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.)