Trade and Commerce (AQA A-Level History): Revision Notes
Trade and Commerce
Britain's economic situation, 1902–14
By 1900, British imports reached $523 million, double the annual average of the 1860s. Britain consistently ran a balance of payments deficit (a shortfall of revenue compared with expenditure) before 1914, with the account substantially in the black most years. While Britain maintained global economic power, its manufacturing dominance faced mounting challenges from the USA and Germany. Services such as shipping and insurance expanded by approximately 70 per cent in the two decades before 1913, and British investments abroad doubled between 1900 and 1913, confirming Britain's continued strength in the global economy.
Despite running a balance of payments deficit, Britain's overall economic position remained strong due to significant income from services and foreign investments. This unique situation allowed Britain to maintain its global economic leadership even while importing more goods than it exported.
However, Britain's dependence on income from foreign investments suggested to some contemporaries that the nation was relying on past achievements rather than current productivity. Extending overseas markets became necessary, yet the high protective tariffs imposed by Britain's main competitors restricted access to open markets. By 1900, finding markets without protective barriers proved difficult. British products increasingly went to imperial territories. In the 1890s, Canada, Australia and India absorbed over one-third of British exports. These markets remained open to foreign competitors, meaning Britain soon faced challenges even in 'home' territory.
Since most of Britain's rivals had imposed heavy tariffs on British goods, some politicians advocated for protectionism (the introduction of high import duties to protect a nation's industries from foreign competition). The most prominent advocate was Joseph Chamberlain.
The shift towards imperial markets was both an opportunity and a vulnerability for Britain. While these territories provided open markets for British goods, they remained accessible to foreign competitors, meaning Britain could not rely on exclusive access to maintain its economic dominance.
Chamberlain and tariff reform
Joseph Chamberlain advocated for tighter imperial integration. He used lessons from the Boer War to argue that Britain required assistance with its world-wide commitments and that coordinating machinery should be established to plan unified policy. When he presented his ideas to heads of self-governing colonies at Edward VII's coronation in 1902, they showed limited interest in foreign policy consultation. Their priority lay in gaining a preferential tariff position in the British market.
Chamberlain responded positively to what he heard. In 1903, he advocated for closer imperial economic unity through tariff reform. He proposed that protective duties should be levied on goods from abroad, though given his main concern with imperial unity, no tariffs would apply to imperial imports.
Chamberlain's Vision for Tariff Reform
Chamberlain's proposal represented a fundamental challenge to Britain's long-standing commitment to free trade. His scheme would maintain free trade within the Empire while erecting protective barriers against foreign competition, creating what he envisioned as a self-sufficient imperial economic bloc.
In Chamberlain's view, tariff reform would:
- Raise money for government revenue
- Strengthen the Empire through closer economic ties
- Protect British industry from foreign competition and from unfair practices like dumping (exporting commodities for sale at below the cost of production to ruin overseas competition)
- Safeguard British jobs from foreign competition
- Pay for needed social reform without resorting to other forms of taxation
- Check the growth of socialism by maintaining economic prosperity
Chamberlain's support for tariff reform divided the Conservative/Unionist coalition. Many Conservatives remained committed to free trade and believed Balfour did his best to preserve unity. When Chamberlain announced his desire to leave the government to campaign for tariff reform, Balfour encouraged him to proceed. The Tariff Reform League was established in July 1903. Most members were businessmen, attracted by its commitment to 'the defence and development of the industrial interests of the British Empire'.
Key figure: Joseph Chamberlain
1836 Born in London, son of a successful manufacturer
1854 Moved to Birmingham to join his uncle's screw-making business
1866 Became actively involved in Liberal politics
1873 Became mayor of Birmingham, promoting civic improvements
1876 Elected Liberal MP for Birmingham
1880 Became president of the Board of Trade
1886 Resigned from the Cabinet over the issue of Irish Home Rule
1892 Became leader of the Liberal Unionists
1895 Appointed colonial secretary in the Conservative/Unionist government
1900 Played a major role in the Conservative/Unionist election campaign
1903 Resigned from government to support the cause of tariff reform
1906 Suffered a serious stroke that ended his political career
1914 Died
Chamberlain's Political Legacy
Chamberlain holds the distinction of being the only individual to have divided two major British political parties during his career. He split the Liberal Party over the issue of Irish Home Rule. Less than twenty years later, his campaign for tariff reform divided the Conservatives.
Churchill called Chamberlain 'a splendid piebald [black and white in patches]: first black, then white', or in political terms, first fiery red, then true blue. This represents the conventional opinion of Chamberlain's politics: the view that he began to the left of the Liberals and ended up to the right of the Conservatives. He was always a radical in home affairs and an imperialist in foreign affairs. These views were not necessarily in conflict. He rejected laissez-faire capitalism in favour of government intervention. His enthusiasm for Empire and his support for stronger imperial union are beyond doubt. Given the growing challenges from Germany and the USA, he believed that imperial unity was essential if Britain was to remain a great power.
Support for free trade
Free traders, some within but most outside the Conservative Party, fought back. Traditional anti-protectionist arguments retained their persuasive force:
- Duties on corn would raise food prices, directly impacting working-class families
- Britain exported twice as much to foreign countries as it exported to its colonies. Britain sold more to Belgium than to the whole of Africa in the 1890s
- High duties might simply protect inefficient British industries, reducing competitiveness
- Free trade helped to lower labour costs by keeping food costs low, giving many industries a competitive edge over their foreign rivals
The Economic Reality of British Trade
The free traders' most compelling argument centered on Britain's actual trading patterns. With twice as much trade going to foreign countries as to imperial territories, imposing tariffs on foreign goods risked provoking retaliatory measures that would damage Britain's most valuable export markets. The economic case for maintaining free trade was therefore based on practical commercial interests rather than abstract principles.
In the 1906 general election, the Liberal Party, which supported free trade, won a landslide victory. The British electorate had demonstrated its opposition to protectionism, though not necessarily to Empire.
Key Points to Remember:
- Britain's economic position remained strong globally by 1913, but faced increasing competition from the USA and Germany, with manufacturing supremacy under threat.
- Joseph Chamberlain's 1903 tariff reform proposals aimed to strengthen the Empire through protective duties on foreign goods while allowing free trade within imperial territories.
- Chamberlain's tariff reform campaign divided the Conservative Party, as many remained committed to free trade principles.
- Free traders successfully argued that protectionism would raise food prices, protect inefficient industries, and harm Britain's extensive trade with foreign countries.
- The 1906 Liberal landslide victory demonstrated clear public rejection of protectionism in favour of maintaining free trade policies.