The USA was hit by the Great Depression in 1929 because of increasing restrictions on international trade. How far do you agree with this opinion?

Source 7 goes on to highlight overproduction as a result of the increasing restrictions of international trade, as it raises the argument that ‘many countries were in economic trouble…this contributed to American economic instability because the United States could not expand its foreign market as rapidly as its production’. This, as argued by the source was ‘complicated by the international debts and reparations left over from the First World War’, as $10 billion were owed overall in reparations to the USA, $6.6 billion of which were owed by Germany. The result of such reparations meant that European countries would have concentrated their money on paying back reparations rather than on trade, primarily because the increased 40% tariff on America’s exported goods, as a result of the Hawley Smoot Act and similarly the tariffs implemented on exports by other countries, meant most countries would not have been able to afford to contribute to world trade. Therefore, America would have had to rely on its own economy. However, the inequalities in wealth, highlighted by the fact that the 5% of the population with the top incomes had a third of all personal income in America, resulted in ‘failure of purchasing power to keep pace with rising productivity’ as argued by source 8, leading again to the downward spiral of unemployment and lack of spending in the US which caused the country to hit the Great Depression.

It can be argued though, that the underlying reason for over production was the lack of purchasing power caused by not only increasing restrictions of international trade but also the inequalities of wealth.  Farmers made up 30% of the population and participated in receiving the lowest wages, farmers in South Carolina earning only $129 per capita in 1929; therefore lacking purchasing power due to their low wages, this is supported by source 8 which states ‘failure of purchasing power…in the case of farmers and most industrial workers’. These inequalities can be argued to have been a result of the Laissez faire policy adopted by the Republican government as they allowed them to exist as suggested in source 9 which argues that Coolidge stressed ‘no interference to help farmers or workers’. Moreover, the inequalities can be argued to be a consequence of Coolidge’s actions as, as described in source 9, he ‘felt the best way to help all parts of the USA was to pursue pro-business policies which he believe would encourage economic expansion’ as a result of this huge corporations gained profound marketing power which left smaller businesses facing hard times and of every 4 small businesses that succeeded, 3 failed throughout the 1920s, which in turn raised unemployment, as the government were no more willing to help failing companies than farmers. As a result of this the argument may be pursued that Coolidge and the Republican government contributed to the economic crisis and led to the USA being hit by the Great Depression in 1929 as it sustained the inequalities in wealth which divided and subsequently saturated the domestic market leading to the downward spiral of the economy.

Source 8 further highlights other factors that were influential in the USA being hit by the Great Depression, as it states ‘many industries that employed large numbers of workers, had become less profitable’. The construction industry can be perceived as a good indicator of the health of the economy, mid-1920s saw a boom within the industry, yet 1926 saw a decline in demand. This therefore had a knock on effect and led to a fall in demand for building materials and skills associated with the industry. As a result of this unemployment levels rose and had a serious knock on effect on the economic society as suppliers of goods similarly lost their jobs; thus fuelling the downward spiral in the USA’s society as over production would have therefore increased in terms of construction goods and without a domestic market or international market to sell to, the USA would have again found itself in the downward spiral that caused the country to be hit by the Great Depression.

Overall, it can be argued on balance that ‘the USA was hit by the Great Depression in 1929 because of increasing restrictions of international trade’, due to the Hawley Smoot tariff resulting in retaliation tariffs and therefore a sole reliance on the domestic market which by 1929 was already saturated. However, in turn the Republican Laissez faire policy which allowed the inequalities in wealth to continue must be considered a significant factor as it allowed the economic crisis to spiral out of control highlighted by the fact that in a sample of 100 families in 1929, 75% earned less than recommended by the Federal Bureau of Labour as the minimum income. This therefore meant there was a lack of purchasing power throughout the USA which was reliant in the domestic market and therefore led to the USA being hit by the Great Depression.