At no time in modern economic history have countries been more economically interdependent, have greater opportunities for international trade existed, or has the potential for increased demand existed than now, at the opening of the 21st century. In the preceding 100 years, world economic development was erratic.
The first half of the 20th century was marred by a major worldwide economic depression that occurred between two World wars, that all but destroyed most of the industrialized world. The last half of the century while free of a world war was marred by struggles between countries espousing the socialists Marxist approach and those following a democratic capitalist approach to economic development. As a result of this ideological split, traditional trade patterns were disrupted.
After World War II, as a means to dampen the spread of communism, the United States set out to infuse the ideal of capitalism throughout as much of the world as possible. The Marshall Plan to assist in rebuilding Europe, financial and industrial development assistance to rebuild Japan, and funds channeled through the Agency for International Development and other groups designed to foster economic growth in the underdeveloped world were used to help create a strong world economy. The dissolution of colonial powers created scores of new countries in Asia and Africa. With the striving of these countries to gain economic independence and the financial assistance offered by the United States, most of the noncommunist world’s economies grew and new markets were created.
The benefits from the foreign economic assistance by the United States flowed both ways. For every dollar the United States invested in the economic development and rebuilding of other countries after World War II, hundreds of dollars more returned in the form of purchases of US agricultural products, manufactured goods, and services. This overseas demand created by the Marshall Plan and other programs was important to the US economy since the vast manufacturing base built to supply World War II and the swelling labor supply of returning military created a production capacity well beyond domestic needs. The major economic boom and increased standard of living the United States experienced after World War II were fueled by fulfilling pent up demand in the United States and demand created by the rebuilding of war torn countries of Europe and Asia. In short, the United States helped to make the world’s economies stronger, which enabled them to buy more from us.
In addition to US economic assistance, a move toward international cooperation among trading nations was manifest in the negotiation of the General Agreement on Tariffs and Trade (GATT). International trade had ground to a halt following World War I when nations followed the example set by the US passage of the Smoot Hawley Act (1930) which raised average US tariffs on more than 20,000 imported goods to levels in excess of 60 percent. In retaliation, 60 countries erected high tariff walls and international trade was stalled along with most economies. A major worldwide recession catapulted the world’s economies into the Great Depression when trade all but dried up after tariffs and other trade barriers were raised to intolerable heights.
Determined not to repeat the economic disaster that followed World War I world leaders created GATT a forum for member countries to negotiate reduction of tariffs and other barriers to trade. The forum proved successful in reaching those objectives. With the ratification of the Uruguay Round agreements, the GATT became part of the World Trade Organizations (WTO) and its 117 original members moved into a new era of free trade.