Capitalist Peace and Depression, 1930–1935
Surprisingly, exports and imports, tariffs and quotas, and trade deficits and surpluses are central to American foreign relations. Ever since Franklin D. Roosevelt took office during the Great Depression, the United States has linked trade to its long-term diplomatic objectives and national security. Free trade, in short, was a cornerstone of an ideology of “capitalist peace.” Thomas W. Zeiler offers a wide-ranging history of modern America that argues that free trade has been an engine of US foreign policy and the key to global prosperity.
In mid-January 1933, six weeks before Franklin D. Roosevelt moved into the White House, Nicholas Murray Butler, president of Columbia University, gave a speech to the League of Nations Association. Because of the Great Depression, he warned, “The modern world is in the gravest crisis of its history.” Not only were disarmament treaties being whittled away, but an equally dire threat had also arisen from the “relentless international war now going on in the field of economics and finance, with the result that the trade of the world is strangulated and is sick unto death.” Protectionism had so dissipated world trade that “each separate and isolated nation will be left to a quiet economic death in its own lonely bed.” High tariffs were “quite as destructive of peace and human happiness as are battleships and guns, airships and poison- gas.” Among other internationalist measures, Butler urged nations to remove barriers to trade that so choked the lifeblood of producers and workers that they embraced political extremists out of desperation. Economic liberalism, carried by free-trade internationalism, would “protect the peace of the world” by ameliorating the fear and distress that the Depression was causing. Roosevelt and Secretary of State Cordell Hull labored over the fallout over protectionism by asserting the capitalist peace through a new trade law.
The infamous Hawley-Smoot Tariff and Roosevelt’s jettisoning of the London Economic Conference of 1932– 1933 have been seen as setbacks for capitalist peace, while the free-trade advocacy of Cordell Hull, the patron saint of the capitalist peace paradigm in the prewar years, as well as the advent of the Reciprocal Trade Agreements Act, set the United States on a course of bilateral, then multilateral, tariff liberalization efforts. These developments aimed to end the Depression, help US agriculture, labor, investment, consumer spending, and currencies recover, as well as curb the log- rolling politics of protectionism inherent in tariff legislation. But when it comes to Hawley-Smoot, for instance, emphasis has focused on whether the law worsened the Depression by jacking tariffs to their highest relative levels rather than on grand strategy and internationalism. Notably, when 1,028 university and private sector economists signed a May 4, 1930, letter to President Herbert Hoover protesting the pending Hawley-Smoot Tariff, they revealed concerns the tariff would undercut foreign policy interests.
“A conspiratorial, somewhat paranoid, perspective held that Europe had joined to conquer the American market.”
Their petition showed that the economists clearly believed the bill would have terrible economic and political consequences, halting trade during the greatest economic slide in American history. In contrast, protectionists predicted better economic times under the tariff, and legislators felt politically obligated to support it. A conspiratorial, somewhat paranoid, perspective held that Europe had joined to conquer the American market. But most protectionists were pragmatic, seeking simply to protect the home market from perceived unfair import competition. Hawley-Smoot’s impact on the international arena was then, and is today, a matter of dispute.
Historian Alfred Eckes Jr. has argued that trade partners did not issue formal protests about the law or threaten to retaliate with their own tariff increases, while other scholars have claimed that the act was to blame for retaliation against US exports in at least several countries within months after its passage. Hawley-Smoot certainly deserves some blame for the rise of trade barriers worldwide, including the restrictive British Empire’s Ottawa Agreement of 1932 that gave preferential treatment to British and Commonwealth producers at the expense of outsiders. At minimum, the last eight months of debate over Hawley-Smoot in 1929 and 1930 added to global financial insecurities that resulted in two stock market crashes. Europe’s World War I debts could not be repaid, as trade revenue abroad had dried up. Monetary stability lay in ruins, especially in the farm sector so prominent in most states at the time; Hawley-Smoot devastated American farmers, already weak from a decade of falling prices, because they relied on exports. The Tariff Act affected only a fraction of world trade but the markets, and the voters, got the message. As American exports plunged from $5.16 billion to $1.65 billion over Hoover’s term in office, the Republicans lost seats in Congress. Roosevelt trounced Hoover in the 1932 election, citing Hawley-Smoot’s ruinous effects on producers and the incitement of a trade war abroad.
“Roosevelt trounced Hoover in the 1932 election, citing Hawley-Smoot’s ruinous effects on producers and the incitement of a trade war abroad.”
In fairness, Herbert Hoover backed the capitalist peace concept. He had warned about the consequences of looking at trade and finance strictly in terms of bookkeeping rather than foreign policy. In his capacity as secretary of commerce in the 1920s, he had advocated expanding foreign trade after World War I, acknowledging America’s growing dependence on imports of raw materials and semi- manufactured goods. As president, he said international trade was more than “the noisy dickering of merchants and bankers — it is the lifeblood of modern civilization.” Importers recognized Hoover as “a man who is internationally minded, who has at interest, not only the welfare of the people of the United States, but that of the entire human race,” and thus they believed he would prevent the tariff bill wending its way through Congress from being drastically protectionist. As a creditor nation, the United States could not avoid close ties to the international economy, Hoover believed, and since commerce and prosperity interlocked with peace, there could be no self- interest in an interdependent world in which the pursuit of markets blended with politics and pacifism.
Thomas W. Zeiler is a Professor of History and Director of the Program in International Affairs at the University of Colorado Boulder. He is the author and editor of numerous books, including Free Trade, Free World: America and the Advent of GATT, Globalization and the American Century, and Annihilation: A Global Military History of World War II (OUP, 2010). He served as the President of the Society for Historians of American Foreign Relations and as editor of its journal, Diplomatic History.
Featured image by Adam Nir. Public domain via Unsplash.
