The Bear’s Lair: Skirting round the 1930s drain

President Biden’s denunciation of the takeover of the modest remnants of U.S. Steel by Nippon Steel, the premier steel company of the United States’ most important ally, leads to only one conclusion: protectionism and autarky are reaching 1930s levels. There are other parallels; for example, wars are breaking out all over the world, as they did in the 1930s. Are we indeed bound to slide down the same slippery slope as did the 1930s, ending in the toxic drain of global war (which would be infinitely more destructive this time round)? There are disquieting indications, though we can hope to take measures that will avoid disaster.

The protectionist tendency is not yet as severe as in the early 1930s, when the volume of world trade declined by 65% between 1929 and 1934. Nevertheless, the trends are in the wrong direction. The World Trade Organization in October downgraded its forecast for world trade growth in 2003 from 1.6% to 0.8%. The latter figure, if confirmed represents a decline of 2-3% in real terms and in a year of decent world growth is a sharp reversal of the decades before 2015, when global trade was growing faster than global GDP. One would expect that trend of trade growing faster than GDP to continue in an economically balanced world, as communications costs grow ever cheaper and the emerging markets through more efficient communications become ever more closely integrated into the global system. Thus, the decline of trade volume in real terms is highly unsettling.

Many of the forces that caused trade volumes to collapse in the early 1930s are with us still. In the 1930s, the key factor killing world trade volume was a series of protectionist actions by the world’s major economies. Notoriously, the United States passed the Smoot-Hawley Tariff in 1930, but this was followed by the defensive and modest British Empire Ottawa Agreement of 1932 and by a series of protectionist or even trade-blocking acts by France and the new Nazi regime in Germany. In addition, several nations notably the United States, resorted to competitive “beggar-my-neighbor” devaluations that increased those countries’ share of world trade at the expense of their trading partners. More dangerous, the world of the 1930s was already divided into trading blocs, which traded mostly with each other and not with third parties – the Soviet Union and its satellites, Japan, Germany and Italy all formed such blocs.

Today, the protectionist impulses are increasing in most countries – the Biden denunciation of the U.S. Steel takeover demonstrates that protectionism even trumps national security, which would benefit in a naughty world from Japan being drawn closer to the United States. In addition, Russia’s invasion of Ukraine, NATO’s ineffectual support for Ukraine and China’s geopolitically smart support for Russia has divided the world into competing blocs, in the way it was in 1945-91, and became in the late 1930s, with German aggression and Italy’s move towards the Axis. We have not yet had a Smoot-Hawley Tariff but can no longer be sure that one is not in the offing.

The proliferation of conflicts is also less than reassuring. The 1930s truly began with the Japanese invasion of Manchuria in 1931, a new conflict in a region that global strategists had never considered as central. Eventually, that led to the Italian invasion of Abyssinia, the German reoccupation of the Rhineland, the Japanese attack on Nanking, the Anschluss invasion of Austria, the two-tier invasion of Czechoslovakia, Italy’s invasion of Albania and Germany’s invasion of Poland that brought World War II. Each act of war made the next one more likely, and countries’ reactions to each act of war pushed the world further into a global conflict. In retrospect, Britain’s alienation of Italy after the Abyssinia invasion (itself similar to a myriad of aggressive acts in Africa by Britain and France over the preceding half century) was a huge strategic error, because it drove Italy into the arms of Germany and prevented an anti-German alliance in Europe that might have stopped Hitler’s war machine.

In recent years, the Russian invasion of Ukraine is like Japan’s 1931 invasion of Manchuria, a new conflict in a region that did not previously seem likely to involve more than local disputes. Israel’s invasion of Gaza has further worsened the West’s position in a region that has seen trillions of dollars wasted through wars in the past two decades, but that under President Trump had seemed to be moving finally towards peace. The collapse of Haiti into anarchy may well require a further influx of U.S. troops, though here Europe will presumably not be involved. Finally, there is the danger of a Chinese move against Taiwan, which had seemed unlikely before 2020 in an era of universal peace and massive trade links between China, Taiwan and the West, but now looks all too probable. Certainly, in that event the world would be all too close to its perilous position of 1939.

There are other disquieting parallels with the 1930s. In the early 1930s, America’s cities were notorious for their starving masses of homeless people, left unemployed and helpless by the Great Depression. For the intervening 90 years, those scenes have been absent – as indeed they should be in such a wealthy country. Now President Biden has opened the borders to illegal immigrants from all over the world, who are depressing American workers’ wage rates as we speak – witness this week’s example of Tyson Foods closing its plant in low-cost agricultural Iowa, laying off 1,800 Americans, to employ illegal immigrants at bare minimum wages in the much higher-cost environment of New York. The only difference from the early 1930s is linguistic; the anthem of the new illegal homeless will be “Brother, Can You Spare a Peso!”

There is another disquieting parallel with the 1930s: the proliferation of leftist schemes to destroy ordinary people’s property rights. In the 1930s even in the United States schemes such as the Townsend Plan in California attempted to impose wealth taxes on the rich. Today, climate change hysteria is used particularly in England to impose monstrous costs and requirements upon ordinary people, to the benefit of an irrational leftist clerisy.

However, the Soviet Union abolished property rights altogether and Nazi Germany had far more serious attacks on property rights, especially those of the disfavored. If President Trump is forced to sell his New York properties at fire-sale prices to satisfy Judge Arthur Engoron’s disgraceful judgement under Attorney General Letitia James’ spurious prosecution, the closest parallel will be the Nazi treatment of Louis de Rothschild (1882-1955) the head of the Austrian Rothschild bank. De Rothschild was imprisoned after the Anschluss and forced to disgorge ownership of the bank that had been in his family for over a century. Governments that steal the property of the disfavored, or imprison them like the January 6 defendants for arbitrarily long periods after trials rigged to have fanatically hostile juries, are sailing dangerously close to the crimes of the Third Reich and the Soviet Union.

We have a chance to avoid the final denouement, of course we do. But it will require statesmen of exceptional principle and even greater courage, such as were not available in the 1930s. After all, Neville Chamberlain, a man of great ability and the utmost integrity, with a superb grasp of economics, was unable to prevent that denouement when opposed by crude war hysteria from the likes of Winston Churchill and the arms lobby. One can in particular regret the Polish Guarantee of April 1939, so similar in many respects to proposals made today in relation to Ukraine (R.A. Butler and Chips Channon regretted it at the time) which led Britain irretrievably into war the following September.

Those who want peace can only hope for the principles and ability of Chamberlain, though they will perhaps be lucky in having opponents less capable than Churchill.


(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)