Cecil Bohanon and John Horowitz: War’s harm to international trade lasts decades

John Maynard Keynes, arguably one of the most influential economists of the 20th century, noted in his 1920 book, “The Economic Consequences of the Peace,” that before World War I: “The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep.”

Moreover, Keynes noted, “[The Londoner] regarded this state of affairs as normal, certain, and permanent. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise … appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice.”

Not only did the Great War of 1914-1918 undermine internationalization, but it was further stunted by the political and economic developments in the 1920s, 1930s and 1940s. The United States shut its door to immigration in the 1920s, adopted the Smoot-Hawley tariff restrictions in the 1930s, and was a central actor in World War II in the 1940s. In the post-war period, America and other nations established numerous institutions to facilitate reviving internationalization. Nevertheless, the United States was not extensively involved in the world economy until later.

One measure of a nation’s involvement in the international economy is the percentage of its gross domestic product exported, where exports are goods and services provided to the rest of the world.

From 1929-1969, exports, on average, accounted for only 4.5% of the U.S. GDP. However, in the 1970s, U.S. exports, on average, increased to 7.2% of U.S. GDP. This percentage continued to rise each decade to 12.7% in the 2010s. However, since 2020, the U.S. GDP allocated to exports has fallen to 10.9%. Before 1970, the U.S. usually ran trade surpluses but has not run a trade surplus since 1975.

In other words, before 1970, less than $1 out of every $20 of U.S.-produced goods and services was provided to the rest of the world. In the last decade, even with record trade deficits, exports increased so that around $1 out of every $8 of U.S.-produced goods and services was provided to the rest of the world.

Peace leads to more people having access to products from around the world. But Keynes’ serpents of war, rivalries and restrictions are constant dangers.•

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Bohanon and Horowitz are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.