Until mid-1940 Washington paid little attention to trade controls as an element of national security, other than restraining munitions exports. The cabinet-level Council of National Defense, authorized in 1916, had lain neglected. Since World War I officers at the Army Industrial College had studied future raw material needs and pondered the limiting of exports of strategic commodities in an unknown emergency. In the late 1930s foreign countries bought such commodities from the United States in large quantities. Not until January 1940 did the Army-Navy Munitions Board, which was founded in 1922 to “coordinate plans for the acquisition of munitions and supplies necessary for the proper prosecution of the Army and Navy war programs,” list fourteen “strategic” materials not produced in the United States and fifteen “critical” materials produced in less-than-essential amounts.
Regulating exports of strategic materials emerged first as an adjunct to domestic mobilization, not as a weapon of economic warfare to deter potential enemies. In the spring of 1940 the “phoney war” in Europe came to an end as Nazi troops conquered Norway, the Low Countries, and France. The surrender of France on 22 June shocked the U.S. government into a vigorous effort to build up neglected national defenses. Overnight, officials became obsessed with the production of ships, planes, and guns and with erecting the factories and shipyards to make them. The need to acquire, conserve, and stockpile vital resources was obvious.
In May 1940 Roosevelt set in motion two agencies to guide economic mobilization. He activated the Office of Emergency Management (OEM), which had lain dormant since he established it by an executive order in September 1939, to serve as his “eyes and ears” for liaison with future defense agencies. He reestablished the National Defense Advisory Commission (NDAC), created by Congress in World War I. The NDAC was a purely advisory committee of industrial leaders recruited from the private sector, legally without a chairman to avoid the appearance of an omnipotent “defense czar” who might irritate isolationists, while keeping control of economic defense in FDR’s hands. The president appointed to the committee six men and one woman, including two chief executive officers, who worked without salary. Edward S. Stettinius Jr. of United States Steel Corporation headed the Industrial Materials Division of the NDAC, staffed with industry recruits. It advised on raw materials and semifabricated metals and surveyed the availability of resources, plant capacities, foreign purchases, and stockpiling, but only incidentally addressed export control. William S. Knudsen of General Motors Corporation headed the Production Division, which took responsibility “at the point at which materials were cut up.” As the NDAC geared up, the need of materials for defense proved to be far larger and more varied than the Army-Navy Munitions Board had expected. Waging economic war by denying resources to future enemies was not on the NDAC’s agenda.1
On 2 July 1940, ten days after France surrendered, an alarmed Congress passed “An Act to Expedite the Strengthening of the National Defense.” Four sections of the act dealt with upgrading Army posts and equipment. Section 5 authorized the president to spend up to $66 million over the next two years to procure strategic and critical materials. Of profound significance to Japan, Section 6 declared:
Whenever the President determines that it is necessary in the interest of national defense to prohibit or curtail the exportation of any military equipment or munitions, or component parts thereof, or machinery, tools, or material, or supplies necessary for the manufacture, servicing or operation thereof, he may by proclamation prohibit or curtail such exportation, except under such rules and regulations as he shall proscribe.
The president’s new powers were comprehensive in regard to controlling defense-related products but did not apply to most U.S. exports, and not at all to imports. They were thus far less potent than the unlimited control over foreign trade available to him had he chosen to invoke the international payments controls of the Trading with the Enemy Act instead.2
Control of strategic exports evolved in uncoordinated lurches. Cordell Hull recognized that the program would trump his efforts to liberalize international trade. He settled for a sliver of authority in a new administrative hierarchy while maneuvering to restrain more adventurous agencies, in particular Morgenthau’s Treasury Department, which were eager to bend export controls into a form of economic warfare against Japan. But the emergency control system had no place for financial hardliners. The United States had chosen direct control of exports, not a financial freeze.
The State Department’s Office of Arms and Export Controls had been registering munitions producers under the 1935 Neutrality Act. Joseph C. Green, a fifty-three-year-old Princeton University professor who had joined the department’s Western European Division in 1931, headed the office and served as secretary of the Munitions Control Board, which consisted of five cabinet members with Hull as chairman. Green gained a reputation for firmness by advising Senator Gerald Nye’s Special Committee on Investigation of the Munitions Industry in its probe of arms exports. He bemoaned the absence of laws to track U.S. munitions that supplied both sides in a Cuban revolution and in the Chaco War between Bolivia and Paraguay. Du Pont sold explosives-making machinery to Japan. After Green’s statement that the Versailles Treaty prohibited Germany from importing arms, the State Department informed U.S. arms dealers that it frowned on exports to the Nazi regime. However, Green had little experience in control of commodities as he was forbidden to deny export licenses. (As late as January 1940 only helium and tin scrap were generally denied licenses, no inconvenience to Japan.) In his new assignment Green took a firmer stance against Japan than most of his colleagues in the State Department by advocating more rigorous licensing, wider definitions of restricted materials, and new commodities to be banned. His assistant, Charles W. Yost, twenty years younger, had followed a similar career track as his boss—the Hotchkiss School, Princeton, and diplomatic assignments in Egypt and Poland—but he had no relevant experience.3
As the United States geared up for economic defense, bureaucratic turf battles flared among old-line cabinet departments and upstart emergency agencies and committees—some sixty-five were eventually identified by the Bureau of the Budget—that exercised overlapping and even contradictory powers. Roosevelt finessed the squabbling bureaucracies away from the export control function by adopting a suggestion of his confidant, Harry Hopkins. The president himself would designate commodities subject to export licensing by issuing executive orders from time to time. The actual approval or disapproval of strategic exports, he decided, was a quasi-military function that would report directly to the White House, ensuring his control.4
Roosevelt appointed Lt. Col. (soon Brig. Gen.) Russell Lamont Maxwell of the Army Staff Corps as administrator of export control (confusingly also known as the Export Control Administration, or ECA). Maxwell, a West Pointer, class of 1912, was a prominent expert on artillery and ammunition. After World War I he supervised an ordnance depot in occupied Germany. In 1925 he graduated from the Army Industrial College, which had been founded a year earlier to “train Army officers in the useful knowledge pertaining to the supervision of procurement of all military supplies in time of war and to the assurance of adequate provision for the mobilization of materiel and industrial organizations essential to war-time needs.” Maxwell later served as ordnance officer of the Army Air Corps and ultimately as chief of the army’s Planning and Equipment Bureau (G-4) with a focus on procurement of automotive and aviation materiel. In his new mission of conserving raw materials, he concentrated on recruiting a large staff to process the flood of license applications that poured in rather than grasping for authority to wage economic and financial war against Japan—at least for the first few months.5
In practice, Stettinius’s advisory staff of the NDAC, in consultation with the Army-Navy Munitions Board, recommended to Roosevelt the commodities to be licensed by executive orders. The NDAC assigned as liaisons to the ECA W. Averell Harriman of the Industrial Materials Division and H. S. Vance of the Production Division. Recommendations on strategic materials mainly fell on the shoulders of A. I. Henderson, Harriman’s assistant, who helped draft license procedures and sat on the Export Control Advisory Committee, which acted on applications from exporters. To confirm specific actions, Maxwell’s team had to consult Green’s tiny staff in the State Department, but Green was instructed to issue or deny licenses “in accordance with” ECA directives. Although the State Department legally retained the final say on specific licenses, in reality its role was reduced to assessing the impact of export controls on foreign relations. The Treasury Department sat on the sidelines with no say in the system.6
Maxwell’s ECA swung into action, promptly issuing procedural rules for export licenses. A would-be seller of a commodity subject to licensing was required to submit a typewritten two-page application naming the product, destination, ultimate user, and specific end-use, the latter an often difficult question for the merchant to answer. The seller then mailed two copies to Green’s Division of Controls for forwarding to the ECA. If approved by the ECA and countersigned and impressed with the seal of the Department of State, it became a nontransferable export license. The merchant sent the license to the Collector of Customs at the appropriate port prior to a cargo’s sailing. A customs officer filled in the shipping details, stamped the license “Completed,” and returned it to the State Department for filing.7
On 5 July 1940 the president announced a long list of commodities that would be subject to licensing, and he named more on 26 July. The lists included most of the strategic and critical commodities already identified by the army and the NDAC, including munitions regulated under the various neutrality acts and items already denied to Japan by moral embargoes, namely, aircraft, munitions, aluminum, molybdenum, aviation gasoline and lubricating oil, plus tetraethyl lead (and in December bromine chemicals used to make TEL). The orders added other bombardment-related articles: bulletproof glass, optically clear plastic, steel armor plate, toluol and nitrate chemical feedstocks for TNT explosives, fire control instruments, and quartz crystals for radios. Also brought under licensing control were reexports of commodities that the United States itself had to buy abroad, including tin and tin-plated steel scrap, tungsten, manganese, most other steel alloying metals, rubber, silk, wool, cattle hides, long-fiber asbestos, and quinine. Later, coconut oil, cork, paintbrush bristles, and jute for burlap sacks were added. In a departure from a pure national defense rationale, a few chemicals of broad civilian application came under license, including ammonia, ammonium fertilizers, and sulfuric and nitric acids, even though acids were not in short supply and were economically impossible to ship long distances. The products most vital to Japan—steel scrap, nonferrous metals, machine tools, and petroleum—were also subjected to licensing, but Japanese applications were freely approved, at least initially.8
The first designations of commodities caused little consternation in Tokyo. Japan did not buy from the United States most of the controlled products, nor was it singled out for special scrutiny of its license requests. The executive order of 26 July, however, halted the granting of licenses for exports of aviation gasoline (avgas) of 87 octane and higher, tetraethyl lead used to raise octane, and aviation lubricating oils, except to U.S.-owned companies and to Western Hemisphere countries, where U.S. airlines operated. The Japanese embassy in Washington complained that Japan, as a buyer of “immense volumes” of avgas, was a victim of unfair bias. The State Department retorted that the protest was unwarranted as the fuel was needed for U.S. defense. Japan was not seriously inconvenienced, however. It purchased, in ever-growing volumes, gasoline just below 87 octane and high-grade California crude oil that Japanese refineries could upgrade to fuel suitable for Japanese planes. In September 1940 further proclamations required licenses for sales to any country of plans and equipment for avgas refineries and for technical information of any kind concerning the design and construction of aircraft and engines, the latter supplanting the moral embargo in the case of Japan.9
Steel was the most fundamental material for industrial and military might. For Japan in the autumn of 1940 the probability of an embargo of scrap iron and steel exports became a troubling issue because it depended heavily on U.S. scrap for its steel-making furnaces.
Old Japan had smelted iron for swords and small wares. The first modern steel plant was erected in 1901 at Yawata, on Kyushu, but Japanese production did not exceed one million tons per year before the 1920s. The islands lacked deposits of ferrous sulfide or oxide, the natural ores of iron. Japanese corporations developed low-grade ore deposits in Manchukuo and invested in high-grade mines, first in British Malaya and in the 1930s in the Philippines and Australia. Japan also bought from India pig iron, an intermediate product of almost pure iron produced in blast furnaces. The iron ore of the upper Great Lakes, which fed American blast furnaces, could not feasibly be shipped to faraway Japan. The United States exported to Japan only small tonnages of pig iron and finished steel shapes.
By 1936, despite strenuous efforts, Japan had raised steel output to only 3 million tons, insignificant compared with U.S. capacity of over 50 million tons and a similar capacity in Europe. (Japan reported in metric tons of 2,204.6 pounds.) In 1938 Tokyo adopted a five-year plan to expand empire capacity in 1942 to 16.9 million tons, including 12.7 million tons in Japan proper. But the dream was hobbled by the expense of building the necessary huge coke ovens and blast furnaces, which devoured 4 to 5 tons of iron ore, coal, and limestone flux for every ton of pig iron. And iron and ore were not the only deficiencies. Japan mined only low-grade “steam coal” for ordinary fuel; it had to import special coal for manufacturing coke, the hard carbon residue that remains after heating coal in ovens to drive off volatile gases. Good coking coal had complex chemical ingredients that glued the carbon into strong lumps that did not crush under the weight of iron ore stacked in tall blast furnaces, allowing air to be blown through the charge to smelt the ore.
Most worrisome was the supply of ferrous scrap for charging the steel furnaces. Japan produced most of its steel by the basic (alkaline) open hearth process, the method used for 90 percent of U.S. and world steel. Open hearths of superior efficiency and quality of output, which had displaced Bessemer converters since the late 1800s,10 required a charge of about 50 percent pig iron and 50 percent scrap, in some cases 60 percent scrap. Furthermore, electric furnaces operating on charges of 100 percent scrap had risen from 5 percent of Japan’s steel produced in 1935 to almost 20 percent, including the crucial alloy steels needed for munitions and machinery. Steel works obtained about half their scrap needs, that is, 25 to 30 percent of the total charge, from home scrap (“mill run-around”), the residues in ladles and ingot molds after molten steel cooled and the edges and clippings from rolling ingots into plates, sheets, and rails. Manufacturers also returned small tonnages of “prompt” scrap, the wastage from shaping end-products of steel. To complete the charge, steel mills had to purchase “old scrap” on the open market, which posed a dilemma. As a recent industrializer, Japan had not used enough steel for enough years to generate a large base of scrap. In the late 1930s Japan recovered domestically only 40 percent of the old scrap it required. Given its ambitious plans to expand steel production, it had to import increasing tonnages of scrap, and the United States was the only substantial source.11
In the United States two-thirds of all iron and steel eventually found its way back to the melting furnaces. (The rest disappeared as rust and unrecoverable small pieces.) Since the middle of the nineteenth century the country had consumed great quantities of iron and steel. The “above-ground mine” of scrap was thought to be as high as one billion tons due to peaks in railroad expansion about 1910 and in auto production in the 1920s. Heavy railroad and trolley equipment such as rails, plates, locomotives, and cars wore out and were scrapped, on average, after twenty-five years. Automobiles were junked on average after eight years. (Building and bridge girders, which lasted fifty to one hundred years, were relatively minor sources because they had not been widely used in construction before 1880.) Around the country two hundred thousand independent “rag picker” peddlers, typically with one truck or horse wagon, collected waste materials and sold to fifteen thousand junk yards that sorted, baled, and delivered twenty million tons of old scrap annually to the steel industry. In the 1930s the yards were full of scrap due to Depression-induced demolitions of railroads, machinery, and cars, while mill demand slumped 50 percent in the worst years. Unsold accumulations were huge in nonindustrial states such as California, Texas, and Florida because of the high cost of railroad hauls to the furnaces situated around Pittsburgh and the Great Lakes. Scrap in those coastal states could be more easily and cheaply shipped to the furnaces on the deep-water shores of Japanese harbors.
Japan first imported scrap in quantity in 1931. From 1934 to 1936 it bought an average of 1 million tons. In 1937 it bought 2.4 million tons, including 1.9 million from the United States despite a price spike from ten or twelve dollars per ton to twenty dollars, reflecting temporary U.S. economic recovery and demand from Italy and Britain. Japan’s scrap imports were somewhat understated because it also purchased old ships and steamed or towed them home for breaking up. Postwar Japanese data indicated eleven to twenty-four ships per year in the late 1930s except for an astonishing seventy-one imported in 1938. A salvaged ship that yielded, say, 5,000 tons of scrap was equivalent, however, to only twenty-five miles of torn-up railroad track.12
Japanese buying of U.S. scrap was a matter of early interest to the U.S. government. Between 1935 and 1940 purchases amounted to $131 million, 9.4 percent of all U.S. exports to Japan.13 In the spring of 1937 a few congressmen, cheered on by hardliners Morgenthau at the Treasury Department and Stanley Hornbeck, adviser on political relations at the State Department, proposed resolutions authorizing the president to block scrap exports. However, a committee chaired by Assistant Secretary of State Francis B. Sayre found such action unjustified, even on grounds of national defense, because of the overhang of surplus scrap.14 Hull seconded that view, despite Roosevelt’s quarantine speech and the outrage of the “China lobby” over bombs raining on China said to be made of chunks of the demolished Third Avenue elevated railway in New York City. The Institute of Scrap Iron and Steel, a dealers’ group, scoffed. Exports were a mere 0.5 percent of the national “reserve” of scrap, which was growing by 10 million tons each year because new scrappage exceeded steel mill requirements. Steel industry leaders felt that if an embargo became necessary it should restrict only the most desirable No. 1 heavy melting scrap, that is, tracks, plates, chains, heavy springs, and the like. There was no shortage of No. 2 bales—thin sheet metal from autos, rail cars, storage tanks, and farm equipment—which was less uniform, painted, and prone to wastage in melting. When the United States entered a recession in 1937–38 and scrap prices fell again, pro-embargo sentiment faded. Nevertheless, Japanese buying in 1938 declined to 1.4 million tons as Tokyo sought to conserve foreign exchange. Japan also bought odds and ends of junk from India and the Netherlands East Indies, but Europe, where the scrappage rate was lower and steel output less depressed than in the United States, had none to spare from its own armaments race.
In 1939, as a European war loomed, Japan hastened to purchase another two million tons of U.S. scrap at a cost of $32.5 million. In the first half of 1940, although U.S. steel output at last surpassed 1929 levels and American mills demanded more, scrap was still abundant because exports to continental Europe had ceased and to Japan had slowed. Steel executives anticipated no overall shortage although some worried about exports pushing up prices and leading to price controls on steel. The Army-Navy Munitions Board did not rank scrap as important for defense.15
With conservation adopted as a defense policy in July 1940, Morgenthau grew concerned that heavy scrap would grow scarce. He recruited allies in other agencies, including Secretary of the Interior Harold Ickes and Leon Henderson of the National Defense Advisory Commission, and convinced Stettinius of the NDAC to recommend conservation.16 On 26 July Roosevelt designated scrap subject to export licensing regulations. No. 1 scrap, believed to comprise 15 to 20 percent of Japanese purchases, was considered most likely to come under restrictions. (Separate data for No. 1 and No. 2 were not collected.) But the State Department wished to keep Japan friendly by selling “normal” levels of commodities, so Maxwell’s control staff licensed generous shipments of 563,000 metric tons of No. 1 scrap in the following three months. Ninety-nine percent of Japanese license applications for scrap were approved. Lower grades were unrestricted. Exports to Japan rose in the third quarter of 1940 to an annual rate of 1.6 million tons, double the rate of the previous six months, a quantity too large for available shipping.17
In September 1940 Washington’s attitude hardened as Japan occupied northern French Indochina and prepared to join the German-Italian Axis. With steel orders from Great Britain and for U.S. defense surging, the industry turned in favor of a full embargo of scrap exports. Hawkish administration officials outmaneuvered the reluctant State Department and ignored Ambassador Grew’s objections. On 26 September the White House announced that all scrap export licenses would be revoked effective 15 October and new ones issued only for Great Britain and Western Hemisphere destinations. Japanese diplomats indignantly accused the United States of favoritism and an intent to pressure Japan that mocked the supposed rationale of defense necessity. The discrimination, they warned, caused “high feelings” in Japan and forebodings of ruptured economic relations, with ominously unpredictable political results. Hull brushed off their notes, denied discrimination, told them U.S. defense policy was none of their business, and delivered his customary lecture against aggression.
On 27 September 1940 Japan signed the Axis Tripartite Treaty.18 Nevertheless, No. 2 scrap remained unlicensed and flowed to Japan until 10 December 1940 when the president incorporated into the embargo system iron and steel of every variety, from ores and scrap to semifinished ingots to finished plates, sheets, tubes, rails, and forgings, and ferroalloys as well. Japan grumbled that the intention was obviously discriminatory as she was the principal buyer of steel raw materials, but the State Department merely repeated its previous stance. Thereafter no scrap went to Japan. The United States justified the “unfriendly act” because ferrous scrap had become essential for U.S. and British defense and because it had not singled out Japan for harsh treatment. Studies indicated Japan had access to enough steel-making raw materials to provide for its economy if the government stopped channeling so much into war. U.S. officials did not believe the deprivation would paralyze Japanese economic life. (It was not, in fact, the first time the United States had attempted to use withdrawal of steel to pressure Japan politically.)19
The U.S. assessments were correct. The scrap embargo pinched but did not retard Japan’s aggressive policies. As early as 1936 Tokyo had ordered steel plants to accumulate raw materials. In 1937 it began allocating steel output to end users. In 1940 the army and navy received 35 percent and shipbuilding another 7 percent, offset by drastic cuts for utilities, transportation, railroads, and factories, leaving very little for consumer goods. Japan stepped up imports of iron ore from Malaya and the Philippines as well as efforts to make steel in Manchukuo from low-grade local ores. Above all, Japan had stockpiled scrap, as U.S. analysts were aware. From 1937 to 1939 Japanese mills consumed an average of 4.4 million tons of scrap, of which 2.1 million was mill run-around and 1 million was from domestic salvage, implying consumption of 1.3 million tons of imported scrap. Because imports averaged 2.1 million tons, Japan had accumulated 0.8 million tons of scrap annually, almost all from the United States. In 1940 the stockpile stood at 5.7 million tons from all sources, equal to fifteen months’ total scrap needs or an astonishing three years of imports from the United States. In 1941 Japan began to live off its hoard, drawing down 22 percent of the scrap stockpile to maintain steel production.20
Machine tools exports emerged as another delicate problem in U.S.-Japan relations. Regulations accompanying the licensing act of 2 July 1940 did not apply to fabricated articles ready for consumption, even those manufactured from restricted materials, except machinery “necessary for the manufacture” of military equipment or munitions. The United States exported about thirty varieties of machinery and machine tools (according to Department of Commerce categories) in an infinite variety of models and specifications, in both metric and U.S. standards. Intended uses by customers, whether martial or peaceful, could be surmised by manufacturers and government analysts more readily than batches of raw materials. Machinery deemed critical for armaments was brought under license in 1940, notably tools and related equipment for melting, casting, pressing, cutting, grinding, and welding of metals. Exports of machinery for innocent activities such as woodworking and mining remained unrestricted. In November Japan protested that machines it purchased had been denied export licenses on grounds of U.S. defense needs even though they had been built to Japanese specifications. No U.S. company wanted to buy them when frustrated Japanese customers tried to unload. U.S. machine tool firms were even refusing orders from Japan for ordinary equipment not subject to licensing. U.S. authorities retorted that the orphaned machines might some day prove useful to American defense, and that rejection of non-metalworking tools freed up plant capacity for urgently needed machines. The noose gradually tightened. The ECA extended license denials to plastic molding machines, hydraulic pumps, any tools with industrial diamonds, and instruments for measuring and testing. Maxwell reported to Dean Acheson that in January and February 1941 fourteen of the eighteen Japanese tool and parts applications were disapproved; the others, approved after appeals, consisted of three micrometer or gage sets and a second-hand molding machine. In May 1941 U.S. agents arrested two Japanese men in San Francisco for conspiring to smuggle tool bits out of the country. They pleaded guilty. In July a Mitsubishi affiliate was apprehended shipping to Japan used oil drilling machinery from Mexico, which it plotted to replace with new U.S. equipment freely licensed for use in Mexico. In a rare moment of mercy that month, Maxwell okayed export of lathes and steel forgings worth $420,000 because they were already partially manufactured and resale to U.S. factories had proved “fruitless.” Nevertheless, Green, the State Department gatekeeper, refused to license them and arranged for government requisition. Exports of machine tools lurched to a stop.21
In the opening days of 1941 executive orders expanding the list of commodities under license poured out of the White House in rapid succession. On 10 January the most important nonferrous metals, whether in ores, shapes, or products of any kind, were added: copper and copper-based alloys of brass and bronze; zinc; nickel; and, on 4 March, lead. From February to mid-April came a flood of entries, including fifty-one on 27 March alone. The metals list swelled with mysterious specialties: titanium, radium, and uranium. Dozens of organic and inorganic chemicals appeared: coal tar petrochemicals, feed stocks for synthetic rubber, and pine oil for metal flotation in ore-grinding mills. Licensing was extended to “bottom of the barrel” refinery residues: petroleum coke, carbon and graphite electrodes for aluminum smelting and electric furnaces for steel, and carbon black for rubber tires, as well as equipment for oil drilling and refining. On 4 March the ECA added designs, plans, and photos relating to manufacturing of any articles needing licenses, well over a hundred by then. For the first time raw materials for consumer goods made an appearance on the control list: borax for household soaps and mixtures; flax and vegetable fibers that the United States did not export to Japan and high-grade wood pulp for rayon that it did; nylon; shoe leather; and belladonna drugs native to the United States. On the other hand, foodstuffs were scarcely mentioned; the United States did not export many to Japan. Only animal and vegetable cooking oils were listed for licensing because of shortages in the United States, a matter of little concern to Japan with its abundant soy and fish oil supplies. Finally, on 28 May 1941, the president with the approval of Congress extended licensing to exports to Japan from the Philippine Islands, although wide discretion was allowed to local authorities. By 25 July the only major commodities freely exportable to Japan were cotton (of which there was a worldwide glut), food, and non-aviation oil fuels, for which generous licenses continued to be granted as a matter of U.S. foreign policy (chapter 11).22
The hastily rigged export control system of 1940–41 suffered aches and creaks. Morgenthau described a complex example. Suppose an American firm tried to sell a product to a country that imposed its own exchange controls, as almost all countries did by 1941. The U.S. exporter had to win approval from the customer’s country to get paid in dollars, gain clearance from a U.S. liaison committee to negotiate a sales contract, apply through the ECA for a license, and hope eventually to receive one after endorsement by the State Department. Morgenthau proposed to centralize everything in the Treasury but got nowhere against vociferous opposition from the other agencies. Another report described the awkward procedures of six agencies involved in the export process. A banker told Acheson that it took three weeks or longer to get a license for a simple sale of steel to Latin America, and the mills could neither schedule production nor commit to a firm price so far in advance. An appeals committee in the Export Control Administration spent two to four weeks to rule on challenged cases. To amend an application was impossible once it entered the bureaucratic maze. In desperation, exporters abused an informal ECA practice of automatically granting licenses for orders of less than five thousand dollars by splitting large orders into several applications. Suggestions to cut the red tape, such as exempting general merchandise for the Western Hemisphere, made no headway. Bureaucrats interfered at whim. For example, “so-called experts” in the State Department urged restriction of Sitka spruce lumber, useful for airplane construction but rarely sold to Japan, on obscure grounds of foreign policy. More seriously, the State Department often retarded shipments by demanding that applicants for every licensed commodity (other than for the British Empire) append statistics of the seller’s previous exports to the destination country since 1936—for nonferrous metals since 1935—so U.S. authorities could troll for hints of evasion through third countries.23
From inception in July 1940 to 23 September 1941 the ECA granted ten thousand export licenses, yet at the latter date still struggled with a backlog of twenty thousand unprocessed applications.24 The burdensome complexities of export licensing, and diplomatic stresses of refusing specific products for specific countries, proved to be an important factor in the turn to the simpler and more powerful device of freezing Japan’s dollars to halt all exports and then—at least in concept—to release funds to pay for exports to Japan case by case.
By the spring of 1941 the United States had brought under restriction all commodities important for national defense that were, or threatened to be, in short supply. The percentage of U.S. global exports subject to license rose from 25 percent in December 1940 to 44–47 percent in April–May 1941. About 80 percent of metal and 50 percent of machinery exports (but only 5 percent of purely civilian goods) were subject to licensing. In April 1941 rejections amounted to 13 percent of applications, by value, rising to 23 percent in May.25 Japan was supposedly not singled out for discrimination but in fact it had been, step by step. In 1939 air warfare materiel was barred “voluntarily;” in the fall of 1940 steel scrap was halted; and in 1941 machinery and most metals were limited to “friendly” regions. By the second quarter of 1941 hardly any strategic goods were licensed for Japan, other than non-aviation oil products, as a deliberate U.S. policy. (Japanese stockpiles of most materials cushioned the blows.) The stated objective of export controls remained conservation for defense, and there was plenty of oil from the producing regions of the United States accessible to Japan. Severe deprivation of the Japanese economy had to await financial sanctions aimed precisely at Japan by invocation of the Trading with the Enemy Act.