What are the Pros and Cons for Imperial Preference and Free Trade

In the Early Twentieth Century, Joseph Chamberlain was traveling across Britain trying to rally support for Imperial Preference over Free Trade. I'm just wondering, speaking both Economically and in Foreign Policy what are the different arguments for the two? I know for instance that Free Trade advocates spoke of a rise in the price of bread, while Imperial Preference advocates spoke of strengthening the Empire. But more fundamentally like British Exports, Market Access, the strength of the Pound, military expenditure etc. What are the effects?

And which would you say is better for the British?
 
In the Early Twentieth Century, Joseph Chamberlain was traveling across Britain trying to rally support for Imperial Preference over Free Trade. I'm just wondering, speaking both Economically and in Foreign Policy what are the different arguments for the two? I know for instance that Free Trade advocates spoke of a rise in the price of bread, while Imperial Preference advocates spoke of strengthening the Empire. But more fundamentally like British Exports, Market Access, the strength of the Pound, military expenditure etc. What are the effects?

And which would you say is better for the British?

Kvasir

It partly depends on the details but overall, in a protectionist world Britain lost out by sticking to free trade, IMHO. You can get cheaper goods in the shorter term via free trade but if it means that foreign products make deep inroads into your home markets because their own markets are heavily protected you lose out in the shorter term. Also the difficultly of having a secure home market discourages investment in local production. Not saying its the only reason but it was in the short-term interests of British manufacturers to keep using old equipment rather than invest a lot of money in new factories because they were less certain of it being worthwhile.

Its not just a case of the home market. If your got a more secure home market it can enable economies of scale in the exporting. Also there may be political gains. Both Canada and Australia when they became independent introduced tariffs, including against British goods, as at some point did India. If you got the sort of Imperial Federation that Chamberlain wanted it may well be acceptable to the dominions because, while they face competition from British industry they also get access to the British home and imperial market [which they got for free OTL] while still having protection against other competitors while developing their own industries.

Similarly there was a case in the 1st decade of the 20thC when Japan made deals with various trading powers, allowing increased access to their own markets in return for improved access for them to the other powers markets. Britain, at the time, Japan's only real ally complained that the Japanese were making no such deals with them, giving her rivals a favourable position compared to Britain in the Japanese market. The Japanese responded that this was because Britain had nothing to offer in return as Japan already had full access to British markets. Ultimately Japan did make some concessions to keep good relations with Britain, but less than access given to other powers and it showed the problem that British trade faced. One big bonus for a British/Imperial tariff system might be that it could be used to make 1-1 deals with other powers to get improved access to their own markets.

Furthermore a balanced tariff system can supply funds. Even the Americans, who had probably the highest tariffs of any industrial power, hence the biggest deterrent to foreign imports, funded much of the federal budget from tariffs. [Partly this was possibly because they had a relatively small national budget, largely because of their small military spending]. However with a moderate level of tariffs you can both give your own business a bonus in the home market and at the same time generate useful revenue, while still keeping some imports to keep your own business on their toes. This revenue could be used to help investment, either directly in say transport facilities or education, or by lowering other taxes.

Another matter is what sort of tariff is planned. For instance you mention the price of bread. This was important because when free trade 1st became British policy in ~1848 the main tariffs had been on foodstuff, to support British farmers, mainly dominated by the large aristocratic estates, which meant dearer food for the ordinary people, including the growing numbers of urban workers. [Politically important initially not so much because many of them had the vote then as because lower food prices meant less demand for higher wages and hence cheaper production for factory owners]. However I think by ~1900 the main concern would be on tariffs on industrial goods. Probably no need or desire for tariffs on food imports other than possible to achieve some deal with Canada and Australia say for a wider tariff policy.

The down side of tariffs is that they can be seem as featherbedding producers, giving them less incentive to produce more efficiently. I think the key thing here is to avoid tariffs becoming too high, to prevent external competition being cut off totally and to prevent any monopoly or cartel to ensure a multiple of internal competitors. [One of Britain's traditional short-coming in the 20thC, a large number of small producers, would have been transformed with tariffs as you could have had a high degree of internal competition without them being swamped by large foreign firms being able to dump goods from protected markets]. Basically, as in so many other things its a case of the Golden Mean. Ideally you might also have an explicit agreement between government and producers in various areas that in return for tariff protection to ensure a market for the goods a degree of investment in new capacity would be agreed.

Sorry this is rather lengthy but potentially its a long and complex question. However hopefully you will see why in Joe Chamberlain's time I would have supported him on fair trade rather than free trade.

Steve
 
Steve

Thank you for the long response, that was exactly what I was looking for. If I understand you correctly your implication is: in a world of tariffs, free trade nations can suffer. Would be superior if everyone had free trade rather than everyone having tariffs? Either way, if Britain did manage to enact Imperial Preference in the early 20th century, your saying the government would have to make investments in the industrial infrastructure?

I guess the other important question is does Britain still have the power to get an agreement in Canada and Australia etc?
 
Steve

Thank you for the long response, that was exactly what I was looking for. If I understand you correctly your implication is: in a world of tariffs, free trade nations can suffer. Would be superior if everyone had free trade rather than everyone having tariffs? Either way, if Britain did manage to enact Imperial Preference in the early 20th century, your saying the government would have to make investments in the industrial infrastructure?

I guess the other important question is does Britain still have the power to get an agreement in Canada and Australia etc?

Kvasir

Certain in a protectionist world a country practicing free trade will lose out.

In theory if everybody follows free trade that is more efficient. However its very difficult to imagine no nation seeking to support its own economy in some way or another. While some such measures may not work others probably will. Also free trade tends to give the advantage to the established power(s) as it/they already have more efficient infra-structure in place and hence have a big advantage on any competitor.

If Britain had gone for protectionism in the early 20thC then investment in new equipment and factories would have been necessary for the country to truly benefit from it. If you don't have this then your just cushioning home industries that gradually become more outdated. The best way to get this would be by the various companies and businesses to invest, knowing that they still have to compete with their internal rivals but also have a more secure home market to earn back on the investment. Getting some government investment would be a possibility but probably less effective. [Unless its a case that the government wants some new facility built and to complete that the companies invest in their own infra-structure to produce the required goods. I.e. say to build a national electricity grid would mean a lot of cabling, transformers, power generator plants etc and facilities to control all this. By making a market for such goods the companies are encouraged to invest in the factories to make those goods].

Or to take a modern day example say. If the government decided to develop and manufacture a major alternative energy system, say with a coordinated layout of wave and wind plants and the necessary infrastructure. This, if done properly, would be a huge economic boost to the country. However it would also provide a boost to the various industries and research areas required to develop and construct the facilites. Or at a smaller level a government plan to subsidies say small household solar heating plants and their installment in private houses could both greatly ease energy requirements and give a big boost to the manufacturers of such equipment.

Steve
 
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