THE total value of world trade in 1932 was less than 39 percent of what it had been in 1929. Except for seasonal variations it had declined continuously from the end of 1929 to the third quarter of 1932; in that quarter its value was little more than a third of what it had been in the corresponding quarter of 1929. A seasonal recovery in the last quarter of 1932 brought the percentage up again to the average for the year. But preliminary figures for the first quarter of 1933 show a further heavy fall, which threatens to bring the total down to new low levels.

These estimates are based upon the statistics of forty-nine countries which account for about 90 percent of the total value of world trade. In order to eliminate exchange fluctuations, national currencies have been converted into gold dollars at average monthly rates. The decline therefore represents in part a heavy fall in gold prices; but it reflects also a substantial fall in the actual quantum of imports and exports. There has been a fall of over 25 percent in the quantum and of about 50 percent in the average price level; so that the exchange of three-fourths of the 1929 quantities at half the 1929 prices has brought the total value down below 40 percent of the 1929 level. Of these two factors, the more alarming, because the more difficult to change, is the quantitative decline. The recovery after the autumn of 1932 was seasonal; but there has been no lifting of the restrictions (particularly of the new quantitative restrictions) upon the movement of goods, and the quantum has continued to decline. The fall which had been 7 percent in 1930, 9 percent in 1931 (compared with 1930), and 11-12 percent in the first half of 1932 (compared with the first half of 1931), rose for the year 1932 as a whole to 13-14 percent. The further fall indicated in the second half of 1932 emphasizes the growing importance of quantitative trade restrictions. Different countries have suffered in different degree, as is seen from the table on the next page giving the percentage decline in the value of imports and exports (excluding gold bullion, except in the case of South Africa) from the 1929 levels.

THE DECLINE IN IMPORT AND EXPORT VALUES, 1930-1932 (expressed as percent of the 1929 dollar values)

Imports Exports
1930 1931 1932 1930 1931 1932
Chile 12 55 87 42 59 84
Peru 35 63 78 35 59 71
Brazil 39 68 75 31 48 63
Argentine 24 57 74 43 53 64
Australia 38 73 74 29 47 54
Uruguay 19 51 73 4 51 71
Poland 23 53 73 13 33 62
Finland 25 54 70 16 36 56
New Zealand 15 56 69 21 46 58
Canada 22 53 69 25 51 63
United States 28 51 69 27 54 69
British Malaya 20 51 69 29 59 75
Hungary 21 49 68 12 45 68
Germany 23 50 66 11 28 55
Egypt 16 48 66 38 51 65
Ceylon 25 49 65 23 49 68
Jugoslavia 8 37 65 14 40 65
Czechoslovakia 21 44 63 14 36 64
Greece 21 44 62 13 40 61
Italy 18 46 62 18 33 55
India 28 51 61 22 53 70
South Africa 23 36 61 14 25 28
Japan 25 41 60 27 44 62
Rumania 25 46 59 3 24 42
Great Britain 14 34 58 22 50 64
Austria 16 34 57 14 39 65
Norway 0 25 57 9 44 49
Denmark 3 23 55 5 27 53
Sweden 7 25 55 14 42 64
Belgium 12 34 54 18 29 54
Spain +18 43 53 +16 53 65
Netherlands 12 31 53 14 34 57
China (excluding Manchurian
  ports) 23 34 50 36 66 73
France 10 27 49 14 39 61
Irish Free State 7 22 49 5 27 59
Switzerland 4 19 36 15 35 62
Algeria 0 5 27 +13 8 6
U.S.S.R +20 +25 21 +13 12 39

It will be noticed that the countries are arranged in order of the decline in their imports in 1932 from the 1929 levels. In some cases, particular circumstances need to be recalled. India, for example, has a decline of 70 percent in her exports and would come much higher up the list if it had not been that the release of hoarded gold in large quantities enabled her to import more than her commodity exports alone would have purchased. China is on a silver standard, and for this and other reasons, including gold export and foreign expenditures, has been able to import more than her export returns might suggest. The relatively light decline of exports from South Africa is caused by the inclusion in its case of gold bullion as a commodity export; but there was a substantial fall of imports, less than those experienced by the other British Dominions, but greater perhaps than might have been the case if gold mining had been a purely local industry. It is the agricultural-exporting countries which have suffered most from the constriction of world trade, and among them the countries which are most dependent upon export markets appear towards the head of the list. Their import troubles came earlier and were more substantial than those of the industrial countries.

It is obvious that the decline of imports in any particular case is caused by two main factors -- a decline of purchasing power in the world's markets, and artificial import restrictions such as tariffs, exchange controls, and quotas. It is impossible to determine which of these is the more important, and, indeed, in some respects one is the counterpart of the other. The increase of agricultural protection in various European countries after 1925, for example, was not unconnected with the difficulty which non-European countries found in marketing their growing export surpluses.

There are signs in certain countries of improvement in trade balances -- of debtors exporting and creditors importing relatively more. But this is not general, and better balances secured at the cost of trade restriction do not help the world situation.

The main lesson of the statistics, however, is not to be found in the peculiarities of individual cases so much as in the general heavy decline both of imports and exports. Unfortunately, comparable figures are not available for previous depression periods, but calculations made by Dr. Wagemann seem to indicate that the total value of world trade declined much less in previous crises. His estimate for the decline from 1907 to 1908, for example, is 7 percent. Nothing approaching the magnitude of the present fall both in prices and in quantum occurred in even the worst pre-war crises.

The natural accompaniment of such a drastic reduction (and particularly the quantitative reduction) of international trade has been a huge piling-up of stocks of raw materials. Between 1929 (at which date stocks were already high) and the end of 1932, the visible supplies of wheat rose more than 12 percent; of tin, 74 percent; of cotton, 77 percent; of rubber, 95 percent; of copper, 115 percent; of zinc, 148 percent; of sugar, 173 percent. A weighted index of world stocks of nineteen important raw materials compiled by the German Institut für Konjunkturforschung rose by 70 percent in these years.

The repercussions of such a heavy decline in the interchange of commodities may be traced in every aspect of organized economic life. Production has been reduced and deranged, and unemployment aggravated; capital movements, already at a low ebb, have been virtually paralyzed; the fall in prices, particularly of agricultural raw materials, has been accentuated; and as one country after another moves further along the road to self-sufficiency, standards of living are cut down. The international financial position has been seriously affected also. Amounts of short-term indebtedness formerly necessary to finance trade became excessive when the value of trade decreased. Attempts to reduce these credits, however, led to strain on the balances of payments, which was met by further trade restrictions. These further restrictions again reduced the need for credits and, moreover, made it increasingly difficult to discharge the service of long-term debt. The freezing process became general. Examples are invidious, but there is at least one European country where in 1932 the total value of exports had fallen below the amount nominally necessary for the service of foreign debt. There can be little easing of the present tension in international finance until goods are allowed to flow more freely. Nor can a rise in prices be looked for until an outlet is found for the huge stocks which at present overhang most raw material markets. Trade restrictions form one of the key logs to be moved if the present economic jam is to be broken.


It is usual to draw a distinction between the tariff increases which took place before the widespread abandonment of the gold standard in the latter part of 1931, and the emergency measures imposed after that date. In fact, however, there is no clear line of demarcation and it is very necessary to stress the essential continuity of commercial policy throughout the whole post-war period. The growth of economic nationalism in these years was a major cause of the economic strain which developed after the speculative boom burst in October 1929, and equally of the financial crisis which broke upon the world when the Austrian Credit-Anstalt's difficulties were revealed in May 1931.

There were, of course, a great many complicating factors in the post-war economic and financial situation. The psychological, as well as the economic, effects of intergovernmental debts such as reparations, which steadily became less tolerable; successive adjustments of international price equilibria as one country after another stabilized its currency and re-attached it to the international gold standard, credit policies designed partly to facilitate this return to the gold standard and also to facilitate the payment of reparations and war debts, but carrying with them the germs of an inflationary boom -- all these, together with many other factors of change, played a part in creating the instability which finally caused the collapse of the international financial system.

But it is clear that, given the circumstances of post-war international finance, restrictive commercial policies designed to maintain and augment domestic production and export of important commodities, especially agricultural products, were more than usually dangerous to price stability. In order that international financial commitments might be met in recent years it was necessary not only that commodity trade should pass in large volume, but also that the balance of payments between debtor and creditor countries should rapidly change, the latter receiving larger quantities of imports from the former in discharge of their obligations. Attempts to "bridge the gap" by international loans were justifiable only as a temporary expedient upon the assumption that such loans would create a greater volume of production in the debtor states and that the creditors of these would be willing ultimately to receive a large share of such increased production in the form of commodity imports.

In fact, cumulative restrictions distorted the direction of trade, disturbed price relations, and made it difficult for debtor countries to discharge their obligations. This resulted, even before the collapse of credit expansion in October 1929, in a steady downward pressure upon the price-levels, a pressure which was marked from the last quarter of 1928 onwards. The fact that the increased tariff protection of the years before 1925 was applied largely to agricultural products aggravated the pressure upon the debtor countries, most of whom rely upon exporting their agricultural surpluses to balance their international accounts.

Since the fall in commodity prices (which was the chief manifestation of disequilibrium even before the acute stage of the crisis began in October 1929) was partly caused by previous trade restrictions, it would be superficial reasoning to consider the emergency trade restrictions which have been imposed since 1929 as a separate problem. Not only the emergency trade restrictions imposed since 1929, but also some part of the tariff increases before and after 1929 must be removed before trade can flow in sufficient volume and with sufficient freedom to promote the resumption of international financial coöperation. If it is not possible to negotiate freer trade in this degree the alternative must be faced not only that price-levels may remain at their present low levels, but also that, either by negotiation or by default, a considerable part of existing foreign and domestic investment may need to be abandoned. There is, however, a danger that the contrary choice of maintaining or extending policies of economic nationalism may be made, if only by lack of agreement upon methods of removal. In the words of the experts who prepared the Draft Annotated Agenda for the forthcoming Monetary and Economic Conference: "Such a choice would shake the whole system of international finance to its foundations, standards of living would be lowered and the social system as we know it could hardly survive."

While it is thus necessary to stress the fallacy of concentrating attention wholly upon the most recent emergency trade restrictions, to the exclusion of the tariff increases which preceded and accompanied them, the newer forms of protectionism present certain characteristics which cause them to be peculiarly destructive of international trade.

Many of them had a comparatively innocent beginning in a system of licensing imports. Though methods of administering the various licensing systems vary almost indefinitely, utilizing both civil service and trade controls, the general principle upon which they are based is that the power to import goods becomes conditional upon the importer's obtaining permission, under regulations which soon become so complicated as to require expert interpretation, to purchase in limited quantities during stated periods, from outside markets.

Licensing of one kind or another, involving increasing interference with private trade initiative, is very apt to develop into more generalized forms of control. The main varieties of control practised in Europe today are four -- foreign exchange controls, quota systems, milling or other sumptuary regulations, and clearing agreements. Under the first, permission to import is granted only if sufficient foreign exchange is available in the central bank to provide payment without endangering the external value of the national currency. Attempts to control exchange transactions, however, are met by ingenious trading devices of an offsetting kind; and in most cases a "black" exchange market develops. If, as usually happens, the internal value of the currency is maintained at a nominal rate higher than its valuation by foreign traders, the exchange control defeats its own purposes, since it tends to raise domestic prices and to discourage exports.

Nevertheless, such controls, which are now officially maintained in no less than 24 countries, have been a major factor in the destruction of international trade.

Quota systems are now in force in 32 countries and in many of them have been extended to cover a very wide range of imports. They are a modification of the system of import prohibitions, by which a specified quantity only of certain commodities may be imported within a certain period. Such quotas are naturally less than the quantities which it is expected would be imported but for their imposition, and generally less than the quantities previously imported. The allocation of quotas as between countries of origin and also as between individual importers, whether carried out through the trade organizations concerned or by civil servants, substitutes general and often political considerations for individual trading enterprise.

Milling and similar administrative regulations prescribing the use of certain proportions of domestic produce in processing rank with import monopolies, administrative fees, quarantine regulations, as effective but half-concealed forms of quantitative import restrictions. To these main types of restrictions must now be added the various clearing agreements by which an attempt is made to balance bilateral trade between two countries, so that an importer becomes limited to goods from countries which purchase roughly equivalent values of his own country's products. The effect of these agreements is to reduce, sometimes very drastically, the triangular trade which was an essential part of international commerce, and thus to bring about a swift compression of world trade in general. The aim of such agreements is to safeguard the balance of commodity trade for the particular countries concerned, but if the process goes much further the balances will be hardly worth safeguarding.

All of these forms of quantitative regulation tend to become merged into one centralized control. Over a wider and wider range of imports, they tend to take the form of a prohibition of trade, mitigated in varying and uncertain degree by special permission to import limited quantities of particular commodities from certain countries during a brief period. The mass of regulations is constantly growing and changing until in many cases it becomes almost incomprehensible even to the expert. The restrictions and administrative hindrances to which traders have been subjected have grown to the point where it has become necessary in some cases to seek permission for almost every individual transaction with a foreign merchant. The consequent stifling of individual enterprise is not the least evil to which the new protectionism has given rise.


The various forms of the new protectionism were adopted, and are defended, as emergency measures necessary in the financial crisis to safeguard the particular country's balance of payments and to protect vital industries. They have been preferred to tariffs because they bring more immediate, direct and effective results. It is precisely because they have proved more destructive of trade that their vogue has grown so rapidly. At the same time, however, it is to be remembered that tariffs have also been rising almost continuously throughout the depression.

The first reason for the greater effectiveness of the quantitative trade restrictions lies in the fact that they go directly to the object aimed at. A customs duty consists of a tax added to the wholesale import price. It is bound to effect some reduction in the quantity of the commodity imported; but it is imposed at the most sensitive point of the whole mechanism and its effects are diffused, backward to the producer and forward to the consumer. An import duty, therefore, has to be high before its effects, diffused over the whole range of competitive trading, are likely to be prohibitive of imports. Duties may of course be raised to prohibitive levels, especially on goods where competition is keen and profit margins are narrow. But most duties are less destructive of imports than the new quantitative restrictions have proved to be.

Moreover, under a reasonable tariff system there is always the possibility of maintaining imports by lowering prices. Improvements in production or distribution, the acceptance by the producers of a lower remuneration, or a generalized fall in wholesale prices, may counteract the effect of the duty.

Quantitative import restrictions short-circuit any such possibilities. Instead of imposing pressure on wholesale prices in the hope of effecting some reduction in import quantities, they achieve that result directly. The difference of method may be compared to the difference between pressure on a smoothly diffused braking system and the sudden placing of blocks in the wheels of the trading mechanism. There is a considerable difference between a new tariff which may effect some reduction in imports as one consequence of its tendency to raise prices, and a direct reduction of imports by a quota system.

Moreover, tariffs rarely insulate domestic markets as successfully as quantitative restrictions have done. It is the combination of quotas and milling regulations with high tariffs which has produced the grotesque differences existing at present between the price of wheat in different countries. The domestic price of wheat in some European countries is three to four times the price in Canada or the Argentine.

Generally speaking, the reaction of quantitative restrictions upon the price of the commodities restricted is much more violent than the reaction of tariffs. Fluctuations also are heavier. If it is desired quickly and effectively to shut out certain classes of imports, such for example as luxury goods of highly elastic demand, a quota system, by forcing prices up rapidly, and thereby reducing demand, may be a better instrument than a tariff; but the limitations of such possibilities are obvious.

When the commodities whose import is suddenly restricted are staples of which both the supply and demand are relatively inelastic, or when prohibitions and quotas are applied to such a wide range of manufactured products as seriously to restrict the use of essential raw materials, the effects upon prices are likely to be disconcerting and disappointing to producers in both importing and exporting countries. This, unfortunately, is the commonest experience at the present time.

It is impossible in a brief article to trace all the various theoretical possibilities of the effects of quotas in different circumstances. Attention will be drawn here merely to the particularly important problem raised by the increased tendency in many European countries to protect their agriculture by direct quantitative restrictions on imports rather than by tariffs.

The basic facts are: expanding production in the non-European countries of agricultural commodities such as wheat, and of certain animal products like butter and bacon; temporarily reduced but relatively inelastic demand in the importing countries; and a heavy downward pressure upon prices, partly because of reduced demand but also because of reduced costs of production. Two other essential facts need to be stressed, the imperative need of the exporting countries to maintain and even expand their receipts, either by greater production or by higher prices, and the great importance attached by the importing countries, for social and political as well as economic reasons, to the protection of their own agriculture. The mere statement of these factors is sufficient to bring out the extraordinary gravity of the impasse into which international trade in these agricultural products has been thrust by the depression.

Tariffs having proved incapable of staving off the import competition, the European importing countries have resorted in increasing measure to quantitative import restrictions. What have been the effects of such measures?

It is clear that one result has been effective protection of agriculture in the importing countries. Where the quantitative restrictions have been most drastic, as in the case of wheat, there has even been a definite expansion of production. More wheat is being grown in industrial western Europe, at higher costs and under less favorable conditions. There has not always been a corresponding contraction of production in the exporting countries. On the contrary, production continues in many cases to expand; and the expansion is often accelerated by the imperious necessity to maximize export receipts. The net result, therefore, is a considerable but costly and vulnerable expansion of production in the protected countries and little diminution -- expansion even -- in the exporting countries, for lack of other possibilities.

The effects of such changes in supply (demand being relatively inelastic at best and seriously affected at present by the diminished purchasing power of consumers) has been to disappoint the hopes of the protected producers for higher prices, and in many cases severely to injure the unprotected producers. Thus domestic prices in the protected countries, forced up by restricted imports, are difficult to maintain as demand falls and domestic production increases. The result is that quotas have constantly to be made more restrictive, and constantly tend to defeat their own objects. In the exporting countries, the fall in prices, except where they have a virtual monopoly of the restricted market, is disastrous and the piling-up of stocks forbids any large hopes of improvement. In a word, quotas, instead of reducing world production and raising prices, have had precisely the opposite effects and have smashed world markets in the process. The statistics of wheat production and prices in recent years are sufficient to bear out the general validity of this reasoning. Harvest variations naturally affect the yields and it should be remembered that the harvest in 1932 was good in western Europe, poor in eastern Europe and Soviet Russia, and poor also in the United States. While this modifies, it does not destroy the lesson of the following table:


1926-30 1930-31 1931-32 1932-33
European Importing Countries 284 275 290 340
European Exporting Countries 83 96 100 67
Non-European Exporting Countries 552 595 557 552
Total World Production 919 966 947 959

In face of the new protectionism, and of the vested interests already fostered by it, a reduction of tariffs, necessary as it is, will not alone suffice to restore world trade. Nor is it now possible to hope that simple generalized solutions, based upon most-favored-nation treatment, will be adequate to such a complicated problem. World trade has fallen into such disorder that only two sorts of approach are now possible -- the sweeping away of all the new quantitative restrictions, with the drastic competitive consequences that this would entail; or a laborious, complex and comprehensive elaboration of progressive schemes for lifting the trade barriers as other economic and financial problems are alleviated. The former is perhaps too heroic a remedy to be practical; but the prospects of delay and inadequacy involved in the latter method are very great. A bold lead on tariffs, with steady pressure for the rapid abolition of quantitative restrictions, both forming part of wider policies aiming at currency stability, debt settlements, and, in certain special cases, regulated production of important products, may be found to offer the best and most practical solution.

Blind protective efforts on a national scale have not proved effective, except in destroying the constructive while attempting to control the destructive aspects of competition. The alternative is a more conscious and intelligent effort at international coöperation. There must be some measure, at least temporarily and in certain cases, of agreed controls of production until adjustments (for example in agriculture) can be carried out; there must be a resumption, but upon more carefully planned lines, of international lending; there must be willingness on the part of the great creditor countries to receive the products of their investment, and on the part of the debtors to accept no obligations they cannot honor; effective coöperation in the monetary sphere must be devised; and, in general, there must be a sharing of responsibility for the common welfare instead of a short-sighted scrambling for national advantage. Such a program obviously demands continuous effort over many years; but no solution of the present crisis which does not set the world upon this track will endure.

[i] "Bulletin Mensuel de Statistique Agricole et Commerciale," International Institute of Agriculture. (The U.S.S.R. is excluded.)

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  • J. B. CONDLIFFE, member of the Economic Intelligence Service of the League of Nations; author of the "World Economic Survey, 1931-32"
  • More By J. B. Condliffe