Did the Allies take any non-military steps, like trade sanctions for example, to try to hold back Germany's expansion or at least to discourage Hitler?
Earlier British PMs like Ramsay McDonald and Stanley Baldwin are more to blame than traditional scapegoats like Chamberlain. Chamberlain gets too much blame, and I’ll detail why. First though, I’ll look at why France didn’t get involved.
France suffered extreme losses in WW1. Their economy collapsed and their birth rate subsequently declined. They realized that they would have a manpower shortage by the mid 1930s. As a result, the French developed an entirely defensive strategy-the Maginot line. Even if the French wanted to do something, they simply didn’t have the troop numbers to go on an offensive war. Not to forget, the losses were so high in WW1 both the French and British public were not interested in going to war with Germany over things that seemed insignificant, such as Hitler wanting the Saarland.
Chamberlain gets a lot of blame for the Munich agreement, but more of the blame should go on earlier PMs. Once the Great Depression hit, any thoughts of updating the British military went out. Problems closer to home were so much more severe. Not to mention that the British took over colonies that were held by the Ottoman Empire, so their costs swelled after WW1. As a result, the British cut their military spending to focus on the Depression. This meant that going into the 1930s, Britain would be going into the run-up economically and militarily weak.
Regarding Chamberlain, he gets too much blame for the Munich agreement. While I do think he held out hope for diplomacy for too long, he didn’t have any other options. He didn’t want to give Hitler the Sudetenland, but what other options did he have? There was no possible way the British military could have saved the Sudetenland. Not only did it not have the troops to do so, but how would you get them there? Fly over Germany? Cross Italy? Both of those would start a war over a territory you have a 0% chance of winning to protect an area you can’t possibly save. Chamberlain’s ministers also told him that if he got into a war with Germany, they would suffer perhaps half a million deaths from German bombing raids. Remember that in the Spanish Civil War, Franco asked Hitler to practice bombing on Spanish cities like Guernica. Seeing the destruction of Spanish cities being turned to rubble certainly weighted on Chamberlain’s mind. Chamberlain’s generals did tell him they could possibly win a long war with Germany if he could buy some time. Chamberlain hoped at Munich he could maybe get Hitler to stop, and failing that, show the would he was an unstoppable crazy man bent on world domination. Chamberlain wasn’t some fool who underestimated Hitler. He was stuck in an impossible position. He had no Allies (the US and the Soviets were not in yet) and had few alternatives.
The truth is, there was probably no right answer to deal with Hitler. It’s doubtful anybody, Churchill included, could’ve done better.