Globalization: Rise of Free Trade in 19th Century Europe
Item 12: Globalization – Theory and Concepts
The importance of long-distance trade grew enormously and rapidly in the 19th century, particularly between 1840 and 1873. Migration and investment abroad accelerated. Europe became the dynamic center. However, two types of obstacles hindered international trade:
- Natural Obstacles: High transportation costs.
- Artificial Barriers: Tariffs and bans on imports/exports.
Great Britain Opts for Free Trade
Practical considerations forced governments to reconsider trade barriers. Adam Smith advocated for free trade based on production cost differences. David Ricardo incorrectly assumed Portugal had an absolute advantage in cloth and wine production compared to England, but the relative cost of wine was lower. This suggested Portugal should focus on wine and import cloth from England. Smith and Ricardo’s theories needed to convince influential groups to have a practical impact.
Merchants engaged in international trade petitioned Parliament in 1820 for free trade. The Corn Laws, tariffs on imported grain, were a key protectionist measure. They favored farmers, who were strongly represented in Parliament. Despite increasing population and urbanization, which made self-sufficiency in food impossible, Parliament resisted abolishing the Corn Laws.
In 1839, Richard Cobden formed the Anti-Corn Law League, launching a campaign to influence public opinion. In 1841, the Whig government reduced tariffs on wheat and sugar, but these measures were rejected, leading to a general election. The Whigs proposed tariff reductions, while the Tories advocated for the status quo. The Tories won, but Prime Minister Sir Robert Peel initiated a tax system review, including abolishing import tariffs and introducing a replacement tax.
Peel’s bill to repeal the Corn Laws was approved in 1846. This shaped the modern British political system. The Whigs (Liberals) became the party of free trade and manufacturing, while the Tories (Conservatives) became the party of farmers and imperialism. Much of the old mercantilist legislation, like the Navigation Acts, was repealed in 1849. By the 1850s and 1860s, free trade policy was established. In 1860, only customs duties on luxury imports like brandy, wine, coffee, tea, and pepper remained. Despite tariff elimination, increased trade led to higher customs revenues in 1860 than in 1842.
The Era of Free Trade
The 1860 Cobden-Chevalier Treaty marked a fundamental change. France, traditionally protectionist, banned cotton and wool imports and imposed high tariffs on other goods. Napoleon III’s government sought friendship with Britain and had a current of economic liberalism. A leader of economic liberalism convinced the emperor of the benefits of a commercial treaty with Britain.
Under the treaty, Britain eliminated all tariffs on French imports except for wine and brandy, which retained a small fee for tax revenue. France lifted its ban on British textiles and reduced tariffs on various British goods, moving towards moderate protectionism. A key feature was the most favored nation clause: if either party negotiated a treaty with a third country, the other party would benefit from any lower tariff granted.
In the early 1860s, France negotiated treaties with Belgium, the Zollverein, Italy, Switzerland, Scandinavia, and most European countries (except Russia) to lower tariffs. British producers automatically benefited. Other European countries also negotiated treaties with the most favored nation clause, leading to further tariff reductions. International trade increased by about 10% annually, mainly in intra-European trade. This forced industrial reorganization, promoting technical efficiency and increased productivity.