First Shots of Trade War?


From the February 2008 Trumpet Print Edition


Will America’s weak dollar trigger a global trade war? The last trade war helped create the Great Depression.
By Robert Morley

If the crash of 1929 had been like previous ones, the subsequent hard times might have ended in a year or two. But instead, unprecedented economic meddling prolonged the misery for 12 long years.

How bad was the Great Depression? The following letters, written to President Franklin D. Roosevelt’s wife, convey the despair many felt as trade stopped, unemployment spiraled, banks collapsed and hunger spread across the nation.

During the four years after the 1929 stock market crash, the nation regressed like at no other time in its history. Forty-two percent of America’s banks folded. Production at the nation’s factories, mines and utilities fell by more than half. People’s real disposable incomes collapsed 28 percent. Stock prices cascaded to one tenth of their pre-crash height. Unemployment rose from 1.6 million in 1929 to a whopping 12.8 million by 1933—leaving one out of every four workers jobless. People lost their savings, their homes, their health and their hope.

But what made the 1929 stock market crash turn so much more deadly than the previous short-lived crashes of 1920 and earlier?

According to many economists, the 1929 crash was unique because just months later, the first shots of a trade war that quickly engulfed the world were fired.

Post-World War i industrial America, reeling from the effects of the stock market crash and subsequent job losses, erupted into protectionist fervor. In a reversal of conditions today, back then it was inexpensive European imports, especially agricultural products, due to cheap labor and falling European currencies, that began to undercut American producers.

Riding a populist wave, U.S. politicians imposed the Smoot-Hawley Tariff Act—one of the most draconian protectionist policies in America’s history. Designed to protect American farmers and manufacturers from cheap-labor low-cost European imports, Smoot-Hawley instead unintentionally triggered an economic arms race that helped plunge America—and the rest of the world—into a decade of depression and despair.

Historian Richard Hofstadter, with the benefit of hindsight, described the tariff act as “a virtual declaration of economic war on the rest of the world.â€