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New Responses to New Recessions

During the Great Depression of the 1930’s nations isolated themselves from the global economy through protectionist trade policies. This led to a near halt in global trade and the world economy faded into chaos.1 Realizing that closing off national economies was responsible for a deeper and much more prolonged depression, in the post war-era the victorious powers agreed to the General Agreement on Tariffs and Trade (GATT) to ensure that the integrity of international trade would be maintained. However, despite GATT and the World Trade Organization, economic downturns have had a tendency to coerce the American government into enacting protectionist policy2 which can result in harm occurring to American businesses when trade partners enact reciprocal tariffs.3

Many feared that when the worst recession since the Great Depression began in 2008 nations would revert to protectionism which would cause immense harm to American businesses that depend on foreign markets.4 Learning from the mistakes of the past, however, the United States and other nations addressed the 2008 recession in a different way, one that actually turned out to help domestic businesses while concurrently lifting the global economy out of the slump it was in. Domestically, the United States enacted the Emergency Economic Stabilization Act of 2008 (“Bailouts”) to ensure businesses stayed afloat and remained operational throughout the recession.5 Internationally, the United States paved the way for immense funds to be infused into global markets through the International Monetary Fund. During a meeting aimed at addressing the recession, nations agreed that “the resources available to the International Monetary Fund [would] be tripled to $750bn” and the G-20 nations pledged “about $250bn to boost global trade.”6 These policies were enacted in part due to an understanding of “the need for governments to create additional aggregate demand,” and this approach is extremely beneficial for businesses that need to sell products to survive.7

The recent recession saw the United States “bailout” its businesses by providing them with the funds to stay operational while concurrently looking abroad and ensuring capital reached the markets American businesses depend on to guarantee their long term viability.8 This suggests that the government response during recessions is not to resort to protecting domestic businesses via tariffs as it once was, but is instead to increase demand for products that American businesses produce.9 If policies such as these remain the case during future economic downtowns, businesses will likely have an easier time surviving the troughs of inevitable business cycles.


  1. Bill Krist, Did the Smoot-Hawley Tariff Cause the Great Depression, America’s Trade Policy (June 16, 2014), http://americastradepolicy.com/did-the-smoot-hawley-tariff-cause-the-great-depression/#.VibSsCtBZke. 

  2. Id. 

  3. Douglas A. Irwin, Peddling Protectionism: Smoot-Hawley and the Great Depression 4 (2011). 

  4. Anthony Faiola, A Global Retreat as Economies Dry Up, The Washington Post (Mar. 5, 2009), http://www.washingtonpost.com/wp-dyn/content/article/2009/03/04/AR2009030404221.html 

  5. Warner Rose, G20 Countries Lean Toward Protectionism, Despite Pledge Not To, U.S. Dept. of State, (Mar. 13, 2009), http://iipdigital.usembassy.gov/st/english/article/2009/03/20090312190036berehellek0.2109644.html#axzz3p39Q4tjZ 

  6. G20 Leaders Seal $1tn Global Deal, BBC News (Apr. 2, 2009), http://news.bbc.co.uk/2/hi/business/7979483.stm 

  7. Robert C. Shelburne, The Global Financial Crisis and its Impact on Trade (United Nations Economic Commission for Europe, Working Paper No. 2010.2). 

  8. Id. 

  9. Bill Krist, Did the Smoot-Hawley Tariff Cause the Great Depression, America’s Trade Policy (June 16, 2014), http://americastradepolicy.com/did-the-smoot-hawley-tariff-cause-the-great-depression/#.VibSsCtBZke. 

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Jesse Kalashyan