FREE ESSAY ON LIBERAL PERSPECTIVE ON BRITAIN'S TRADE POLICIES

LIBERAL PERSPECTIVE ON BRITAIN'S 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.
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. 
Bibliography
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