford us any assistance in the resulting conflict into which their advice would almost inevitably land us.
In view of great issues involved, has not the time arrived when we must lay down our definite policy, and having done so put the positions with the utmost frankness to the United States? The alternatives before us as I can see them are:(1) To pursue the idea of negotiating a wide settlement.
If this course were adopted the following points are essential.
(a) That settlement contemplated must be of such a character as to ensure Japan observing it from self-interest, as no other motive can be relied on under modern conditions.
(b) That it took the form of offer to Japan of advantages, economic, financial or otherwise, being conditional upon a generous settlement being arrived at with China which safeguarded her integrity and independence, (c) That the position be so handled as to avoid danger of negotiations-without resulting in a wide settlement-leading to a termination of Sino-Japanese hostilities, thus extracting Japan from the bog she has landed herself in and freeing her for adventures elsewhere to serious worsening of our position. In particular the situation should be fully explained to Chiang Kai- shek  it being emphasised that our offers to Japan are for the purpose of obtaining generous treatment to China, that they will not be implemented unless that generosity is forthcoming, and that China's position under any settlement would be guaranteed. As unhappily under existing circumstances a United Kingdom guarantee would not be regarded as sufficient, a United States guarantee also would probably be essential to satisfy Chiang Kai-shek.
(2) To abandon the idea of a wide settlement and concentrate on keeping alive and increasing Chinese resistance, and at the same time intensifying financial and economic pressure on Japan so as to deter her from outside adventures and to bring her into a more reasonable frame of mind.
Any half-hearted and opportunist policy between (1) and (2) will get us nowhere and almost certainly land us in war under most disadvantageous circumstances.
When the United Kingdom Government has decided upon the policy it considers should be pursued I suggest the United States Government should be approached with the utmost frankness. In the discussions we should put alternate policies that could be pursued and we should indicate the one that we consider it would be wisest to follow.
At the same time we should make it dear that we are not wedded to any particular course but owing to the importance in view of world situation of our pursuing a common policy are prepared in consultation with them to endeavour to hammer out a policy that will be acceptable to both of us.
Again it will be said that what I am suggesting is exactly what has been done.
But is this so? Have either we or the Americans in the discussions that have taken place put forward suggestions for a definite and civilised common policy? Has not the position rather been somewhat nebulous suggestions on both sides with on our side an apprehension lest we might say something that would give United States the impression that we were relaxing towards Japan? Has not this relative lack of frankness led to misunderstandings? For example do the United States realize that when we talked of a settlement with Japan we had in mind that anything we might offer to Japan would be conditioned by Japan according to China a just and equitable peace? Have they not rather formed the view that we were prepared [to] sell China in order to relieve ourselves from dangerous trouble with Japan while we are so heavily committed in Europe? Finally, I feel that full and frank discussion with the United States on the basis of definite policies might well lead to definite results. The United States and the British Empire together have a potent weapon against Japan in a financial and economic embargo. The threat of its utilisation might well bring Japan to her senses.' Ends.