When fears of crisis loom, some people reach for the Kindleberger Spiral. The original was a wonky, awkwardly scaled spiderweb showing the collapse of global trade from 1929 to 1933, accelerating after the Smoot-Hawley Tariff Act was passed by the US Congress in June 1930 — in tandem with the Great Depression. Even updated (below), it still has an ominous look: a swirling whoosh of water being sucked down a drain — which makes it troublingly evocative right now with President Donald Trump arbitrarily carpet-tariffing the world, and bringing chaos to stock markets everywhere.
The chart, however, is less a schematic than an entry point into a more complex story. The tariffs didn’t cause the Great Depression — but the work of the economist behind the spiral still has a serious warning for today. It is all about America’s role in the world.
Charles Poor Kindleberger II drew the spiral for The World In Depression, first published in 1973, his monumental study of the 1930s. It charts the total value of imports across 75 countries progressively shrinking month-by-month. The Smoot-Hawley tariffs were a painful tax on consumption in the US and certainly didn’t help a crisis that began with the 1929 stock market crash. The parallels are alarming enough, but I should also mention that Trump’s overall effective tariffs (if last week’s “Liberation Day” rate card holds) are greater than those of the early 1930s.
The sequence of events in the 1930s is critical: Kindleberger’s work showed that tariffs were only part of the story and not even the most important. The bust in stock markets was transmitted to commodities and trade through a collapse in credit and waves of bank failures as people everywhere rushed to get hold of gold, dollars and British pounds, the reserve currency before the Great War. The tariff battle between the US and other nations came amid that unfolding financial crash. What turned all this into a full-blown global depression was the collapse of a small bank in Vienna in 1931 and the failure of any central bank, or group of authorities, to prevent knock-on effects for lenders in Germany, London and ultimately the US, too.
Kindleberger saw this not as dumb policy error, but, according to his biographer, the economist Perry Mehrling, as central bankers being overwhelmed and without a leader among them to stand up and support the international monetary system to guarantee that cash and credit could keep moving. As Kindleberger wrote in 1973: “The world economic system was unstable unless some country stabilised it, as Britain had done in the nineteenth century and up to 1913. In 1929, the British couldn’t and the United States wouldn’t.” The old world had died and the new hadn’t yet been born, to paraphrase another great economist.
Since the end of World War II, the US has taken the mantle of top dog in international money to varying degrees. In the global financial crisis of 2008, it played the part par excellence with the Federal Reserve lending hundreds of billions of dollars to other major central banks around the world, to keep cash moving and avoid global depression. It did so again in 2020, when Covid-19 shuttered economies globally.
In doing this, America had become a “benevolent hegemon,” in the phrase of the economists Brad DeLong and Barry Eichengreen in their forward to the 40th anniversary edition of Kindleberger’s World In Depression. That is, it was the dominant economic power that could and would support smaller nations and the international monetary system “by acting as a lender and consumer of last resort.”
Trump has decided that being consumer of last resort amounts to America being ripped off. He and other Republicans have also sharply criticized the Fed’s international lending in the past, a role that definitely doesn’t sit with the administration’s determined isolationism. This — more than the tariffs themselves — is what we should most fear: If current market wobbles turn into a international financial crisis, the US may not provide the lifeline of dollars to the rest of the world.
To be a benevolent hegemon, a country needs economic and financial resources. Britain stopped playing the role after it was exhausted by the First World War. Trump and his backers believe the US is too overburdened to consider the interests of smaller powers and global money supply. They argue that US public debt is too high, government spending deficits too large and the trade deficit is a drain on American wealth. The benign willingness to stabilize global finance is exactly what Trump thinks is weakening his country, hence the massive attack by his administration on the economic order at home and abroad.
Is he right? Is the US too mired in borrowing to look after anyone but itself — and maybe not even the country’s own impoverished citizens?
Debt is simply a claim on the profits of the future. When you underwrite a loan you are making a statement that you believe a company, person or economy will earn enough to repay the money and enjoy greater prosperity, too. To say that America can’t afford more debt is to say it can no longer generate the kind of growth and productivity that have made it the world’s richest economy for decades. Trump’s desire to reshore low-productivity assembly-line jobs to the US while diminishing global trade probably weakens the US economy in the longer term. The Republicans’ fear of public debt could become self-fulfilling.
But maybe there’s a bigger, era-defining political truth to this. Trump and populists around the world thrive on apocalyptic messages of doom and decline. They like to look backward and promise the return of a nostalgic past. Perhaps this is how American hegemony will be exhausted, when its people no longer collectively believe in their future potential and will no longer underwrite the benign role in the world that helped their country reap enormous economic rewards. That is a spiral into depression to really worry about.
The chart, however, is less a schematic than an entry point into a more complex story. The tariffs didn’t cause the Great Depression — but the work of the economist behind the spiral still has a serious warning for today. It is all about America’s role in the world.
Charles Poor Kindleberger II drew the spiral for The World In Depression, first published in 1973, his monumental study of the 1930s. It charts the total value of imports across 75 countries progressively shrinking month-by-month. The Smoot-Hawley tariffs were a painful tax on consumption in the US and certainly didn’t help a crisis that began with the 1929 stock market crash. The parallels are alarming enough, but I should also mention that Trump’s overall effective tariffs (if last week’s “Liberation Day” rate card holds) are greater than those of the early 1930s.
The sequence of events in the 1930s is critical: Kindleberger’s work showed that tariffs were only part of the story and not even the most important. The bust in stock markets was transmitted to commodities and trade through a collapse in credit and waves of bank failures as people everywhere rushed to get hold of gold, dollars and British pounds, the reserve currency before the Great War. The tariff battle between the US and other nations came amid that unfolding financial crash. What turned all this into a full-blown global depression was the collapse of a small bank in Vienna in 1931 and the failure of any central bank, or group of authorities, to prevent knock-on effects for lenders in Germany, London and ultimately the US, too.
Kindleberger saw this not as dumb policy error, but, according to his biographer, the economist Perry Mehrling, as central bankers being overwhelmed and without a leader among them to stand up and support the international monetary system to guarantee that cash and credit could keep moving. As Kindleberger wrote in 1973: “The world economic system was unstable unless some country stabilised it, as Britain had done in the nineteenth century and up to 1913. In 1929, the British couldn’t and the United States wouldn’t.” The old world had died and the new hadn’t yet been born, to paraphrase another great economist.
Since the end of World War II, the US has taken the mantle of top dog in international money to varying degrees. In the global financial crisis of 2008, it played the part par excellence with the Federal Reserve lending hundreds of billions of dollars to other major central banks around the world, to keep cash moving and avoid global depression. It did so again in 2020, when Covid-19 shuttered economies globally.
In doing this, America had become a “benevolent hegemon,” in the phrase of the economists Brad DeLong and Barry Eichengreen in their forward to the 40th anniversary edition of Kindleberger’s World In Depression. That is, it was the dominant economic power that could and would support smaller nations and the international monetary system “by acting as a lender and consumer of last resort.”
Trump has decided that being consumer of last resort amounts to America being ripped off. He and other Republicans have also sharply criticized the Fed’s international lending in the past, a role that definitely doesn’t sit with the administration’s determined isolationism. This — more than the tariffs themselves — is what we should most fear: If current market wobbles turn into a international financial crisis, the US may not provide the lifeline of dollars to the rest of the world.
To be a benevolent hegemon, a country needs economic and financial resources. Britain stopped playing the role after it was exhausted by the First World War. Trump and his backers believe the US is too overburdened to consider the interests of smaller powers and global money supply. They argue that US public debt is too high, government spending deficits too large and the trade deficit is a drain on American wealth. The benign willingness to stabilize global finance is exactly what Trump thinks is weakening his country, hence the massive attack by his administration on the economic order at home and abroad.
Is he right? Is the US too mired in borrowing to look after anyone but itself — and maybe not even the country’s own impoverished citizens?
Debt is simply a claim on the profits of the future. When you underwrite a loan you are making a statement that you believe a company, person or economy will earn enough to repay the money and enjoy greater prosperity, too. To say that America can’t afford more debt is to say it can no longer generate the kind of growth and productivity that have made it the world’s richest economy for decades. Trump’s desire to reshore low-productivity assembly-line jobs to the US while diminishing global trade probably weakens the US economy in the longer term. The Republicans’ fear of public debt could become self-fulfilling.
But maybe there’s a bigger, era-defining political truth to this. Trump and populists around the world thrive on apocalyptic messages of doom and decline. They like to look backward and promise the return of a nostalgic past. Perhaps this is how American hegemony will be exhausted, when its people no longer collectively believe in their future potential and will no longer underwrite the benign role in the world that helped their country reap enormous economic rewards. That is a spiral into depression to really worry about.
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