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36 Ward to Burton

Minute CANBERRA, 8 July 1949

I think the main issues arising from the discussion this morning
may be summed up as follows:-

[matter omitted]

If the United States does not take steps to maintain a high level
of employment, the United Kingdom and Western Europe simply cannot
afford to trade with her at the present level. They could not
depend on the United States for supplies of food and raw materials
at the present level because they could not pay for them. It would
simply mean severe dollar cuts and heavy unemployment both in the
United Kingdom and Western Europe. The point Swan [1] made this
morning, you will remember, was that other Western Hemisphere
countries would also find themselves in a similar position in that
they could not afford to trade with the United States at the
present level and maintain full employment themselves. So we have
the United Kingdom, Western Europe and countries in Western
Hemisphere like Canada, faced with a common problem.

The solution, Swan suggested, was that the United Kingdom should
try to reach some sort of arrangement, not only with Europe-East
and West-but with western hemisphere countries, to set up a mutual
full employment area. Under such an arrangement, the goods which
western hemisphere countries could not sell to the United States
because of recession there, would be sold within the agreed area,
and in return those western hemisphere countries would receive
goods which they previously imported from the United States from
other countries within the area. This, of course, means isolating
the United States, as a kind of 'plague spot' in the world
economy. This expresses the matter very bluntly, but it does bring
out the main issue.

Swan's argument on devaluation was mainly, that by this means,
these 'third' western hemisphere countries would be able to
continue buying United Kingdom exports. Without devaluation we
might not only lose our footing in the United States but in the
whole of the Western Hemisphere.

The Immediate Issue
World-wide ostracism of the United States is clearly an extreme
measure and carries with it far-reaching political implications.

Therefore, the only wise policy is to exhaust the possibilities of
United States' action first. But the critical consideration
involved here, as mentioned above, is the time factor. The United
States Government must act both vigorously and quickly, otherwise
the United Kingdom, Western Europe and countries in the western
hemisphere, outside the U.S.A., might all be involved in grave
economic difficulties.

Perhaps this is a case for not sparing any means to drive home to
the United States the importance of acting now.

1 T.W. Swan, Chief Economist, Department of Post-war

[AA: A4311, 29/4]
Last Updated: 11 September 2013
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