384 Hodgson to Evatt

Cablegram 1256 [1] WASHINGTON, 24 December 1944

For Dr. Evatt from Colonel Hodgson.

After various talks with key men in the State Department, the following are some of my impressions, especially as regards Commercial Relations.

For about three months the Department has not functioned owing to the Presidential Elections, the absence of the President on holiday, hold up by the Senate and the four new Assistant Secretaries [2] and general reshuffle of positions. One moment the Press are attacking them for not having any Foreign Policy and then when any pronouncement is made usually after a Fait Accompli, such as Greece and Poland, that they had no cause to issue such a statement. As a consequence there seems a marked hesitancy to face up to any of the big problems which we are studying, such as the pacific future of Germany, Peace Treaties and World Organisation.

It is difficult to obtain an agreed Departmental view on any subject. This is particularly true of commercial relations and I gather Hawkins [3] went to London without any clear notion of what the Government or the State Department wanted.

There are two conflicting schools of thought in the State Department as regards any multilateral Commercial Agreement- (A) That any International body set up should be purely consultive and advisory. It would be an exchange for information, a repository for the receipt and examination of statistics from Member States and with powers of recommendation to achieve the objective of Article VII of the Mutual Aid Agreement. Each State Member would negotiate freely on bilateral lines within the general principles of any agreed convention.

(B) That the Member States should initially enter into binding obligations embodied in the Convention itself to reduce tariffs or at least not to raise them and not to take discriminatory commercial measures in regard to which the International Authority set up under any such convention would have authority to enforce.

This view is strongly held, but those opposed state the agreement would be so circumscribed by reservations and take so long to be brought into operation as to make it almost worthless.

I gather from the latest cables and Departmental notes I have seen here on this subject that a Conference on this subject was contemplated some time early in the New Year. I think this will be found to be incorrect. The State Department estimate that Hawkins will not return for three months. The position will then be examined in the light of the informal London conversations and a decision reached as to whether they are to be continued on an official basis or other Countries brought in, A fundamental issue is involved at the outset. The United Kingdom desires a reduction of the United States tariff as a prerequisite whereas the United States is insistent that preferences including Imperial preferences must first go.

At the same time as the multilateral approach is being pursued the United States is conducting and is prepared to conduct bilateral talks.

In this respect I was advised informally that the United States was now prepared at any time or place to reopen conversations with Australia on a bilateral basis with a view to post-war trade. This might be examined as to whether we consider the time opportune.

The question of the Australian Full Employment Policy was raised by them informally very early with me. They are most interested and would, I think, come into a conference provided they had a prior chance of examining the Agenda and provided possibly that it was held in America so that opinion here could be educated. At the same time I am not sure if our experts from Australia on their return have conveyed to you the strong feeling in some quarters in the United States against the Full Employment Policy. One fact to be borne in mind is that the Department of State in its recent reshuffle is now controlled by men representing the wealthiest families in America. Even before this it was strong enough to damp down on Miss Perkins and Department of Labour at Philadelphia when they were fast coming our way. [4] Much spade work has been done but they have to be thoroughly convinced on the following issues- (A) Would not a full employment agreement as the first objective of international economic relations mean that it would be difficult if not impossible to obtain a lowering of tariff barriers by individual countries? Therefore should not a multilateral agreement covering tariffs, discrimination exchange control etc. come first.

(B) The President has promised sixty million jobs. With the industrial potential here and an assumption of a large exportable surplus such as motor cars and trucks, how is this going to affect employment elsewhere. Conversely how will full employment policies elsewhere affect these jobs.

(C) The officers I saw appreciate that the policy of full employment can be worked under a totalitarian system such as Germany with price and wage fixations, regimentation and rigid Governmental control of business, This system would be quite unacceptable to the United States and they would like to know the concrete ways and means contemplated for application to a democratic system such as ours.

(D) If the partial answer to (C) is by Governmental expenditure on public works leavened out over lean years based on a policy of deficit . . . [5] their rejoinder is that this was tried during 1932-1938 and were rescued only by the war purchases of the Allies.

Keynes may say the United States Government did not go far enough but where would a spiral increase lead to? (E) Would not a policy of subsidies to consumers or process for the stimulation of production be just as efficacious.

I mention these as indicative of the various viewpoints one has to controvert and as a guide to the people who are preparing our briefs for the proposed Conference.

1 Sent through the Legation in Washington.

2 There were, in fact, five new Assistant Secretaries of State as of 20 December: William L. Clayton, James C. Dunn, Julius C.

Holmes, Archibald MacLeish and Nelson A. Rockefeller.

3 Presumably Harry C. Hawkins, Director, Office of Economic Affairs, U.S. State Department from January-October, then Economic Counsellor at the U.S. Embassy in London.

4 See Documents 138, 144 and 145.

5 A sign here indicated 'mutilated'.

[AA:A3195, 1944, 1.45648/646/645/644]