8 Extract From Submission 39 To Cabinet [1] By Casey

21st September, 1951

Canberra

In my first talk with Yoshida I said that I had difficulty in seeing the economic future of Japan. Their large and growing population had few, if any, substantial possibilities of emigration. When they got their economy working properly and their costs down, it was possible that the tariffs of the world would rise against them by reason of the need for other countries to protect their own industries. This added up to population pressure inside Japan and lack of markets to sustain the increased industrial development necessary to occupy that increased population-which would be a dangerous situation.

He admitted all this-but said that there were certain reliefs in sight. His experts told him that it was possible to increase food production and to bring new land under effective cultivation, particularly in the northern island of Hokkaido, by more modern methods and by flood control, more fertilisation, etc. This would, he was told, probably be sufficient to sustain another five million of population-which would give relief for, say, five years. Beyond that, on this score, he could not see.

I raised the subject of Japanese trade with China. He said that China was the natural outlet for Japan's production of cheap goods-and the natural source of raw materials for Japan. He believed that it was inevitable and essential that Japan should trade with China. And yet China was Communist and Japan was anti- Communist.

He went on to say that he believed that the Japanese were sufficiently close in language to the Chinese to be able to get along with them. He thought that, by trading with the Chinese, the Japanese might be the 'fifth column' that might wean the Chinese away from Moscow, even if they did not undermine their brand of Communism. He clearly put great importance on the development of Japan-China trade.

Yoshida realises that this poses a very difficult problem for Japan, in that it pointed towards their making their peace treaty with Peking rather than with Formosa, as well as a trading arrangement with Peking-neither of which would presumably be agreeable to the United States.

(An obvious danger arising out of the Japanese becoming dependent on China as a trading partner is that, by reason of the control of trade being centralised in Peking, the Japanese economy would be largely at the mercy of the Chinese Communist Government. Such a trading arrangement would probably be more important to the Japanese than to the Chinese-and the latter could turn the tap on or off at will. On the other hand, there isn't much doubt that Japan will look to the non-manufacturing countries of South-East Asia as an outlet for her reviving industry and probably also as a source of raw materials. This would be more acceptable to the United States than any considerable Japanese trading connection with Communist China.)

1 The full submission reported on Casey's visit to eight countries in South-East and East Asia. A copy was circulated to all overseas posts as Memorandum C83.

[AA : A1838/1, 532/6/2]