Liberal Perspective on Britains Trade Policies

Ideologies can play a significant role when it comes to politics. Once politicians strongly believe in something, it is hard for them to realize that their conducts might be destructive. Political ideologies committed Great Britain to free trade in the late nineteenth century.

During seventeenth and eighteenth century, Great Britain pursued protectionism. However, in the first half of nineteenth century, as a result of its establishment as industrial hegemon in Europe, Britain began to adopt free trade policies (“Protectonism,” Britannica). “Liberal economists emphasize the importance of the free market and call for only a limited government role in economic activities”(Cohn 81). They argue that “freely operating markets based on a division of labor serve to maximize efficiency and prosperity and that such productive gains are likely to be positive-sum in nature” (Cohn 84). That means that all countries participating in free trade benefit from it. The gains of the states engaging in free trade are greater than its loses.

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Adoption of free trade policies was inspired by Liberal writings of Adam Smith, classic liberal, who believed in free trade. Adam Smith was attacking protectionist policies and pushing forward liberalization of trade. Eventually, the repeal of Corn Laws in 1846 symbolized final installment of the free trade philosophy in Britain (Rubinstein 19). According to Charles P. Kindleberger, Britain’s trade policies in the nineteenth century were characterized by a “strong, widely-shared conviction that the teachings of contemporary orthodox economists, including Free Traders, were scientifically exact, universally applicable and demanded assent” (Frieden and Lake 81). Therefore, the major reason for Britain’s commitment to free trade was a great influence of ideologies of liberal economic theories. Despite the fact that in the period between 1870 and 1900 most countries adopted protectionist commercial policy, Great Britain maintained free trade to its disadvantage. In order to understand why Britain followed such path, it is important to analyze history, political and economic environment of Britain in the nineteenth century.

During the nineteenth century the Corn Laws of 1828 governed the tariff on corn (wheat). Corn Laws protected agricultural producers. Under this provision, in cases where the price of wheat rose above 73 shillings per quarter, it was admitted virtually free. If, on the other hand, the domestic price fell to 54 shillings or less, it would carry tariff of 20 shillings per quarter. Britain also had a sliding scale of duties, which was changing in accordance with the price of wheat in Britain. Liberal writings of Adam Smith attacked this policy in the beginning of the nineteenth century, fighting instead for the free trade. He opposed the barriers imposed against the free exchange of commodities. He claimed that free trade should not be a unilateral policy. Free trade should be conducted in a way that does not infringe national security or social stability. Therefore, he accepted very little intervention by government in order to protect national security and shield society from unfair tariffs of foreign states (84-85).

The support of free trade was further strengthened by David Ricardo in his Principles of Political Economy and Taxation. He demonstrated how trading countries could all gain from free trade because of comparative advantage. The example involved trade of wine and cloth between Britain and Portugal. Both countries produce same two goods, wine and cloth. Labor costs are the only production coasts. In Britain it takes one laborer in three days to produce one bottle of wine and one laborer in seven days to produce one bolt of cloth. Portugal requires one laborer in one day to manufacture one bottle of wine and one laborer in five days to manufacture one bolt of cloth. The Portugal, with its climate, was much better able to produce good wines than was Britain. Conversely, Britain had ideal conditions for raising sheep and getting wool for clothing. Thus, Britain was more efficient in manufacturing cloth than Portugal and Portugal was more efficient in producing wine than Britain. The author explains that:

The ratio of the production coast for the two goods is different in the two countries. In England, a bottle of wine will exchange for 3/7 of a bolt of cloth because the labor content of the wine is 3/7 than for cloth. In Portugal, a bolt of wine will exchange for 1/5 of a bolt of cloth. Thus, wine is relatively cheaper in Portugal than in England and, conversely, cloth is relatively cheaper in England than in Portugal (Frieden and Lake 304).

This example indicates that Portugal has comparative advantage in manufacturing wine and Britain has a comparative advantage in manufacturing cloth. This difference in relative price allows both Britain and Portugal to gain from free trade. Each country benefits from exports of goods in which they have comparative advantage and by imports of goods in which they have comparative disadvantage (304).

The battle for liberalization of trade culminated with cancellation of Corn Laws in 1864 by Peel’s legislation and final adoption of free trade (Rubinstein 77). According to statistics of Liberal economists the amount of trade greatly increased with opening of trade. For instance, in 1850 British exports amounted to 71,368,000lb. In 1860 British exports were at 135,891,000lb. With the increase of trade, wealth increased as well. In 1850 the deposits at London Joint Stock Banks was 2,949,869lb. In 1860 the amount of deposits rose to 10,562,652. There was increase in textile manufactures. Overall amount of capital in Savings’ Banks in Great Britain rose from 28,931,000lb in 1850 to 41,250,000lb in1860 (Levi 408-409).

Britain was the only industrialized country that eliminated tariffs on both industrial and agricultural products. Liberal politicians believed that since British industry was the first one to develop Britain had no serious competition and did not have a need to be protected by tariffs. “The world provided Britain with cheap food; she supplied industrial products in exchange and made additional money financing and organizing the exchange”(Frieden and Lake 100). This industrial order was working in advantage of landowners; they were successfully engaging in industrial activities. Many farmers, who were previously growing grain, started to sell high-quality foodstuffs. They have adapted to a new industrial order and were not at all interested in protection.

Moreover, landowners derived their incomes from a wide spectrum of sources; thus, decline of agriculture did not pose a threat to them. In addition, according to British Liberal politicians, free trade would benefit both middle and working classes. While by lowering costs, it would benefit middle class manufacturers; it would lower prices of bread and all other commodities. Also, it would ensure that in times of domestic scarcity the supply of grain would remain (Rubinstein 77-78).

In 1886, during their visit to China, British consuls found themselves in a very different position from their colleagues in Europe. Among European countries Britain was the only one who favored free trade. One of the reasons for that was great optimism of British officials and Liberal politicians in regards to foreign competition. Board of Trade officials were committed proponents of free trade (Platt 104). According to Platt:

Joseph Chamberlin, the President of the Board of Trade during 1880’s, argued that the effects and extend of foreign competition were almost always exaggerated and that he was confident, from his own experience in the hardware and iron trades, that there had never been any serious and sustained foreign competition with Britain’s standard industries (105).

Nevertheless, growing unemployment and decline of British hegemony in world trade shattered his optimism (106).

British Liberal politicians believed that peace and stability could be

achieved only through free trade. They thought that not only Britain should be a

free trader but all other countries as well. In an attempt to involve all European

countries in free trade, Britain used its favorite instrument, the Commercial

Treaty. The idea behind Commercial Treaties was to open the world trade to the

advantage of all. In 1858, Lord Malmesbury proposed to foreign governments,

“look for no commercial advantages in any quarter which they would not be

prepared to share with every other nation in the world” (Platt 86). For instance,

Treaties of Nanking of 1842 and Tientsin of 1858, were intended to apply to all

foreign traders. Britain never intended to enjoy all the advantages and

privileges gained by her coercion alone. In 1859 Cobden told Chevalier that

free trade would improve political relations between Britain and other countries.

He claimed that the only way to do it was mutual trade dependence. Also, British

politicians were convinced that the Treaties would form a model for tariff

reductions for the whole Europe and that they would maintain and promote

peace in Europe. A manifestation of these believes was Anglo-French Treaty of

1860. In short, similar treaties were negotiated by both France and Britain with

other European states. In the end of 1860s it looked like there was a possibility of free trade in Europe (Platt 88).

In the 1880s and 1890s, the survey conducted by the Board of Trade indicated that growth in the world trade was neither threatening British markets not growing rapidly comparing to British trade. Apparently, Britain was effectively maintaining its trade against competition. This support of British government for free trade was expressed through Sir Robert Griffen, who from 1876 to 1897 was a head of the Board of Trade. Sir Robert Griffen claimed that British commerce was capable to compete in a free market. Nevertheless, he was concerned about protectionist policies of foreign governments. He believed that they imposed unfair obstacles for British trade (Halstead 17).

However, John V. Nye expressed opposing view on this issue in his article. He argued that the notion of Britain being the only European country engaging in free trade while the rest of states maintain protectionist policies is wrong. For his argument Nye uses trade policy of France. He claims that according to analysis of British and French trade statistics, average tariff levels in France were below of those in Britain throughout the nineteenth century. That means that French commercial policies were more liberal that those of Great Britain’s. The author suggests that the error was made because very little attention has been paid to the commercial interaction between Britain and France. Also, most economists focus on the volume of trade in the two nations while ignoring changing tariffs. John V. Nye even offers his own table of data portraying the average tariff levels of Britain and France throughout the nineteenth century. Based on this data Nye reject the idea that while Great Britain adopted free trade policy, “the rest of Europe developed a system of defensive, protectionist pollicies, directed especially against British manufactured goods” (Nye 2-4).

Further, Douglas A. Irwin criticizes John V. Nye’s position in his article “Free Trade and Protection in Nineteenth Century Britain and France Revisited: A Comment on Nye.” Irwin argues that Nye bases his analysis primarily on “figures for tariff revenue as a percentage of the value of imports, calculated using various weights” (Irwin 1). The author claims that:

The rate of tariff revenue is an inadequate and potentially misleading indicator of whether a country’s commercial policy tends toward free trade or protection. In examining the structure of Britain’s tariff in the second half of the nineteenth century, when those problems were particularly acute, I found that the tariff was carefully constructed to avoid protecting domestic producers. A cursory examination of French policy, by contrast, indicates that domestic producers were protected by substantial tariff barriers (1).

In support of his claim Irwin also provides a table of tariffs on manufactured goods in 1877. For example, while paper was admitted free by Britain, France charged 6-11 percent, Germany charged 5 percent, Sweden charged 7-19 percent. Britain admitted chemicals with absolutely no charge; France taxed it at 15-19 percent, Germany taxed it at 7-22 percent. This data clearly indicates that French tariffs on Britain’s products ranked highest among the Europe (Irwin 6). Judging by both, Nye’s and Irwin’s data, Great Britain was dramatically lowering its tariffs and eventually eliminating them in the end of nineteenth century while other European countries were raising its tariffs. Therefore, it is clear that Great Britain was the great trading nation while the rest of the European powers maintained protectionist policies.

Right after abolition of Corn Laws and final adjustment of free trade policies in Britain, it seemed that other countries followed Britain and lowered their trade barriers. For example, in 1860 France made a treaty with Britain (Anglo-French Commercial Treaty of 1860). Substantial reforms were maid in French tariff code; nevertheless, it was not even close to Britain’s reforms. Britain eliminated all tariff barriers on manufacture goods while France maintained a tariff code that covered hundreds of items. Moreover, France extended protection of its agriculture, which Britain refused to do. In particular, protection of livestock and grain producers grew tremendously in several times in the 1870s. Along with France, all European countries raised their tariff barriers dramatically with onset of Depression in the end of nineteenth century. Such conduct put an end to all hopes for free trade in Europe.

Even at this critical point Britain was not discouraged. British Liberal economists did not change their optimistic views on trade. They felt competent about Great Britain’s capability to stand against foreign competition. Liberals were very little concerned with the fact that only Britain supported free trade while other foreign states maintained protectionist policies. They were still convinced that free trade was ideal trade policy for Great Britain.

Although Britain experienced some benefits from its free trade, it lasted for only twenty-five years. The major factor contributing to trade liberalization was British hegemony in the nineteenth century. British hegemony declined in 1870s, the first depression occurred in 1870s, which consequently resulted in decline of free trade. In addition, with rapid industrialization of Germany, America and other countries, British trade policies became disadvantageous. Even the middle-class businessmen, who previously supported free trade in 1840s and 1850s, now were proposing to raise tariff barriers (Rubinstein 79-80).

The greatest harm in maintaining liberal trade policies was done to British agriculture. Throughout the whole nineteenth century, agriculture was still fundamental industry in Great Britain. The most workers were employed in agriculture comparing to other parts of economy. For example, in the middle of nineteenth century 1,434,000 male workers were employed in agriculture while only 525,000 were employed in textiles and 218,000 were employed in mining. A complete removal of tariff barriers from agriculture created great unemployment. As a result, agricultural laborers suffered the most. These people were poorest and worst paid in the whole economy. While the whole country was run by aristocracy, poor were not taken into account.

In addition to the distractions brought by the free trade to British agriculture, it altered British industry. Industry was struck by foreign competition. The most serious competitors were America and Germany. British commodities were substituted by other countries’ own goods. Britain had to face not only competition in overseas markets, but also foreign penetration of its domestic market. Moreover, other states erected tariff barriers against British goods. “Britain was beginning that languorous industrial decline which has continued uninterrupted to the present day” (Frieden & Lake 100).

In conclusion, early in nineteenth century Britain began its journey on the way to free trade. British political thinkers and economists were greatly affected by writings of Adam Smith. Their believes were even more strengthened by works of David Ricardo. Most statesmen and people in government were wealthy landowners and businessmen who dictated how British policies would be conducted and which ones would be enacted. Lower classes had little to do with British transition to free trade. Therefore, since wealthy landowners and middle-class businessmen were supportive of free trade, it was adopted by the country even though it was harming the rest of the population. Free trade caused great unemployment levels in Britain infringing its agriculture and industry.

Moreover, British politicians were preoccupied with the idea of world peace and stability. In their view, free trade was a necessary condition for world peace. Treaties were made in order to improve Britain’s foreign relations with other European countries. Much attention was paid to well beings of other states in the world free trade. As it turned out, many of the treaties negotiated by Britain were not to its advantage. For instance, France had a treaty with Britain, which obliged France to lower tariffs. In reality, Britain held its part of the contract while France kept its protectionist policies, which eventually led to termination of this treaty. Thus, Great Britain’s commitment to free trade was not of a great benefit to the country. Britain maintained free trade because of its ideologies, and clearly, not because of rational reasoning. Therefore, Liberal economic theory cannot be applied to this phenomenon of the late nineteenth century.

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