The Interwar Trade Regime Versus the Trade Regime after World War II - Example

The Interwar Trade Regime versus the Trade Regime after World War II [Student’s Name] [Institution Affiliation] [Due date] The interwar Trade Regime versus The Trade Regime after World War II Introduction The international political economy remains to be an issue of global concern in relation to the impact of the trade regime that followed the Second World War and the regime that operated throughout the interwar period. Walther (2014) ascertains that the world has ever experienced two deadly global world wars that had a synergistic impact on the global trade and economy since time in memorial. According to Nelson (2011) the First World War referred to as WWI was a global war centered in Europe starting from 28th July 1914 to 11th November 1918. The First World War occurred as a result of the assassination of Archduke Franz Ferdinand, the heir to the throne of Austria-Hungary by a Gavril Principe in Sarajevo. According to Whalen (2011), two decades later, the Second World War known as WWII cropped in and lasted for six years of economic degradation from 1939 to 1945 with related conflicts beginning earlier. Adolf Hitler, one of the prominent German Politicians invaded Poland in 1939 and marked the beginning of the deadly war. Though noxious and destructive, the end of the Second World War in 1945 marked the beginning of the post-war economic boom also referred to as the Golden Age of Capitalism. The global economic expansion lasted for a period of 26 years. For instance, the economic boom ended with the demise of the Bretton Wood Systems in 1971, the oil crunch of 1973 and the stock market crash of 1974 referred to as the 1970 recession. It is, therefore, imperative to discuss how the trade regime that came after the Second World War differed from the system that operated throughout the interwar period. In addition, this paper will discuss the ideas, interests, and institutions that propelled the post-war economic boom. Overview of the trade regime that operated throughout the interwar period Nelson (2011) termed the interwar period as the time that separated the two deadly world wars starting from 1919 to 1938. During World War I, extensive government controls replaced the international trade relations in regard to private commercial transactions as different countries dedicated their output to support national war efforts. Furthermore, overseas trade faced curtailments from sea blockades and submarines. The political economy experienced a strong domination of high tariff levels, prohibitions on both exports and imports, quantitative restrictions and, combined with foreign exchange controls. Britain, Italy and France decided to share the trade references among each other and rejected to grant MFN treatment to their Germany enemy during the Allied Economic Growth Conference in 1916. On the other hand, the United States President ordered the removal of all economic barriers and declared the establishment equality of trade conditions among all nations. Territorial changes in continental Europe led to nine new states and trading entities to consolidate their newly-found independence by utilizing tariff policy to improve their industrial sectors. Since then the collapse of the world economy into protectionism and trading blocks in 1930s saw all but a few countries impose higher tariffs in 1928 compared to 1913 before the First World War (Whalen, 2011). In 1930s, states abrogated trade treaties and renounced MFN commitments. Tariffs, import licenses, import quotas, exchange controls and batter trade compartmentalized trade within formal and informal empires and blocked it all together. The division of Habsburg Austria into six independent states resulted in the division of a single trading market into six separate customs territories and broke down the pre-war production pattern. Germany lost provinces that previously supplied a large part of its grain output and served as its industrial market to the East. In addition, France snatched Alsace and Lorraine, which served as important steel and coal producing regions to the western border. The league of the nation, formed in 1920 as illustrated by Fellows (2012), liberated for the political willingness of international cooperation. The League of Nations worked in collaboration with international conferences. The United States became the largest creditor with the best and strongest economy in the world. Governments played a crucial role in economic affairs compared to the First World War experience before. Before the war broke out, major European nations traded together with their overseas trade mainly consisting of exporting manufactured goods and importing agricultural produce and other primary products. Trade continued to shoot up before industrialization cropped for the United Kingdom to intrude into new fields including chemical and electro-technical industry. The breakdown of traditional trade flows reversed and reduced the world economic prevailing specialization. Autarchy took hold of critical economic sectors such as agriculture and raw materials including minerals. The self-destruction of Europe countries gave economic gaps to other nations. The demand for export of raw materials and agricultural produce not only increased, but the decline also resulted in the expansion of manufacturing industry European opposing regions such as United States. Returning to a peaceful session at the end of the wars was not that simple. European countries and their citizens faced difficulties in honoring the effects accrued from the wars with unrealistic expectations on how war could offset their inter-allied debts and result in the reconstruction of their economies. Failure to address monetary issues properly led to hyperinflation and massive exchange rate adjustments before Second World War. As the Second World War neared, nations continued to gain more recognition of world trade flows. Factors that influenced the nature of trade during the inter-war regime Many nations failed to adhere to the gold standard by abandoning it to develop their currencies to allow them build their military quickly. However, many currencies ended up being devalued to almost nothing making most nations to stabilize their currency by reverting to the gold standard. The consumer demand in the market fell due to the deteriorating economy. The gold standard caused people to hoard gold with associated currencies limiting the system liquidity. The First World War in relation to Kennedy (2004) led to the high loss of life with devastating economic and infrastructural damage. Such changes inhibited consumer spending power with lowered fraction of pre-war levels. Consequently, the slowing effect of the international commerce led to a ripple impact throughout the world. According to Bélanger, et. al (2011), the 1929 Stock Market Crash marked an economic downturn in United States. Europe continued to depend on the accessible loans from United States until 1929 when the economic crash occurred with a serious dry up of funds. The crash reduced international trade drastically and resulted in the grinding of local economies to a halt. The crash came as an outcome of over-speculation from investors to overestimated stock and commodity values. A higher deflation with poor consumer spending despite the recovery of the production capacities led to excess manufacturing of goods with limited demand. For instance, prices fell tremendously creating a poor business as well as poor wage environment. In addition, the newly created U.S. Federal Reserve rejected to reduce the interest rates so as to spur investing and lending within a deflationary environment. Poor liquidity in collaboration with capitalism increased gold hoarding as the Western nations hoped for a free-market economy to bring self-correction. The Trade Regime after the Second The Second World War symbolized the beginning of a new era for the world economy. Policy makers shifted away from the isolation policies of the inter-war period and embraced international trade as essential for economic growth. During 1950s, and 1960s international trade improved consistently with a high level of cooperation. For instance, merchandise value of exports rose from $53 billion to $112.3 billion to between 1948 and 1960 (Terborgh, 2003). For instance, such growth rates exceeded the world rate expansion rate experienced during the half century before 1914, marking the launch of globalization. In 1950, the world trade growth outpaced the world output and continued until early 1970s. Different nations emphasized on tariff reductions, the establishment of proper transportation and communications technology coupled with income growth and convergence. Kennedy, Cohen and Piehl (2011), cited trade liberalization from restrictive policies as the primary cause of the post-war trade boom. After the Second World War, different nations engaged agreements to eradicate trade barriers erected during the inter-war period. A good example is the 1947 General Agreement on Trade and Tariffs (GATT) at Geneva. However, the incapability of GATT to resolve Europe’s complex trading topics led to the formation of the European Economic Community (EEC) to a create a common external tariff among six nations. Continuous negotiations led to the gradual achievement of a post-war free trade environment as opposed to the inter-war period. Unlike the massive economic growth of 1914, elimination of tariffs could result in numerous improvements. However, the continuous quantitative restraints and foreign exchange restrictions in trade inhibited the essence of tariff elimination for the attainment of a free and open market access in Europe. Therefore, as argued by Wells (2011), gradual reduction of tariffs resulted in trade increase. However, some scholars ascertain that the post-war rise in trade was a result of decreased transportation costs. Technological advancements such as the discovery of containerization reduced freight in the marine sector led to increased trading activities at the seas coupled with improved supply chain. However, communication improvements via the use of computers and telecommunication technologies eased the multi-national production by improving coordination and eliminating geographic location constraints. For instance, during the post-World War II era there was a rapid growth in trade between industrial economies with similar factor endowments as countries traded in similar goods. The contrary expansion in income per capita as compared to the inter-war regime led to increased demand that consequently increased the exchange of services and goods. Simultaneously, technological enhancement led to widespread innovation. Perren (2006), identified technological improvements to have influenced the widespread change that resulted in continual adjustments in comparative advantage between countries facilitating rapid growth in post-World War II trade. Furthermore, rapid income growth and income convergence played a significant role in the growth of trade after World War II. Differences between The interwar Trade Regime and The Trade Regime after The Second World War As mentioned earlier in the discussion, there are a number of differences to note from the interwar trade regime and the regime that followed after WW II. The inter-war trade system refers to the trade experienced between different countries between WW I and WW II, 1919 to 1938 (Nelson, 2011). While the extensive government controls and trade tariffs discouraged the growth of trade in the inter-war period, different countries signed treaties such as the GATT to improve trade after WW II. Different nations reduced trade tariffs in 1950s and 1960s to encourage international exchange of goods and services. During WW II, the demand for goods and services among consumers increased with the growth in per capita income as compared to the inter-war period where the high numbers of dead people lowered the demand for goods. In addition, post-World War II resulted in increased innovation and inventions in the use of computers that improved different sectors of the economic trade as compared to the inter-war period where technology was poorly utilized despite its presence. United States later on joined the League of Nations to participate actively in the international market after WW II as opposed to the first war where she openly refused to take part. Contrary to the inter-war regime where capitalism was the primary system of trade, different countries used their currencies to foster healthy business transaction after Second World War. Furthermore, the world turned into a single trading block after Second World War as opposed to inter-war regime experience where different nations disagreed among each other to establish numerous trading regions Conclusion From the above discussion, it is imperative to note that trade improved tremendously after the Second World War. The liberalization of international trade policies, advancement in communication and transportation technologies, rapid income growth, and convergence are the essential factors that resulted in the surge of post-WW II trade. On the other hand, the First World War, capitalism, trade restrictions, the gold standard and the 1929 economic crash accounted for the nature of trade during the interwar regime. References Bélanger, R., English, J., Smith, A., & Ross, J. A. (2011). Canada's Entrepreneurs: From the Fur Trade to the 1929 Stock Market Crash: Portraits from the Dictionary of Canadian Biography under the Direction of John English and Réal Bélanger. Toronto: University of Toronto Press. Chase, K. (2009). Trading Blocks: States, Firms and Regions in the World Economy. The University of Michigan Press. Retrieved from: Kennedy, D. (2004). Over Here: The First World War and American society. Oxford: Oxford University Press. Kennedy, D., Cohen, L., & Piehl, M. (2011). The brief American Pageant: A History of the Republic. Boston: Wadsworth Cengage Learning. Nelson, R. L. (2011). German Soldier Newspapers of the First World War. Cambridge: Cambridge University Press. University of Waterloo, Canada Perren, R. (2006). Taste Trade and Technology: The Development of the International Meat Industry since 1840. Burlington: Ashgate. Ravenhill, J. (2014). Global Political Economy. Oxford University Press Terborgh, A. (2003). The Post-War Rise of World Trade: Does the Bretton Woods System Deserve Credit? Department of Economic History London School of Economics. Houghton Street London, WC2A 2AE. Working Paper No. 78/03 A. Retrieved from: Walther, P. (2014). The First World War in colour. Koln, Germany: Taschen. Whalen, R. C. (2011). Inflated: How Money and Debt Built The American Dream. Hoboken, N.J: Wiley. Read More