THE FAR EASTERN CRISIS



first, the uncertainty of the European situation, particularly as regards
the rearmament of Germany and the general breakdown of disarma-
ment negotiations; secondly, the necessity of fostering Great Britain's
progress to economic and financial recovery. The first problem needs
no elaboration. The requirements of the second problem, which are
equally evident, were authoritatively explained in the budget speech
of the Chancellor of the Exchequer in which he took pains to point
out that, whereas the first impetus to increased British trade had
come from the home market, further recovery depended entirely on
the improvement of world conditions and world trade (and it so
happened that this speech announcing reductions in the British income
tax and remissions in the emergency cuts of 1931 was made on the
very day the Japanese spokesman made his initial statement in Tokyo).
The export of cotton and woolen textiles is not the least important
part of British foreign trade, and the problem of Japanese competi-
tion in this and other fields has for some months been receiving the
serious attention of the Cabinet, as has been reported by this Embassy
in earlier despatches. There is no doubt that the Cabinet, at the
moment of formulating its position on the Japanese statement, had
clearly in mind the fact that there would be announced shortly a
scheme of colonial import quota restrictions directed in the main
against Japanese goods. In view of the Empire's favorable balance
of trade with Japan, such a policy would defeat its object if the
moderate amount of support which can be given Lancashire by
drastic action in the Empire would create deep trade hostility or
provoke open or disguised Japanese retaliation. For, in the last
analysis, the market for British textiles, as is the case with most
British exports, is the world, not the colonial market. So it follows
that in determining its attitude at the present time the British Govern-
ment was not inclined to consider any immediate policy to add political
fuel to the conflagration shortly to be augmented by the arbitrary
restriction of Japanese imports into British colonial possessions, (See
my despatch of today's date).2
  Therefore, except in the fact of a direct and pressing menace to
the Empire in the Far East, and in view of other considerations enu-
merated previously, it is unquestionably the British view that the
present is not the propitious moment to press the Japanese question,
especially since it is reasoned that the United States and Russia will
adopt such an attitude at the present time as to defer a crisis.
  Then, too, there has been an element in this country traditionally
friendly to Japan which has for some time pointed out that a strong
China in the Far East was not necessarily a favorable factor to Eng-
land, since Chinese nationalism has bred British boycotts, the Shanghai
situation of 1930 [1925?], agitation for the abolition of extraterri-
2No. 693, May 7; not printed.



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