American economic foreign policy and the origins of the cold war

“The impact of the prewar world depression and the experience of the 1930s profoundly colored United States planning of its postwar peace aims.” American policymakers in the forties regarded reconstruction of the world’s economy as an essential goal if the conditions which caused wars were to be eliminated. As argued by Gaddis, “To them, the coincidence of world depression with the rise of dictators seemed more than accidental – almost unanimously they accepted the argument that economic distress led to war.” Hitler, Mussolini, and the Japanese militarists had not appeared out of nowhere; without favorable environments their movements would have never succeeded. The ensuing establishment of closed economic blocs by fascist Germany in Europe and Japan in the Far East had then exacerbated economic rivalries and set the great powers on the road to war. As a consequence, Washington officials spent much time thinking what economic measures could be taken to avoid such a depression from recurring. As argued by Secretary of State Cordell Hull in 1944, “A world in economic chaos would be forever a breeding ground for trouble and war.” A disciple of Woodrow Wilson, Hull articulated most effectively among American leaders the relationship between economics and war and the commitment to multilateralism. In his autobiography published in 1948 he recalled:

“But toward 1916 I embraced the philosophy I carried throughout my twelve years as Secretary of State […] From then on, to me, unhampered trade dovetailed with peace; high tariffs, trade barriers, and unfair economic competition, with war. Though realizing that many other factors were involved, I reasoned that, if we could get a freer flow of trade – freer in the sense of fewer discriminations and obstructions – so that one country would not be deadly jealous of another and the living standards of all countries might rise, thereby eliminating the economic dissatisfaction that breeds war, we might have a reasonable chance for lasting peace.”

There was certainly nothing novel about this idea, which had already been proposed by such important social scientists as David Ricardo and John Stuart Mill. Gaddis points to the fact that classical liberal economists “had always viewed commerce as the main bond between nations.” It was the combination of Hull’s political influence and personal tenacity, however, that gave the classical view a thrust and remarkable unanimity within the Roosevelt and later Truman administration. Assuming that only their country had the power and influence to carry out this task, United States officials set to reshape the future of the world economy even before formal entry into the war.

Needless to say, Hull’s objective of creating a so-called “open door” world in which nations enjoyed equal opportunities for trade and investment was driven by more than just the noble intention to secure world peace. The desire to enhance American prosperity was an equally important consideration. Pollard believes that “it should come as no surprise that American ideals and self-interest coincided so neatly, for the primary goal of foreign policy, after all, is to serve the national interest.” Foreign trade would ensure the economic health of the United States. “Any serious failure to maintain this [trade] flow,” concluded an assistant secretary of state, “would put millions of American businessmen, farmer, and workers out of business.” Only the mobilization for war had finally dragged the U.S. economy out of depression, and anxiety was widespread that high levels of unemployment would return with the end of huge government expenditures for military goods. In this light, Roosevelt and his associates hoped that foreign markets would help absorb the vast quantity of goods which would have to be produced if high employment levels were to be maintained. Hull himself admitted in 1940 that the objective of the “open door” would be “to reopen the old and seek new outlets for our surplus production.” Moreover, expanding to foreign markets would provide the United States with important resources it was only scarcely endowed with. Worried leaders itemized domestic deficiencies in many critical industrial minerals; President Truman in 1949 linked economic and military necessities when he emphasized the need for raw materials: “Without foreign trade […] it would be difficult, if not impossible, for us to develop atomic energy.” Washington officials also recognized that U.S. corporations needed access to cheap overseas raw materials in order to remain competitive. Therefore, the call for inexpensive capital further demonstrates the American awareness of the interdependence between the international economy and the need for foreign trade to ensure domestic prosperity and security.

However, Gaddis correctly points out that “Washington’s emphasis on reviving postwar trade stemmed from more than narrow considerations of economic self-interest,” a fact often overlooked by revisionist historians. Postwar American foreign policy was not, as most revisionists contend, harnessed solely to sustain and to reform world capitalism through the expansion of foreign trade and investment. Economic expansionism was only one consideration of the grander strategy of the “open door.” American leaders sincerely believed that opening channels of international trade would raise living standards throughout the world and lessen the danger of future war, an objective clearly in the interest of all nations. “From its beginnings in the liberal democratic theory of John Locke and the laissez-faire economics of Adam Smith, American political and economic ideology has been grounded in the notion that maximum collective good will result from a society structured to permit freedom of individuals to compete in pursuit of their individual self interests.” In the American view, this principle applied equally well to the international environment. Consequently, American officials backed the “open door” not primarily to sustain world capitalism but because they were determined to prevent a revival of the system that had contributed to world depression in the 1930s. Moreover, although the multilateralist world economy would yield handsome political and economic dividends for the United States, this would not prevent other countries from participating and making equally striking gains. A strong American economy was also believed to benefit all nations of the world; Secretary of Commerce W. Averell Harriman described the United States as the “financial and economic pivot of the world,” articulating the popular view that “economic stagnation in the United States would drag the rest of the world down with us.” To many political leaders in Washington, this knowledge provided the moral justification for imposing their Weltanschauung on the international economy.

The task of restoring the free flow of world trade within a capitalist framework was given to the U.S. State and Treasury Departments. The former assumed major responsibility for removing trade barriers by working for a renewal of the Reciprocal Trade Agreements Act and by seeking to commit other nations to liberal tariff policies. The Atlantic Conference organized by the State Department in August 1941 moved to implement this policy. In Article III of the Atlantic Charter, Roosevelt and Churchill declared that after the war all people should have the right “to choose the form of government under which they will live.” Article IV added the economic side to that principle: all states should enjoy “access, on equal terms, to the trade and to the raw materials of the world which are needed for their economic prosperity.” Conversely, the Treasury Department, under the direction of Henry Morgenthau Jr. and Harry Dexter White, concentrated on reforming the international monetary system by creating mechanisms to stabilize international currencies and to facilitate the flow of capital for reconstruction and development. The Treasury began working on an international financial and monetary conference in late 1941, which culminated in the meeting of delegates from forty-four nations at Bretton Woods on July 1, 1944. The Bretton Woods agreements established the International Monetary Fund and the International Bank for Reconstruction and Development, commonly known as the World Bank. The United States intended that these two agencies would expand world trade, and reconstruct and stabilize the global economy respectively. Not surprisingly, there was one other rationale: voting in these organizations depended on money contributions. Given that the American financial share exceeded by far that of other members, the United States would also be able to control the World Bank and the IMF. Thus, as Kolko contends, “The importance of the Bretton Woods Agreement was less in what it accomplished than in what it promised, for everyone understood the agreement was not an organism for dealing with the problem of war debts and reconstruction, but rather a structure for a normal world economy the Americans envisaged would exist rather soon after the war.” Hence, the IMF and the World Bank marked not only the first major attempt by the United States to restructure the world economy, but also to integrate it under American leadership.

Having underlined the main intentions behind American foreign economic policy in the 1940s, we move now to an explanation of its connection with the outbreak of the Cold War. Although unwise to assign all blame on American determination to create an “open door” world economy, its endeavor clearly aggravated Soviet-American relations. Block maintains that “those who wanted a “second chance” for the United States to manage an open world economy had to defeat their […] opponents both home and abroad.” Naturally, the Soviets were unwilling to relinquish control over the management of their economy. However, it was not only the Soviet Union which opposed American plans for an integrated world economy. For instance, Gabriel Kolko stresses the fact, often lost sight of in the aftermath of the Cold War, that American adherents of free trade and multilateralism initially received as much resistance to their postwar program from Great Britain and other European industrial countries as from the Soviet Union. The British were extremely hesitant at first, given that an unconditional commitment to multilateralism would threaten their sheltered export market, thereby exacerbating England’s economic weakness. Churchill was determined not to surrender his imperial economic bloc, and managed to ensure that the provisions of the Atlantic Charter would not apply to the entire British Empire. Nevertheless, American officials were determined to break open this economic bloc, and blunt pressure from America forced London to accept most of Washington’s plans. Dependent on American aid for both its war effort and postwar reconstruction, Great Britain did not have the power to resist American postwar plans. France’s position was very similar to the English one. Initially, De Gaulle bitterly fought American officials as he tried to maintain his country’s colonies and diplomatic freedom of action. However, in 1945 the French leader had to swallow his considerable pride in asking Washington for a desperately needed billion-dollar loan. Most of the request was granted in return for French promises to curtail its governmental subsidies and currency manipulation, which had given advantages to its exporters in the world market.

Obtaining an agreement from Moscow proved to be much more difficult, even though the “open door” was not characterized by any anti-Soviet rhetoric per se. As emphasized by Pollard, “American preoccupation with the security implications of foreign economic policy preceded the advent of the Cold War. The Bretton Woods system and early postwar American foreign programs were not designed to punish the Soviet Union.” In fact, American planners had initially hoped for Soviet cooperation, regardless of their ideological differences. White, for one, believed that it would be an “egregious error” to exclude Russia from the International Monetary Fund and the World Bank simply because it had a socialist economy. Similarly, Morgenthau worked energetically throughout the Bretton Woods Conference in the summer of 1944 to secure Russian adherence to these two institutions. As in the case of Great Britain and France, American officials did not hesitate to employ economic incentives to win Soviet cooperation, offering massive postwar reconstruction loan prospects. To Washington, American-Soviet collaboration did not seem far-fetched, given that World War II had demonstrated that both nations could work together if they shared a common cause. However, although both nations were indeed striving for the same goal after the war, namely pace and security, the problem was that the United States and the Soviet Union shared fundamentally different interpretations of these concepts. Soviet reluctance to cooperate with American plans largely stemmed from the reminiscence of three devastating Western invasions Russia had suffered in one hundred and thirty years, all of which had virtually devastated the country. Moreover, the Soviet Union was well aware of its economic and military inferiority vis-à-vis the United States, and the perceived expansion of capitalism to new areas – already deeply enshrined in communist ideology – was understood as an American attempt to undermine socialism. As argued by Gaddis, “Traditional Russian xenophobia, compounded by communist ideology, caused Kremlin officials to suspect Western motives and led them toward unilateral solutions of their diplomatic problems.” These factors were instrumental in convincing Moscow of the necessity to seek security through territorial acquisitions and to create a sphere of influence in Eastern Europe. Although leaders in Moscow may have misperceived American incentives in believing that they were solely driven by expansionist motives, one can hardly blame the Soviet Union for being at least skeptical of U.S. intentions. 

Orthodox historians are quick in attributing the blame for the Cold War on the Red Army’s imposition of communist governments in certain Eastern European capitals. In this light, the U.S. administration’s ensuing repressive policies marked a purely defensive reaction to Soviet political authoritarianism in Eastern Europe. Nonetheless, all too often these historians forget that economic issues played a very important role behind American interests in that part of the world. Already in 1941, Stalin had constantly made his demands that Roosevelt and Churchill recognize the Soviet right to control large parts of Eastern Europe explicit. For Stalin, the Russian “sphere” would serve as a strategic buffer against the West and could be also exploited economically for the rapid rebuilding of the Soviet economy. Historians have very divergent views on the Soviet Union’s true intentions in Eastern Europe. Nevertheless, regardless of its motivations, agreeing to Soviet demands of establishing a sphere of influence proved in the end a task that Washington was unable to accept. The United States could have satisfied Soviet requests in Eastern Europe only by renouncing American ideals and wartime objectives. The perceived requirements of the “open door” limited the options available to American officials for adjusting to Russian requirements. After all, the Soviet establishment of a relatively closed sphere of influence would directly challenge the Atlantic Charter principles and the growing belief in Washington that the American system could only work globally. The United States declined in the winter of 1941 to even consider the Soviet Union’s bid to settle the postwar boundaries of Eastern Europe on the basis of the situation as it existed just prior to Hitler’s attack. This is not to say that the United States required Eastern European markets. American economic interests in the region had been minor before the Second World War and remained so afterwards. The diplomatic stakes were nonetheless high. As LaFeber claims, “a stable, prosperous world did require a healthy Europe, and that meant a united Europe with its Eastern sectors providing food and Western areas the industrial products. Each needed the other.” Finally, agreeing to a Soviet sphere of influence could set a dangerous precedent. If Stalin got away with building his own sphere in Europe, Churchill, de Gaulle, and others might try to rebuild their own blocs as well, which would further undermine the principles of the Atlantic Charter.

The conflict over Eastern Europe engendered a climate of mutual mistrust that set a lasting pattern for future Soviet-American relations. Once the United States and the Soviet Union had collapsed in mutual recrimination over the fate of Eastern Europe, economic cooperation became impossible. Gaddis contends that Moscow’s refusal to participate in the Bretton Woods monetary system in 1945 or to relax trade barriers in the areas under its control was already an effect rather than a cause of the Cold War. After Bretton Woods, Washington chose to withhold the one instrument which might have influenced Soviet economic behavior – a postwar reconstruction    loan – in hopes of extracting political concessions from the Soviet Union. All it managed to attain was a further deterioration of relations on both sides of the Atlantic. In the following months, America moved to structuring its foreign economic policies in such a manner as to strengthen the Western European capitalist countries and to isolate communism, features which came together in the famous Truman Doctrine. In a speech at Baylor University on March 6, 1947, President Truman declared that if the expansion of state-controlled economies (such as the communists’) was not stopped, and an open world marketplace restored for private business, a depression would occur and Americans would then have to bid farewell to their traditional economic and personal freedoms: “freedom of worship, freedom of speech, and freedom of enterprise.” The Baylor speech offered the economic reason for rebuilding the destroyed areas of Western Europe, if these lands were to be protected from communism. The Truman doctrine evolved into the Marshall Plan, from which the Soviet Union was effectively excluded, partly by own initiative. In talking about the Marshall Plan, Foreign Minister Byrnes recognized the relationship between foreign aid and spheres of influence: “We must help our friends in every way and refrain from assisting those who either through helplessness or for other reasons are opposing the principles for which we stand.”

American leaders did not want a Cold War, but aimed to an even lesser degree at insecurity. America’s search for peace was unable to accomodate that of the Soviet Union. In this light, the Cold War can be said to have largely evolved from the complex interplay between Washington’s multilateralist principles and Moscow’s perceived postwar security needs. To Russia, security dictated extraordinary measures to control the political and economic destiny of Eastern Europe. Conversely, to America, the nearly closed Soviet sphere threatened the open and integrated economic order upon which U.S. goals for peace and prosperity rested. As a result, America’s security needs demanded not only economic expansion. The “open door” also entailed creating a favorable environment in areas where economic interests as such were rather trivial, as seen in its goals in Eastern Europe. For this reason, U.S. foreign economic policy is to blame for exacerbating tensions between the United States and the Soviet Union. American policymakers embarked upon a program that had to force the Soviet Union to accept America’s traditional conception of itself and the world. As Williams points out, “American policy offered the Soviet Union but one real option: either acquiesce in American proposals [as the British and French had done] or be confronted with American power and hostility. […] It was the decision of the United States to employ its new and awesome power in keeping with the traditional open door policy which crystallized the Cold War.” Even Gaddis, who refutes many of the revisionist arguments, contends that “the belief that Stalin might agree to integrate the Soviet economy with those of the world’s leading capitalist nations reflected a fundamental lack of sophistication which pervaded much of Washington’s wartime economic planning. To attempt to construct a new world economic order without first resolving the deep political differences which divided the United States and the Soviet Union was naïve in the extreme.” The unrealistic nature of the United States foreign economic planning clearly demonstrates the extent to which excessive concentration on lessons of the past could impair efforts to deal with issues of the future.

                

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