Lessons from the trade blocks and trade wars

DAVID S. JACKS, Simon Fraser University (SFU) - Department of Economics, National Bureau of Economic Research (NBER)
Email: djacks@sfu.ca
University of Warwick - Department of Economics, Centre for Economic Policy Research (CEPR), Centre for Economic Performance (CEP), CESifo (Center for Economic Studies and Ifo Institute)
Email: d.novy@warwick.ac.uk
What precisely were the causes and consequences of the trade wars in the 1930s? Were there perhaps deeper forces at work in reorienting global trade prior to the outbreak of World War II? And what lessons may this particular historical episode provide for the present day? To answer these questions, we distinguish between long-run secular trends in the period from 1920 to 1939 related to the formation of trade blocs (in particular, the British Commonwealth) and short-run disruptions associated with the trade wars of the 1930s (in particular, large and widespread declines in bilateral trade, the narrowing of trade imbalances, and sharp drops in average traded distances). We argue that the trade wars mainly served to intensify pre-existing efforts towards the formation of trade blocs which dated from at least 1920. More speculatively, we argue that the trade wars of the present day may serve a similar purpose as those in the 1930s, that is, the intensification of China- and US-centric trade blocs.