Welfare effects of british free trade: debate and evidence from the 1840s
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Abstract

Britain worse off from a unilateral tariff reduction, but foreign tariff reductions mitigated the terms of trade deterioration and could easily have made Britain better off.

Introduction

Debate over Corn Laws – affects on labour and on industry, Williamson finds British labour diff suffer, but that the impact on manufacturing was less certain.

Debate effect tariff reduction:

Recognized that trade restrictions and not free trade increase national income for a country that could influence terms of trade – unilateral tariff reduction would have two effects: 1. gain more efficient domestic resource allocation, loss from trading on inferior terms. Torrens and Mill express caution or opp. To unilateral reduction, whilst Nassau Senior and McCulloch thought ignore t of t considerations or minor cf. benefits.

Taken for granted Free Trade helped Britain – McCloskey and Harley and McCloskey – sub optimal trade “magnanimous Albion” Harley and McCloskey – “if anything, the move towards free trade in the 1840s and 1850s hurt Britain”

Who was right? Torrens adverse terms of trade effects from tariff reduction make Britain worse off, or Senior make Britain better off by domestic resource allocation.

The Tariff and Terms of Trade Debate

Commercial policy tactics differed over affects of terms of trade – should domestic tariff reduction be made contingent on similar actions abroad, even at risk of postponing or foregoing domestic reforms?

Torrens leading exponent of view that unilateral tariff reductions detrimental to British welfare.

1. Inl. Demand not costs of production alone play role terms of trade
2. commercial policies affect flow of precious metals through specie-flow mechanism.

1841 cut tariffs: “would have been the greatest calamity would could have befallen the country, and might possibly have led to national bankruptcy and revolution”

Torrens thought Britain lose out if had no tariffs and other countries had tariffs.

Torrens Policy recommendations

1. Adopt principle reciprocity
2. Lower duties on countries who are equally favorable to British countries
3. High duties on countries with high duties British goods
4. Duty free raw materials

“reciprocity should be the universal rule” – total free trade “would increase the wealth of the world”

“the sound principle of commercial policy is, to oppose foreign tariffs by retaliatory duties, and to lower our import duties in favour of those countries which may consent to trade with us on terms of reciprocity.”

Mill: advantage of trade taxes of foreign demand is inelastic, but also said difficult to know whether country has gained or lost from the situation-and foreigners buy elsewhere “even on the most selfish principles, therefore, the benefit of such a tax is always extremely precarious”.

Mill: protective duties “can never be a cause of gain, but always and necessarily of loss, to the country imposing it”

Revenue tariffs – protectionism USA, France, Netherlands: “these duties, though chiefly injurious to the countries imposing them , have also been highly injurious to England” – by lowering price of exports Mill dubbed foreign tariffs “the real source of alarm”

Mill originated idea tariff can improve a country’s terms of trade but thought Torrens overdoing it.

Nassua – scathing Torrens – tariffs not only raise price to consumer but “general diminution of the efficiency of its own industry”

Merivale argued Torrens over exaggerates negative effect of tariff with Cuban example – adding Brazil – allowing competition among Britain’s import suppliers.

Did tariff reductions, all other things being equal, so adversely affect Britain’s terms of trade as to make the country worse off?

A Model of British Foreign Trade 1820-46

1780s to mid 1800s period tremendous growth British exports – technological progress export sector – growth reduced export prices and net barter terms of trade deteriorated, imports concentrated as well 70% imports raw materials – cotton from USA but also sugar, tea, wine.

Need elasticities of export and import supply and demand to work out welfare drop from terms of trade deterioration. Goldstein and Khan employed to account for endogenous determination of import and export prices and quantities.

Foreign demand for British exports shown to be just over unit elastic, cannot reject hypothesis that it is inelastic, esp. as Britain only major exporter manufactured goods. – McCloskey and Crafts thought inelastic, or Mill thought it was elastic – lack of foreign data bias downwards so say it is elastic.

Export supply thought to be elastic

Import demand barely inelastic – cannot reject hypothesis that it was elastic, but inelastic finding in accordance with Wright British import cotton demand was inelastic. – income or industrial production effect on British imports found to be strong.

Import Supply – choose 1.5 data access problems, suggest Britain had some monpsonist power as such large buyer world’s raw materials.

Did Britain lose from Free Trade?

Other Notes in this Category

1. A History of Oppida
2. A Tudor revolution in government?
3. British Banking System in the years 1700-90
4. Explanations of Nuptiality during the first industrial revolution in England
5. Has the “retardation” thesis been overthrown by recent mainly cliometric historians?
6. Wage and consumption levels in england and on the continent in the 1830s – paul uselidin
7. Was standard of living higher in britain or in france?
8. Welfare effects of british free trade: debate and evidence from the 1840s
9. What were the effects of tariffs and free trade in the 19^th century?

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