Trade Tariffs from the Corn Laws to Imperial Preference

Some political battles never end...

IN 1846 Richard Cobden's long campaign bore fruit with Britain's repeal of the Corn Laws, the tariffs which kept cheaper foreign wheat out of the country, writes John Phelan, an economist at the Center of the American Experiment, in this article first published at EconLib and reposted at the Cobden Centre.

The less well-off benefited most and 'free trade' became a touchstone of British politics as the country reached the pinnacle of its power.

By the end of the 19th century, however, Britain faced increased economic competition from Germany and the United States. A group of concerned 'Imperialists' sought to consolidate the British Empire and one method they advocated was tariffs. Robert Blake explained:

"The core of the argument was that political unity could only be achieved if economic unity came first. Just as a zollverein, or customs union, had preceded the political union of the numerous kingdoms into which Germany had been divided fifty years earlier, so a great tariff union embracing the whole of Britain's possessions overseas would be the surest way of preserving the political unity of the British Empire."

In practice, this meant 'Imperial Preference', a general duty on imports with a remission for those from the Empire.

In 1902, Lord Salisbury's Conservatives imposed a duty on imported wheat to help fund the Boer War. When the war ended later that year, Colonial Secretary Joseph Chamberlain, a leading Imperialist, recommended the duty be retained but not on imperial imports, as a first step toward Imperial Preference.

Opposition from the cabinet's Free Traders scuppered the plan; a young Conservative MP, Winston Churchill, 'crossed the floor' to sit as a Liberal. Chamberlain – always a maverick – resigned from the cabinet to campaign for tariffs.

While tariffs split the Conservatives they united the fractious Liberals who, in 1906, were elected in a landslide. This – followed by a string of escalating political crises; the People's Budget, Home Rule for Ireland, and the First World War – sidelined the tariff issue.

But no political idea ever truly dies. When the Conservatives returned to sole power in November 1922 they promised that no tariffs would be introduced without a further election. In May 1923, Stanley Baldwin became Prime Minister. He had worked in the iron industry and seen his business's American trade lost to the McKinley tariff of 1890.

With unemployment at 12%, Baldwin saw protection as the answer. In October, he said "this unemployment problem is the most crucial problem of our country" but "I cannot fight it without weapons...I have come to the conclusion myself that the only way of fighting this subject is by protecting the home market."

But "Baldwin consulted no one, even though there was a wealth of official information available," Kenneth Young writes.

"Lloyd-Graeme, President of the Board of Trade, knew quite well, wrote [Cabinet Secretary Maurice] Hankey, that the figures were against tariffs helping unemployment; when Nevile Chamberlain, Chancellor of the Exchequer, instructed his secretaries to gather figures to support Protection, he 'found that they all told the wrong way!'"

The economist John Maynard Keynes condemned the policy as the "protectionist fallacy in its grossest and crudest form." Undeterred, Baldwin called an election for December 6. It was, AJP Taylor wrote, "the only election in British history, fought solely and specifically on Protection."

Whereas Labour and Liberal policy was clear – "Tariffs are not a remedy for Unemployment," Labour said; "Trade restrictions cannot cure unemployment," argued the Liberals – the Conservative's was not. "The impression left on everyone's mind is of doubt and perplexity," Conservative M.P. and Joseph's son Austen Chamberlain wrote, "We have had six columns of speeches from the P.M. in less than a week and no one knows what he means."

The results were calamitous. The Conservatives lost 86 seats and their Commons majority and Labour formed its first government. Protectionism was discredited and tariffs dropped as Conservative policy.

Again, though, protectionism refused to die. Lord Beaverbrook, owner of the Daily Express, and Lord Rothermere, owner of the Daily Mail, exerted intense pressure on Baldwin. Unemployment rose further after 1929 and when a financial crisis hit in 1931 it brought down the Labour government and returned Baldwin to power if not office with a hefty majority. "The Government," he said, "must...be free to consider every proposal likely to help, such as tariffs, expansion of exports and contraction of imports..."

The Conservative dominated coalition not only took Britain off the gold standard but imposed a range of tariffs. Such was the fashion; one-third of parliament's Liberals now supported protection and "in the spring of 1931 Keynes announced publicly his support for a revenue tariff," Barry Eichengreen writes, basing "his argument on the reduction of unemployment."

Richard Cobden's achievement was repudiated. The tariffs enacted by the Conservatives were part of an international movement toward economic autarky which saw trade shrivel in the early 1930s and reaped a bitter political harvest. It would take many years of hard work to undo them.