TRADE AND FISCAL POLICY.
IN matters of fiscal policy the British Empire at present
occupies a position peculiar among all the nations of the world,
in that for nearly half a century it has been without any fiscal
system common to its various parts. Nor does the fact seem to
have seriously affected the sense of unity. It cannot be said
that New South Wales, which till quite lately has in its fiscal
arrangements followed the example of the mother-country, is
united a whit more closely to her than is Victoria or Canada,
where duties have long been imposed not merely for revenue but
for protection. 'Nor can it be truly said that the ties,
practical or sentimental, which bind together Canada and the
United Kingdom, have grown weaker since the adoption in the
Dominion of a trade policy opposite to that of the mother-land.
Should the new commonwealth of Australia, in its eager desire to
create varied industries, decide upon a system of inter-colonial
free trade, with protection against the rest of the world,
including Britain, no one would now anticipate therefrom any
fundamental change {279} in the political relations between
mother-land and colony.
Compared with all other nations, these conditions seem extremely
anomalous. They are accounted for by the fact that the Empire
itself is in its composition anomalous. In it we find
communities existing under widely different conditions, some
with vast populations concentrated in a small space, while
others have their inhabitants thinly scattered over immense
areas; some with wealth which lends itself readily to direct
taxation, others which can only collect revenue easily at the
ports; some chiefly engaged in manufacture, others in the
production of food and raw material; some with capital and cheap
labour in such abundance that they can cheerfully face any
competitors, others under severe pressure from the competition
of commercially hostile neighbours more rich and numerous than
themselves. Economic theories are, in fact, being tested
throughout the Empire under almost every conceivable condition,
to the ultimate advantage, we may hope, of economic truth.
Meanwhile, though no serious jar in the national system has as
yet been caused by the divergence of trade policies, this
divergence is looked upon by many as an almost insuperable
obstacle to any closer political union. It is urged that a real
national unity cannot exist without community of fiscal system,
and in support of this position appeal is made to the examples
of the United States, Germany, Austro-Hungary, Switzerland and
Canada. In all of these {280} free internal trade followed upon
the formation of a Federal system.
How, it is often said in England, can we unite more closely with
countries which in trade matters are almost as hostile to us as
France, Germany, or the United States? How, it is said in the
colonies, can we unite more closely with a mother-land which in
trade matters makes no distinction between her greatest enemy
and ourselves?
Of late, as the pressure of hostile tariffs in foreign countries
has been more severely felt, the tone of reproach is more
distinct in England than in the colonies.
The slightest historical retrospect shows that this is not
justified. The system by which each self-governing division of
the Empire regulates its trade policy in accord with what it
conceives to be its own interests, treating other parts of the
Empire exactly as it does foreigners was not initiated by
colonists, but by the people of the United Kingdom, in
connection with the adoption of Free Trade in 1846. Previous to
that period mutually beneficial trade relations, both as regards
exports and imports, existed between the mother-land and the
colonies. Many of the colonies, and especially Canada, protested
vehemently against this change of national policy and suffered
severely from the complete reversal of the trade relations which
had previously existed. Given almost ostentatiously to
understand that the mother-land was indifferent to the trade
{281} policy which they pursued, the colonies were free, without
any reproach on their national allegiance, to choose the system
which seemed best adapted to their wants. On the one side they
saw the United Kingdom wonderfully prosperous under Free Trade.
On the other they saw the United States sweeping along in an
equally wonderful career of prosperity under a system of
Protection. The conditions prevailing in the United States
seemed, of the two, more similar to their own, and it cannot be
doubted that this example has had much to do with the adoption
of Protective systems in most of the colonies. The wisdom or
error of the choice remains to be demonstrated, for clearly all
systems of Protection are yet on their trial. Are they
expedients to accomplish a temporary purpose, or are they
permanent policies?
Even in the United States there have been elections which
indicated a distinct wavering of the public mind upon the
question. In Canada the party which favours Free Trade is
neither small nor unimportant. In Australia one of the chief
objects aimed at in Federation is the freedom of inter-colonial
trade which will be one of its conditions. Protection against
the outside world will at first probably be another, but Sir
Henry Parkes and other supporters of Federation have expressed
the most confident belief in the ultimate prevalence of Free
Trade principles over the Australian continent. He would be a
bold prophet who would undertake to say whether Protection or
{282} Free Trade would ten years hence be the policy of the
United States, Canada or Australia, strong as is the hold which
the former now has in each.
On the other hand, there is a prevalent opinion in Canada, and
in other colonies as well, that the United Kingdom will yet be
driven to recede to some extent from her Free Trade position. It
is observed that however correct may be the economic principles
on which Free Trade is based, national passion has prevailed
over economic truth, and most of the nations of the world
continue to erect higher and higher barriers against the trade
of the United Kingdom, thereby falsifying the forecasts of the
early apostles of Free Trade. More than this, it is seen that
the United States, while given free access to English markets,
not only creates a McKinley tariff to keep out English goods,
but by offering Free Trade to Canada at the price of
discrimination against Britain, practically, though perhaps not
intentionally, uses the trade question as a leverage to break up
the Empire. It is believed that, under the influence of
considerations such as these, a decided reaction has in Britain
begun in the direction of some modified system of Protection
within the Empire.
Are there grounds to justify this opinion?
Certain it is that many Members of Parliament, representing both
rural and manufacturing constituencies, openly avow their
preference for a discriminating tariff within the Empire, and
for fighting the commercial hostility of other nations by the
use of similar {283} weapons, and appear to lose no political
strength by the avowal. Twice has the Convention of Conservative
delegates broken away from its leaders, and passed what amounted
to Fair Trade resolutions. Liberal and Conservative
representatives of labour constituencies have alike affirmed of
late years that they find the working man's mind permeated with
Fair Trade ideas, ideas which might become a serious political
force in any period of prolonged industrial depression. A mayor
of the greatest of English manufacturing towns told me in the
very home of Free Trade that in his opinion England might yet
have to revise her commercial policy. The leading
silk-manufacturer of Yorkshire is an ardent advocate of Fair
Trade principles. The heads of different great woollen and other
manufacturing firms in the same county have told me that their
judgment inclined them in the same direction. Joseph Cowen, the
distinguished representative of northern Radicalism has said,
that he looked upon a British Zollverein as the true ideal of
our national statesmanship. When Sir Charles Tupper urged upon
the late W. E. Forster the advisability of giving the outlying
parts of the Empire a better commercial footing than foreign
countries, his reply was: 'Well, I am a free trader, but I am
not so fanatical a free trader that I would not be willing to
adopt such a policy as that for the great and important object
of binding this Empire together.'
The _Times_, commenting upon a speech of Sir {284} Gordon Sprigg
advocating a commercial union between England and her colonies,
said:--
'There is still a considerable amount of fetish-worship, but the
ideas upon which any commercial union must rest will not in
future incur the furious and unswerving hostility that would
have greeted them twenty years ago. It is getting to be
understood that Free Trade is made for man, not man for Free
Trade, and any changes that may be proposed will have a better
chance of being discussed upon their own merits rather than in
the light of high-and-dry theory backed by outcries of the thin
edge of the wedge. The British Empire is so large and so
completely self-supporting, that it could very well afford, for
the sake of serious political gain, to surround itself with a
moderate fence.'
And again, discussing a resolution passed in the Dominion House
of Commons in favour of preferential trade with Great Britain,
the same journal has lately said:--
'We have not disguised our opinion that if the colonies as a
whole, and without _arrière pensée_, were prepared to enter into
a Customs Union with the mother-country on mutually advantageous
terms, there would be a strong body of public opinion in favour
of meeting the offer, if possible, even at the cost of some
departure from the rigorous doctrines of Free Trade. ... If, by
not too great a departure from the strict lines of Free Trade,
it were possible to bind the great self-governing colonies in
close {285} and permanent commercial alliance with the mother
country, securing not only a vast reserve of political strength
but the command of large and rapidly growing markets, it would
probably be thought well worth while to incur some sacrifice.
When nations like the United States, Russia, and France are
strengthening their exclusive systems against us, and when
central Europe is involved in a network of commercial treaties,
it is not pleasant to contemplate the possibility that, under
protective tariffs of increasing stringency, our colonial trade
may slip from us, and the political allegiance of our colonial
subjects may be gradually broken down.'
In expressions such as these, which might be multiplied, those
who advocate a return to preferential trade relations within the
Empire find proof of a great change in English public opinion.
But after all has been said that can be said it is clear to any
unprejudiced observer that on the whole an overwhelming majority
of the people of the United Kingdom still sincerely regard free
trade with all the world as necessary to the welfare of the
masses, and to the stability of the vast industries of the
country. No political party would as yet dare to face an
election on a platform of Protection or Fair Trade. The reason
is obvious. Dependence on sources of food supply outside the
Empire is still so great that any change of policy would be
thought to involve great risk and anxiety. Though a few years of
strenuous effort would doubtless make the Empire self-sufficing
in the {286} matter of food, still those few years of transition
would be a critical period. Clear thinkers outside of the United
Kingdom recognize this. It is well known how strongly Sir John
Macdonald held the opinion that the Empire would be strengthened
and drawn together by preferential trade between its different
communities. Yet he said to me in 1889: 'Till England sees that
we can feed her or with a little encouragement can do so, we
must not expect to work out Federation on a trade basis. But as
soon as we have proved what our North West can do and English
people see that they can get all the wheat they want from
ourselves and the other colonies, the English point of view,
will change, and trade advantage can be made to supplement the
other forces which make for British unity.' Sir Charles Tupper
argues for immediate discrimination, but he as fully recognizes
that it should not affect the prices of food for the vast masses
which, in England, depend on outside supplies.
He has given illustrations which he thinks indicate that a
fiscal arrangement which favours the productions of the colonies
would not result in raising the price of food materially in
Great Britain, while it would give stimulus to colonial industry
and increase the colonial market for British manufactures to the
great advantage of the British working man.
He points out that the Mark Lane prices of corn during the year
1890 and 1891, as shown by the report of the Board of
Agriculture, indicate a fluctuation {287} in price of ten
shillings a quarter, and it was only when the maximum advance of
ten shillings a quarter was reached that a half-penny difference
was made upon the four-pound loaf. From this fact he draws the
conclusion that five shillings a quarter could be imposed upon
foreign wheat without making any appreciable advance in the
price of bread.
A second illustration he draws from the meat supply. In
consequence of the existence of pleuro-pneumonia in the United
States, cattle sent from that country to Great Britain have to
be slaughtered upon their arrival, while the freedom of Canada
from the disease exempts Canadian cattle from this regulation.
The advantage given to Canada by this distinction is estimated
by Mr. Rush, the highest American authority upon the subject, at
between eight and twelve dollars a head. The result has been an
immense expansion of this trade for Canada, which last year sent
123,000 head of cattle to England, for which Canadian stock
raisers would receive about a million dollars more than
Americans would obtain for the same number of cattle, while Sir
Charles Tupper claims that no one has even suggested that any
difference has thereby been made in the price of meat. Lastly,
he points to the experience of France and Germany, where, after
a much higher duty had been imposed on corn, the cost of bread
was less than before[1].
{288}
But if the price of wheat be not changed, what, it is asked,
will be the advantage to the colonies, and what is to be the
compensation to the mother-country for making the change?
The colonial advantage will come from the new direction given to
emigration. The great numbers of emigrants who now go under a
foreign flag to produce the grain and other food which the
United Kingdom buys will go to British countries where they will
enjoy the advantage of the easier access to British markets and
by so doing will add to the wealth and strength of the colonies
and the Empire.
{289}
To understand the anticipated advantage to the mother-country we
must study some extremely suggestive facts connected with
inter-imperial trade.
Man for man the people of the colonies, leaving out India,
consume British products out of all proportion to foreigners.
The figures fluctuate from year to year, but taking the
countries with which the United Kingdom carries on the greatest
amount of trade a sufficiently accurate average can be given of
the ordinary annual consumption per head of British manufactures
in each. In Germany and the United States this consumption is
about 8s. per head, in France 9s., in Canada £1 15s., in the
West Indies £2 5s., in South Africa £3, in Australasia nearly
£8. Thus three or four millions of people in Australasia take
more of British goods than about fifty millions of people in
Germany, and nearly as much as sixty millions of people in the
United States. Only an artificial boundary separates Canada from
the United States, yet an emigrant who goes north of that
boundary immediately begins to purchase more than three times as
much of British goods as one who goes south of it. As a customer
to the British artizan one Australian is worth sixteen
Americans; one South African is worth seven or eight Germans.
Figures such as these have suggested the remark that 'trade
follows the flag.' It is perhaps a more adequate explanation to
say that trade follows not merely the flag, with the protection
and prestige which it gives, but that it follows along the line
of {290} the tastes, customs and habits of life which the
emigrant carries with him; along the line of intimate social and
financial connection such as that which exists between England
and her colonies. The lowest prices current do not altogether
determine the direction of commerce. Social, political,
financial and even sentimental considerations unite to create
the wants of a people and so in a measure to give tendencies to
trade.
Putting all these facts together it is claimed that a national
policy which inclined emigration towards the colonies would
create with great rapidity new markets for British products and
would send back in increasing volume the productions which
Britain wants to buy, while adding greatly to the strength and
self-sustaining capacity of the whole nation. Hence it is that
many advocates of British unity sincerely believe that the
adoption of preferential trade relations within the Empire is
the readiest way to the great end in view. They hold that trade
advantage constitutes the best outward token of national union,
and by its sense of common benefit would do more than anything
else to make all willing to contribute to national expense.
This view is held very strongly in Canada, South Africa and the
West Indies: less importance is attached to it in New Zealand
and still less in Australia.
It should not be wondered at in England that Canadians bent upon
the maintenance of British connection think of preferential
trade relations with {291} the mother-land as a way of escape
from the anomalous position in which they have of late been
placed. 'Let it be clearly understood,' says Principal Grant,
'that Canada has only two markets worth speaking of. One of
these, Great Britain, she shares on equal terms with every
foreign nation, and from the other, the United States, she is
debarred as long as she is connected with Britain. The former
would be as open to her as it is now were she to unite
commercially with the Republic and against Britain, and, were
she to do so, she would then at once get the other market also.'
Is it right or politic, he asks, that an important part of the
Empire should be left to such a choice? Principal Grant,
however, goes further, and argues that a preferential
arrangement within the Empire would only be required as a
temporary measure, and would really lead to the Free Trade
relations which are desired with the United States. 'So
all-important,' he says, 'is the British market to the United
States voter, that the mere prospect of a preference being given
in it to his rivals would be enough to bring him to a business
frame of mind; he thoroughly believes in the "cash value of his
markets," and would be ready to give, for what he believes to be
a sufficient consideration, that value which he will never dream
of giving for nothing.'
While the Canadian accustomed to the thought of protection would
thus build up the Empire, strengthen the union, and deepen the
sense of nationality by preferential trade relations, the
English Free Trader {292} suggests another solution. He says to
Canada: Throw down your tariff walls against English
manufactures, so far at any rate as your revenue necessities
permit, and thereby make Canada the one cheap country to live in
on the American continent. When your farmer buys his clothes,
builds his house, gets his machinery, his earthenware, his
hardware at a far lower cost than the farmer who is being bled
to satisfy the McKinley tariff, he will then have an advantage
over his competitors far greater than could be given by a
preferential tariff in England. Your North-West will be filled
with immigrants crowding even from the United States to the
centre of cheap living and therefore cheap production; your
Eastern farmer will have an increased profit on the meat, the
poultry, the eggs, the fruit which he sends to the British or
the American market; British capital will flow freely into the
country; railroads, canals, ports, shipping will feel the
pressure and the prosperity of inward and outward trade;
manufactures suitable to each locality will increase with the
greater prosperity of the country and the diminished cost of
living. Even the McKinley tariff may be forced to give way in
face of the striking illustration which Canada would give on the
American continent, of the benefits flowing from free commercial
movement. The farmer of the Western States, handicapped beside
the farmer of the Canadian North-West, would in all probability
use his vote to compel the Eastern manufacturer to come to terms
with England and Canada.
{293}
But even if other nations refused to yield to such influences,
an empire covering one fifth of the world, and capable of
producing everything required by man, would have before it,
under a system of free commercial intercourse and common
citizenship, a period of prosperity unparalleled in the history
of the world.
The venerable Earl Grey, in an appeal specially addressed to the
Canadian people--an appeal which has stamped upon every sentence
good-will for Canada, and sincere regard for her interests--has
urged that the Dominion should not merely throw open its markets
to England, but to the United States as well, and argues with
all the earnestness of his youthful convictions that such a
course would not only bring to Canada the same prosperity which
Free Trade brought to England, but, on account of Canada's
peculiar relations to the United States, would go far to break
down all systems of excessive protection.
We have then, in matters of trade, great variations of system
between the different communities of the Empire, and great
differences of opinion within each of the communities
themselves.
Does this conflict of thought upon trade policy present an
insuperable obstacle to national unity? There are those who
claim that mutually advantageous trade relations furnish the
only basis on which it is worth while to discuss Imperial
Federation with any hope of practical result. This opinion is
held alike by some who look to preferential treatment, and {294}
others who look to exceptional freedom of interchange within the
Empire for the necessary bond.
With this extreme view I have never been able to agree. Even
without trade advantage between its parts there are decisive
reasons why the nation should present a united front to the
world. Unity is essential to safety, as I have tried to prove,
and at any moment the outbreak of a great war may make safe
trade of more vital consequence for British people than either
Free Trade or trade depending on tariffs. The wealth created by
either must be defended, and with the least possible burden on
the individual community. A common system of defence therefore
seems of itself a sufficient justification for close political
union. This is a permanent condition.
On the other hand, it can scarcely be questioned that ideas on
trade policy all around the world are in a state of flux. That
systems now existing may be modified, perhaps reversed, within a
few years, is not only possible, but highly probable. The
greater freedom or greater restriction of trade is a temporary
condition[2].
{295}
That the temporary difficulty of conflicting tariffs should be a
bar to the attainment of permanent national security, seems, on
the face of it, absurd.
In any attempt at Federal organization it would probably at
first be necessary to leave to each community the choice of the
method by which its revenues are raised. To do so would not
apparently put too great a strain on the admitted flexibility of
the Federal system. But it can scarcely be doubted that one of
the first effects of a close political union, in which common
ends are constantly kept in view, and the strength and
prosperity of each part are an immediate concern to all, would
be to break down by degrees all existing barriers to the
advantageous movement of inter-imperial commerce.
[1] On this point Lord Dunraven says--_Nineteenth Century_,
March, 1891: 'The duty on wheat in France in 1882 was only 2 8d.
per cwt.; in 1885 it was raised to 15d. per cwt., or 536 per
cent. According to some economists, the price of wheat should
have gone up in like proportion, and the masses have had to pay
dearer for their bread. But what are the facts 1 The price of
wheat actually fell from an average of 10.085. per cwt. in 1883,
the year following the low duty, to 9.295. in 1886, the year
following the increased duty, or 8 per cent. Instead of the poor
man in France having to pay dearer for his bread, he paid less
in 1886 than in 1883, as the following table shows:--
BREAD 1883 1884 1885 1886
First Quality 1.57 1.49 1.39 1.39
Second Quality 1.35 1.26 1.17 1.22
Third Quality 1.17 1.13 1.04 1.09
In Germany, too, I find the same results follow from increased
duties. Wheat went down from 10.30s. per cwt. in 1882, when the
duty was 6d. per cwt., to 9.39s. per cwt. in 1889, or 9 per
cent. when the duty was 2s. 6d., per cwt--or 500 per cent.
higher, while bread remained at about the same price. Internal
development appears in both these cases to have more than
compensated for any restriction of foreign imports, and it is
only fair to remember that the resources of the British Empire
in respect of food supply are immeasurably greater than those of
France or Germany.'
[2] Prof. Shield Nicholson quotes Adam Smith's sentence: 'To
expect that the freedom of trade would ever be entirely restored
in Great Britain is as absurd as to expect that an Oceana or
Utopia should ever be established in it,' and goes on to say:
'this curious example of the danger of political prophecy-should
suffice to dispel the apathy generally displayed towards any
consideration of the fiscal aspects of Britannic confederation
... Nothing is more common than to speak of the complicated
tariffs and the vested interests of the newest colonies as
insuperable obstacles to any general fiscal reform. As a matter
of historical fact, however, in much less than a century the
commercial policy of the British Empire has passed, speaking
broadly, from the extreme of central regulation to the extreme
of non-interference, and there is, _prima facie_, no reason why
a reaction should not occur if such a course is shown to be to
the mutual advantage of the colonies and the mother-country.'
{296}