Trade and Foreign Aid

The relationship between U.S. foreign aid and the growth of international trade in the 20th century. America's advance as an economic and financial world power began with its entry into World War I. By the end of that conflict, the United States had wiped out its foreign debt, strengthened its currency, and become a major player in international financial markets. However, it was not until the conclusion of World War II that the United States fully emerged as the world's premier economic force.

Early Foreign Aid Policy

The foreign aid policy of the United States and its bureaucracy took form following World War II. By the end of that war, Western fears that the power vacuum of a defeated Germany and an exhausted Britain and France might be filled by an aggressive and unrestrained Soviet Union created great international tension. There was great concern not only that Soviet influence would expand into this political void, but also that a threat to democratic market-oriented economies could arise from within the emerging sociopolitical structure of Western Europe itself.

The experience of the Great Depression, and the possibility of an aggressive military agenda by the Soviet Union, created deep uneasiness among U.S. policymakers. This apprehension toward the market, during the same period in which the Soviet Union was proclaiming remarkable economic numbers with regard to industrial growth, helped propel the communist parties of Italy and France. The anxiety over such circumstances was a driving force behind U.S. foreign policy in the immediate postwar period.

With these circumstances as a backdrop, officials and organizers from various nations met at a conference [Page 728]in Bretton Woods in New Hampshire. The document prepared at this conference, the Bretton Woods Agreement, created three important economic institutions: the World Bank, the International Monetary Fund (IMF), and the General Agreement on Tariffs and Trade (GATT).

The conventional wisdom at the time was that the cause of the Great Depression and World War II was the decline of world trade brought about by “beggarthy-neighbor” trade policies. This assessment became a guiding principle of political economists in the United States and its allies in the West. Western economists and U.S. policymakers reasoned that a reduction in barriers to trade and capital flows would generate a cycle of economic growth and a sustained attack on poverty, thus making communism less attractive and viable. Although the Soviet Union was invited to join in this process of institution building, Soviet leader Joseph Stalin declined to participate.

Within the economic environment created by the Bretton Woods Agreement, the policies of free trade flourished. The effort to ensure the dominance of U.S. business in the postwar era while containing the advance of communism became the main thrust of U.S. trade policy and foreign-assistance programs.

The Postwar World

In the initial years following World War II, Europe faced tremendous economic plight. The continent suffered not only from a lack of investment capital, but also from a massive U.S. trade surplus that raised the specter of uncontainable inflation. In order to ease these strains on the system, the United States designed and implemented the Marshall Plan to help rebuild Europe's economic infrastructure. Doing so, it was hoped, would stimulate European trade with the world as well as increase intraregional trade among European countries.

...