In pursuing its capitalist approach, in 1936-37, the Federal Reserve tightened money and credit to fight
inflation and slow an overheating economy, which caused the fragile US economy to go into recession and
other major economies to weaken with it, further raising tensions within and between countries. Meanwhile
in Europe, the conflict in Spain between the populists of the left (the communists) and the populists of the right
(the fascists) flared up into the brutal Spanish Civil War. Franco of the right, with the support of Hitler, purged all
left-wing organizations in Spain. In November 1937, Hitler held a secret meeting with his top officials to announce
his plans for German expansion in Europe to gain resources and bring together the Aryan race. Hitler then put his
plans for expansion into action, first annexing Austria and then seizing a part of Czechoslovakia that
contained oil resources. Europe and the US watched warily, not wanting to get drawn into another war so
soon after the devastation of World War I. Then on September 1, 1939, Germany invaded Poland. That is
when England and France declared war on Germany, which is why that is the date that marks the
beginning of World War II in Europe.
In the Pacific in 1937 Japan spread its occupation of China, brutally taking control of Shanghai and
Nanking, killing an estimated 200,000 Chinese civilians and disarmed combatants in the capture of Nanking
alone. While the US remained isolationist, it did provide China’s Chiang Kai-shek government with fighter planes
and pilots to fight the Japanese, thus putting a toe in the war, and conflicts between the US and Japan began to
flare when a Japanese soldier struck the US consul in Nanking and Japanese fighter planes sank a US gunship
anchored nearby.
The US remained reluctant to enter the wars in Europe and Asia. In fact, in November 1940, Roosevelt was
re-elected for a third term by promising to keep the US out of the war, even though the US was already taking
action to protect its interests, especially in the Pacific. Still the US began using economic supports for countries it
sympathized with and economic sanctions against those it did not—e.g., earlier in 1940, US Secretary of War
Henry Stimson initiated aggressive economic sanctions against Japan, culminating in the Export Control Act of
1940. In mid-1940 the US moved the US Pacific Fleet to Hawaii. In October, the US ramped up the embargo,
restricting “all iron and steel to destinations other than Britain and nations of the Western Hemisphere.”1
The plan was to cut off the resources needed by Japan in order to strangle them into submission and force a
retreat from most of the areas they had taken over.
While in March 1941 the US still wanted to avoid the war, Congress passed the Lend-Lease Act, which
allowed it to lend or lease war supplies to nations that it deemed to be acting in ways that were “vital to the
defense of the United States,” which included Great Britain, the Soviet Union, and China. This was good for
the US both geopolitically and economically because the US made a lot of money selling weapons, food, and other
items to countries that the US favored in the war. These soon-to-be allied countries were having problems
producing them while waging war, and they (most significantly Great Britain) ran out of money (i.e., gold) so the
US decided to be more supportive and postpone payment until after the war (and in some cases avoiding payment
entirely). The Lend-Lease policy, although not an outright declaration of war, ended the United States’
neutrality.
As a principle, when countries are weak, opposing countries take advantage of their weaknesses to obtain
gains. At the time, European Allied countries (France, Netherlands, Great Britain) had colonies in Asia and were
overstretched fighting the war in Europe so they were unable to defend these colonies from Japanese takeovers.
Beginning in September 1940, to obtain more resources and take advantage of the European preoccupation
with the war on their own continent, Japan invaded several colonies in Southeast Asia, starting with French
Indochina. In 1941, Japan extended its reach by seizing oil reserves in the Dutch East Indies to add the “Southern
Resource Zone” to its “Greater East Asia Co-Prosperity Sphere.” The Southern Resource Zone was a collection of
mostly European colonies in Southeast Asia whose conquest would afford Japan access to key natural resources
(most importantly oil, rubber, and rice). The Greater East Asia Co-Prosperity Sphere was a bloc of Asian countries
controlled by Japan. The German and Japanese fascist governments were on a roll.
At the same time this Japanese territorial expansion was a threat the US’s own Pacific ambitions and
continued to heighten tensions with Japan. In July and August 1941 Roosevelt responded by ordering the
freezing of all Japanese assets in the United States, closing Japan’s ability to ship through the Panama
Canal, and embargoing all oil and gas exports to Japan. This cut off three-fourths of its trade and 80% of its