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A History Lesson for the U.K.'s Free Trade Aims
Understanding the true extent of [Britain's] 19th century reforms is important because two things haven’t changed at all since Trafalgar and Waterloo: Politicians still like to say one thing while doing something else, and narrow interest groups still use governments to enact policies that favor them at the expense of the general population.
On the eve of the September 2016 G20 summit, U.K. Prime Minister Theresa May remarked: “I will also be talking to other world leaders about how we can develop free trade around the world, and Britain wants to seize those opportunities. My ambition is that Britain will be a global leader in free trade.”
These are encouraging words for the economy, as global commerce has been a key cause of two centuries of prosperity. But a closer look at the U.K.’s trade policies during the 19th century—and perceptions thereof—confirms the importance of measuring free trade in the correct way, if we want to accurately assess May’s commitment to trade liberalization.
The early 19th century was a tumultuous time. Conventional wisdom points to three notable developments: First, in 1805, Britain affirmed its global naval supremacy by defeating the French fleet at the Battle of Trafalgar. A decade later, the British helped defeat France’s terrestrial army at the Battle of Waterloo. France suffered a third, “economic defeat” to the British when Britain adopted a policy of free trade, while their Gallic rivals preferred the route of protectionism, supposedly contributing to France’s relative economic stagnation prior to 1860.
But did Britain really embrace trade liberalization? In his 2007 book War, Wine, and Taxes, George Mason University economic historian John Nye challenged this Anglo-French trade parable.
Historians agree that by the 1850s, almost all goods were admitted to Britain without tariffs, consonant with the view that Britain was an exponent of free trade. The poster child was the repeal of the Corn Laws in the 1840s. As is standard when liberalizing trade, the economy as a whole benefited. The winners (the general public who paid lower food prices) were large in number and politically disorganized, while the losers (farmers and land owners) were small in number and politically well connected. Notably, it took a devastating famine to summon the political will necessary to defeat the protectionist lobbying, for the benefit of all.
Almost all goods being duty free, however, is not the same as absolute free trade—especially if the few exceptions are some of the most important components of international trade. In the case of Britain, French wine retained a very high tariff.
In the middle of the 17th century, Britain was a heavy importer of French wine, but Anglo-French wars disrupted the trade, opening the door for Portuguese imports. This created three lobby groups that became beneficiaries of policies designed to keep French wine out of Britain: domestic brewers and distillers, and British shippers of Portuguese wine. These groups combined to keep duties on French wine as high as possible, even after military hostilities with France had ended in the wake of Napoleon’s defeat.
The empowered brewers also secured high tariffs on other competing products, such as rum. And while alcoholic beverages may seem like an expendable luxury to some citizens of the 21st century, the scarcity of clean water meant that they were critical to their 19th century ancestors.
Nye showed that these tariffs were so high, that if one measures trade barriers in the right way—the total value of duties divided by the total value of imports—France was actually more free trade than Britain until around 1875, contrary to conventional wisdom.
Britain’s reputation as a free-trade leader is not without merit, however, as seen when it slashed tariffs on its manufacturing goods as the country industrialized. These reforms faced atypically low levels of political opposition as Britain exported manufactured goods, and its domestic producers were under no threat from foreign imports.
As the U.K. looks to rehabilitate its reputation as a global leader in free trade, understanding the true extent of its 19th century reforms is important because two things haven’t changed at all since Trafalgar and Waterloo: Politicians still like to say one thing while doing something else, and narrow interest groups still use governments to enact policies that favor them at the expense of the general population.
Thus, when U.K. Prime Minister May eventually starts enacting a raft of free-trade policies, U.K. citizens should familiarize themselves with Nye’s research and take her proclamations with a grain of salt prior to checking the details. Consumers and the general economy benefit when tariffs on imported goods are reduced, while reducing the tariffs on exported goods is much closer to window dressing.