Text 1. International commerce: From the Civil War to the Present
In 1866 America was a net importer of merchandise, as it had been in most years before the Civil War. During the war, tariffs had risen, and the depreciation of the dollar had offered an added barrier to imports. On the other hand, America’s major export, raw cotton, had fallen off dramatically.
The tariffs imposed during the Civil War were retained, and throughout the late nineteenth and into the twentieth century (to 1913), the pattern was one of still higher duties. Behind a tariff wall, American industry flourished. Goods formerly imported were now made in America, and imports changed from manufactured goods to the raw materials needed to make them (such imports typically came in duty-free). Tariffs notwithstanding, total imports rose as the American population grew and demand increased.
In the aftermath of the Civil War, raw cotton resumed its traditional role as America’s largest export good (from 1803 to 1937, the Civil War and two other years excluded, unmanufactured cotton was America’s largest merchandise export). The country was also an important exporter of grain and mineral products. Yet, what most characterized the growth of American exports in the late nineteenth and early twentieth centuries was the rise of manufactured goods exports: refined petroleum, machinery, and other manufactured goods. Some exports were goods that had previously been imported, but usually they were mass-produced products made by methods not yet used abroad (such products included sewing machines, harvesters, and then, automobiles). Exports increased rapidly as American goods became highly competitive in world markets.
Indeed, as imports rose, exports rose even faster with the consequence that (at first sporadically and then consistently after 1889) exports always exceeded imports until 1971. When the balance of trade remained consistently positive, Americans gradually recognized that a high tariff policy was no longer necessary or even desirable. In 1913, with traditionally low-tariff Democrats in control of Congress, the Underwood Tariff lowered duties substantially. International commerce expanded faster in the late nineteenth and early twentieth centuries than did worldwide output, the gold standard aiding in the growth.
American exports soared in the aftermath of World War I, as Europe depended on the United States for aid in recovery. In 1919 U.S. exports reached a level that would not be exceeded until 1943. There was another change of importance. Most U.S. trade had been financed before the war with sterling acceptances (credits denominated in pounds sterling). During World War I, dollar acceptances came into use. This meant Americans were financing their own trade. A third change was that with Republicans in power in the 1920s, the notion of reduced protectionism floundered (in 1922, the Fordney-McCumber Tariff raised duties, especially to protect new «infant» industries such as chemicals). When, after the 1929 crash, Congress was trying to deal with the downturn, it was easy to blame imports, and the 1930 Smoot-Hawley Tariff was exceptionally high.
In the 1920s, country after country that had abandoned the gold standard during World War I had sought to restore it, but the restoration proved temporary. In 1929–1933 world output declined; countries devalued their currencies to encourage exports, yet world trade plummeted. The 1930 Smoot-Hawley Tariff provoked retaliation: it reduced American imports, but owing to new foreign duties on U.S. products, American exports fell faster. In the 1930s, new barriers to U.S. exports proliferated – not only foreign tariffs but exchange controls, quotas, and a whole range of other impediments to trade. Currencies fluctuated against one another, creating unpredictable conditions. In 1933 the United States devalued the dollar and in 1934 attempted to spur exports with reciprocal trade legislation. But by then the world economy was in such disarray that these efforts did little good. In the second half of 1940 the United States, in response to Japanese militarism, started to restrict U.S. exports to Japan and in August 1941 sharply curtailed the flow of crude oil and gasoline to that country. Many believe that these trade sanctions provoked the Japanese attack on Pearl Harbor.
