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Washington pursued isolationism, thus prompting other nations to seek self-sufficiency. A bankrupt Britain convened the 1932 Ottawa Conference "to establish a system of Commonwealth tariff preferences." By the mid-1930s, Germany began preparing for war. At the same time, the Depression affected one country after another as private capital dried up while at the same time Britain and other nations had mounting debt problems. It begs the question as to why they let them get so onerous in the first place.
American Plans for a Post-WW II "Free-Trade Imperialism"
Early in the war, US officials and economists knew America would prevail and emerge as the world's dominant power. However, transitioning from war to peace needed large export volumes to stimulate economic growth and full employment. "This in turn required that foreign countries be able to earn or borrow dollars to pay" for what they got. So America supplied them through government loans and private investment.
In return, it "name(d) the terms on which" they were provided and structured the IMF and World Bank so countries could "pursue laissez faire policies by insuring adequate resources to finance the international payments imbalances," the result of opening their markets to US imports. It was thought that free trade and investment would result in "balanced international trade and payments....under US leadership."
Post-war, America was the only dominant nation intact, so it alone had enough foreign exchange to invest substantially abroad. Its commercial strength turned other economies into US satellites and assured America achieved maximum world power by:
-- having European nations let US investors buy extractive industries in their former colonies, especially Middle East oil;
-- less developed nations would supply America with raw materials rather than develop their own competitive manufacturing infrastructure;
-- they'd also buy US products and services; and
-- the resulting trade surplus would provide enough foreign exchange for US investors to buy the world's most productive resources and make America even stronger.
The goal was short-lived as:
-- America had tariffs on commodities that other nations could produce more cheaply;
-- the International Trade Organization, in place to subject all economies to the same rules, was scuttled; and
-- private US investment abroad was never enough to finance sufficient foreign purchases of US exports; IMF and World Bank loans also fell short.
America accumulated a payments surplus. It, in turn, weakened its export potential. The lesson learned was that "Beyond a point, a creditor and payment-surplus status can be decidedly uncomfortable."
At first, the enlightened solution wasn't taken - extended foreign aid for rebalancing as Congress put internal interests ahead of foreign policy.
The Cold War Pushes America's Balance-of-Payments into Deficit
