How Trade Wars Become Real Wars

Lessons from the Smoot-Hawley Tariff

Senator Smoot and Repesentative Hawley hold a rally in favor of their tariffs, 1929 (Public domain)

Everybody knows about the Yalta Conference — the 1945 meeting in Crimea during which Joseph Stalin, Winston Churchill, and an ailing Franklin Roosevelt met to hammer out the shape of the postwar world. Fewer people know about the other important wartime conferences at Casablanca, Cairo, Tehran, and Potsdam.

The least well-known of these conferences, which took place at a New Hampshire ski resort and didn’t even involve the political leaders of the allied countries, was one of the most consequential.

In 1944 at Bretton Woods, New Hampshire, hundreds of delegates from 44 countries met to determine how the global economy would work after the end of the war. They developed a system based on a few key principles:

• Capitalism is a good thing (though the Soviets sent delegates to Bretton Woods, this conference was dominated by non-communist countries).
• A successful global capitalist economy relies on competition and stability, especially in currency markets.
• Free trade is good, and protectionism is bad.
• International cooperation — especially to help lift people out of poverty and to stem financial crises — is good.