Tag Archives: tariffs

Little Britain? Empire and the rise of protectionism in interwar Britain.

When Britain turned inward: Protection and the shift towards Empire in interwar Britain

By Alan de Bromhead (Queen’s University Belfast), Alan Fernihough (Queen’s University Belfast), Markus Lampe (Vienna University of Economics and Business) and Kevin Hjortshøj O’Rourke (University of Oxford)

International trade became much less multilateral during the 1930s. Previous studies, looking at aggregate trade flows, have argued that discriminatory trade policies had comparatively little to do with this. Using highly disaggregated information on the UK’s imports and trade policies, we find that policy can explain the majority of Britain’s shift towards Imperial imports in the 1930s. Trade policy mattered, a lot.

URL http://econpapers.repec.org/paper/nbrnberwo/23164.htm

Distributed by NEP-HIS on: 2017-03-20

Reviewed by Mark J Crowley

This paper provides an interesting insight into tariffs, and their role in interwar Britain from a perspective that has not been previously examined.  An examination of this issue is timely, especially with the debates surrounding the implication of Britain’s withdrawal from the European Union, and the threats issued by the American Trump administration concerning future trade policy.  It demonstrates that the impact of tariffs during the economic crises of the 1930s had a variable impact, and did not always achieve their intended outcome.  In this respect, the impact of punitive trade policies from a historical perspective can provide a very important context to future negotiations as the world becomes acclimatised to a very different political landscape.

Tariff reform was a huge issue for the British government in the early twentieth century, and the subject of significant political propaganda.

The paper is deeply researched, and draws on a wide collection of data.  One of the main conclusions is that trade blocs made very little difference, nor did the imperial preference scheme, to the balance and nature of the British economy in the crisis years.  However, it does show that the change in the nature of trade, away from free trade to focusing specifically on empire did have specific outcomes that shaped the direction of the British economy, but that these changes were caused specifically by trade policy rather than anything else.  Indeed, the authors show that as a result of the changing nature of the British government’s trade policy, a 70% increase in empire trade was reported in the period 1930-33.  In this respect, the paper poses a very interesting question that is addressed, but will need further historical enquiry:  Did trade policy contribute to return of intra-Imperial trade?

The paper looks at a range of policies pursued by the British government in the period after the First World War, some of which were discriminatory, in order to evaluate the nature of its economic and trade development.  In compiling their conclusions, a huge amount of data was analysed, including data sets from 42 countries examining 200 products categories between 1924-1938.   The data showed that dramatic changes were seen in the nature of Britain’s trade and economic policy in the period 1931-33.  Nevertheless, these changes had long roots.  The abolition of free trade after the First World War saw the introduction of the McKenna Duty, which imposed a 33.5% tariff on cars, clocks, watches, films and musical instruments ad valorem (based on the value of the goods).  This was later intensified with the implementation of the 1921 Safeguarding of Industries Act, where a 33.5% tariff was placed on the imports of key goods.  However, despite the apparent punitive nature of these policies, the British economy was largely Liberal up to 1930, when the Abnormal Importations Act allowed 100% tax on all manufactured goods from outside the empire.

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Utilising goods from the empire was seen as an excellent opportunity for the British government to stablilise its economy during the challenges of the Great Depression.

Realising the potential difficulties that such a punitive law could unleash, a more compassionate deal was reached in the 1932 Import Duties Act, where it was agreed that a 10% tax be imposed on imported goods, although this exempted products from the empire.  This concession was achieved with the aim of ensuring improved access to dominion markets, and resulted in several bilateral agreements with Canada, Australia, New Zealand, South Africa, Newfoundland, India and Southern Rhodesia.  Nevertheless, with the introduction of quotas for agricultural products through the Agricultural Marketing Acts of 1931 and 1933, there were now restrictions on the type of farming products that could be imported.  Moreover, in a tone that is reminiscent of the pro-Brexit camp both during and after the referendum, the British explored deals that went beyond the traditional confines of Europe in order to strengthen its economy, and this included Scandinavian countries and Argentina.  This not only improved British trade prospects, but provided the mutually-beneficial element to these countries in order to maintain access to the British market for the purpose of trade.

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The 1932 Import Duties Act was seen by many as symbolic of punitive protectionist policies pursued by the British government.

Critique

There are so many fantastic elements to this paper that not only shed new light on the issue of tariffs, but also provide the foundation for future debate.  Nevertheless, the authors have highlighted what they believed were the difficulties in their research, especially concerning the masses of data that they collected.  They believed that there were inconsistencies in the data, but have done a wonderful job in using spreadsheets to predict the results in the absence of concrete data.  In some cases, the use of complicated mathematical formulas has been used to come to these conclusions.  The fact that the paper engages in counterfactual debate provides an important foundation for future discussion, but also lends itself to its own difficulties.  Counterfactuals, although interesting, cannot be definitively proven.   In this respect, the paper poses several “what if” questions relating to tariffs, especially what would have happened if tariffs had not been increased.  In their conclusions, they argue that it appears that the empire did better with tariffs than without, and if there was free trade, there would only have been a modest increase in the empire share of trade.  Thus, the impact of British protectionist policies proved substantial, and, they argue, account for a shift of around 50% of trade towards the empire by 1930.   The conclusions are interesting and useful, but as the authors explain, a lot of work needed to be done to fill the gaps in the data.  It is the interpretation of these gaps in the data, especially the ways in which some conclusions have been reached through the use of counterfactual debate that will undoubtedly provide the platform for future historical enquiry on this topic.

References

Eichengreen, Barry, and Douglas A. Irwin. The slide to protectionism in the Great Depression: Who succumbed and why?. No. w15142. National Bureau of Economic Research, 2009.

Capie, Forrest. Depression & Protectionism: Britain Between the Wars. Vol. 2. Routledge, 2013.

Temin, Peter. Lessons from the great depression. MIT Press, 1991.