How the Great Depression Altered US Foreign Policy

Man wearing sandwich sign looking for a job during the Great Depression\
Looking for a Job During the Great Depression. Hulton Archive / Getty Images

As Americans suffered through the Great Depression of the 1930s, the financial crisis influenced U.S. foreign policy in ways that pulled the nation even deeper into a period of isolationism.

While the exact causes of the Great Depression are debated to this day, the initial factor was World War I. The bloody conflict shocked the global financial system and altered the worldwide balance of political and economic power.

The nations involved in World War I had been forced to suspend their use of the gold standard, long the determining factor in setting international currency exchange rates, in order to recover from their staggering war costs. Attempts by the U.S., Japan, and the European nations to re-instate the gold standard during the early 1920s left their economies without the flexibility they would be needed to cope with the financial hard times that would come in the late 1920s and early 1930s.

Along with the great U.S. stock market crash of 1929, economic difficulties in Great Britain, France, and Germany coincided to create a global “perfect storm” of financial crises. Attempts by those nations and Japan to hold on to the gold standard only worked to fuel the storm and hasten the onset of a global depression.

Depression Goes Global

With no coordinated international system of dealing with a worldwide depression in place, the governments and financial institutions of the individual nations turned inward. Great Britain, unable to continue in its long-held role as the mainstay and chief ​money lender of the international financial system, became the first nation to permanently abandon the gold standard in 1931. Preoccupied with its own Great Depression, the United States was unable to step in for Great Britain as the world’s “creditor of last resort,” and permanently dropped the gold standard in 1933.

Determined to resolve the global depression, leaders of the world’s largest economies convened the London Economic Conference of 1933. Unfortunately, no major agreements came out of the event and the great global depression persisted for the rest of the 1930s.

Depression Leads to Isolationism

In struggling with its own Great Depression, the United States sank its foreign policy even deeper into post-World War I stance of isolationism.

As if the Great Depression was not enough, a series of world events that would result in World War II added to Americans’ desire for isolation. Japan seized most of China in 1931. At the same time, Germany was expanding its influence in Central and Eastern Europe, Italy invaded Ethiopia in 1935. The United States, however, chose not to oppose any of these conquests. To a large degree, Presidents Herbert Hoover and Franklin Roosevelt were constrained from reacting to international events, no matter how potentially dangerous, by the demands of the public to deal exclusively with domestic policy, primarily bringing an end to the Great Depression.

In 1934, publication of the book Merchants of Death by H.C. Engelbrecht and F. C. Hanighen, followed by the 1935 essay “War Is a Racket” by decorated Marine Corps General Smedley D. Butler both further increased already popular suspicions that moguls of the military-industrial complex were profiting from war and influenced public opinion further in the direction of neutrality. Many Americans resolved to never again be tricked into making the great sacrifices of war merely to benefit banks and industries.

Having witnessed the horrors of World War I, Hoover, like most Americans, hoped to never see the United States involved in another world war. Between his election November 1928 and his inauguration in March 1929, he traveled to the nations of Latin America hoping to win their trust by promising that the U.S. would always honor their rights as independent nations. Indeed, in 1930, Hoover announced that his administration’s foreign policy would recognize the legitimacy of the governments of all Latin American countries, even those whose governments did not conform to American ideals of democracy.

Hoover’s policy was a reversal of President Theodore Roosevelt’s policy of using force if necessary to influence the actions of Latin American governments. Having withdrawn American troops from Nicaragua and Haiti, Hoover proceeded to avoid U.S. intervention in some 50 Latin American revolutions, many of which resulted in the establishment of anti-American governments. As a result, America’s diplomatic relations with the Latin American warmed during the Hoover presidency.

Under the 1933 Good Neighbor Policy of President Franklin Roosevelt, the United States reduced its military presence in Central and South America. The move greatly improved U.S. relations with Latin America, while making more money available for depression-fighting initiatives at home.

Indeed, throughout the Hoover and Roosevelt administrations, the demand to rebuild the American economy and end rampant unemployment forced U.S. foreign policy onto the backmost burner … at least for a while.

The Fascist Effect

While the mid-1930s saw the rise conquest of militaristic regimes in Germany, Japan, and Italy, the United States remained entrenched in isolation from foreign affairs as the federal government struggled with the Great Depression.

Between 1935 and 1939, the U.S. Congress, over the objections of President Roosevelt, enacted a series of Neutrality Acts specifically intended to prevent the United States from taking any role of any nature in potential foreign wars.

The lack of any significant U.S. response to the invasion of China by Japan in 1937 or the forced occupation of Czechoslovakia by Germany in 1938 encouraged the governments of Germany and Japan to expand the scope of their military conquests. Still, many U.S. leaders continued to believe the need to attend to its own domestic policy, mainly in the form of ending the Great Depression, justified a continued policy of isolationism. Other leaders, including President Roosevelt, believed that U.S. non-intervention simple allowed the theaters of war to grow ever-closer to America.

As late as 1940, however, keeping the U.S. out of foreign wars had widespread support from the American people, including high-profile celebrities like record-setting aviator Charles Lindbergh. With Lindbergh as its chairman, the 800,000-member-strong America First Committee lobbied Congress to oppose President Roosevelt’s attempts to provide war materials to England, France, the Soviet Union, and the other nations fighting the spread of fascism.

When France finally fell to Germany in the summer of 1940, the U.S. government slowly started increasing its participation in the war against fascism. The Lend-Lease Act of 1941, initiated by President Roosevelt, allowed the president to transfer, at no cost, arms and other war materials to any “government of any country whose defense the President deems vital to the defense of the United States.”

Of course, the Japanese attack on Pearl Harbor, Hawaii, on December 7, 1941, thrust the United States fully into World War II and ended any pretense of American isolationism. Realizing that the nation’s isolationism had to some degree contributed to the horrors of World War II, U.S. policymakers once again began to emphasize the importance of foreign policy as a tool in preventing future global conflicts.

Ironically, it was the positive economic impact of America’s participation in World War II, which had been long-delayed in part by the Great Depression that at last pulled the nation out of its longest economic nightmare.

While the Great Depression caused the United States Government to pull back from major international involvement during the 1930s, it also played a major role in the emergence of the United States as a world leader thereafter. The somewhat valid perception that the nation’s turn toward isolationism in some part contributed to prolonging World War II caused U.S. foreign policymakers to return to playing a major role in world affairs after the war.

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Longley, Robert. "How the Great Depression Altered US Foreign Policy." ThoughtCo, Aug. 3, 2021, Longley, Robert. (2021, August 3). How the Great Depression Altered US Foreign Policy. Retrieved from Longley, Robert. "How the Great Depression Altered US Foreign Policy." ThoughtCo. (accessed June 8, 2023).