STOCKPILE AND ACCESSIBILITY OF STRATEGIC AND CRITICAL MATERIALS TO THE UNITED STATES IN TIME OF WAR

FRIDAY, JANUARY 15, 1954

UNITED STATES SENATE, SPECIAL SUBCOMMITTEE ON

MINERALS, MATERIALS, AND FUELS ECONOMICS

OF THE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS,

Washington, D. C. The subcommittee met at 2:20 p. m., pursuant to recess, in the committee room, 224 Senate Office Building, Washington, D. C., Senator George W. Malone, chairman of the subcommittee, presiding. Present: Senator George W. Malone, Nevada (chairman of the subcommittee).

Present also: Jerome S. Adlerman, counsel to the subcommittee; George B. Holderer, subcommittee engineer; and Richard Sinclair, subcommittee accountant.

STATEMENTS OF SAMUEL WAUGH, ASSISTANT SECRETARY OF STATE FOR ECONOMIC AFFAIRS; THRUSTON B. MORTON, ASSISTANT SECRETARY OF STATE FOR CONGRESSIONAL RELATIONS; JOHN W. EVANS; WILLIS C. ARMSTRONG, OFFICE OF INTERNATIONAL MATERIALS POLICY, BUREAU OF ECONOMIC AFFAIRS; EDMUND E. GETZIN, METALS AND MINERALS STAFF, STATE DEPARTMENT; AND FREDERICK WINANT, SPECIAL ASSISTANT TO THE ASSISTANT DIRECTOR FOR MATERIALS, OFFICE OF DEFENSE MOBILIZATION-Resumed

Senator MALONE. The subcommittee will be in order.

Mr. Waugh, we are glad to see you here today. We know that you are relatively new in the Department, and we do not expect you to know all about the State Department in a few months. You probably are aware of the objectives of this subcommittee. We are operating under Senate Resolution 143, which directs the committee to determine the availability of critical materials in time of war and for our expanding economy and for our security.

That injects several elements into the investigation which normally are not present. One is of course the availability of raw materials in wartime and our ability to defend transportation lines. We have had evidence from General Wedemeyer and Gen. Bonner Fellers and General Johnson, who is assistant to Mr. Thomas, who is one of the chief deputies to Mr. Wilson. The testimony of all of them is very closely allied, although they had not conferred with one another.

We do expect to have Mr. Wilson and some of his other competent officials here for further testimony. The purport of everything we have learned is that the Western Hemisphere is going to be our dependable source of supplies in any all-out fourth world war, whatever number they give it, and that transport of any supplies across one or both major oceans will be problematical.

For many years the general policy of the Government has been to promote the development and importation of strategic materials from these nations across one or both major oceans and we find ourselves now utterly dependent upon these areas for many of the materials and minerals that you cannot fight a war without. For example, from India we get annually 800,000 or 900,000 tons of manganese, which is about half of our annual consumption. The amount in the stockpile is classified, but I can say to you that it is not very much, compared with other materials in that category. With modern submarines and atomic energy the destruction of harbors can be accomplished without very much commotion and our sealanes rendered unusable.

I am especially cognizant of these facts because during World War II I was consulting engineer or special consultant to the Senate Military Affairs Committee on strategic and critical materials, and also consultant to the Secretary of War on strategic and critical materials. Even the submarines of the Germans, awkward as they were in comparison to what the Russians now have, sunk nearly 90 percent of our shipments of manganese, bauxite, and chromite from overseas during many months early in World War II.

What this committee wants to do is to recommend to the Senate the policies and principles that should be adopted that will provide through venture capital investments the maximum production in this country and, whenever it is possible, complete the availability of critical materials in the Western Hemisphere, the area we can defend. We have testimony that there is no material where we cannot completely satisfy our military needs in time of war from the Western Hemisphere except possibly industrial diamonds, and we have testimony that you can cut the use of industrial diamonds in half through other methods which have been developed, and we probably can get industrial diamonds from Brazil if a real effort were made to do so.

HARRY DEXTER WHITE LETTERS

So this is a very serious thing. We find letters that we dug out of Harry Dexter White's memoirs and records at Princeton University and then found releases and letters that were based on the Harry Dexter White letter to Morgenthau advising him to buy from foreign areas the minerals and materials and save our own production, and later a Presidential announcement which without any doubt was based on the Harry Dexter White letter, even though the President who wrote it. may never have even known he was alive, but somebody did who was in a position to write that letter which the President signed.

Apparently and very conclusively there are two approaches to destroy this Nation. One is political, which we identify as communism. You are as old as I am and you know that communism did not start yesterday. It started in the United States with the recognition of Communist Russia in 1934 when every veterans' organization in America screamed to high heaven. Also there is an economic

approach to destroy this Nation which started at the same time in 1934. Based on that approach these international organizations have been built up, some of which reached Congress and Congress has refused to accept them, and others have not reached Congress but are or were operating just the same in contravention of congressional intent and consent.

Without going any further into this matter-all of the transcripts are available to you, of course, executive hearings or whatever they are I hope that someone close to you has an opportunity to review them for your benefit.

It was necessary, then, in the judgment of the chairman and the committee, for us to understand the reasons and the steps leading up to the organization of these many conferences and organizations that led to these results. We are more or less cognizant of communism now. It has been spelled out to the country, and I think a very good job has been done by the Government Operations Committee. But no one seems to be cognizant of the economic approach to do the same job.

I am reviewing this for the record, and a good deal for your benefit, Mr. Waugh.

During World War II, on March 7, Mr. Harry Dexter White, of some fame

Mr. WAUGH. What year is that?

WHITE SPONSORED THEORY THAT UNITED STATES IS A "HAVE NOT" NATION DEN UDED OF STRATEGIC MATERIALS

Senator MALONE. March 7, 1944, during World War II-wrote a communication which I am going to make a part of this record. He detailed the petroleum, manganese, tungsten, zinc, lead, chrome, mercury, and other materials that we were practically out of and named the date that we would exhaust our supply, which was a typical approach to the economic destruction of this country. He said, for example, that we had a 16-year supply of petroleum. He says on the basis of our 1943 consumption we would have a 13-year supply of oil. In other words, we would be out of oil. Then he goes on with tungsten, zinc, and lead. He did not explain that what he was talking about were known reserves and that the known reserves are always increased if there are profitable operations and there is an incentive to explore and find new reserves.

Since Mr. White wrote this memorandum we have doubled our reserves and used so much more oil annually than we used in 1943 that it is hardly subject to comparison.

In 1944 he said that in mercury we had only a 2-year supply. As a matter of fact, we have no mercury deposits that it is feasible to operate right now because it can be produced cheaper in Spain. The wages there are just a few cents a day, whereas they are $12 or $15 here. Therefore, it is not feasible to mine it in the United States, and we are out of mercury now. However, if the United States producers were assured of a profitable price I am sure that they could produce a major part of the United States requirements as they did in World War II. Suffice it to say that that is what the letter to Secretary Henry Morgenthau is about: "Subject: Proposed loan to the U. Š. S. R." In other words, we should buy these materials from the U. S. S. R. and from foreign nations.

Paragraph 3 says:

It is evident from the above table that, although our domestic reserves of petroleum, tungsten, and zinc may suffice to meet consumption requirements for the next decade, they will be almost entirely dissipated by the end of that period.

That was in 1943. According to White we are supposed to be out of all these things now, but we have practically doubled everything that we had then. But you have to pay American wages to get it. [Reading:]

4. Although our reserves of strategic materials could be somewhat expanded, given an increase in price to make possible further development of marginal

resources

They are marginal here when you have to pay American wages. When you can get them abroad for $2.50 a day and have to pay $12 a day here, that makes them marginal. If we could pay $2 wages in the United States we would produce so much that we would not know what to do with the minerals

the necessity of growing United States dependence on foreign sources of supply in order to satisfy anticipated postwar industrial requirements and to maintain adequate security reserves, is inescapable. (See attachment I for complete table on United States metal reserves.)

I am going to make a part of the record at this point this letter of March 7, 1944, to Secretary Morgenthau.

(The letter referred to is made a part of the record at this point:) MARCH 7, 1944.

To: Secretary Morgenthau.

From: Mr. White.

Subject: Proposed United States loan to the U. S. S. R.

The following memorandum is in reference to your request that the feasibility of the extension of a large credit to the U. S. S. R. in exchange for needed strategic raw materials be explored. Your opinion that such an arrangement might well be feasible appears to us to be supported by our study of the possibilities.

1. Recent confidential reports on our raw material resources prepared for the Under Secretary of Interior disclose an increasing dependence of the United States on foreign sources of supply for strategic raw materials because domestic reserves have been seriously diminished or virtually depleted.

2. The following table indicates the extent of United States current reserve supplies for some important strategic materials which can be produced in quantity in the U. S. S. R., in terms of prewar and current war, domestic requirements:

3. It is evident from the above table that, although our domestic reserves of petroleum, tungsten, and zinc may suffice to meet consumption requirements for the next decade, they will be almost entirely dissipated by the end of that period; in the case of manganese, chrome, mercury, and lead our resources are too limited to satisfy even probable domestic requirements of the next 10 years. The number of strategic materials for which our reserves are very low and which can be produced in the U. S. S. R. is greater than indicated above, and includes platinum, vanadium, graphite, and mica.

4. Although our reserves of strategic materials could be somewhat expanded, given an increase in price to make possible further development of marginal resources, the necessity of growing United States dependence on foreign sources

of supply in order to satisfy anticipated postwar industrial requirements and to maintain adequate security reserves, is inescapable. (See attachment I for complete table on United States metal reserves.)

U. S. 8. R. UNTAPPED RAW MATERIALS RESERVOIR

1. The U. S. S. R. is richly provided with a wide range of strategic raw materials, including metals, minerals, timber, and petroleum, but the unequal degrees to which these have been developed will limit the number and volume that may be available for export in the immediate postwar years.

2. Rapid economic reconstruction and expanded resources development could greatly enhance the export surplus of the U. S. S. R., could sustain large-scale exports of metal and metallic ores, petroleum, and timber at an average value of at least $500 million, not including exports of other materials, such as furs and semimanufactures.

3. It therefore appears that a financial agreement whereby the United States would extend a credit of $5 billion to the U. S. S. R. for the purchase of industrial and agricultural products over a 5-year period, to be repaid in full over a 30-year period, chiefly in form of raw material exports, would not only be advantageous to the United States, as well as helpful to the U. S S. R. but would be within the limits of feasible trade between the two countries, since the amount we would wish to purchase would be in excess of the repayment which the U. S. S. R. would be required to make under the proposed loan terms. (See attachment II for suggested terms of U. S. S. R. repayment for United States credits.)

IS THE PROPOSED FINANCIAL AGREEMENT PRACTICAL AND DESIRABLE?

The proposed financial agreement appears practical because:

1. The prewar restricted pattern of trade should not be used to define the potentials of postwar trade between the United States and U. S. S. R., since both economies have been fundamentally restructured by the war. In both the United States and U. S. S. R. the accelerated expansion of production capacity and national output which has been achieved during the last 3 years indicates the new and larger dimensions which foreign trade can assume in both economies in the postwar period. (See attachment III for a summary of United StatesU. S. S. R. trade relations during the interwar period 1918-38.)

(a) The low level of prewar international trade relations were both a symptom and a cause of deteriorated economic and political international relations. It is realistic to assume that as compared with prewar years a decreasing proportion of expanding Soviet resources will be devoted to war industries, thereby creating an enlarged export potential through the release of resources.

3. Since the U. S. S. R. has a completely state-controlled economy, the extent and character of its surpluses and deficits (i. e., imports and exports) are largely determined by planning decisions covering the allocation of manpower, materials and equipment, it will be possible for the United States to influence the Soviet pattern of anticipated national surpluses and deficits.

4. If United States trade plans are premised on an expanded volume of trade and a correlative increase of United States import requirements, the expansion of trade between the United States and U. S. S. R. need not necessarily involve a reduction in total United States imports from other areas.

The proposed financial agreement appears desirable because:

1. The United States will obtain access to an important source of strategic raw materials which are expected to be in short supply in the United States after the

war.

2. The United States will also be assured an important market for its industrial products since the U. S. S. R. represents one of the largest single sources of demand in Europe and is ideally suited to supply us with a large and varied backlog of orders for both producers' and consumers' goods. Such a sustained demand could make an important contribution to the maintenance of full employment during our transition to a peace economy.

3. Moreover, the United States will not only be assured a desirable market because of the anticipated volume of demand the U. S. S. R. will exercise, but because of its superior repayment potential compared with other foreign buyers of American products.

4. An arrangement of this character would provide a sound basis for continued collaboration between the two Governments in the postwar period.