Thursday, November 3, 2016

Book Review 375: Bankrupting the Enemy

BANKRUPTING THE ENEMY: The U.S. Financial Siege of Japan before Pearl Harbor, by Edward S. Miller. 323 Pages, illustrated. Naval Institute

Edward Miller’s  “Bankrupting the Enemy” has gained in relevance since it was published in 2007 because since then the attempt to control state actors with sanctions has become more and more common, more desperate and, usually, less successful.

It isn’t that sanctions have only just come into use. Miller noted in 2007 that they had been tried 75 times since World War II. Everybody knows that sanctions failed against Italy after it invaded Ethiopia because the key ingredient, oil, was not included. Sanctions had spotty effects on the Spanish Civil War, although that episode offered perhaps history’s strangest caution about unexpected consequences, when members of the Mother of Parliaments stood and cheered the news that German planes had bombed British ships.

Unexpected consequences seem to be the norm with sanctions. See Cuba. But the July 1941 sanctions against Japan resulted in the exact opposite of the intended effect, at least if you take Franklin Roosevelt at his word that he hoped sanctions would bring Japan to its senses, not to its knees. As we will see, this may have been a very good thing.

Half-hearted arms sanctions since 1931 had had no effect on Japan’s aggression in China, and ramped up sanctions in 1940 were no more effective. But a financial freeze in July 1941 quickly drove Japan to the most desperate response — war with America, Britain, the Netherlands, Australia and New Zealand.

Miller does a masterly job of setting the scene, and we learn a great deal about such unexpected subjects as why women dislike cotton stockings. The bottom line, which Japan’s militarists should have considered but did not, was that Japan’s most valuable export, raw silk, was used entirely for American women’s stockings. Such was the disparity of the two economies.

It was also crucial that America controlled gold — it made the only market — and that the dominance of the dollar meant that Japan would have no alternatives if America stopped buying Japan’s gold and also froze its dollars.

Yet Roosevelt and his cautious secretary of state, Cordell Hull, were hesitant to use that power. It was already known before Miller’s work, through Jonathan Utley’s “Going to War with Japan,” that midlevel bureaucrats had administratively toughened the commodity sanctions imposed when Japan moved into Indochina beyond what Roosevelt had intended. However, using secret documents not available to Utley, Miller shows how Japan managed to mitigate those impacts.

By subterfuge at the Yokohama Specie Bank in New York (exactly like what we have seen since with many banks, such as BNP Paribas, when the United States and/or the United Nations have tried to impose financial sanctions on, eg, Iran), Japan hid enough foreign exchange to finance necessary military imports for years. (In a minor aspect, the United States considered selective sanctions not against Japan generally but against certain companies but rejected that as impossible to administer; a lesson recent administrations have declined to accept.)

With money to spare, Japan could laugh at wimpy American commodity sanctions on aviation gasoline (87 octane) by importing 86 octane gas and blending it.

Officially and no doubt actually, Roosevelt intended the financial freeze as a carrot-and-stick method. As Japan showed signs of conforming to American wishes, shipments of petroleum or other materials would be selectively allowed.

One branch of government continued to license exports but an ambitious and opportunistic hawk in the State Department, assistant secretary Dean Acheson, simply clamped down on all access to frozen accounts. The licenses were useless.

It is unclear what Roosevelt was thinking. Perhaps he thought a sharp blow would quickly bring Japan around. His only comment in the archives is a note on a memorandum: “SW (acting secretary of state Sumner Welles) OK FDR.”

So Acheson had his way. Like Roosevelt, he wanted most to stop Germany and had little rational reason to force Japan into war against America in the Pacific. Or perhaps he thought that if he could get a war started anywhere, it would become a world war, as did happen.

Acheson’s memoirs are unhelpful.

So one lesson is that America is hard to govern and even presidents don’t always get what they want.

But another conclusion can be drawn, although Miller does not draw it.

It is clear that Japan’s divided leadership was itching for new military adventures in late 1941. Japan could neither win in nor withdraw from China, so to saber rattlers a new front offered a hope of upsetting things with hoped for good results.

The army wanted to conquer Siberia. That was its familiar area; it had already attacked the USSR in 1938 and 1939. And in its perpetual war with the navy, a land war would entitle it to a greater share of national resources.

The navy, we know, was unenthusiastic about war with Russia but could not control the army and, absent a shutdown of imports, had few good reasons to argue for an adventure in the south.

It is thus likely that, if Roosevelt had not acted and if Acheson had not overacted, Japan would have invaded Siberia. The Red Army had, we now know, defeated Germany in September by imposing the 900,000th casualty on the Germans.

Germany could replace only 900,000 casualties, so from that point on, all the Red Army had to do was keep fighting. But it was on a knife’s edge; a serious Japanese attack would possibly have reversed the decision in eastern Russia and would certainly have prevented the transfer of Siberian units to the Moscow front where the Russians just barely managed to save their capital and most important industrial center in December.

If Russia had been knocked out, the combined strength of America and Britain were insufficient to reconquer Europe, so it may be that the dysfunctional and dithering American policy toward Japan was, in the end, better than anything any of the feudists in Washington could have devised.

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