What this lesson teaches
I can judge which factors did most to grow the global economy after 1945, and how this changed over time.
Syllabus 9174, Paper 1, Theme II, Learning Outcomes. evaluate the factors that contributed to the growth of the global economy over time
Make a guess
In 1945 the USA produced about half the world's manufactured goods. Why do you think it helped other economies recover?
- Out of generosity, expecting no return for its aid or loans.
- Recovery abroad served its own trade, and kept allies away from communism.
- Because the UN forced it to share its wealth.
Show the answer
Recovery abroad served its own trade, and kept allies away from communism.
The USA supplied money, markets and rules because a strong Western economy suited its interests in the Cold War.
The USA led the post-war economy by supplying money, markets and rules. Its dominance declined after the 1960s.
In 1945 the USA produced about half of the world's manufactured goods and held most of the world's gold reserves. It was the only power able to pay for recovery.
The USA shaped the rules. At Bretton Woods in 1944 it backed fixed exchange rates, with the dollar tied to gold at 35 dollars an ounce. It pushed for lower tariffs through GATT.
It supplied dollars through aid, investment and military spending abroad. It also kept its large market open to imports from Europe, Japan and later East Asia. This mattered because exports drove growth in these economies.
Cold War aims shaped this generosity. American leaders saw a prosperous Western Europe and Japan as the best defence against communism.
US dominance declined. Spending on Vietnam and at home caused inflation and trade deficits. In August 1971 Nixon ended the link between the dollar and gold, and fixed exchange rates collapsed by 1973. The USA still mattered. Its market absorbed Asian exports in the 1980s, and its technology firms led the 1990s boom.
- Bretton Woods
- 1944: dollar tied to gold at 35 dollars an ounce.
- Nixon shock
- August 1971: dollar no longer convertible into gold.
- Floating rates
- From 1973.
Real examples to use
Triffin's warning, 1960
Economist Robert Triffin argued the system needed ever more dollars abroad, which would in time destroy trust in the dollar's link to gold.
A US trade deficit, 1971
The USA ran its first trade deficit since the 1890s, a sign its lead had shrunk as Europe and Japan caught up.
Smithsonian Agreement, December 1971
Leading states tried to save fixed rates with a devalued dollar. The deal broke down within about 15 months.
Worked example: Tracing the US role over time
How did the US role change from 1945 to 2000?
- 1945 to the 1960s: leader, financier and rule-maker.
- 1971-1973: the end of dollar-gold convertibility shows its relative decline.
- 1980s: its market absorbs exports; it leads the Plaza Accord.
- 1990s: technology boom and push for the WTO.
Watch out for this
The USA helped other economies only out of generosity.
US aid and open markets served US interests. They contained communism and created markets for American goods and investment.
Check your understanding
What did Nixon do in August 1971?
- Ended the conversion of dollars into gold
- Created the IMF and World Bank
- Launched a new Marshall Plan for Asia
Show the answer
Ended the conversion of dollars into gold
Right. It ended the Bretton Woods gold link.