294 Chifley to Attlee

CANBERRA, 26 July 1948

TOP SECRET A short reply is being sent to the Commonwealth Relations office telegram No.200 [1], to which you referred in your personal message to me of 22nd July regarding the level of economic life in Japan.

2. This is a matter which we have been considering throughout the period of occupation. We share your fears, and agree generally with your views.

3. It has been a cardinal aim of the policy of the present Australian Government that the United States should share fully in the future preservation of security in the Pacific. It follows that we wish to see the United States continue to play an appropriate part in the supervision of Japan. From this point of view at least, it is reassuring to note that the Americans at present appear to have no intention of abandoning their responsibilities.

4. While we acknowledge the genuineness of the United States desire to turn the Japanese into a democratic and peace-loving nation, it is, however, impossible to avoid the conclusion that American thinking on Japan is at present obsessed to the exclusion of other considerations by fear of Soviet motives and designs.

There is ground for this fear, but it appears to us that the Americans are proceeding in a fashion calculated in the long run to defeat their own ends. In setting out to build up the Japanese economy to such levels as those contemplated in the Strike and Johnston Reports, they are in our view, not only unnecessarily provoking Soviet Russia, but are seeking to restore Japan to a position of power and assertiveness in which she would soon want to be entirely rid of American control, however administered. The United States could thus conceivably find itself forced to withdraw from Japan without any guarantee that a resurgent Japan would not seek alliances with other powers and pursue policies dangerous to all of us.

5. We fully agree, therefore, that one or our principal objectives at this time should be to persuade the Americans that their insistence on building up the Japanese economy to levels which they appear to contemplate is against their long term interests as well as our own. The United States desire to be relieved of the heavy burden which the maintenance of Japan imposes at present on the American taxpayer is readily understandable. It seems clear that some revision upward in levels of certain basic industries, such as are suggested in paragraph 6 of telegram 200, Will become necessary. But further detailed study will be required before any such increases can be brought into balance with our minimum security requirements.

6. We are doubtful whether the attempt at persuasion envisaged in paragraph 8(ii) of your 200 will alone have much effect on the United States. We share your view that the Americans are unlikely to initiate any move towards a Japanese peace settlement, at least until the United States presidential election is over.

Nevertheless, it is artificial to try to separate economic from political and strategical considerations in this matter, and we feel that the approach to the Americans should be on a basis which includes the arguments set out in paragraph 4 above. We sense from Mr. Dening's conversations in Washington that the United States Government has not really faced up to these arguments. We agree with you that an early peace settlement, accompanied by a treaty between the United States and Japan under which the United States would receive base facilities in Japan, offers the best assurance of security in the Pacific, and we feel that, if the Americans could be convinced that this would best serve their political and strategical interests, they might be more disposed to agree to the fixing of economic levels which would make Japan self-sufficient but not dangerous.

7. We are anxious that the authority of the F.E.C., as the body responsible for the formulation of policy towards Japan, should not be prejudiced, as it will be to an increasing extent if the United States continues to follow its present course unchecked.

8. Two important considerations remain to be mentioned. The first is that early attainment of a reasonable standard of living for the Japanese, as envisaged by the Canberra Conference, is in our view a guarantee against the spread of Communism in Japan and a service to world peace. The second is that the Japanese economy should not, on the other hand, be built up out of proportion with the economics of the countries of South-East Asia, and particularly those which suffered by Japanese invasion. It was with this in mind that we put it to F.E.C. some time ago that we would agree to forgo all but a token quantity of reparations, the rest to be devoted to re-building the countries of South-East Asia. Our security depends to an important extent on the economic stability and welfare of the peoples of South-East Asia, as it is only progressively improving living standards in this area which can prevent natural aspirations towards nationalism being exploited by subversive elements whose objectives are totally different and contrary to our security interests.

1 Document 293.

[AA:A1838/278,482/1/4]