One thing to Know: Isolationism and the Great Depression in the United States
What should be seen at this point is the crazy 20s caused by the isolationism after World War I in the United States and the Great Depression, which comes to an end. In this regard, I wrote a small paper with ChatGPT. In addition, the current situation is intertwined with the post-World War II period of government spending cuts. I will post this after further research. The subject of the current article is a comparison of the post-World War I United States and the aftermath and the present.
I think anyone who makes an investment should be aware of this. We must learn from history.
Thesis: How Modern Isolationism Affects the U.S. Economy and How to Prevent the Recurrence of the Great Depression
introduction
The United States adopted an isolationist policy after World War I, and chose to minimize intervention in international affairs and focus on domestic economic development. As a result, the U.S. economy boomed to the extent that it was called the ‘Crazy 20s’ in the 1920s, but eventually led to the Great Depression in 1929 and a severe recession. Later, in the Clinton-Greenspan era in the 1990s, the United States emerged as the center of the international economy by actively promoting globalization. Recently, however, the United States has shown a movement to return to isolationism, which is interpreted as a strategy to check China, which has emerged as the G2, and to protect the domestic industry. This study aims to analyze the impact of this modern isolationism on the U.S. economy and seek the direction the United States should move forward to avoid economic crises such as the Great Depression.
- American isolationism and post-World War I economic changes
After World War I, the United States chose isolationism to focus on domestic economic development and avoid the burden of post-war recovery in Europe. For this reason, in the 1920s, the United States strengthened protectionism to protect its own industry, and raised tariffs through the Fordney-McCumber Tariff Act (1922) and the Smoot-Hawley Tariff Act (1930). Such measures showed the effect of protecting its own industry in the short term, but in the long term, they contracted international trade, leading to a slowdown in the global economy. In particular, the Smoot-Hawley Tariff Act caused retaliatory tariffs in several countries, resulting in a sharp decline in international trade, which served as an important catalyst for the 1929 Great Depression [^1].
In addition, the United States tried to withdraw enormous loans it had lent to Europe during the war, but this financial pressure worsened the European economy without its economy recovering. Economic instability in Europe led to defaults in loan repayments from the United States, which in turn led to liquidity problems in the U.S. financial system. This isolationist policy caused economic instability in both Europe and the United States, leading to overproduction and slowing consumption in the United States, which intensified the Great Depression [^2].
[^1]: Irwin, D. A. (1998). “The Smoot-Hawley Tariff: A Quantitative Assessment.” The Review of Economics and Statistics, 80(2), 326-334. doi:10.1162/003465398557426.
[^2]: Kindleberger, C. P. (1973). The World in Depression, 1929-1939. University of California Press. - 21st Century Isolationism and Economic Strategies to Check China
The modern U.S. is again strengthening its isolationist nature to check China’s economic rise and technological competition. In particular, it is trying to gain an edge in high-tech fields such as AI, robotics, and space industries, and the movement to establish its status as an exporting country based on this industrial advantage is remarkable. However, this strategy can be interpreted as a Beggar-thy-neighbor policy, and there is a possibility that the U.S. allies will suffer economic damage. A neighborhood deprivation policy refers to a policy that worsens the economies of neighboring countries for the benefit of its own economy, and there is a high risk of eventually causing global economic imbalances [^3].
If the U.S. monopolizes cutting-edge technologies, allies are more likely to be subordinated to these technologies and put them at a disadvantage in economic cooperation with the U.S. This could disrupt the balance of international trade and lead to instability in global supply chains, which could negatively affect the U.S. economic status in the long run. For example, allies such as Europe and Japan are investing considerably in the AI, robot, and semiconductor industries, but if the U.S. continues its overwhelming technological advantage, the related industries of these countries are likely to shrink [^4].
[^3]: Deardorff, A. V. (1980). “The General Validity of the Law of Comparative Advantage.” Journal of Political Economy, 88(5), 941-957. doi:10.1086/260914.
[^4]: Baldwin, R. E., & Venables, A. J. (1995). “Regional Economic Integration.” Handbook of International Economics, 3, 1597-1644. doi:10.1016/S1573-4404(05)80010-1. - Strategic Isolationist Measures to Avoid the Great Depression
Even if the United States returns to isolationism, the following strategic measures must be introduced to avoid a serious economic crisis such as the Great Depression.
3.1 Formation of selective trade relations and economic blocs
Instead of pursuing a complete trade break, it is necessary to form an economic block while maintaining selective trade relations with major allies. For example, a rapid decline in international trade can be prevented by maintaining stable trade relations with certain countries through economic blocks such as the North American Free Trade Agreement (NAFTA). This selective blocking guarantees a stable supply of resources and technology and enables economic independence [^5].
3.2 Strengthening and Covering Domestic Markets