U.S. leverage in world markets

The economic dislocations and technological advances of the war, the relative rise of American power, and territorial changes in the colonial world all made stabilization of world markets a pressing issue in the 1920s. The resolution of this issue was chiefly the responsibility of the two economies that bestrode the world: the United States and the British Empire. Their interests diverged in many regions. At the Allied Economic Conference of 1916 the British and French had projected a postwar Allied cartel to control raw materials, while in 1918 the British drafted plans for excluding American capital from the British Empire. At the peace conference Wilson and Lloyd George engaged in backstage debate over the allocation of United States and Allied shipping with an eye to expanding their respective countries’ share of world trade. On the heels of the merchant shipping rivalry came naval competition that culminated in the breaking of the Anglo-Japanese Alliance and the Washington Treaty limitations. Finally, the war debts raised the issue of whether Britain would seek a “debtors’ cartel” with the French to defy Wall Street, or join the United States in a “creditors’ cartel.” At stake in the U.S.–British disputes was their relative global power in coming decades.

Traditional American protectionism triumphed after the electoral victory of the Republicans. The Fordney–McCumber Tariff (September 1922) was the highest in U.S. history and angered the Europeans, whose efforts to acquire dollars through exports were hampered even as the United States demanded payment of war debts. In raw materials policy, however, the United States upheld the Open Door. Secretary of Commerce Herbert Hoover rejected both statist economic competition that bred war and laissez-faire competition that bred cycles of boom and bust. Instead, he advocated formal cooperation among firms of various nations to stabilize the price and supply of commodities, raise living standards, and yet avoid the waste and oppression of regulatory bureaucracies. This “third alternative” would create “a new economic system, based neither on the capitalism of Adam Smith nor upon the Socialism of Karl Marx.” By dint of leverage and persuasion, the United States gradually brought Britain around to this model of informal entente. By late 1922 London bankers also took the American position on war debts, and the two nations also cooperated in such new areas as transoceanic cables and radio. Of surpassing importance for national power in the mechanized 20th century, however, was oil.

After the Great War, known oil reserves outside the industrial powers themselves were concentrated in the British mandates of the Middle East, Persia, the Dutch East Indies, and Venezuela. The Royal Dutch/Shell Group and Anglo-Persian Oil Company dominated oil exploration and production in Asia, but increasingly they confronted revolutionary nationalism, Bolshevik agitation (in Persia), and U.S. opposition to imperialism. When the British and French agreed at San Remo (1920) to coordinate their oil policies in the Middle East, the American Petroleum Institute and the U.S. State Department protested any exclusion of U.S. firms. What was more, the United States invoked the Mineral Lands Leasing Act of 1920 against the Dutch, denying them access to American reserves in retaliation for Shell’s monopoly in the East Indies. In 1921, Hoover and Secretary of State Hughes encouraged seven private firms to form an American Group, led by Standard Oil of New Jersey, to seek a share of Mesopotamian oil reserves, while State Department expert Arthur Millspaugh outlined a plan for worldwide Anglo-American reciprocity. The British, fearing American retaliation and anxious to have help against native rebellions, granted the American Group a 20 percent share of the rich Mesopotamian fields. In 1922 a similar arrangement spawned the Perso-American Petroleum Company. In 1925 the Iranian nationalist Reza Khan, inspired in part by the Kemalist revolt in Turkey, seized power and had himself proclaimed Reza Shah Pahlavi, but he was unable to play the British and Americans off against each other. Oil politics and nationalism in the Middle East, therefore, presaged events of the post-1945 era. (Another anticipation occurred in Palestine, where the Balfour Declaration encouraged thousands of Jewish Zionists to immigrate, leading to bloody clashes with Palestinian Arabs in 1921 and 1929.) Reciprocity also triumphed in U.S.–Dutch oil diplomacy, and Standard Oil of New Jersey acquired a 28 percent share in the East Indies by 1939.