Monday, 27 July 2009

Was Britain ever a free trader?

John V.C. Nye has a new working paper, “Political Economy of Anglo-French Trade, 1689-1899: Agricultural Trade Policies, Alcohol Taxes, and War” which has been published by the American Association of Wine Economists, as AAWE Working Papers, no 38 Economics. The abstract reads:
Britain – contrary to received wisdom – was not a free trader for most of the 1800s and, despite repeal of the Corn Laws, continued to have higher tariffs than the French until the last quarter of the century.

War with Louis XIV from 1689 led to the end of all trade between Britain and France for a quarter of a century. The creation of powerful protected interests both at home and abroad (notably in the form of British merchants, and investors in Portuguese wine) led to the imposition of prohibitively high tariffs on French imports -- notably on wine and spirits -- when trade with France resumed in 1714. Protection of domestic interests from import competition allowed the state to raise domestic excises which provided increased government revenues despite almost no increases in the taxes on land and income in Britain. The state ensured compliance not simply through the threat of lower tariffs on foreign substitutes but also through the encouragement of a trend towards monopoly production in brewing and restricted retail sales of beer (which began around 1700 and continued throughout the eighteenth century).

This history is analyzed in terms of its effects on British fiscal and commercial policy from the early 1700s to the end of the nineteenth century. The result is a fuller, albeit revisionist account of the rise of the modern state that calls into question a variety of theses in economics and political science that draw on the naive view of a liberal Britain unilaterally moving to free trade in the nineteenth century. (JEL Classification: F13, H20, N40, N43, N53, O13, Q17 )
So the answer to my question appears to be no.

But not so fast, Douglas A. Irwin counters with this response to Nye’s paper: “Free Trade and Protection in Nineteenth-century Britain and France revisited: a comment on Nye”. Irwin writes
In a recent article in this JOURNAL John V. Nye disputed the "conventional wisdom" that Britain was a paragon of free trade and France a practitioner of protection in the nineteenth century.' Nye's case is based primarily on figures for tariff revenue as a percentage of the value of imports, calculated using various weights. These figures, as Nye interprets them, "suggest that France's trade regime was more liberal than that of Great Britain throughout most of the nineteenth century . . . British average tariff levels did not compare favorably with those of France till the 1880s and were not substantially lower for much of the time."

In this comment I argue 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.
Irwin concludes his paper by saying,
But enormous differences in commercial policy are consistent with comparable average rates of tariff revenue. To assess whether a country's commercial policy tends toward free trade or protection also requires examining the principles underlying the tariff treatment of various goods. The French tariff was broadly based and designed to protect domestic producers by keeping out foreign goods. The British tariff was an extension of the domestic excise system, levied only on a select number of commodities to raise fiscal revenue without discriminating against foreign goods in favor of domestic goods. Equating British and French commercial policies in the second half of the nineteenth century because their tariffs raised similar rates of revenue misses the essential distinction between free trade and protectionism: whether or not domestic producers are sheltered from foreign competition. By this standard, France flunks and Britain passes the free-trade test.
So now the answer to my question appears to be yes.

Feel free to be confused. I am. :-)

(HT: Adam Smith's Lost Legacy, here and here.)

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