An armed conflict, in large scale and for a long period of time, between two political entities.
People have conducted war against one another since the beginning of civilization, and wars have greatly influenced the economy and trade. Furthermore, the relationships between the distribution of power (or the struggle to achieve power) and war and trade are not monotonic, but dynamic and changing in patterns throughout history, and sometimes within the same wars or cultures. Trade between societies did not always stop during wars, and war differed in its effects on trade in the ancient period than in the age of globalization.
One of the famous assumptions of liberal economists and social scientists is that trade promotes peace. In this view, considerations about the profits from trade influence decisions to wage war, because societies attain their most important benefits from their intersocietal trade associations, and grave conflicts (such as wars) disturb trade. Indeed, in general it could be said that war disrupts the course of trade. However, in some notable cases war had an opposite effect on trade than expected or the adversaries continued to trade throughout the war.
The impact on trade of modern wars can be devastating. The production of weapons rises during wartime. Countries that are not directly involved in the war benefit from the opportunity to penetrate (or to take over) a market that was dominated by the countries that are combatants. During the U.S. Civil War, Egypt replaced the United States as the main exporter of cotton to the European market. During World War II, Argentina, which was not a party to the war, developed its economy to become the world’s “barn,” that is, supplier of agriculture and livestock.
In another way, some types of trade prosper under war conditions, because war creates demand for certain commodities or creates a shortage of a product already in demand. Arms manufacturers and developers benefit from armed conflicts. Diamond miners in the African conflict zones use the demand for diamonds to finance regional armed conflicts. Captured women and children in many cases become “commodities” and are enslaved. The drug trade also benefits from the existence of armed conflicts and especially from the lack of authority and the weakness of central governments, as in the case of civil wars. Lebanon, Colombia, and Afghanistan are only a few examples of countries in which the weakness (or lack) of a central government encouraged the growth and manufacture of illegal narcotics by armed groups, such as the “Afghan Arabs” and Hezbollah in Lebanon.
However, trade can also precipitate war. In the nineteenth century, Britain illicitly sold opium in China grown in its colony, India, earning vast sums, and refused to cease doing so, even after it was declared illegal in China and in Britain. The Opium Wars eventually broke out because of this conflict over the trade in opium. Another example from the same period is the issue of the slave trade and the slave-based plantation economy, which became a central issue of debate during the 1850s between the industrialized North and the rural South in the United States. The question of the extension of slavery into new territories aggravated existing differences, which ultimately led to the Civil War.
Until the Napoleonic Wars, soldiers and rulers directly and actively engaged in war, while the rest of the population suffered its effects.
Wars could bring profit to the winners, in the form of looted goods, prisoners of war, and sometimes even new territories and populations to be taxed or enslaved. A few polities depended exclusively on the spoils of war for their income; they waged war on their neighbors to satisfy their economic needs.
Thus, one of the motives for waging war was economic competition. Economic differences between Athens and Sparta were among the main reasons for the outbreak for the Peloponnesian War (433–404 B.C.E.). In this war, like others, the losing side—Athens—suffered the greater effects. Another related motive was the possibility of control over valuable resources. It is theorized, for example, that one of the reasons for the Trojan War was desire for control over tin mines.
During antiquity, the need for weaponry, wars, and expansion also promoted trade in materials, such as metals. The Romans reused scrap metal, which was looted from newly occupied territories, for various needs, chiefly for the production of weaponry.
Trade routes themselves were also affected by war. Those who controlled the routes were able to control the supply of resources. The Romans, for example, through the expansion of the republic, managed to take command of the trade networks (which were developed by Alexander the Great in 146 B.C.E.) to India and China. The first Punic War between Rome and Carthage (246 B.C.E.) was the result of a struggle for control of Sicily, which lay between North Africa and Europe.
Slavery was a prevailing feature of all Mediterranean societies in antiquity. Some societies, such as the Roman one, depended more than others on slaves for everyday life. The Romans, like others, first obtained slaves through war and piracy. However, with the extension of Pax Romana in the first three centuries of the modern era, the number of enslaved war captives decreased significantly (notwithstanding some exceptions, such as the suppression of rebellions in Judea in 66–70 C.E. and 132–135 and wars on the outskirts of the empire).
Wars sometimes cause general suspicion toward foreigners, which might result in closure to trade and foreign activity. The Spartans, in particular, rejected (and feared) the social change and instability that might come with trade. After the Messenian War (640 B.C.E.), they developed an isolationist, militarist policy, banning travel and contact with strangers.
The strength of regimes in this period also contributed to the prosperity of trade. Traders fared well in areas where traveling was safe and infrastructure was developed. Pax Romana helped to develop trade in the empire, and the Romans established commercial relations with China, India, and Ethiopia, to purchase silk, spices, precious stones, and incense while selling them gold, silver, glassware, and other manufactured goods. Similarly, on the other side of the trade routes, the establishment and consolidation of the Han dynasty in China (206 B.C.E.) brought about stabilization in the trade route and, as a consequence, affluence. Similarly, the Mauryan empire (321–181 B.C.E.) provided the required stability for trade to blossom in India. Correspondingly, division and troubles in the empires destabilized the trade routes, as in 317 C.E. in China (the division between North and South) and in 364 C.E. in Rome (the division between East and West).
The Middle Ages in Europe saw a continuation of the struggles for control over materials, trade routes, and capital. By the early twelfth century, a merchant society began to develop in feudal Europe, building on the surplus of agricultural goods. Those engaged in local trade or trade in the Hanseatic cities of the Baltic or in the free Italian city-states established destinations across the sea and to the Continent.
In 1095, the first of the Crusades—the military expeditions to deliver the Holy Land from the “un-godly” (Muslims)—took place. However, the Crusades did not lack economic and commercial considerations. In fact, a side effect of the Crusades was intercultural exchange. For example, the Crusades provided trading opportunities along the route. By the eleventh century and until the thirteenth century, trade relations developed between the Muslim world and Mediterranean societies. Europeans adopted many Muslim inventions and advancements, including banking methods. Some historical evidence suggests that the engagement in trade was one of the reasons for the failure of the Second Crusade; many refused to abandon their trade links to fight the Muslims.
As a series of long, expensive military expeditions, the Crusades had another important effect on the economies of the home countries of Crusaders. Many states could not afford to subsidize these expeditions. The feudal system suffered a great shock as a result of the economic costs of this venture. At the same time, in the East, a new empire shaped trade between Europe and Asia. Between 1211 and 1227, Genghis Khan conquered and controlled much of East Asia. Through a series of military campaigns, some led by the moti vation to oppress resistance from the borders of the empire, the Mongols arrived in Central Asia by 1218. Genghis was interested in developing trade relations with the Muslims, but after his peace convoys were murdered, the Mongol forces occupied the Caucasus in southern Russia and arrived at the gates of Europe in 1222. Subsequent conquests by Ögödei Khan and Batu Khan, Genghis’s son and grandson, expanded the empire to include the modern-day Hungary, Poland, Iran, and Iraq. The empire was maintained until the end of the fourteenth century.
The Mongol military campaigns demonstrated how conquest could devastate local economies. The conquered peoples were taxed, the existing infrastructure was ruined, and some of the local population was sent to labor camps. The broad geographic reach of the empire allowed the flow of trade between different regions, especially along the Silk Road, while remaining in Mongol-controlled territory. Har Horin, the Mongol capital established in 1235, was a center for tradesmen from different cultures and religions.
The Muslim empire also enjoyed prosperity during this period. Like the Mongol empire, the Muslim empire was able to host a wide range of commercial activities because of its size and strategic location on Eurasian and African trade routes. In North Africa, wars broke out among different Berber groups, each trying to gain control of the trans-Saharan trade and using the issue of jihad (holy war against the non-Muslims) as justification.
In medieval Europe, wars also resulted from struggles to control trade. The Hundred Years’ War is an example of a war fought mainly for economic reasons. By the thirteenth century, Flanders had become the center of cloth manufacturing in northern Europe; when the local Flemish could not supply enough wool for this industry, the raw material for this manufacturing was imported from England, which depended on this trade for its foreign exchange. At the same time, as a result of contacts with Europe, the English upper classes adopted wine imported from southern France, rather than beer, as their drink of choice. A triangle trade among the three developed: wool fleece for cloth, cloth for wine. France attempted to gain control over this profitable trade using its influence over noblemen in Flanders. Because fleece for cloth was its main export, England was disadvantaged and when tensions broke out in Flanders between the landowners (who sided with the French) and the merchants (who were interested in maintaining trade relations with the English), each country took sides. Tensions escalated to the point of armed conflict.
In a pattern that would later repeat itself in other conflicts between the French and English, much of the conflict revolved around the control of England’s trade routes—the naval courses. Both sides used mercenaries (pirates) at this point, who attacked and looted enemy ships.
The expansion of the Muslim empire to Europe, specifically the Iberian Peninsula, was finally blocked in 1492. That year, Christian forces in Spain managed to unify and conquer the peninsula. Muslims, as well as Jews, were chased out of Christian territory or were forcefully converted to Christianity. The Spaniards, eager to trade with East Asia, sought a trade route that bypassed the Cape of Good Hope in Africa. Also that year, Christopher Columbus, seeking a new trade route to the East, landed on the shores of a new continent. The European economy became bonded with that of the world it conquered; wars and trade became more linked than ever before.
A new series of wars of conquest began, initiated by the desire to trade and to gain control of resources. Portugal, a former maritime super-power, became an early contender in the pursuit of trade outside Europe. After Columbus’s voyages, Spain entered the field as well, to be joined later by the major maritime forces of the period (mainly the Netherlands and England, but also Sweden).
Portugal was the first in the struggle to dominate trade in the New World for several reasons. The Portuguese developed a fleet within their two main towns, Lisbon and Oporto, which emerged as marine trade centers. The Portuguese govern ment encouraged the development of maritime trade by offering tax privileges and other arrangements that made it the most convenient shipping center. In addition, unlike Spain, Portugal was stable. Above all, consumption trends among the European elite and the demand for luxury goods drove the Portuguese to seek new ways to increase their profits. Thus, Portugal was the first to extend its economic control beyond the Continent.
Between 1507 and 1514, the Portuguese orchestrated a series of conquests, from East Africa (1507) to India (1510) and Indonesia (1514). Portuguese trading posts were founded on the eastern and western coasts of Africa, in Cape Verde, and in Goa. The outposts hosted a mixture of tradesmen with missionaries and soldiers, all of whom attempted to dominate the societies that they encountered. The chief purpose of these posts was to establish control over the spice trade with the East and to maintain naval dominance over the Arabs in the Indian Ocean.
After their arrival in the Americas, the Spanish were also eager to mix religious, political, and commercial missions in order to control trade in the area, especially because of the large amounts of gold that Columbus was reported to have seen. By the beginning of the sixteenth century, the Spanish exploited divisions among the local populations to wage wars between and against them.
The Portuguese followed the Spaniards in their search for commodities on the new continent. The Portuguese were able to reach the southern part of the continent by using the same sailing methods that they had developed to arrive at the Cape of Good Hope in Africa. However, unlike the Spanish rulers, the Portuguese kingdom had little commercial interest in the region and at first left it to the exploration of adventurers. Portugal’s main export product at that time was a dyewood called “Brazil,” after which the new land was named. Exotic animals, such as parrots and monkeys, were also acquired, as were slaves from among the native peoples. As Spain gained more wealth in America, Portugal began to express greater interest in its territories and in 1531 initiated its colonization of Brazil.
In Brazil, as well as in Africa, the Portuguese exploited the frequent wars among rival peoples in order to obtain slaves. Because of the constant demand for slaves in Brazil, the Portuguese instigated wars between tribes, and in 1532 began to import slaves to Brazil from the West African shores. Portuguese and Jesuit missionaries were highly involved in the trade from the area now known as Congo and Angola. A circular trade was established, in which the Portuguese traded manufactured metal goods to Africa in exchange for slaves, who were shipped to Brazil, from which goods were sent to Portugal.
The Portuguese reached the southern parts of China in 1517. Whereas in Africa they were able to establish trade with the local rulers, in China Portuguese trade intentions were viewed with suspicion; the government formally expelled the traders. However, because of their continued presence on the southern shores, the Portuguese eventually began to trade with Chinese smugglers. In 1542, the Portuguese arrived in Japan by accident (a storm blew a Portuguese ship toward its southern islands) and found trade partners there who were especially interested in purchasing guns.
By the end of the sixteenth century, another conflict emerged. In 1598, the Dutch rebelled against Spanish domination of their land. One of the ways that the Spanish responded was to block Dutch access to Spanish salt, needed by the herring fisheries.
This salt embargo led the Dutch to attack Spanish ships that were carrying it. The Dutch also developed their own fleet, without the expansionist intentions of Spain and Portugal, but guided by trade motives. The Dutch fleet arrived in the Caribbean, employing both tactics—trading and attacking enemy ships—to obtain salt. In 1621, the Dutch established the Dutch West Indies Company as the sole agent of trade with the West Indies. Hence, Dutch colonialism became inextricably linked with a commercial company and thus its politics with economic entities.
The company became a prominent element in the struggle for domination in America, reaching northeastern Brazil (from 1624 to 1630) and the Gold Coast (present-day Ghana) in West Africa (1637). Many of these holdings were settled and fortified to prevent the Spaniards from taking them over again. In 1624, the Dutch West Indies Company established the New Netherlands colony on the eastern coast of North America. A year later, the island of Manhattan was bought from the Native Americans and settlement began in New Amsterdam (present-day New York City). However, the maintenance and security expenses of the forts began to put a heavy burden on the Dutch West Indies Company. The Dutch, thus, while controlling trade, decided not to invest in the maintenance of the territories as colonies, so the lands were sold to patroons (entrepreneurs), who were allowed to do almost anything with the property that they had bought from the company.
This is clearly demonstrated after the Dutch-Swedish War (1657) and the Anglo-Dutch War (1652–1654). During the first war, the Dutch conquered the North American colony of New Sweden. The war cost Sweden a strategic stronghold in North America. During the Anglo-Dutch War, the Dutch lost both New Sweden and New Amsterdam to the English, while they occupied the modern-day Suriname and Guyana. The Dutch decided to hold on to the new territories, which had valuable sugar plantations, rather than to fight for the North American colonies, which yielded profits only from the fur trade. However, after another conflict in 1672, the Dutch West Indies Company gave up its monopoly rights and opened the Caribbean market to the Swedes and British. Two years later, the company went bankrupt.
The Seven Years’ War (1756–1763) was the next major conflict over the resources outside Europe. France and Britain fought on several continents for control of each other’s profit-generating colonies. By the end of the war, Britain had a stronghold in most of the North American colonies, as well as in India. However, the loss of control over some of the American colonies (1783) led many, such as Adam Smith, to conclude that colonialism and regulated trade were not efficient and that more profit could be earned without political involvement in the colonies.
After the age of expansionism, the European colonial powers began to look homeward. Some empires, such as the Austro-Hungarian and the Prussian empires, found themselves without any colonies outside the European continent. The fall of the French monarchy in 1789 and the idea of democracy threatened the rest of the monarchies in Europe. This led to the beginning of the period known today as the Napoleonic Wars.
The Napoleonic Wars are considered a milestone in the history of wars and the connection between trade and war for several reasons. First, unlike other wars, they were based on a popular draft. Most of the able-bodied men in the country were obliged to participate. Second, the motive was national, not, as in the past, political domination of one royal house or one religion or another in some way.
This change required new means of finance, as wars became more expensive. The general draft increased the number of soldiers, who had to be fed, dressed, paid for their efforts, and armed. The vast areas across which the wars were conducted required increased and improved means of transportation. In addition, the intensity of the war depended on the economic strength of the country fighting the war.
The economy was mortgaged to the war effort, and countries with stronger economies were expected to win the wars, as they were better able to finance them. During modern times, this observation might be even more accurate: as technological advantages set the pace of war, those who are able to finance military research and development programs and to develop new weapons are more likely to win wars.
The era of the Napoleonic Wars was also a time of other technological advantages, such as the steamship and the use of iron for building ships. The science of ballistics was also perfected. These military advancements later affected Europe’s success in securing territories in China and elsewhere.
The Napoleonic Wars brought another change in the nature of war. The larger size of the fighting forces also necessitated a larger battlefield. For instance, in the Battle of Wagram (1809), 170,500 French soldiers were spread over about twelve miles; and in the Battle of Leipzig (1813), 198,000 French soldiers fought in a line that stretched nearly twenty-one miles. The expansion of the battlefield also meant that the area that was damaged by the fighting (which held towns and villages, crops, pastures, roads, bridges, and dams) increased. Whereas most wars in previous periods were static and limited to a relatively small geographic area, the Napoleonic Wars introduced the mobilizing of forces across large territories. The development of modern means of transportation (and, later, of communication) meant that wars could be fought far from the centers of policy making.
Carl von Clausewitz wrote about the 1813– 1814 campaign in his book Vom Kriege (On War, 1833), “[T]he course of the campaign, on the whole, may be said to have been in the new, not in the old, style. In eight months the theater of war was removed from the Oder [now the border between Germany and Poland] to the Seine [in Paris].”
In 1805, two major battles that had vital implications on trade took place. In the Battle of Trafalgar, the French navy was almost completely destroyed and the British gained domination over the seas. In the Battle of Austerlitz, the French won complete domination over the European continent. From this point on and in the next decade, fighting between the two major powers of this age became a battle over trade.
The Napoleonic Wars had an impact beyond the European continent and an important influence over the economic development of the United States. In an attempt to stifle the United Kingdom’s trade, the French blocked all European ports, which were under French control, and prevented the shipping of British products to and from the Continent. In retaliation, Britain passed the Orders in Council in 1806. According to this set of laws, U.S. ships could not anchor in a European port without first stopping at a British port. The French responded with an act that demanded the seizure of any ship that landed in Europe after stopping in Britain. The militaristic turn of the French and English economic actions caused damage to the American economy.
The need for more manpower caused the British navy to impose a policy of stopping American ships, imprisoning their sailors (called “impressment”), and forcing them to serve in the British navy. The crews of British ships staffed in this way were often called “press-gangs.” In 1807, off the coast of Virginia, the USS Chesapeake was approached by a British ship, which demanded to embark so that it could reclaim “deserters” who were with the United States. The Americans refused. The British vessel opened fire on the Chesapeake, killing and wounding several sailors. In the end, the outgunned Chesapeake had to surrender four sailors to the British.
Americans were outraged over the Chesapeake incident, and a war might have broken out right then if not for Thomas Jefferson’s self-control. Most Americans urged war, but Jefferson imposed an embargo against the British instead. Congress passed the Embargo Act near the end of 1807, which blocked exports out of U.S. ports. The embargo did not proceed as planned, as it ended New England’s export and import activity and left the U.S. South and West with a surplus of unsold merchandise. By 1808, illegal export and import activities across the U.S.-Canadian border verged out of control. Americans started calling the embargo the “dambargo.” Convinced of the rightness of his policies, Jefferson passed harsh laws to implement the embargo. In New England, which was already a stronghold of antifederalists, the dissatisfaction with the impact of the embargo furthered the secessionists’ cause. At this point, Jefferson repealed the embargo.
On March 1, 1809, the Embargo Act was abolished and replaced with the Nonintercourse Act. This act permitted trade with all countries except Great Britain and France. Jefferson later admitted that the embargo had been a mistake but left the job of lifting it to his successor, President James Madison. However, the war-induced embargo also had some positive effects on the U.S. economy, which became more industrialized and self-sufficient. The first reason for this was that export products remained in the United States and served the local market. Moreover, more manufactured goods were produced to satisfy the need for those imported goods that were embargoed. By the time the embargo was lifted, U.S. industry was able to compete against British imports.
The industrialization of European societies had an important impact on the colonial conquests and on the Europeans successfully taking hold of mercantile activity in other continents. The mass production of rifles, as opposed to the handmade production of the Ottoman and the Native American rifles, provided an immediate advantage.
By the beginning of the nineteenth century, the European powers had increased their direct political power in East Asia through the establishment of colonial governments. This direct political control, not exercised through trading companies, had crucial consequences for the economies of Asia, Africa, and Oceania. During the 1830s, the British controlled the lucrative cultivation of opium in India and sold it (through the British East India Company) to the Chinese, in exchange for tea and manufactured goods. In 1836, because of the growth in the number of drug addicts in China (and the general ill effects of the trade), the trade in opium was outlawed in China. However, the British merchants managed, through bribery, to continue selling the drug. In 1839, Lin Zexu, the imperial commissioner in Canton (Guangzhou), decided to put an end to the illegal activity. Moreover, he demanded that the British nationals who committed crimes in China be subject to Chinese laws. Lin threatened to expel all British subjects living in China if Britain did not stop exporting opium to China.
These positions made Lin’s policy unpopular with the British. From 1839 to 1842, the British used military force to open the Chinese markets to Indian opium. This event became known as the First Opium War. British technological superiority resulted in Chinese defeat, codified in the Nanjing Treaty, which forced China to accept humiliating concessions to Britain, including unrestrained trade in opium (and other commodities) and exemption from Chinese law in the case of disputes. After the conclusion of the First Opium War, the British established five “treaty ports” in China.
This war set the precedent for European commercial expansion in East Asia, as the Chinese later signed, under duress, similar treaties with other Western powers. By the end of the nineteenth century, even the United States was beginning to show interest in East Asia. Between 1898 and 1904, the United States sought extraterritorial control of China’s coastal cities and took over the Philippines from Spain. Between 1856 and 1860, further skirmishes erupted over the issue of the opium trade in China. Imperial China conceded again, signing treaties that increased European penetration into China.
Many East Asian policy makers realized that adoption of the Western mixture of trade and warfare was vital for their survival and the rivalry with the Europeans. During the latter nineteenth century, China and Japan both adopted this Western model. The goal of the Meiji restoration (1868) in Japan was to achieve controlled industrialization and political and economic dominance through the adoption of European methods of production.
The post-Napoleonic technological and trade advancements also stimulated expansion in Africa. In Africa, the main power struggles were over control of the chief trade routes and natural resources (as well as slaves). By the end of the nineteenth century, the British, for example, gained control of the Cape of Good Hope and the Suez Canal in Egypt, but not without armed opposition by the local populations. However, expansion in Africa was also caught up in the European rivalry for control of the world, leading to wars between the European powers for territories in Africa.
The governments stipulated universal conscription, but paid draftees relatively small amounts, which stimulated broader discontent that led to the 1848 national revolutions. The repression of the agitation by the regimes led many to seek their fortunes outside Europe.
World War I (also known as the Great War) reflected the dramatic changes that took place in the world during the nineteenth century and in the aftermath of the Napoleonic Wars. National economies became intertwined and interdepen dent as the global economy was industrialized.
France and Britain were concerned about the growing power of the newly formed Germany, which had defeated the French army in the 1870– 1871 war and was becoming increasingly powerful before World War I. The strength of the German army resulted not only from its immense manpower but also from the country’s industrial strength. Surpassing that of both Britain and France, German industry was not only bigger but also growing more rapidly than its counterparts elsewhere in Europe. In addition, the population in Germany was growing dramatically because of a high birth rate and emigration from Russia and Poland. Confronted with the immense manpower of the German army, the French and British staffed their armies in part with non-Europeans. The United States tried to distance itself from the power struggles in Europe.
The use of non-European soldiers in World War I did not pass without criticism. Various British battalions included soldiers from British colonies, including India and Canada (some of them black), using them only as “volunteers” to respond to criticism by white South Africans. At the same time, losing the world war meant that Germany lost its colonies in Africa and the Pacific to Britain and France, including German Southwest Africa (modern-day Namibia), Cameroon, Togo, and German East Africa (modern-day Burundi, Rwanda, and a portion of Tanzania). These colonies had been important sources of minerals for German industry.
The war had left Europe’s economy in shambles, particularly in agriculture; the countries turned to their colonies to fill the vacuum. Most of Europe suffered a serious recession in the post-war years, because European products were no longer in high demand and their economies relied on single products. Even those who managed to benefit from the war financially had to surrender most of their profits in the form of taxes that financed the bankrupted governments.
Another beneficiary of the trade was the United States, which declared neutrality at the beginning of the war (August 1914). Until the end of its neutrality (March 1917), it exported about $2.2 billion in military equipment to Europe. In 1916 alone, the United States exported more than $1 billion in weapons to Europe. The scale of the American presence in the international weapons market in that era is shown by the fact that, by 1920, the United States was the source of more than half of global arms exports. This resulted in much concern in the 1920s and 1930s in the United States. The U.S. interest in arms trade was partially responsible for the decision to intervene in the war. U.S. support for involvement in Europe increased after the Germans sank the Lusitania on May 17, 1915. Over 1,100 people were killed, and the Americans viewed it as an attack on an unarmed ship.
The Treaty of Versailles was signed to conclude World War I. Its provisions called for Germany to surrender, relinquish some of its territories, and pay compensation to the victors. The German economy, however, could not afford the amount of compensation to be paid. While most countries understood the situation and did not demand the money, the economic situation in France forced it to insist on the reparations, as it considered Germany responsible for its economic situation.
At first, the United States lent money to Germany to avoid its total collapse, but, following the 1929 economic depression (and even sometime before) the United States ceased its interventions in Europe. The situation in Europe, and in Germany in particular, deteriorated. By 1932, US$1 was worth 8 billion deutsche marks, and the inflation rate was measured in the millions. The economy was in ruins, and the Weimar Republic (the German democracy following World War I) had no solutions.
Under these conditions, nondemocratic political systems took hold in Europe beginning with national socialism (or Nazism) in Germany. By January 1933, Adolf Hitler, the head of the National Sozialisticher Partei Deutschlands (German National Socialist Party), was democratically nominated as the German chancellor. Soon afterward, he abolished all other parties and began to implement his policy, which basically consisted of preparing Germany for war.
On the other side of the world, another power was rising: Japan. Unlike its allies in Europe— Germany and Italy—Japan was a monarchy that was under the rule of a divine emperor. De facto, the country was managed by the army, which had been seeking new regions to conquer since the end of the nineteenth century. Japan won a war against Russia in 1905 and continued to push farther into Asia. By 1931, Japan had already captured Manchuria and in 1937 it continued its expansion into China. The main reason for the Japanese expansion in Asia was the lack of raw materials that it needed for its growing industry. Even then, Japan was the greatest power in Asia, but its economic expansion was limited by the goodwill and trade capabilities of the Western empires, which controlled the trade of raw materials.
On July 25, 1940, the United States announced an embargo on Japan as a way to stop Japan from conquering China. In reality, this was a counterproductive measure, since it made the Japanese even more aggressive in acquiring raw materials. The Japanese started looking for these resources in the British and Dutch colonies of Southeast Asia. As the American embargo tightened, Japan pushed southward for resources.
The preparation for war in Europe, which erupted in September 1939, created a situation in Asia such that the European forces, mainly those of Britain, could not afford to station large numbers of troops there, while the British Isles themselves were in danger of a German invasion. The only force that stood between Japan and the rest of Asia was the United States, which maintained two key naval bases in the Pacific region: Pearl Harbor, Hawaii, the home of the U.S. Pacific Fleet; and the Philippines. Every oil tanker heading for Japan had to pass by U.S.-held Luzon. To continue its expansion, the Japanese military had to remove these two obstacles.
On December 7, 1941, the Japanese attacked the U.S. naval base at Pearl Harbor. Shortly thereafter, Japan captured America’s central Pacific bases at Guam and the Wake Islands and invaded the Philippines. Because there was no actual U.S. army in the area, the Japanese army was free to capture Burma, Malaya, Singapore, and the Dutch East Indies (Indonesia). The fighting ended in less than four months. Japanese leaders thought that the United States would be willing to negotiate peace, since it was already involved (though not as an active participant) in the European war. They were mistaken.
Until December 1941, the United States was profiting from the war in Europe. In a process known as the “production miracle” at the end of the New Deal, the United States maintained civilian consumption while the overall economy expanded. This situation was enabled by the increase in labor force participation and reduction in private investments, while the war was financed through deficit spending.
Until it officially declared war on Germany, the United States shipped weapons and other products to Britain in a system called “lend-lease.” The Germans used their huge fleet of submarines (Unterseeboote or “U-boats”) to sink as many U.S. ships traveling to Britain as possible to cut off this trade. The attacks drove the U.S. decision to enter the war in Europe.
Trade during World War II was focused on military equipment more than it was during World War I. The economies were mobilized, more than 55 percent of the world gross national product was directed to the war effort, and, if trade can be spoken of, it was mostly shipments of arms (and other resources) from one side of the world to the other. After the end of the war and the near-total destruction of Europe and Asia, a new world order was established in the political arena, necessitating a new trade environment.
Although the struggle between the Eastern and Western blocs was called the “Cold War,” no actual war (which is considered a “hot war”) broke out between United States and the Soviet Union. Instead, they fought via proxy in small conflicts, such as the civil wars in the developing world and, at the same time, engaged in a trade war. The first man to analyze the coming conflict between the two superpowers was an attaché to the U.S. State Department in the U.S. embassy in Moscow, George Kennan. Kennan encompassed a policy framework for dealing with the emerging Societ Union under the broad term “containment.”
Four principles guided U.S. foreign policy during that period: deterrence, containment, commitment to intervene, and the establishment of “liberal” international economic conditions. These principles had several implications for global trade. The first was the establishment of regional economic treaties, which were meant to establish alliances as well as to promote free-market capitalism. The second was the creation of international trade and financial institutions (the International Monetary Fund and the World Bank), which had heavy U.S. involvement. The United States also aided its allied countries directly through various foreign aid programs, such as the Marshall Plan and the U.S. Agency for International Development. In an attempt to block communist influence in the Third World, the United States gave financial support to pro-Western regimes and guerrilla groups, some of which were not democratic (e.g., in Argentina, Chile, Iran, and South Vietnam).
The Soviet Union controlled the markets of its satellite states in Eastern Europe, making them primary trade partners and preventing them from trading independently with the West. The Soviet Union also used these satellite countries to trade, when it was not comfortable being directly involved. The Soviet Union also shipped aid to its supporters in the developing world (some of which were actually blatantly anticommunist; their governments jailed members of trade unions and communist parties, for example, Egypt under Gamal Abdel Nasser).
The decolonization struggles, which began in Latin America in the late eighteenth century (with the weakening of the Spanish empire) and culminated in the post-1945 national liberation movements, were more than simply the outgrowth of Europe wanting to control the resources of the colonies. In many cases, despite the achievement of political independence, dependency on the European powers continued at the economic level, with the Europeans maintaining mining or trading monopolies on the resources of the postcolonial states. Moreover, most of the postcolonial history of the post-1945 new states was directly affected by the Cold War, and an alliance with one of the sides in the U.S.-Soviet conflict had implications for the trade relations of the country.
In particular, the Arab-Israeli conflict was a front in the larger competition between the two superpowers. Both the Soviet Union and the United States were involved in arms shipments and oil interests in the region, as well as in other trade interests, which were related to the Arab-Israeli wars. Countries that signed peace agreements with Israel, such as Egypt, received military and economic aid from the United States (Egypt is the second-largest recipient of U.S. foreign aid, with $1.8 billion each year).
The Cold War ended for economic reasons. The Eastern bloc could not achieve the same economic standards as those reached by Western countries. The political and economic repression crumbled the authority of the state, which brought about economic stagnation to the point that the Soviet Union was dependent on imported American wheat. To reverse this stagnation, Mikhail Gorbachev, the Soviet leader, initiated a series of political and economic reforms: glasnost and perestroika. The reforms led instead to the collapse of the Eastern bloc, the liberalization of the Eastern economies, and finally the end of the Cold War.
Nadav Gablinger
See also: Capitalism; Cold War; Mongol Invasions; Napoleonic Wars; World War I; World War II.
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