What Were The Effects Of Tariffs And

Essay, Research Paper

Historians of the 19th century

have traditionally linked economic growth with a move to free trade.? The mid-Victorian boom in Britain for

example has been attributed to the significant moves to free trade in the

period 1840 ? 1860.? Typically this

British characteristic has been compared to the free trading stance of

France.? The supposedly higher levels of

protection in France have been linked, often in a post hoc ergo propter

fashion, to its? economic retardation.?

The debate on the relative economic merits of free trade is by no means

original.? The political environment in

Britain during the 19th century was dominated by free trade

arguments.? The free traders of the

Anti-Corn Law League saw free trade in a much broader context.? It was Cobden who rather dramatically said

that: ?In the Free Trade principle which shall act on the moral? world as the principle of gravitation in the

universe? -drawing men together,

thrusting aside the antagonism of race and creed, and language, and uniting us

in bonds of eternal peace?.? Clearly

it is not in the remit of this essay to analyse and discuss these potential effects of

free trade, but Cobden?s quotes highlights the importance and passion that contemporaries,

and historians, have placed on the question of free trade.? Initially I shall attempt to compare the

level of free trade in Britain and France in the 19th century.? I will then begin to assess the effects of

tariffs and free trade during this period.Historians have often seen Britain as

leading the world in implementation of free trading policies.? It is argued that Britain?s move to free

trade accentuated its? already pronounced economic lead over her continental

competitors.? France and the other hand

is viewed as highly protectionist and adopting free trade polices only in the

later stages of the 19th century. Nye, however, has empirically

criticized the assumption that Britain had more open economy than France.? In his study Nye calculates tariff revenue

as a percentage of total imports.? His

figures show us that France?s average rate of tariff was 50% lower than

Britain?s during the 1820s, and that Britain?s tariffs were only comparable to

those of France after the great free trade reforms of the 1840s.? Nye admits that British tariffs were based

primarily on consumption goods such as tea, wine and tobacco, but he argues

against discounting these products as indicators of protection.? He suggests that, whilst not protecting

domestic industries, these tariffs still distorted the efficient allocation of

resources.? In short Nye?s empirical

study finds a paradoxical gap between the historical perception and commercial

reality.? Nye bemoans the seemingly

obligatory over-emphasis on leading sectors, such as textiles where Britain was

clearly less protectionist, and points out that economic development should not

be confused with industrialization.? Irwin reasserts the

view that the French economy was more protectionist than Britain.? Irwin states that Nye?s rate of tariff

revenue indicator is a poor indicator of levels of protectionism.? Crucially Irwin is quick to differentiate

between protectionist tariffs and consumption tariffs.? Yes, tariffs on the consumption of a few

luxury items were high, but, unlike Nye, Irwin finds little evidence for the

availability of substitutes.?

Contemporary opinion is used to reinforce Irwin?s argument.? It was Cobden himself who stated that: ?We

have many duties ? such as that, for example on tea ? which are too heavy, but

they are not maintained in the interest of any British producer?.? The structure of the British tariff is

examined in detail and we see that Gladstone?s budget of 1860 removed all

protectionist tariffs, whilst half of the remaining items were ?solely for the

purpose of countervailing duties of excise on the like articles produced in the

UK?.? In this way we see the British

government normalising domestic excise duties on imported goods.? This can hardly be seen as a protectionist

policy.? Indeed by 1897 95% of tariff

revenue is generated by tobacco, tea, spirits and wine.? If one takes Irwin?s position it is safe to

say that there was virtually no protection in Britain after 1860.? This contrasts markedly with that of

France.? Even after the Cobden-Chevalier

treaty of 1860 there was a 10-15% tariff on most goods.? Tariffs in the latter half of the 19th

century were successively ratcheted up and culminated in the highly

protectionist Meline tariff of 1892.? To

Irwin the real test of the relative protectionism of a tariff system lies in

the principles that underlie that system.?

In Britain we see an extension of the excise system and in France we see

a system designed to keep goods out.? It

is difficult to accommodate both Irwin?s and Nye?s arguments.? However Irwin?s more detailed examination of

tariff content is compelling and it would seem harsh to penalise Britain for

taxing mainly consumption items.? Nye?s

evidence does suggest that France, especially in the early half of the 19th

century, was less protectionist, in relative terms, than once thought.? By analysing both views we can safely say

that Britain still held the lead in free trade during the 19th

century.? However the free trading gap

was not as significant as once thought.More recent historians

have begun to suggest that the economic effects of free trade have been

exaggerated.? McCloskey was one of the

first historians to propose that free trade may have retarded Britain?s

economic growth.?? He sees the reduction

of tariffs in the 1840s as the equivalent of a 21% narrowing of the

differential between domestic and world prices.? McCloskey appeals to the logic of free trade, and like the more

contemporary Robert Torrens, emphasises negative terms of trade effects.? If British demand for imports was a

nonnegligble fraction of the world demand then the elimination of duties, by

means of a rise in import demand, will have caused a nonnegligble rise in

import prices.? If the price of imports

has increased then Britain?s terms of trade have worsened.? McCloskey resorts to theory and proposes an

optimal tariff for Britain given its monopsonistic position in the world

market.? McCloskey, using anti-Ricardian

assumptions, believes Britain to have been an influential player in the world

market.? Thus he estimates low

elasticties of export demand and import supply necessitating the need for a

high tariff.? The 1881 average tariff of

just under 6% is viewed to be optimal only if consistent with elasticities of 35!? McCloskey calculates that a 21% fall in the

tariff, combined with a 20% share of foreign trade in national income, could

account for a 4% loss in national income.?

McCloskey?s application of pure trade theory to mid-Victorian Britain

highlights a crucial point.? A move to

free trade is not, even theoretically, a move to higher income.? Gains from increased efficiency and resource

allocation can be more than offset by deteriorating terms of trade.? In this was we see McCloskey agreeing with

Torrens who cited the terms of trade deterioration as reason for the cautious

adoption of free trading policies.The terms of trade

deterioration is likely to be lessened if moves to free trade are

reciprocal.? Irwin argues that a

unilateral tariff reduction in Britain may well have had detrimental effects.? Irwin agrees with Basevi and Walker that the

effect of the change in relative prices from a tariff removal (terms of trade)

depends on the underlying elasticities.?

Like McCloskey Irwin finds a range of plausible elasticties that show a

unilateral trade reduction as making Britain worse off in GDP terms.? However Irwin?s data diverges from that of

McCloskey and he estimates a fall smaller reduction in total income from a 21%

cut in tariffs.? The emphasis on the

terms of trade deterioration is balanced by the suggestion that bi-lateral or

multi-lateral trace reductions can improve terms of trade.? Many countries followed Britain?s lead and

cut tariffs in the 19th century and these tariff cuts will have

improved Britain?s terms of trade.?

Irwin agrees with Torrens: ?reciprocity should be the rule?.? Again we see the importance of underlying

elasticties as affecting the effects of a move to free trade, a point which is

reinforced by McCloskey, but Irwin develops the argument by placing extra

emphasis on the effects of other countries? tariff behaviour. The emphasis on the

variability of the effects of free trade is furthered using the case study of

the Corn Laws.? The welfare effects of

repeal are thought to be significant when Ricardian small country assumptions

are used.? The living cost for labourers

is reduced by a massive 25% and output rises by 23.6%.? However if Ricardian assumption are

discarded and pro-Torrens (Britain influencing world market prices) views are

taken into consideration we see much smaller welfare effects.? The export boom is tempered by rising import

costs resulting from an inelastic import supply.? In this case the detrimental effects of the terms of trade

deterioration offset efficiency gains, although labourers still benefit from repeal.? Macro effects are lessened, but we must be

careful not overlook intra-industry changes and the effect on the average

Briton.? Williamson reiterates the

importance of elasticties in determining the true effects of repeal.? The lower the elasticties in foreign markets

the more the Corn Laws served to improve the terms of trade.? Williamson suggests, like Irwin, that

plausible estimates of elasticties can be used to state that the Corn Laws were

no burden on manufacturing at all.The effects of tariffs

and free trade in the 19th century are ambiguous.? Some argue free trade aided the

mid-Victorian boom, whilst others argue it retarded growth.? Key factors in this debate seem to be

elasticties of demand and supply, tariff structure and the level of multi-lateral

tariff participation.? Were tariffs

protective or purely fiscal in nature??

Were lurches to free trade mirrored in other countries?? Were tariffs at their optimal level?? Whilst in Britain elasticties are thought to

have been low, there is insufficient data, especially from abroad, to come to a

definitive conclusion on the relative effects of free trade.? Even if one could come to a satisfactory

estimate of elasticities it must be remembered that these factors are far from

static.? Most of the factors mentioned

above are dynamic and thus change over time.?

The arguments for the positive and negative effects of free trade have

been argued explicitly in recent historical studies.? The polarity of the arguments reflects economic theory.? Free trade can have positive and negative

effects.? It is therefore impossible to

come to a simple conclusion to this question.?

The effects of tariffs and free trade in the 19th century

were variable.? The effect of free trade

and tariffs depends on a variety of economic and political factors.? These factors are too varied and too

changeable to allow for a more authoritative answer to this question.