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Difficulty: HardCauses of the Great Depression

"We, the undersigned, ... urge you to veto the Hawley-Smoot Tariff Bill. ... We believe that any increase in duties would be a mistake. ... A tariff wall of the scale proposed would operate to prevent the payment of foreign debts to us. Foreign nations cannot buy our goods unless they can sell to us. Our export trade would suffer as a result of retaliatory tariffs, further depressing agricultural and industrial sectors that already suffer from overproduction."
— Petition of 1,028 Economists to President Herbert Hoover, May 1930

Based on the passage, the economists' warnings most directly point to which of the following underlying causes of the Great Depression?

  1. A
    A sudden shift by the federal government toward lowering protective tariffs and embracing free-market globalization.
  2. B
    The complete diplomatic and economic isolation of the United States from European markets during the 1920s.
  3. The fragile web of international trade and war debt repayments that linked European and American economies.Answer
  4. D
    The immediate financial disruption caused by the expansion of New Deal regulatory agencies.

Answer

The fragile web of international trade and war debt repayments that linked European and American economies
The correct option identifies the fragile web of international trade and war debt repayments. Following World War I, the international economy was linked by a cycle of allied war debts and German reparations. American banks loaned money to Germany, which Germany used to pay reparations to France and Great Britain, who in turn used those funds to pay their war debts to the United States. High protective tariffs like the Hawley-Smoot Tariff disrupted this cycle by making it nearly impossible for European nations to sell their goods in American markets to earn the dollars needed to repay their debts, leading to retaliatory tariffs and a collapse in global trade.

Step-by-Step Solution

1
Analyze the provided stimulus
The petition warns that raising tariffs will prevent foreign countries from paying their debts to the United States, depress American export industries, and trigger retaliatory tariffs.
Understanding the core argument of the source document is essential to linking it to broader economic contexts.
2
Connect the warning to the historical context of the post-World War I international debt cycle
European economic recovery and debt repayment to the United States were heavily dependent on their ability to sell goods to American markets and secure private American loans.
The international financial system of the 1920s was a delicate cycle of American loans, German reparations, and Allied war debt repayments.
3
Determine the impact of high tariffs on this cycle
The Hawley-Smoot Tariff disrupted this cycle by cutting off European access to U.S. markets, prompting retaliatory tariffs and dry-ups in international credit, which accelerated the onset of the Great Depression.
Tariff barriers broke the circular flow of international capital and severely contracted global trade.

Key Concept

The role of international trade barriers and war debt structures in triggering the Great Depression.
Estimated Time:2m 0s
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Topics

Causes of the Great Depression

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