9th June, 1927
PERSONAL & CONFIDENTIAL
My dear Prime Minister,
AUSTRALIAN TARIFF POLICY
I am enclosing the statement of my views on the Australian Tariff Policy, which you suggested that I should prepare in your letter of the 21st of April.  I have attempted to look, in a fairly comprehensive way, at the situation and I hope that you will find this memorandum of some service to you in considering the matter.
There is, however, one aspect which I have not dealt with in the memorandum but [to] which I should most definitely like to direct your attention in this letter.
Supposing Australia were prepared to undertake a revision of her tariff policy upon a 'selective' basis-should this prove to be the case, it would then be possible for Australia to offer to Great Britain a considerable number of added advantages which might very reasonably be made in some way contingent upon Great Britain being prepared to go further than she has gone at present in assisting Australian trade in British markets.
This seems to me to be a subject which in a very effective way you might find it possible to discuss with the British Business Delegation or with the leader of that Delegation should he be a man of the calibre of Lord Weir. 
There is no doubt that the gesture from Australia of getting rid of the small irritating things in the tariff as a sort of general response to the growing Empire sense in Great Britain would be much appreciated and, if that could be accompanied by an indication to the people that matter that Australia would be prepared to go further still provided Great Britain could respond in direct and practical directions, might prove the beginning of a new phase of Empire economic development in which today you are so obviously the leader. Whatever you may think of this idea, I cannot too strongly urge that steps should be taken to reduce the irritating effect of the Australian tariff.
As Page Croft  put it in his letter to me, which I forwarded to you last week, Australian tariff excrescences may enable the doctrinaire free trader, or in other words the Liberals and such Labour men as Philip Snowden  to checkmate a great deal of the work which is being undertaken here.
The point reached in the last paragraph naturally brings me to the consideration of political prospects here. I do not think that the Government's action in regard to the Trade Unions Bill , or indeed to the breaking of relations with Russia , has been unpopular. One is, however, becoming aware of a growing sense that the Government, while guilty of remarkably few sins of commission, is becoming unpopular in the country on the ground of its sins of omission. There has been little in the Government policy that has been constructive and what is urgently needed, if the Tories are to retain the reins of Government after the next General Election, are definite constructive proposals which the country will regard as being calculated really to deal with the unemployment problem.
I believe that I have, on several occasions, clearly expressed to you my view that while I should not be very much afraid from an Empire point of view of the advent of a Labour Government provided that Labour Government had a majority in the House, yet that I should regard a Labour Government, dependent upon Liberal support, as being the very worst political combination from our point of view.
The record of recent By-elections suggests that Labour is not making the same progress in the country as it did during the first two years of the life of this Parliament but they suggest rather forcibly a definite revival of interest in Liberalism. Why this should be so, one cannot understand unless it be that the country is beginning to feel that the Tories have nothing constructive to offer, that Labour is still unfit to govern and that, after all, the Liberals may as well be given another opportunity.
It is, of course, far too early to dogmatise about these tendencies but I think it is necessary now to face the possibilities of a fairly substantial Liberal revival. As one result of this phase, I have suggested to Major Elliot  that we should get the most suitable possible Liberal on to the Empire Marketing Board and he agrees with me that this would be desirable.
If the Tories can be induced, during the next six months, to give the country a really constructive programme, based on Empire Development, the whole situation may quite possibly be altered.
Since my last letter, I have had no further word from Hamilton  about wine duties. It is possible that the Chancellor  has not felt inclined to make the concession which Hamilton discussed with me.
With reference to the Colonial Office recommendations for a joint attack on mechanical transport problems, and particularly on producer gas vehicles, and their suggestion that the interested Dominions, the Colonial Office, the War Office, the Empire Cotton Growing Association and the Empire Marketing Board should cooperate in this proposal, although I have had two talks with Elliot about it, there is nothing concrete to report. It is likely that the whole subject will be discussed on Monday next at a full meeting of the Empire Marketing Board.
MR. H. W. GEPP 
I am extremely sorry to receive so many reports about the state of Gepp's health. One hears here that his nerves have been playing tricks with him and that he is far from well.
I cannot say that I am entirely surprised that this should be the case for I felt that Gepp was spreading himself, when he was in London, altogether further than any one individual could safely do. I do hope that arrangements can be made whereby he will have a complete rest and then be able to come back to his job with a clear mind and perhaps with a decision to exercise a selection as to the major problems that are likely to give the maximum results and the postponement of the interesting but perhaps minor forms of activity which can occupy so much of his extremely valuable time.
Yours sincerely, F. L. MCDOUGALL