Great Depression Impact on Trade

Definition

The Great Depression was a severe worldwide economic downturn that started in 1929 and lasted throughout the 1930s, significantly affecting international trade. The economic collapse led to a dramatic decrease in global demand for goods and services, prompting countries to implement protectionist measures such as tariffs and quotas, which further stifled trade. These factors contributed to a global cycle of economic decline, impacting nations' economies and their ability to engage in international commerce.

5 Must Know Facts For Your Next Test

1. The Great Depression caused global trade volumes to fall by about two-thirds between 1929 and 1934, severely impacting economies around the world.
2. Countries such as the United States responded to the economic crisis by implementing the Smoot-Hawley Tariff Act in 1930, which raised duties on hundreds of imports and led to retaliatory tariffs from other nations.
3. The decline in trade exacerbated the economic hardship faced by many countries, leading to increased unemployment and social unrest.
4. International organizations like the League of Nations attempted to promote cooperation and reduce tariffs, but these efforts were largely ineffective due to the prevailing protectionist sentiment.
5. The Great Depression prompted a shift in economic thinking towards Keynesian economics, emphasizing the importance of government intervention in stabilizing economies.

Review Questions

• How did protectionist policies during the Great Depression affect international trade relations among countries?
  • Protectionist policies during the Great Depression, such as high tariffs and import quotas, severely limited international trade by making foreign goods more expensive and less competitive. Countries aimed to protect their own economies from the fallout of the depression by reducing imports. This resulted in retaliatory measures from other nations, further escalating trade conflicts and causing a significant decline in global trade volume. The cycle of protectionism deepened economic woes both domestically and internationally.
• Analyze the role of tariffs, such as those introduced by the Smoot-Hawley Tariff Act, in deepening the effects of the Great Depression on trade.
  • The Smoot-Hawley Tariff Act raised tariffs on over 20,000 imported goods, aimed at protecting American industry during the Great Depression. However, this move backfired as other nations retaliated with their own tariffs, leading to a steep decline in international trade. By making it more expensive for countries to engage with one another economically, these tariffs exacerbated the already dire economic conditions. The result was a vicious cycle of rising barriers that not only stifled trade but also prolonged and intensified the global economic downturn.
• Evaluate how the impact of the Great Depression on trade influenced subsequent economic policies in the following decades.
  • The impact of the Great Depression on trade led to a reevaluation of economic policies around the world. The failure of protectionist measures highlighted the need for greater international cooperation and paved the way for new frameworks for global trade. In subsequent decades, initiatives like GATT (General Agreement on Tariffs and Trade) emerged to promote free trade principles and reduce tariffs. The lessons learned during this period emphasized the importance of open markets and international collaboration as vital components for economic recovery and growth.

Related terms

Protectionism: An economic policy that restricts imports from other countries through tariffs, quotas, and other trade barriers to protect domestic industries.

Tariff: A tax imposed on imported goods, intended to make foreign products more expensive compared to domestic products.

Globalization: The process of increased interconnectedness and interdependence among countries, particularly in terms of trade, investment, and cultural exchange.