The Loss of Indispensable Consolations: The Rise of Protectionism and Its Role in Global Conflicts

History has shown that shifts from free-market trade and pressures from protectionist policies correspond with periods of tension. Post-World War I economic sanctions fueled underlying resentments in Germany and Japan, giving birth to political justifications for war. Institutions like the World Trade Organization (WTO) were built to break this cycle and promote peace through trade. However, they failed to support their low-income members and to oversee the economic aspirations of countries like Russia, the People’s Republic of China (PRC), and Iran, major players in today’s global conflicts.

Protectionist policies aimed to bolster domestic economies but have produced negative effects. In the 1940s, these policies influenced the political and economic directions of countries like Germany and Japan, and today, similar measures may aggravate tensions in countries like Russia, the PRC, and Iran. While these policies and the ineffectiveness of the WTO did not directly cause global conflicts, they aggravated underlying resentments and amplified geopolitical tensions. Protectionist policies shape countries’ national interests and geopolitical strategies, leading to hostile ambitions on the international stage, and in the worst cases, war. 

What’s Past is Prologue

Protectionism played a pivotal role in heightened tensions before World War II. The punitive terms of the Treaty of Versailles, with strict limitations on Germany’s territorial control and ability to set tariffs, contributed to the hyperinflation of the Reichsmark by 1923. This was further exacerbated by the 1924 American Dawes Plan, which demanded that Germany resume its reparation payments and allow U.S. banks to continue lending funds to Germany. The situation worsened in 1930 with the enactment of the Smoot-Hawley Tariff, following the Fordney-McCumber Act’s increased average import tax from 16.4% to 36.2%. The Smoot-Hawley Tariff aimed to protect the U.S. agricultural sector and businesses, but it pushed tariffs up to 20 %, hindering international trade and weakening foreign banks.

The Great Depression’s impact on the United States meant that the Creditanstalt, Austria’s largest bank, could no longer provide loans to Germany, leading to a credit crunch that caused the collapse of Austria’s bank by 1931. Financial instability spread across Central Europe, deepening Germany’s economic woes and fueling the rise of the Nazi Party, which blamed the Treaty of Versailles for the country’s downfall.

On the other side of the world, Japan’s rapidly growing economy in the late nineteenth century depended on foreign markets and resources such as coal, iron ore, tin, copper, bauxite, rubber, and petroleum. Japan engaged in international trade to ensure the continuous growth of its economy and to advance its military capabilities. The United States had its own ‘trade war’ with Japan as both sought control in East Asia. In 1931, Japan invaded Manchuria and established a puppet government, aiming to secure resources and lessen its dependence on imports.

Japan’s foothold in Manchuria urged the empire to escalate its expansions throughout the Pacific. President Franklin Roosevelt implemented embargos on iron ore, steel, and aviation fuel to Japan, only allowing U.S. oil to be sent to limit Japan’s incursion across Asia. In response to Japanese preparation to invade French Indochina and seize its resources, President Roosevelt froze all Japanese assets in the United States, effectively cutting off Japan’s access to U.S. oil. Japan launched its attack on Pearl Harbor in 1941 as part of its response to the restriction and to prevent the United States from interfering with its expansionist goals.

The Hope for Stability

During World War II, the 1944 Bretton Woods Conference established the foundation for the modern liberal economic order, recognizing protectionism’s harmful role in the outbreak of the war. The purpose of the new systems was to be a framework of economic and international cooperation for countries’ post-war recovery. Bretton Woods sought to replace protectionism and war with interconnectedness and peace. The International Monetary Fund and the International Bank for Reconstruction and Development (also known as the World Bank) were established to ensure global financial stability. The General Agreement on Tariffs and Trade (GATT), later institutionalized as WTO, reinforced these efforts. From the late 1940s to the 1990s, these institutions were effective in promoting global economic integration in the West. By the end of the Cold War, many former Soviet states adopted this economic system, leading to the proliferation of the “Washington Consensus.”

Many Latin American and African countries, as well as Russia, joined new blocs with hopes for economic growth and integration. However, the Washington Consensus proved harmful as its focus on market liberalization and deregulation failed to account for the unique limitations of different economies. In response, many countries turned away from these principles and instead formed RTAs. Unfortunately, the rise of RTAs contributed to economic insecurities through trade diversions and restricting market access for non-members, fostering market exclusion rather than promoting open trade integration.

The Collapse of Trust

The September 11 terrorist attacks on the World Trade Center transformed the geopolitical environment, prompting industrialized nations like the United States to redirect economic resources towards increased security measures and military interventions. Simultaneously, the emergence of other economies like the PRC (which joined the WTO in 2001) raised U.S. concerns about its economic dominance. The anxiety prompted the United States to push for stronger liberalization measures, which China resisted. China’s reluctance to meet U.S. demands and fully adhere to WTO rules raised skepticism among nations, particularly about how the WTO could handle trade disputes and future challenges similar to what the United States and the PRC posed.

The 2008 Global Financial Crisis continued the protectionist trend. On the WTO’s end, negotiations ground to a halt as member-states failed to reach an agreement on “agriculture and market access for non-agricultural products” and prevent “meaningful insurance policy against protectionism.” This deepened economic uncertainties and domestic inequality among and outside the WTO member states. The COVID-19 pandemic intensified the control of imports and exports. This economic shock and strained supply chains fueled global animosities within countries like Russia, the PRC, and Iran, deepening geopolitical rifts and prompting new waves of economic confrontations.

Along with its challenges of the financial crisis and sanctions after the annexation of Crimea, Russia had limited access to the Western financial market and an embargo on its exports. Thus, part of President Putin’s ambition to merge Russia and Ukraine was to increase the consumer volume of the Russian market, as Ukraine contained 44 million consumers (in 2022) and an abundance of energy, mineral, and agricultural resources.

The financial crisis shook the PRC’s confidence in the Western financial system, partly inspiring its aggression within the Indo-Pacific region. For the PRC to fulfill its desire to become a superpower, it must overtake the U.S. economy. To some measure, this would be through the complete illegal control over the South China Sea, home to exceedingly large quantities of oil, natural gas, and fish species. Furthermore, the PRC’s invasion of Taiwan would mean control over the semiconductor industry worldwide, which could aid in toppling the United States’ long reign of unipolarity by reducing U.S. revenue and global competitiveness.

Iran’s grievances were partly shaped by the sanctions imposed by the United States, the United Nations, and the European Union in response to its nuclear program, which was non-compliant with the Treaty of 1976. The 2015 Joint Comprehensive Plan of Action briefly alleviated sanctions on Iran in exchange for dismantling parts of its nuclear program and allowing international inspections. However, when the Trump administration saw Iran was misusing the program, the United States withdrew from the agreement and reimposed sanctions. This severely restricted U.S. trade with Iran and banned foreign assistance and arms trade. The severe restrictions from this and oil exports aggravated its government’s internal socio-economic challenges and strengthened ties with other internationally scrutinized countries like China, its primary oil customer.

The final nail in the coffin was when the United States, once the leading advocate of free trade, shifted back to protectionism. Recent tariff hikes, subsidies, and the U.S. refusal to make new appointments to the WTO’s Appellate Body—a ‘referee’ for resolving trade matters —signaled weaknesses in the liberal trade order. This shift, with the inequities in the current economic system, intensified global tension, prompted countries to prioritize self-sufficiency over cooperation, and raised the likelihood of conflict. As trade relationships weaken, economic and geopolitical competition may increase, risking a resurgence of conflicts that trade systems were designed to prevent.

The economic paths of countries such as Russia, the PRC, and Iran were significantly influenced by their distinct geopolitical objectives, which were further complicated by persistent external pressures from economic institutions and the geopolitical goals of other states. These challenges played a role in forming each state’s ambitions, strategies, and patterns of engagement within the international arena, ultimately shaping the approaches they adopt to pursue and implement their national policies.

The Road Ahead

The economic pressures facing the world today bear striking similarities to that of the 1930s. One serious consequence of rising protectionism is the potential of hegemonic wars. In the context of ongoing conflicts in Europe and the Middle East, with escalating tensions involving China, further protectionist measures and lower economic costs to warfare in a dissociated global economy may elevate the risk of future conflicts.

Possible avenues to mitigate further escalation would be reforms within economic institutions through fostering trade liberalization beyond regional alliances. Promoting more multilateral trade could encourage cooperation between industrialized and emerging economies, stipulating free trade through diplomatic channels. Greater economic freedom will not fully relieve existing conflicts, but it can serve as a ‘security blanket’ in offering reassurance and preventing further geopolitical escalation.

Views expressed are the author’s own and do not represent the views of GSSR, Georgetown University, or any other entity. Image Credit: Wikimedia Commons