Your telegram 903. 
In speaking to Secretary of State  today about a matter connected with Australia, I mentioned to him Menzies'  anxiety about the possibility of a Russo-Japanese agreement and his view that it was important to use every endeavour to bring about a settlement between China and Japan. To this Secretary of State replied that he entirely understood the natural anxiety of Australia about the Far Eastern situation. He thought, however, that at this moment universal execration of Russia would deter the Japanese from entering into any agreement except about minor questions and that the Russo-Japanese dispute and the Far Eastern question was much too profound a difficulty to be settled by a right about turn of this kind. He went on to say that the root of American policy was to try and convince Japan that her present policy of trying to make China an exclusive economic area while expecting to be allowed to trade freely with the rest of the world was foredoomed to failure and would only lead to the exhaustion both of Japan and China and that the right policy was to return to the open door in an independent China which would make possible once more the investment of capital from which everybody would benefit. The root to the trouble was the policy of the young militarists and he thought that there was growing dissatisfaction in Japan with this. It was the policy of the United States to hold on to its rights inflexibly and to resist the attempt of Japan to dominate China if necessary for twenty-five years in the confidence that it would eventually prevail. I reminded him of the position which Great Britain and Australia would be in if Japan struck southward as a result of American policy but he said that he did not think there was any serious likelihood of Japan doing this so long as the United States pursued its present lines. He said that he was doubtful of the wisdom of settling all minor disputes with Japan because if they were all removed it might make insistence on the larger policy more difficult.