1930s protectionism and its geopolitical consequences
A new Banca d'Italia working paper reviews the protectionist policies of the 1930s, which coincided with a dramatic collapse in international trade. The study assesses their macroeconomic and geopolitical impact, concluding that protectionism exacerbated the Great Depression and fostered autarkic economic blocs.
The spiral of trade restrictions
The 1930s saw a dramatic surge in protectionist trade policies, marked by restrictive measures and an unprecedented collapse in international trade.
This paper highlights that while these restrictions were not the primary cause of the Great Depression, they significantly aggravated its depth and duration.
Often motivated by the need to defend gold parity and fixed exchange rates, measures included import tariffs and non-tariff barriers like quotas and direct government control over foreign exchange.
Research by Jacks et al. (2011) indicates that the increase in trade costs, measured in tariff equivalents, amounted to approximately 25 percentage points, the largest in modern history.
The economic effects were profound, contributing to a global contraction of industrial production by about 35 percent and a 60 percent drop in international trade value between 1929 and 1932. The collapse in trade was largely due to reduced income from restrictive macroeconomic policies, but protectionist measures had a marked discriminatory effect, redirecting trade flows.
Autarky and international relations
Beyond its macroeconomic impact, 1930s protectionism had severe geopolitical consequences, contributing to a significant deterioration of international relations.
The paper highlights the formation of autarkic economic blocs, especially in authoritarian regimes.
While the United States, after initiating escalation with the Smoot-Hawley Tariff Act in 1930, later moved to reopen trade from 1934 under President F. D. Roosevelt, authoritarian regimes like Italy and Germany increasingly tightened direct government control over trade, moving towards autarky.
This divergence in policy responses fostered international mistrust and economic isolation.
History's warning for modern protectionism
The paper offers a timely reminder of protectionism's profound risks, particularly in an era of renewed trade tensions.
While historical parallels have limits, the 1930s demonstrate how trade restrictions can exacerbate economic downturns and destabilize international relations.
Policymakers should heed these lessons, prioritizing cooperation over isolation to avoid repeating past mistakes.