Economic Isolationism

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The government’s rejection of the Treaty of Versailles was mirrored by its erection of trade barriers between itself and Europe in the years after WWI.
For an overview, see John D.Clare

Key persons
Warren Harding
Calvin Coolidge
Herbert Hoover

Key concepts
Budget and Accounting Act (June 1921) – controlled public spending by holding president to account to independent auditor;
Emergency Tariff Act (1921) – agricultural products
Fordney-McCumber Act (1922) – tariff extended to manufactured products
McNary-Haugen Bill (put before congress: 1924, 1926, 1927, and 1928);
Revenue Act (1924)- controlled ability of Federal government to raise taxes by creating the US Board of Tax Appeals.

American Selling Price
Scientific tariff

Key questions

  • Why did America become economically isolationist after the war?
  • What financial measures were taken to isolate America from economic competition and to encourage growth?

Why did America become economically isolationist after the war?

Answer: WAIF

    War-time-boom: American businessmen wanted to continue the wartime boom and the dominance of American industry, and believed that the way to do this would be to protect American industries by erecting trade barriers against the import of European goods through Tariffs (i.e. taxes on imports).

    American wages: American wages were rising, and American businessmen feared that low wages in Europe would allow European firms to undercut them. Thus Joseph Fordney claimed that Tariffs would protect American workers’ jobs.

    Isolationism: American isolationists wanted America to be self-sufficient.

    Farm Bloc: Overproduction was causing a depression in farming. Farmers hoped that protection would help keep prices up.

What financial measures were taken to isolate America from economic competition and to encourage growth?

Answer: BERT

    Budget and Accounting Act (June, 1921): was landmark legislation that established the framework for the modern federal budget and was designed to put controls on public spending. The act was approved by President Warren G. Harding to provide a national budget system and an independent audit of government accounts to make the president accountable for the spending of public funds.

    Emergency Tariff Act (May, 1921):In the 1920s, the most disconcerting economic issue was declining farm profits. From 1900-1920, American farmers had prospered while European agriculture suffered serious disruption due to World War I, therefore prices soared. Beginning in 1919, Europeans closed their markets by implementing tariff barriers. European demand for American farm products declined and prices plummeted. Wheat price fell from $2.50 to under a dollar a bushel by late 1921. The Emergency Tariff raised duties on most imported agricultural products, such as corn, wheat, sugar, wool, meat and more

    • The McNary–Haugen Farm Relief Bill, which never became law, was a controversial plan in the 1920s to subsidize American agriculture by raising the domestic prices of farm products. The plan was for the government to buy the wheat, and either store it or export it and for the Federal Government to fund the losses. Despite attempts in 1924, 1926, 1927, and 1928 to pass the bill — it was vetoed by President Calvin Coolidge, and never approved. It was supported by then-Secretary of Agriculture Henry C. Wallace and even Vice President Charles Dawes.

      According to the bill, a federal agency would be created to support and protect domestic farm prices by attempting to maintain price levels that existed before the First World War. By purchasing surpluses and selling them overseas, the federal government would take losses that would be paid for through fees against farm producers.

    Revenue Act (1924): cut federal tax rates and established the U.S. Board of Tax Appeals. So if the Budget and Accounting Act were to hold the government accountable for spending, the Revenue Act reduced the amount it was able to raise. Lower taxes meant the consumer would have more money to spend as they please; whilst the Budget Act would regulate public spending. Both policies were the corollary of the Republican philosophy of ‘rugged individualism’ – i.e. individuals rather look after themselves rather than relying on government and public spending.

    Tariff Law – Fordney and McCumber Act (1922): was an extension of the 1921 Emergency Tariff to cover industrial goods. As well as raising American tariffs on many imported goods in order to protect factories and farms, Congress promoted foreign trade through providing huge loans to Europe, which would, in turn, buy more American goods. The Fordney and McCumber Act implemented one of two concepts: either a ‘scientific tariff’ which linked tariffs to the wages in the country of export. If wages in, say Italy, were very low, then Italian goods were given a proportionately higher tariff. This negated the effect of lower wages in competitor countries. It was also linked to the ‘American Selling Price’: this linked tariffs to the price of American goods, not to the cost of production and was added to imported goods to ensure that the foreign imports were ALWAYS more expensive than American-produced goods, however cheaply they had been made.

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