Edward Nash Hurley was chairman of the Shipping Board and president of the Fleet Corporation during 1917-1919.

from which we can observe both the diplomatic and the domestic functioning of the Wilson administration under the pressure cooker conditions of wartime mobilization.

For many years prior to 1914, shipbuilders in Japan relied primarily on Great Britain for steel. The war interrupted British deliveries because the United Kingdom needed all the steel it could produce for its own industrial mobilization. Japanese shipyard owners then placed orders with American firms, but shortly after the United States entered the war, this source of supply also dried up; the Wilson administration, worried about possible steel shortages in American industry, placed an embargo on steel exports. This policy was not specifically aimed at Japan, but it had a significant impact there: forty thousand tons of steel ordered by Japanese shipyards were stopped en route. One Japanese newspaper, Osaka Asahi, commented that the embargo would "reduce almost to nothing Japan's ship-building capacity."3

On September 6, 1917, this sensitive issue arose at a meeting in Washington between Secretary of State Robert Lansing

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Shipowner Robert Dollar wrote to the Shipping Board in 1917 to express his concerns about Japanese mercantile policies in the Pacific.

in Washington, Aimaro Sato, the United States might be able to provide Japan's shipyards with "plates and shapes in exchange" for the right to obtain Japanese vessels. Hurley emphasized, though, that the "American people [would] not back up any trade whereby we [sold] our ship plates and shapes for leases and charters of ships." Congress, Hurley informed Sato, had "appropriated large sums of money to build ships" and expected the Fleet Corporation to use American steel to produce those vessels. Any agreement in which steel was exchanged for chartered tonnage that could only be utilized "for a short time" would be unacceptable. If steel was to be sent to Japan, Hurley concluded, the United States would have to be permitted to purchase new ships in return-and at reasonable prices.5

Soon after Hurley's meeting with Sato, the two nations began serious negotiations. The recently established War Trade Board represented the United States in these discussions. The chief American negotiator was Frank C. Munson, the owner of an American shipping line. Both Hurley and Munson were intent on driving a hard bargain with the Japanese. Their goal was twofold in nature: to obtain additional ships for use on the convoy routes between North America and Europe and to limit the growth of Japan's merchant marine, which had substantially expanded its transpacific trade. when British, American, and European shipping firms had transferred vessels to the Atlantic."

In the United States there was a growing concern, especially on the West Coast, about the rapid expansion of Japan's shipping and shipbuilding industries. This was expressed in the article "A Little Brown War-Baby," which appeared in the September 1917 issue of Sunset: The Pacific Monthly. "While her Allies are but holding their own in Europe," Sunset told its readers, "Japanese tonnage is going up in leaps and bounds." After the war, the magazine said, Japan's governmentsubsidized merchant marine could dominate trade in the Pacific. “In May of 1915

you could count the number of vessels Japan was building on the fingers of one hand," Sunset reported, but "by the end of [that year] the number of ships" on order in Japanese yards "would have taxed a counting on the legs of a centipede." After the war, the article ominously suggested, the "Little Brown WarBaby" might catapult Japan to commercial supremacy on Asian and transpacific trade routes.?

During the year 1917, Japan's steel shipyards according to the U.S. naval attache in Tokyo-built sixty-five ships totaling 546,000 tons. Hurley and Munson both knew that Japan could not match that total in 1918 without American-produced steel. By using steel exports as a bargaining tool, they reasoned, the United States could enlarge its own merchant marine by acquiring Japanesebuilt ships and at the same time limit the growth of Japan's commercial fleet.

8

The basic American negotiating strategy was to withhold steel from Japan until the shortage became so severe that the Japanese, out of desperation, would have to grant the United States extremely generous terms. The Japanese, who had enough steel stockpiled to continue shipbuilding through 1917, bitterly resented this approach. Not until early 1918 was any real progress made in the negotiations. By then both sides were becoming increasingly anxious to reach an agreement-Japan because it was running out of steel and the United States because the shortage of shipping on the vital Atlantic trade routes was becoming critical."

In mid-January Hurley demonstrated his growing desire to close a deal with the Japanese by asking the American Iron and Steel Institute, the industry's trade association, if U.S. mills could produce ship steel in "excess of the requirements of our own shipbuilding and navy programs." The answer he received was encouraging: "300,000 tons of plates and shapes could be sold to the Japanese shipbuilders without interfering with our present shipbuilding program.' By early February Hurley was willing to send this steel to Japan without further

"10

delay. The shipping shortage the United States faced on transatlantic routes was nearing crisis proportions, and for Hurley, this now overrode all other considerations. The Shipping Board chairman told Secretary of State Lansing on February 12 that the United States "should be prepared, if necessary, to pay heavily for Japanese assistance."'11

Munson, however, did not yet feel a Ideal should be struck. He believed the steel embargo had to be "maintained to the limit" in order to get the best possible bargain and to restrict Japan's commercial expansion in the Pacific. 12 Hurley objected. In a lengthy letter on February 13 to Vance McCormick, the Trade Board's chairman, he vigorously protested the collapse of negotiations with "one of the largest shipbuilding concerns in Japan," the Kahara shipyard. Hurley told McCormick:

was

A tentative proposition worked out. Under this Kahara & Co. agreed to sell us 28,000 tons of shipping to be delivered within the next four months. . . . All of these ships were to be newly constructed vessels, and were to be sold to us for $310 per deadweight ton, delivered at a United States port.

In turn, we were to furnish one ton of steel for each ton of shipping.

Mr. Munson suggested that there be a delay of 48 hours before the deal should be finally closed, and later you asked us not to proceed for the present. I understand that you feel that if the negotiations continue eventually we may be able to drive a harder bargain, getting two tons of shipping for one ton of steel.

Four months ago, we confess that we felt, as you feel, that a continuance of the negotiations would bring about better terms. I doubt whether there is any branch of the Government which has taken so determined a stand as the Shipping Board against profiteering of any sort. We must deal with conditions, however, rather than with theories, in meeting the necessities of the present situation, and it is now that we need the Japanese tonnage. . . .

If the Shipping Board were free to conclude the negotiations on its own initiative, it would conclude them at

The War Trade Board, however, refused to soften its tough stance, and the Kahara deal fell through.

To understand the next stage of the negotiations, it is necessary to digress briefly and examine what had happened to steel prices in the United States. During the months of American neutrality, from August 1914 to April 1917, a tremendous demand for shipping-and other war material—had sent the price of steel in the United States skyrocketing. Ship plates, which had cost one and a half cents a pound in 1914, had risen to four and a half cents a pound by January 1917 and to six cents a pound when the United States entered the war in April. By July 1917 the price had further increased to nine cents and by September to eleven

cents.

In mid-1917, however, these high prices applied only to nongovernment buyers; the Navy Department and the Emergency Fleet Corporation, taking advantage of the government's ability to put pressure on American steel firms, paid much lower rates. In July 1917 President Woodrow Wilson, to set uniform prices for steel, instructed the Federal Trade Commission to make a study of the costs of production so that "fair" prices could be established for all buyers.

In September the Trade Commission finished its inquiry and recommended that the price of plates be reduced from eleven cents to three and a quarter cents per pound, shapes from six cents to three cents, and steel bars from five and a half cents to less than three cents. These reductions, substantial as they were, still provided steel companies with attractive returns. As Melvin I. Urofsky states in his book Big Steel and the Wilson Administration, the "American steel industry made extraordinary profits during the war" the highest in its history.

Wilson approved the new rates for steel on September 24 and announced they would become effective on January 1, 1918. Although the government had no legal authority to enforce these prices, steel companies voluntarily complied with the administration's wishes-to

have done otherwise would have appeared treasonous during the national emergency.

These lower prices were warmly welcomed by nongovernment buyers in the United States, including many private firms that had government contracts for war material. Due to the embargo, however, the discounted cost of steel was of no value to Japan.

The Japanese, though, were more concerned with obtaining steel than its cost. Indeed, they were willing to pay the old prices, if that was necessary, to get the forty thousand tons of steel they had ordered before the embargo. This steel was now stored-exposed to the weather and rusting in several Pacific Coast ports.'

15

Negotiations over this issue continued through late February and into early March, with Ambassador Morris serving as an intermediary between the Trade. Board and Japanese shipbuilders. As days and weeks passed, the steel shortage in Japan and the shipping shortage in the United States put increasing pressure on both sides to reach an agreement.

In mid-March Japanese yard owners proposed to Morris that they provide the United States, by October 1, 1918, twelve ships currently under construction, aggregating approximately 100,000 deadweight tons, on the following terms: "three tons deadweight ships for each two and one quarter tons steel now under contract" (i.e., the high-priced "old steel') and a payment from the Shipping Board of $270 per deadweight ton for each vessel delivered. Morris rejected this and suggested to McCormick, at the Trade Board, that the United States counter by proposing "one and one half tons deadweight ships for one ton [old] steel," and payments from the Shipping Board that would range from $300 per ton, for ships delivered in May, to $240 per ton in September. 19

McCormick thought Morris's proposition acceptable, but Hurley, who had now changed his mind about paying top dollar for Japanese ships, did not. This was due to concerns he developed over the impact such high prices would have on the Fleet Corporation's budget. Hurley wrote in a memorandum for record on March 18:

I impressed upon Mr. Polk [Frank L. Polk, the under secretary of state] and Mr. McCormick the danger of the Fleet Corporation paying high prices for ton

and ship-purchase agreements proved to be a time-consuming process due to the distrust and ill will that had arisen on both sides as a consequence of the difficult bargaining.

The charter arrangement, signed on April 26, provided the United States with twenty-two ships, aggregating roughly 150,000 tons. American officials, however, were disappointed with the overall quality of the vessels. Most of the ships had been built before the turn of the cen

nage to other countries, and referred to the effect it would have on builders in this country and on labor [which had engaged in shipyard strikes in late 1917 and early 1918]. Labor is going to make further demands on us. At the present [wage] scale, it will cost us $300,000,000 extra to meet the increase over and above the figures given in our contracts for ships we are building. In addition to that we have claims from the Norwegians and the other countries for [partially completed] ships we have commandeered, who demand from $300 to $365 per ton for their ships.2

20

Because of these factors, Hurley concluded, it would "be a mistake" to pay the Japanese high prices for vessels. The preferable course of action, he now argued, would be to provide Japan with more steel and get the tonnage at a lower cost. Hurley was willing to send Japan a ton of high-priced "old steel" for each ton of the dozen vessels Japanese yards had offered to sell the Shipping Board. The prices he proposed for these ships ranged from $265 a ton for May deliveries to $225 for those in September. Hurley also was willing to ship Japan a large quantity of the less expensive "new steel" if, in return, the Japanese would allow the Shipping Board to order additional vessels for roughly $185 a ton-the same price the Fleet Corporation paid American shipyards. 21

McCormick acceded to Hurley's wishes. On March 19 Munson, representing the War Trade Board, wired Ambassador Morris in Tokyo that the Shipping

Board did not want to pay Japanese builders prices above $265 per ton because it would cause "complications with our American building program." As a consequence, the United States now preferred "to deliver more steel and secure [a] lower price for ships." Munson then outlined Hurley's proposal for acquiring the twelve nearly completed vessels.

Munson went on to offer the Japanese an order for 200,000 additional deadweight tons of shipping in exchange for inexpensive "new steel." The terms offered for these vessels included a two-toone ship-to-steel tonnage ratio and a payment for the ships of $175 a ton-a figure $10 below Hurley's, for Munson was still determined to drive as hard a bargain as possible.

22

On March 26 Japanese shipbuilders accepted the American terms for the initial twelve ships and agreed to give careful consideration to the proposal for 200,000 additional tons. Solid progress, it appeared, had finally been made in the negotiations.23

Encouraging progress also occurred in simultaneous negotiations concerning the charter of existing Japanese vessels. The United States had initiated these talks by requesting, on February 9, sixmonth charters on 600,000 tons of Japanese shipping. A few weeks later Japan had responded by offering to charter 150,000 tons to the Shipping Board. The Japanese, evidently, saw this as a goodwill gesture that might help release U.S. steel shipments.24

seaworthiness. The Shipping Board, nonetheless, eventually was able to put all of them into service. 25

The ship construction agreements took longer to complete. During the continuing negotiations, Japanese shipbuilders, anxious to get as much steel as possible, agreed to provide the United States with

a total of fifteen-rather than twelveships in 1918. These vessels, totaling roughly 127,000 tons, were to be exchanged for high-priced "old steel" on a ton-for-ton basis. Ship prices, depending on date of delivery, were to range from $212.50 to $265 per ton. Ambassador Morris also reached tentative agreements with Japanese yards to deliver to the