Britain Under Protection

An Examination of the Government's Protectionist Policy

Ranald M. Findlay

• Publisher: Taylor & Francis
• Year: 2017
• eBook ISBN: 9781351583411
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

When this book was published in 1934, Britain had been a protectionist country for three years. The Import Duties Act and the Ottawa Agreements were based upon four main principles – the use of the tariff as an instrument of revenue, its use as a bargaining weapon, its use as a means of protecting domestic manufacturers, and its use as a means of fostering trade within the British Empire. This book is a valuable analysis of the years of protectionism, measuring the effects on the country's trade and economy.

CHAPTER XII

THE OTTAWA AGREEMENTS (1)

THE Ottawa Agreements, signed in August 1932, are based upon the principle of Imperial Preference, against which Free Traders have always fought. The Ottawa Agreements would have been impossible had we not become a Protectionist country, since it was only by becoming a Protectionist country and taxing foreign imports, and in particular foodstuffs, that we could give effective Preference to Dominion and Colonial imports. Do the Ottawa Agreements help to justify our adoption of Protection? I propose to go into the matter rather fully.

Why, in the first place, have Free Traders always opposed Imperial Preference? Primarily, as I have said, because it involved the taxation of foreign imports. But that is not all. Mr. Churchill, when he was Under-Secretary of State for the Colonies in the Liberal Government before the War, presented to the Colonial Conference of 1907 the reasons for the refusal of the Government at that time to enter upon Preferential Agreements; and the reasons still appeared to Free Traders to apply to the situation as we knew it before Ottawa.

“No fair system of preference can be established in this country,” said Mr. Churchill, “which does not include taxes on bread, on meat, and on that group of local stuffs classified under the head of dairy produce. What does preference mean? It can only mean one thing. It can only mean better prices. It can only mean better prices for Colonial goods. I assert, without reserve, that preference can only operate through the agency of price. I say that unless preference means better prices it will be ineffective in achieving the objects in favour of which it is urged.

“The operation of preference consists in putting a penal tax upon foreign goods, and the object of putting that penal tax on foreign goods is to enable the Colonial price to rise to the level of the foreign goods plus the tax, and by so conferring upon the Colonial producer a greater advantage, to stimulate him more abundantly to cater for the supply of that particular market. I am bound to say that if preference does not mean better prices it seems to me a great fraud on those who are asked to make sacrifices to obtain it. It means higher prices—that is to say, higher prices than the goods are worth if sold freely in the markets of the world.

“What a dangerous thing it will be, year after year, to associate the idea of Empire, the idea of our brethren beyond the seas, the idea of these great young self-governing Dominions in which our people at present take so much pride, with an enhancement, however small, in the price of the necessary commodities of the life and the industry of Britain! It seems to me that you would, by the imposition of duties upon the necessities of life and of industry, breed steadily year by year, and accumulate at the end of a decade a deep feeling of sullen hatred of the Colonies and of Colonial affairs among those poorer people in this country … whose case when stated appeals to the sympathy of everyone round this table. That, I think, would be a great disaster.

“At present all our taxes are under our own control. An unpopular tax can be removed; if the Government will not remove it they can be turned out and another Government can be got from the people by election to remove the tax. It can be done at once. The Chancellor of the Exchequer can come down to the House and the tax can be repealed if there is a sufficient demand for it. But these food taxes by which you seek to bind the Empire together—these curious links of Empire which you are asking us to forge laboriously now, would be irremovable, and upon them would descend the whole weight and burden of popular anger in time of suffering. They would be irremovable because fixed by treaty with self-governing Dominions scattered about all over the world, and in return for those duties we should have received concessions in Colonial tariffs on the basis of which their industries would have grown up tier upon tier through a long period of time.

“Although, no doubt, another Conference hastily assembled might be able to break the shackle which would fasten us, to break that fiscal bond which would join us together and release us from the obligation, that might take a great deal of time. Many Parliaments and Governments would have to be consulted, and all the difficulties of distance would intervene to prevent a speedy relief from that deadlock. If the day comes when you have a stern demand, and an overwhelming demand of a Parliament in this country, backed by the democracy of this country suffering acutely from high food prices, that the taxes should be removed, and on the other hand the Minister in charge has to get up and say that he will bring the matter before the next Colonial Conference two years hence, or that he will address the representatives of the Australian or Canadian Governments through the agency of the Colonial Office, and that in the meanwhile nothing can be done—when you have produced that situation, then, indeed, you will have exposed the fabric of the British Empire to a wrench and a shock which it has never before received, and which anyone who cares about it cannot fail to hope that it may never sustain.

“I submit that preferences, even if economically desirable, would prove an element of strain and discord in the structure and system of the British Empire. Why, even in this Conference, what has been the one subject on which we have differed sharply? It has been this question of preference. It has been the one apple of discord which has been thrown into the arena of our discussions.

“It is not because we are not ready to run electoral risks that we decline to be parties to a system of preference; still less is it because the present Government is unwilling to make sacrifices, in money or otherwise, in order to weave the Empire more closely together. It is because we believe the principle of preference is positively injurious to the British Empire, and would create, not union, but discord, that we have resisted the proposal. A fundamental difference of opinion on economics, no doubt, makes agreement impossible; but although we regret that, I do not doubt that in the future, when Imperial unification has been carried to a stage which it has not now reached, and will not, perhaps, in our time attain, people in that more fortunate age will look back to the Conference of 1907 as a date in the history of the British Empire when one grand wrong turn was successfully avoided.”

THE TEST OF OTTAWA.—Did we take a grand wrong turn at Ottawa? Our main criterion must be the general level of trade barriers in existence before and after Ottawa. Was the level lower after Ottawa, or was it higher? Were there more restrictions to trade, or were there fewer? If trade restrictions were diminished, then once again we might be said to have avoided a grand wrong turn.

It may be recalled that the professed aim of the British Delegates at the Ottawa Conference was to effect “the removal or limitation of existing barriers to trade”; that the terms of the Agreements signed by the Empire nations claimed to provide for “the lowering or removal of barriers among themselves”; and, further, that on the return of the British Delegation, with Mr. Baldwin at its head, we were told that the Conference had achieved “a degree of success far beyond anything that was expected.”

BENEFITS FROM OTTAWA?—But, unhappily, the subject cannot be dismissed with this premature pronouncement. Shortly afterwards, in a broadcast speech, Mr. Baldwin modified his view, observing that “with regard to Ottawa, I think it might be well to suspend judgment till the facts are known.” This was not so good; and when, later on, having had time to digest the facts as they revealed themselves, Mr. Baldwin spoke in the House of Commons, he dismayed his hearers with the statement: “What have we got out of Ottawa? I answer quite frankly. I do not know. No one knows.”

A few—a very few—tariffs were lowered (and, as I shall show, the reductions were often illusory). Far more were raised. The volume of trade affected by the increased tariffs was much greater than the volume affected by reduced tariffs. While some increase in inter-Imperial trade was to be anticipated, it was clear, as Sir Arthur Salter at once pointed out, that it would be secured only at the expense of trade with other countries. In so far, then, as it was the avowed object of the Conference to formulate a plan which by lowering Imperial tariffs would stimulate the trade of the world as a whole, the Agreements were a failure. Not many people would subscribe to the odd view expressed by Sir John Simon, the Foreign Minister, when, addressing the House of Commons, he said:

“Empire produce now comes in duty-free under the Import Duties Act, and will continue to come in free after November 15th. That is, of course, enlarging the area of free imports. That is the first result of the Agreement at Ottawa.”

The Empire produce which was to come in duty-free had, of course—and Sir John Simon was well aware of the fact before he turned tariffist—come in duty-free before Ottawa, and before the Import Duties Act. As the November issue of the Free Trader commented:

“Oh, what a tangled web we weave
When first we venture to deceive!”

A comment which might very well have been applied to a statement by Mr. Hore-Belisha, Mr. Runciman’s chief assistant, who said: “It will be observed that in principle the Empire has abandoned Protection.”

REDUCTION IN WORLD TRADE.—By increasing Protection, by raising and maintaining tariffs against foreign countries in order to deflect trade from its natural channels into unnatural channels, we had set out to make it more difficult for foreign debtor countries like the Argentine to pay what they owed us on investments and loans. How could we afford to trade more with the Dominions, asked Sir George Paish, who was Economic Advisor to the Treasury during the War, when our income from foreign countries was to be reduced? The question of what we got—and Mr. Baldwin had admitted that no one knew what we had got—in return for the very real sacrifices we had been persuaded to make was of minor importance, since even much greater benefits than in fact we had got were insufficient recompense for the loss which a reduction in world’s trade entailed.

BARGAINING HANDICAP.—On several other grounds the Ottawa Agreements were open to very serious criticism. The first concerned our power of negotiation with foreign countries for a mutual lowering of tariffs. This power, whatever its value, was seriously weakened by the Ottawa Agreements. True, as Sir John Simon reminded us, there remained the bulk of our duties on manufactured imports with which we might bargain, but it would have been clear to Sir John in his Free Trade days that these were the very duties which were most in demand. Was it likely that the vested interests that had entrenched themselves behind these tariffs would surrender the Protection they afforded in order that some other industries might secure more favourable treatment from the foreign bargainer?

BLOW TO WORLD CONFERENCE.—More serious, in my view, was the handicap under which we were going to labour at the forthcoming World Conference. It was no inducement to the nations to get together and tackle the problem of tariff reduction to see Great Britain, hitherto the leading advocate of freer trade, enter into a close compact with her Dominions to maintain a very considerable proportion of her new tariffs for a period of not less than five years. This, more than anything else, led to Sir Walter Layton’s resignation from the Preparatory Committee for the World Economic Conference. Sir Walter had worked tirelessly in the cause of economic sanity, and he had won the respect of all parties. In his letter of resignation, in which he referred to “the growing tendency to introduce an element of permanency and rigidity into the tariffs of the world,” he attacked the Ottawa Agreements. “I would mention specially,” he said, “the introduction of the quota system in regard to meat; the implied endorsement in the Ottawa Agreements of the principle of ‘compensatory’ tariffs; and the unhelpful attitude adopted by Great Britain towards regional Agreements in Europe, such as the Dutch-Belgian Convention initialled at Lausanne in July of last year.”

Not only was our policy unhelpful: it was positively harmful to our relations with the very nations who had been the most friendly disposed towards us—such nations as Denmark, Holland, and the Argentine. It was our trade with these nations that the Ottawa Agreements hit.

THE “COST OF PRODUCTION” FALLACY.—I come to three final points of general criticism—one of which is referred to in Sir Walter Layton’s letter of resignation. This is our acceptance of what Sir Arthur Salter described as the “vicious compensatory principle”—the principle which justifies the use of tariffs to neutralize lower costs of production in other countries, thereby compensating home producers for what is adjudged to be unfair competition. This difference in costs of production of certain classes of goods in different countries is the basis of all international trade. If there was not this difference in costs of production, goods would not be exchanged between nation and nation. The belief that such differences in costs should be eliminated lies at the root of most of the restrictions to trade which hamper the world to-day. Its acceptance, as Sir Arthur Salter put it, involved action which was destructive of the very foundation of world trade. For the first time, at Ottawa, the British Government subscribed to it.

It is worth recalling the classic statement on this point made in the House of Commons by Lord Hugh Cecil in 1925:

“Of course, the only purpose of having a foreign trade is to have things sent here more cheaply than we can produce them ourselves. We do not want foreign trade for any other purpose. The idea that you can make everything just as easy yourself at a cheaper rate, apart from being practically unattainable under the conditions of production abroad, is not desirable. What we want from foreign countries are the cheap things which they make cheaply in exchange for the cheap things that we make cheaply. A mutual exchange of cheapness is the purpose of foreign trade. This present Bill appears to be framed on no economic principles in particular, and to make, on the whole, not for abundance but for restriction.”

Worth recalling, too, that the Balfour Industrial Committee of 1930 examined the argument for compensatory tariffs and condemned it. “We have given the proposal our most earnest consideration,” they say in their Report, “since in our view the principle involved is the most plausible and superficially attractive of all those which are customarily invoked in explanation and defence of tariff barriers. … We are of opinion that it is neither defensible in theory nor feasible in practice to frame a tariff policy with the object of neutralizing international differences in labour costs by means of differential Customs Duties.”

In the United States and in Germany, where they accepted the principle of the compensatory tariff, they found that it was unworkable. “The difference in costs of production is unfit for general application as a measure of duties,” declared Mr. T. W. Page, Chairman of the United States Tariff Board; and this view was endorsed by his successor.

DOMINION DICTATION.—We come to another point of principle. We agreed at Ottawa not to reduce, without Dominion consent, any tax on foreign imports where preference was involved for a period of five years. The very keen debate which took place in the House of Commons on this point left Members of all parties with the rather uneasy feeling that it was unwise to remove the power of tax remission, especially on vital food and raw material supplies, out ...

Table of contents

• Cover
• Title Page
• Copyright Page
• Table of Contents
• Foreword
• I. THE CRISIS OF 1931
• II. THE NEW DUTIES
• III. THE ADVISORY COMMITTEE
• IV. RETALIATION
• V. BARGAINING
• VI. ANOMALIES AND INTERFERENCE
• VII. PRICES
• VIII. NEW TARIFF FACTORIES
• IX. CQNFLICT OF INTERESTS
• X. DISILLUSIONMENT
• XI. LOG-ROLLING
• XII. THE OTTAWA AGREEMENTS (1)
• XIII. THE OTTAWA AGREEMENTS (2)
• XIV. AGRICULTURE AND QUOTAS
• XV. IRON AND STEEL
• XVI. SHIPPING
• XVII. “DUMPING”
• XVIII. THE “BALANCE OF TRADE”
• XIX. TARIFFS FOR REVENUE
• XX. UNEMPLOYMENT AND PRODUCTION
• XXI. THE FOLLY OF ECONOMIC NATIONALISM
• Index