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The Irrepressible 1930’s

LONDON – The just concluded G-20 meeting in Seoul broke up without agreement on either currencies or trade. China and the United States accused each other of deliberately manipulating their currencies to get a trade advantage. The Doha Round of global trade talks remain stalled. And, amid talk of the “risks” of new currency and trade wars, such wars have already begun.

Thus, despite global leaders’ vows to the contrary, it seems that the dreadful protectionist precedent of the 1930’s is about to be revived. That decade’s trade war was started by the US with the Smoot-Hawley tariff of 1930. The British retaliated with the Import Duties Act of 1932, followed by Imperial Preference. Soon, the world economy was a thicket of trade barriers.

Britain fired the first shot in the 1930’s currency war, leaving the gold standard in September 1931. The US retaliated by leaving the gold standard in April 1933. The pound fell against the dollar, then the dollar against the pound.

While the two main currencies of the day were slugging it out, France headed a European “gold bloc” of countries whose currencies became increasingly overvalued against both, until the bloc collapsed in 1936. A world economic conference, convened in London in 1933 to end the currency war, adjourned without reaching any decision.