The following is an attempt to analyze the economic positions among nations of the world prior to WWI and WWII, with the goal of comparing these positions to our current one in present times. Though I will touch on some political and social points, my primary focus will be on how trade between nations shaped alliances and instigated conflict, whether directly or indirectly. I suppose another goal of this writing is to allow myself to be criticized constructively, and also promote others to do their own research. Perhaps through analysis of this paper can we have a discussion and bring to light about the ubiquitous existence of military conflict currently plaguing humanity and the world today, and thus find solutions to avoid repeating the past. I believe we have the ability to do this.
1.) Relationships among Nations Prior to WWI and conditions leading up to it.
Alliances in Flux: To create context, one must familiarize themselves with the words of Adam Smith, a 1770s economic philosopher who arguably birthed the idea of “free” trade among nations. In summary, this idea meant shifting away from “protectionist” polices that facilitated the prevention of foreign markets from entering domestic ones. In other words, tariffs (taxes on imports/exports) were placed on imports, for example, in order to manipulate the demand away from those foreign goods towards domestic goods, thus promoting that domestic industry. Free trade called for the opposite of this; reduce tariffs as much as possible in order to expand access to foreign markets, thus creating mutually beneficial opportunities for all Nations involved. The following will illustrate brief examples of the aforementioned, while also remaining loyal to the context of this paper.
Prior to WWI, an alliance worth mentioning is the one formed between Germany and Austro-Hungary. I’m aware of the magnitude of variables serving the function of this alliance. But in order to keep this paper as brief as possible, I will leave it to the reader to further research this topic, and omit some of these variables.
After the Prussian-French war in 1870, Russia and the US became major suppliers of food. Several European countries imported these Russian-US food products as it was cheap due to its plentifulness. One country that imported this food was Germany. This became a problem within the context of free trade because the US for example was the only (or one of the only) country that was able to benefit from this trade arrangement, while German exporters (domestic industries) did not have the same access to US markets. This unbalanced trade relationship arguably led Germany to shift back to protectionist trade policies. This coincided with Germany’s desire to modernize and compete in the industrial revolution. By placing tariffs on foreign food imports, this would in theory shift demand to domestic food production, thus stimulating the economy and generating the wealth necessary to invest in Germany’s industrialization. This shift, I conjecture, diminished demand for Russian wheat imports as well, and contributed to the already diminishing political relationship between Russia and Germany. Since Germany could no longer broker peace between Austria-Hungary and Russia following conflicts among Balkan states to the south and southeast, it made sense for Germany to maintain and strengthen her alliance with Austria- Hungary. This was especially beneficial to Germany because Austria Hungary provided a buffer against the tumultuous Balkans to the south. The French sought revenge for defeat in the Prussian French war to the west, Russia began friendly communication with France; Germany now faced potential conflict on multiple fronts. (2)
How trade influenced the alliances between Russia, France, and Britain prior to WWI isn’t exactly obvious. It isn’t clear to me what the trade relationship was between Russia and Britain at that time. I postulate that there was British investment in Russia as the latter began industrializing and sought foreign investors to fuel this process. (1) France gave loans to Russia during the late 1800s in order to also help build Russian industry (3). French-British trade strengthened following the laissez-faire (free trade) mindset that developed in the 1800s. This mindset was accentuated by the Cobden-Chevalier Treaty in 1860. (4)
Economic state of the world prior to the outbreak of war: Near the turn of the century, when more nations entered the process of industrialization, protectionist policies were favored more and more. These policies often included increasing tariffs on foreign imports in order to stimulate local production and industries. This situation became exacerbated by a flurry of trade wars, one of which was between France and Italy. Again, I’m sure I am omitting other substantial variables; France and Italy once enjoyed a laissez-faire economic relationship. The onset of the industrial revolution, I conjecture, influenced Italy to seek trade policies in favor of domestic production. These policies conflicted with French interests, and thus a trade war began. (5)
Perhaps somewhat unrelated, but nonetheless relevant to events leading to WWI was the military buildup of all nations. Germany for example sought to build a naval fleet with the explicit intention to rival that of England’s. Russia had suffered defeat in the Russo-Japanese war. The Balkans (Greece, Serbia, Bulgaria, Montenegro) certainly enjoyed a copious amount of bloodshed through the Balkan Wars. These examples certainly reflect a bias towards more western European countries, this is because WWI and its victims were primarily created in this region of the world. But let it be known that prior to WWI, the majority of the world was already in a state of armed conflict. I’m aware that war has been an intrinsic part of human history, and very rarely was there a time that no wars occurred. Regardless, the general condition of the world prior to WWI is strikingly similar to the present condition among nations today. I seek to elaborate on this as the paper progresses.
(4) (Pg54 of “Trade Cooperation before 1914” by The University of Michigan Press)
(5) (Pg63 of “Trade Cooperation before 1914” by The University of Michigan Press)
2.) Trade and Events Leading to WWII
The Great Depression and Rise of Nazi Germany: It’s important to keep in mind not just the political and structural nature of the human world, but the financial nature following WWI. The cost of the Great War had an effect on the world the lasted for decades. In its wake, countries struggled to find a way to fund the rebuilding of themselves. The US financed Britain and France through the war and in order to help them rebuild, but these loans were not possible for the latter countries to pay back. Since it was perceived, that Germany was to blame for starting the war, she was held responsible for paying reparations, thus countering this default situation. (1) This was a crippling situation for Germany. In order to facilitate Germanys need to rebuild and care for her people, the US lowered interest rates, thus encouraging investment in the war-torn post-war Germany.
But in 1928, massive stock market speculation raised concern to the US Federal Reserve board. In order to placate this stock market frenzy, the Fed raised interest rates, which in theory would make it less attractive to borrow money for speculative purposes. But a perhaps unintended consequence of this action made US dollars less attractive to borrow, thus stifling international investments. (2) To counter this, other countries increased their interest rates in a way that maintained their attractiveness to US investment. This led to a complex snowball affect where borrowing became difficult, and prices of goods became cheaper due to ramping supply, damaging businesses, increasing loan payment defaults, investors panic sold which crashed the stock market, and creating unemployment. This global economic collapse became formally known as the Great Depression.
It seems obvious to me that the Great Depression had a significant impact on how US trade policy shifted in the 1930s. The Tariff Act of 1930 had the goal of boosting domestic agricultural production; this was desired because of the abundant and cheap food supply caused by post-WWI rate of food production, and the decreased demand during the Great Depression. This cheap food made it difficult for domestic producers to compete. In order to address this issue, the Tariff Act of 1930 was implemented. Tariffs were placed on foreign imports. (3) This shift towards protectionist policies was not unique to the US. Other countries followed suit in order to protect domestic industries. It seems that in order to kick start the global economy again, free trade would have to be reimplemented as it was during the 1800s. The 1934 Reciprocal Trade Agreements Act (RTAA) allowed the president to negotiate tariffs among nations, and helped break free the frozen gears of world trade. (4)
Nationalism: Germany and her reliance on foreign investment became exacerbated by the global economic collapse. Nationalism, it seems, became a symptom to this problem. The outrageous and unrealistic reparations that were expected of Germany also certainly contributed to this Nationalist mindset. Over the next several years, the dominant political party became the Nazis lead by Adolf Hitler. In order to feed the people, Hitler spoke of Lebensraum (living space) in order to have the land to accomplish this. Through a series of territorial acquisitions, the Nazis achieved this goal. The final annexation sparking the beginning of WWII (at least in Europe) was the invasion of Poland.
One country that was already at war during most of the aforementioned was Japan. On the surface, it seems as if Japan enjoyed a large benefit in trade during the Great War and up until its end. Their exports became greatly demanded thus generating substantial revenue, strengthening their financial economy. With this being said, it seems as though Japan was in a position of strength prior to the Nazi invasion of Poland. But it should be noted the Great Depression led to a drop in imports to Japanese mainland. In order to maintain their Imperialist machine, they required resources that were not available on Japanese mainland. This perhaps motivated them to continue annexing territories along the japan, yellow, east and south china seas.
During my research process, it’s becoming more and more difficult to differentiate between WWI and WWII. The effect on the entire world by the first world war was so profound, that it seems as if the end to the fighting was merely a pause for those involved to catch their breaths. The events following WWI and leading to WWII seemed to flow in such a coherent manner that it begs the question: was the world primed for a continuation of global conflict? It’s in this context and with this question that I will continue this paper; focusing now on current events, looking for whether or not actions among Nations now reflect the actions among Nations in the past.
3.) Trade and Current World Affairs
Russian – EU – US Relations: Here I seek to determine, through analyzing current international relations, whether there is indeed a resemblance to those of the past. The relationship between Russia and the world is too complex to fully elaborate on while still staying true to the context of this paper. Again, I hope this encourages others to do independent research on this topic. Today, arguably the largest international conflict is the Crimean annexation by Russia, and the constant military maneuvering within the Black Sea, and along the eastern Ukrainian border. A consequence imposed on Russia by the EU-US is sanctioning; The Ukraine/Russia Related Sanctions Program of 2014(1) restricts trade particularly with the Russian annexed region of Crimea, and Russia itself. This bans imports and exports from and to the region. Also, investments to the regions are prohibited. A consequence of these sanctions has been a devaluation of the Russian currency, or ruple. This devaluation has a negative effect on their fossil fuel exports due to the importers enjoying a favorable currency exchange rate. A possible consequence of this – whether intended or not; perhaps this can be another discussion – is the strengthening of Chinese-Russian relations; China could certainly benefit from this cheap oil in order to fuel its accelerating growth. It’s important to note that another significant factor in recent falling oil prices is the impact of COVID on the global economy. Russian ruple devaluation is most certainly a multivariate function, but nonetheless, sanctions are still a noticeable factor. The devalued Ruple also caused inflation throughout the Russian economy. In other words, sanctions don’t just affect the Russian state, they effect ordinary civilians who now have to spend more to acquire the same quantity of goods. (2)(3) Again, the argument for or against whether this effect was intended will be left alone for now.
Whether the current military posturing by Russia in Europe is a direct consequence of sanctions, or simply the aftereffects from the fragmentation of the Soviet Union, isn’t exactly obvious to me. It is nonetheless an identical situation to pre-WWI with the Russians, Servs, and Austria-Hungarians. Only this time the players are Russia, Ukraine, the EU, and US.
The Arctic Ocean: This region along the northern coast of Russia is riddled with natural resources such as copper, iron, nickel, and fossil fuels to name a few. Russia has invested in nuclear powered ice breakers that will make it possible to trade along this arctic region. This will be very likely because of global warming; the melting polar ice coupled with these ‘ice breakers’ will make movement in this region much easier, and also expose the aforementioned recourses.
The sanctions against Russia by the EU and US may certainly motivate the former to accelerate this development of the Arctic trade route. But with falling currency value, it’s possible that Russia cannot finance this operation alone, and may need to rely on foreign investments I.e. China. (4) China would also benefit from this trade route as it would provide more convenient access to western Europe and perhaps even the eastern US. A strengthening alliance between Russia and China seems very likely.
Turkey and Russia: The United States withdrawal from Syria created a vacuum of power that Russia did not hesitate to fill. It seems that in order to deter Kurdish “insurgency” in the area, or perhaps to deter general violence in the region period, Turkey and Russia are trading weapons technology. (5) This is a slap in the face of US constituents as the relations between them and Turkey are now straining. If the above conjecture is true, Russia now has the opportunity to gain credibility as a peace keeping/mediating force in the Middle East. With Syria bordering the Mediterranean Sea, this is strategically advantageous to Russia both in terms of trade and growing their military presence.
It seems that the current economic alliances are rapidly shifting in Europe and the Middle east. I can’t say this is solely due to shifting economic relationships, but trade between nations is no small reason for this shift. It’s clear that at least in terms of Russian – World affairs, the country is experiencing forced isolation from the west. But this dynamic, as illustrated above, will also force the former into strengthening relationships with other world powers who also aren’t on cordial terms with the EU-US. Adding to this the rising military posturing, even reported engagements (6), there’s an eerie similarity to behaviors among nations pre-WWI, especially if these reports are true.
China – World Relations: Again, this is a complex topic. As we speak, China is the 2nd largest economy to date (7). It trades with the largest power players in the world. This includes the US, EU, India, Russia, and African countries. In 2020 alone, China counts for about 20% of the EUs imports. In 2019, China was the largest exporter in the world (8). My goal going forward with this writing is to keep the above in mind as I attempt to show the interactions China has with several foreign countries.
I’ll begin with Chinese-Indian relations. The two countries have been engaging in border disputes for over a century. One recent maxima serving as a climax is the Sino-Indian war in 1962. There are three main areas of contention. The first is known as the Aksai Chin region. This location is where the Hindu Kush mountains meet the Himalayas at the northern most area of India. The second is the region of Sikkim, which lays between Bhutan and Nepal; a narrow corridor that nearly separates mainland India from its east-northeastern section. The third area of contention, also the largest, is the McMahon Line. This area can be looked up as it is difficult to describe (9). Recently, international media has covered recent clashes between the two powers (10). The history preceding this dispute is – like previously mentioned examples – complicated. One supposition is the two powers are struggling for control over these regions in order to win the initiative for building infrastructure for trade routes I.e. roads, highways, fueling stations. These regions are particularly relevant to China’s Belt and Road Initiative (11). Gaining control of Sikkim especially will give militarily strategic advantage to China because they will have line of sight over the corridor connecting mainland India to its eastern most portion.
Something interesting to note here is that I haven’t found anything that suggests a significant strain in their economic relationship due to this conflict. This seems to be due to India’s reliance on Chinese imports in order to grow its manufacturing base. These imports include machinery, telecom equipment(internet), and appliances (12). There also seems to be an unmet Indian demand for foreign engineers; unmet due to the aforementioned conflict (13)(14)
Now I’d like to turn our attention towards the middle east, particularly Iran. Again, I’m going to focus on trade or a lack thereof. Iran was subject to multiple sanctions by the EU and US, in order to deter nuclear weapon development. These sanctions include blocking international financial transactions and blocking Iranian oil imports. This has led to the 2015 nuclear deal, also known as the Joint Comprehensive Plan of Action (JCPOA)(15). The deal basically allows Iran to enrich uranium to a point where it can be utilized for energy purposes, while also lifting harmful economic sanctions. On May 8th 2018, then president Trump withdrew from the deal, citing flaws and its ineffectiveness. Since the US backed out of the deal, Iran continued its uranium enrichment program, and sanctions were reinstated.
Since this deal fell apart, there have been skirmishes between US/Coalition forces and Iranian/Iranian backed militants along the Iraq/Iran border. One such incident was an assassination of Qasem Soleimani, a high ranking and well respected general in the Iranian military. This was done by US drone strike. Iran has retaliated by firing rockets at bases in Iraq known to house US personnel.(16)
It seems that this behavior towards Iran, justified or not, has perhaps influenced the deal made between it and China (17). This deal is one of significance, assuming it is diligently carried out. It neutralizes some of the effects of US sanctions by giving Iran a market to sell their oil in, in exchange for investment to build their infrastructure. This oil will certainly help China fuel their BRI program. Sanctions on Iran has pushed it to seek alternative markets, and perhaps shifted the global balance of power further away from the US.
The above dynamic between Iran and China is made more complicated with allegations towards the latter county in regards to human rights abuses. There is a situation in China that is sparking global economic retaliatory actions by US and constituents (18). China experienced two documented attacks on its civilians which it says were perpetrated by Uighurs from the Xinjiang region (19). As a result, the Chinese government has built “re-education” camps where Uighurs are forced to go in order to be socially integrated. China claims the goal is to mitigate extremist terrorist actions against the state. From an economic stand point, I’d conjecture these actions serve multiple functions.
One being to stabilize a region of perceived extremist irreverence in order to guard state assets such as natural gas, oil, and cotton.
Two being to integrate a group of people into Chinese culture and society, thus mitigating further attacks, contributing to the global ‘war on terror’, and creating a more educated workforce in alignment with their BRI.
These camps have resulted in condemnation by multiple countries, the US included, on human rights abuses by China on the Uighur people. Sanctions placed on China include blocking cotton imports from the Xinjiang region by US. This may, in theory, deter the use of forced labor to produce the cotton and goods associated with it. The other sanctions are somewhat more unique; they’re placed on members of the CCP. These members include Wang Junzheng and Chen Mingguo, the latter being the Director of the Xinjiang Public Security Bureau; he is responsible for implementing social/security policies in the region. These sanctions prevent these individuals and their families from receiving any funds or services by US entities. Assets, if located in the US or in control of a US person, are blocked (20). Consequences for sanctions against government members isn’t as obvious to me. Perhaps the goal is to coerce these individuals to lift oppressive security policies that they signed into effect.
Aggressive Chinese policies are not limited to its mainland area, but also the bordering coasts. The Taiwan conflict has been going on for some time now. I encourage those who are interested to familiarize yourselves with the history behind this issue. I want to focus on how this issue may affect trade on a global scale.
There is currently a semiconductor supply shortage due to COVID-19. These shortages have occurred in the past, but this recent one certainly stands out. This shortage has affected production of electronics (phones, computers) and industries using these electronics(cars), just to name a couple examples (21). One of the world’s largest semiconductor manufacturers is the Taiwan Semiconductor Manufacturing Company, or TSM for short. It’s located in Taiwan. China being the largest manufacturing exporter in the world, would certainly benefit from controlling this production, and thus effect the availability and cost of goods across the globe.
China and Taiwan have a complicated and unique relationship. To very briefly summarize, the former declares the land of Taiwan to be a part of mainland China. Owning Taiwan would be a significant strategic position for the Chinese navy as it gives direct access to the Pacific Ocean and Philipine sea. In addition, the position would also give greater leverage over the immense international trade that takes place along the south east Asian island chain. Not to mention having direct access to one of the world’s largest semiconductor manufacturers; this would give China a huge edge in electronics manufacturing. Currently, there is significant naval posturing among nations such as the US, China, Philippines, and Japan within the China seas regions.
To conclude this writing, it seems that the western powers (US, EU) are pushing the major powers of the east (Russia, China) away not just politically, but economically. As mentioned in the world war sections above, the economic state between nations tend to foster alliances, or deteriorate relationships in general. This seems obvious, but I think it’s a bit more complicated. For example, I’ve mentioned briefly the potential for Russia and China to share a stronger relationship. I see this potential diminishing due to Russia selling India weapons. There are even talks of Russia developing weapons in India itself, which would certainly complicate India-US relations due to US sanctions on Russia for annexing Crimea (22). My major concern is the relationship developing between China and Iran.
Regardless, it’s very difficult to see a global war occurring due to the interwoven fabric of trade among Nations today. As we’ve seen from the post-WWI era itself, postwar effects on the world economy are devastating. Perhaps this in itself can deter future conflict.