Imperial protection and strategic trade policy in the interwar period

Abstract

International relations theorists attribute the post-1930 collapse of the world economy into protectionism and rival trading blocs to global causes such as hegemonic decline, problems of collective action and free riding, or the macroeconomic disturbance of the Great Depression. This article links protectionism and the formation of trading blocs to political pressure from manufacturing firms unable to take advantage of economies of scale due to the limited size of national markets. A comparative analysis of trade policy in this period demonstrates that small-scale producers with small domestic markets in Japan, the UK and Germany vigorously advocated the formation of protectionist trading blocs. However, large-scale firms in the US, with a vast continental market at their disposal, sought trade liberalization; instead of seeking a trading bloc of their own, these firms also pushed to eliminate commercial discrimination in foreign empires. The analysis concludes that while technological changes requiring access to larger than national markets help to explain political pressure for trading blocs today, the incentives for trade protection are weaker in contemporary regional arrangements.