International: Unwitting Shylock

The U.S. terms sent to London were harsh enough to revive the old Uncle Shylock cry.

Britain could have the $5 billion loan she needs to reconvert her war economy, and she could have 55 years to pay.

But the interest rate would be 2% (the U.S. Treasury, which can borrow for less, would make a profit at this rate); ill-prepared Britain would have to plunge again into fully competitive world trade and cast off her sea anchor, Empire preference.

These prohibitive terms were eased a bit by a provision that interest payments need not begin for five years, and by an escape clause under which interest could be postponed in years when Britain had an unfavorable balance of trade. Both were logical U.S. concessions: without the five-year grace period, Britain would simply pay the U.S. interest out of U.S. loaned capital; the escape clause flowed logically from U.S. assurances to the doubting British that world trade was bound to revive and float British exports up with it.

But to the British, who came to Washington in hopes of an interest-free loan and who looked upon ^ of i% as the maximum interest, the terms were little short of catastrophic.

The Unsold Case. The U.S. negotiators had not wanted to turn the screws on the British. Secretary of the Treasury Fred M. Vinson and Assistant Secretary of State Will Clayton sympathetically understood the British case, wanted to give Britain the best deal possible.

What was possible meant what the U.S. Congress would stand for. And the Congress, appraising the postwar mood of the U.S. people, was against "charity" to Britain. Congress was also highly sensitive to the probability that a British loan would encourage other nations, notably Russia, to come knocking on Uncle Sam's door.

The U.S. Congress and public did not understand (because it had not been told clearly and authoritatively) that U.S. prosperity and hope of peace depended to a significant degree on the British loan. If Britain, appalled by the terms, refused the loan, these results were probable: 1) Britain would cling of necessity to closed Empire trade and blocked sterling, thus shutting off a large part of the world from the general flow of commerce; 2) Britain could scarcely participate, as the U.S. hoped she would, in the Bretton Woods plans for freeing currency exchanges and stimulating world trade; 3) currency controls and bilateral trade agreements would restore the dangerous economic warfare of the '305.

Moreover, the U.S. Congress and people had never been shown that the loan was a credit for U.S. food, raw materials, machinery. The U.S. economy in a critical period would be stimulated by exports to Britain.

Nub of the failure was that the U.S. negotiators and Britain's persuasive Lords Keynes and Halifax had concentrated on technical points in their seven weeks' negotiations, instead of taking time out to do a real selling job. Result: public opinion in both countries was more against the loan after the seven weeks than before.

Belts & Millstones. Britons refused to feel guilty about Empire preference trade restrictions. British negotiators in Washington argued that high American tariffs caused Empire preference in the first place and that it was Britain's only weapon for forcing down U.S. trade restrictions in the future.