The recent economic crisis--with the plunge in the stock market, numerous bank failures and widespread financial distress, declining output and rising unemployment--has been reminiscent of the Great Depression. The Depression of the 1930s was marked by the spread of protectionist trade policies, which contributed to a collapse in world trade. Although policymakers today claim that they will resist the protectionist temptation, recessions are breeding grounds for economic nationalism, and countries may yet consider imposing higher trade barriers. In Trade Policy Disaster, Douglas Irwin examines what we know about trade policy during the traumatic decade of the 1930s and considers what we can learn from the policy missteps of the time.
Irwin argues that the extreme protectionism of the 1930s emerged as a consequence of policymakers' reluctance to abandon the gold standard and allow their currencies to depreciate. By ruling out exchange rate changes as an adjustment mechanism, policymakers turned instead to higher tariffs and other means of restricting imports. He offers a clear and concise exposition of such topics as the effect of higher trade barriers on the implosion of world trade; the impact of the Smoot-Hawley tariff of 1930; the reasons some countries adopted draconian trade restrictions (including exchange controls and import quotas) but others did not; the effect of preferential trade arrangements and bilateral clearing agreements on the multilateral system of world trade; and lessons for avoiding future trade wars.
About the Author
Douglas A. Irwin is Professor of Economics at Dartmouth College. He is the author of Free Trade under Fire, Peddling Protectionism: Smoot-Hawley and the Great Depression, and other books.
"Douglas Irwin has emerged as the most influential economic historian of trade of his generation. Indeed, he ranks with the best scholars of international trade today. This splendid account of the 'trade wreck' of the 1930s shows why. It is masterly."
Jagdish Bhagwati, University Professor, Columbia University
"The Great Credit Crisis of 2008-9 was the most serious financial crisis in nearly 80 years, but one respect in which we did better was in avoiding the disastrous trade policies of the 1930s. In this book Douglas Irwin explains why, shedding important new light on both that history and current policy."
Barry Eichengreen, George C. Pardee and Helen N. Pardee Professor of Economics and Political Science, University of California, Berkeley
"There was much less resort to protectionist measures in the Great Recession than there was in the Great Depression. Douglas Irwin carefully reviews the disastrous protectionist policies of the 1930s and shows that countries that persisted in fixed exchange rates heightened protection much more than those that abandoned a peg. He concludes that the difference in 2007-9 was in significant part because many more countries had flexible exchange rates. This is a very important finding, and the book is a must-read for all those concerned with macroeconomic, trade, and exchange rate policy."
Anne Krueger, Professor of International Economics, Johns Hopkins University, and Herald L. and Caroline Ritch Emeritus Professor of Sciences and Humanities, Stanford University
"Douglas Irwin's book reminds us why we should pay attention to the lessons of history. He recounts how policy constraints, combined with the orthodoxy to exert pressure on open trade relations in the 1930s, led to a fiasco that took decades to reverse. Irwin argues that the non-trade policy options available today have saved us so far from a protectionist explosion in the wake of the Great Recession. The danger of protectionism still haunts us today, and its impact could be even greater, given the role of global production chains today. This is an innovative book that helps us to understand and anticipate the policy reflexes of governments."
Pascal Lamy, Director-General, World Trade Organization