Throughout the history of the United States, foreign trade has played a critical role in the nation’s development. Between the opening of the 20th century and the economic collapse of the 1930s, foreign trade became increasingly important as the United States emerged as one of the most powerful nations in the world. This power, however, was economic and not military. In 1900, few European nations feared military invasion by the United States. Rather, they found fault with the increasing dominance of U. S.-made goods and America’s multinational corporations. Statistics that reveal the growing importance of foreign trade to the economy of the United States are impressive, but they tell only part of the story. Equally important was the perception or belief that the continued economic vitality of the nation rested on the very presence of external markets. Accordingly, much of the nation’s foreign policy agenda during the period between 1900 and 1930 was aimed at maintaining an open door to markets deemed vital to the economic interests of the United States.
On the eve of the Civil War, the United States had a significant trade deficit. In 1860, the country imported some $354 million worth of goods while exporting only $316 million. Although it had experienced annual trade imbalances throughout its history, the trend began to reverse course in the 1870s. By 1897, the nation imported nearly double the volume of goods that it had in 1860, but exports had more than tripled to $1.03 billion. The United States had turned an important corner in its economic development that would allow it to achieve world economic supremacy during the 20th century. In tripling the value of its exports, the United States steadily captured an increasing share of the world market in trade. In 1868 the United States controlled approximately 6 percent of world trade; by 1913, this figure had increased to 13 percent. Not only had the United States increased its market share of world trade, but also the increase in exports was almost entirely accounted for by industrial products after 1900.
The growth of exports was an amazing development, especially given the stiff opposition that it encountered from European nations prior to World War I. According to many business leaders, overproduction and insufficient markets had caused the economic crises of the 1890s. Only by securing foreign markets, they argued, could the United States achieve stability. However, it was not the only nation looking for foreign markets. The early 1900s was an era of competition between industrial nations for access and control of raw materials and markets for finished industrial products. American manufacturers were largely able to overcome many of these hurdles (e. g., tariff walls) through the sheer wealth of many corporations that allowed them to launch aggressive advertising campaigns that promoted their products and their ability to control transportation costs. For example, an enterprise such as the United Fruit Company built and operated its own ships, which allowed it to better control costs.
American companies benefited from the direct assistance of the federal government as well. Foremost in this support was the protection afforded American shipping by the growing power of the U. S. Navy. President Theodore Roosevelt often said that the United States needed to “Speak softly and carry a big stick.” On several occasions, he ordered the American military to directly intervene in Caribbean and Latin American nations (for the benefit of corporations such as the United Fruit Company). He approached foreign policy in a very different way, however, when it came to Asia. Indeed, when in 1907 Roosevelt ordered the so-called Great White Fleet to embark on a 45,000-mile world tour, he hoped that the show of American force would preserve and strengthen the nation’s economic interests in Asia. Roosevelt’s principal foreign policy objective was to maintain the Open Door Policy in China, because of its great market potential for American manufacturers.
The importance of exports to the economic health of the nation strongly influenced the actions taken during President Woodrow Wilson’s administration. Although the United States took a position of neutrality with the outbreak of war in 1914, many Americans recognized the new economic possibilities of trading when European nations were at war. Accordingly, few connections with Europe were severed. Instead, President Wilson argued that the potential loss of trade with Europe, especially with Great Britain, threatened the country with economic depression. He contended that open and free access to international shipping channels was critical to the nation’s economic well-being, a decision that brought American ships increasingly into harm’s way. As Germany aggressively employed its new submarine fleet to stop Great Britain’s trade, it also interfered with American shipping. It was in the name of free trade and “freedom of the seas” that Wilson declared war on Germany.
During the course of the war, American economic strength continued to grow. Not only did the nation benefit from its continuing ability to export manufactured and agricultural goods during the war, but it also emerged from the war as the leading economic nation in the world. The devastation of the war severely crippled the European economy both in terms of infrastructure and the availability of labor. Europe lost markets and the ability to compete. By the end of the war, European citizens owed private Americans $3 billion and their governments owed another $10 billion. Wartime loans from the United States to Europe constituted the primary source of this capital imbalance. While the war marked the emergence of the United States as the leading economic power in the world, it also signaled the increasingly integrated nature of the world economy. Debts tied nations’ economies together.
Complicating the ability of European nations to repay war loans to the United States were the reparations that Germany owed to the international community as a result of the Treaty of Versailles of 1919. Ravaged by war, the French wanted to cripple Germany at the Peace Conference. Accordingly, along with the British, the French were able to have included in the final treaty a “war guilt clause” that held Germany directly responsible for the damages caused by the war. To determine the amount of reparations, the Versailles Peace Treaty established a commission to make a specific dollar amount recommendation. In 1921, the Reparations Commission concluded that the
German nation, which also had been ravaged by the war, owed the international community $33 billion.
The repercussions of this expensive bill would long be felt, as it destroyed international economic relations for more than a decade. The international trade system depended on the flow of capital between nations to maintain at least a semblance of equitable trade relations between nations. European nations, which owed the United States some $13 billion, relied on new investments and the sale of goods to raise the capital for repayment of these loans. During the 1920s, however, the country experienced a trade surplus that promised to ruin the international economy. This trade surplus ranged from $375 million in 1923 to over $1 billion in 1928. European nations did not create any surplus with which to pay their debts to the United States.
The new U. S. position as dominant economic nation meant that its policies would have far-reaching ramifications. Since the start of the 20th century, the international economy increasingly had become interconnected, and the United States depended heavily on foreign trade and foreign investments. In particular, given the indebtedness of European nations after the war, there was a vested interest in open movement of capital and goods through the international economy. The government’s response to the collapse of the stock market in October 1929, however, undermined even further the very health of the international economy. Despite the strong need for the open movement of capital and commodities through the international economy, the Hoover administration imposed the Hawley-Smoot Tariff, which effectively closed the American economy to foreign commerce. Nations around the world responded in kind, closing their markets to American industrial and agricultural goods. Accordingly, the economic contraction was deepened by the shortsighted trade policies imposed by the federal government after the beginning of the Great Depression.
See also TARIFFS.
Further reading: Alfred E. Eckes, Jr., Opening America's Markets: U. S. Foreign Trade Policy. since 1776 (Chapel Hill: University of North Carolina Press, 1995); Charles Kindleberger, Foreign Trade and the National Economy (New York: Holt, Rinehart, and Winston, 1962).
—David R. Smith
World History
