463 Mr R. G. Casey, Minister to the United States, to Mr R. G. Menzies, Prime Minister

Cablegram 141 WASHINGTON, 28 June 1940, 4.45 p.m.

FOR THE PRIME MINISTER MOST SECRET

Your telegram unnumbered June 28th Far East. [1] I went with British Ambassador [2] to see Secretary of State [3] yesterday.

The British Ambassador left aide-memoire which outlined alternatives of United States backing Britain with force if necessary in Far East or of joining Britain in negotiations with Japan. I have also this morning seen Welles [4] and made following arguments orally and on paper.

(Begins) 1. Policy to date-United States and Britain-block Japan-help China.

2. This policy plus presence of United States fleet in Pacific has kept Japan quiet outside China.

3. Position now radically changed because (a) success of Axis Powers in Europe (b) French fleet (c) increasing Japanese belief that United States unlikely to let fleet fight in Far East (d) and even may largely remove fleet from Pacific.

4. Japan heartened by above to make demands on Britain in Far East.

5. Such demands may shortly become such that Britain has to concur or find herself at war with Japan.

6. British Empire cannot fight successfully Japan plus Axis Powers.

7. If British Empire has to fight she is likely to lose all footholds in the Far East-Netherlands East Indies and possibly Singapore likely to go. Australia likely to assist Netherlands East Indies and will so find herself directly engaged with Japan.

8. United States then alone in the Far East and raw materials from tropical areas in Far East denied her-or at least Japan in possession of bargaining counters that may force United States to give Japan more liberal terms.

9. If the [U.S.A.] [5] and British Empire compromised now and negotiated together concessions that we can give together likely to be very considerably less than Japan will be able to take by war.

10. Japan however will have avoided the risk of war (having Russia in mind) and will be able to remedy shaky domestic economic position.

11. Therefore advise that United States and Britain stick together-or suffer separately.

12. Essential for the sake of bargaining power that the United States fleet remain in the Pacific meanwhile.

13. Argument that 'Japan will not keep any agreement she may make.' Answer: she will keep it for a year or so and anyhow United States and Britain can take commercial hostilities. [6]

14. Stable relations with Japan could enable largely increased Australian and New Zealand forces to be employed in the main theatre of war. (Ends).

In view of possibility of negotiations with Japan I assume you are considering what Australia could throw into the pool. No doubt in this connection you will consider offering Yampi Sound concession.

I suggest concessions on lines of Yampi Sound may form valuable negotiation factors. They come under the heading of what I have called 'commercial hostilities' [7] i.e. things that can be stopped if Japan breaks her part of the agreement. [8]

CASEY

1 See Document 452, note 5.

2 Lord Lothian.

3 Cordell Hull.

4 U.S. Under-Secretary of State.

5 Inserted from the Washington file copy on AA: A3300, 9.

6 & 7 The Washington file copy read 'hostages'.

8 This cablegram was repeated as no. 48 to S. M. Bruce, High Commissioner in London.

[AA: A981, FAR EAST 31, ii]