Brexit and echoes of imperial preference

What a lesson from history tells us about the dangers of simple remedies

May 22, 2019
Joseph Chamberlain. Photo: United States Library of Congress
Joseph Chamberlain. Photo: United States Library of Congress

It is the turn of the century and an unease is gripping British politics. Led by a man described as a “fanatical charlatan,” the debate is dominated by trade and tariffs, creating splinter groups in parties and forcing the prime minister to respond with fudges to hold the governing party together. The question is one of Britain’s place in the world: how to react to the forces of globalisation, and how Britain’s economy can compete as powers around it rise.

The episode contains useful lessons for today. This period—played out in the early 20th century—had a long and profound impact on British politics and the direction the nation took. Decades of agitation by elements of the Conservative Party, led by Joseph Chamberlain, the political hero of Theresa May’s former joint chief of staff, Nick Timothy, culminated in the 1932 Ottawa Agreements. It was a victory for protectionists, who had sought a system of reciprocal tariffs and agreements between the dominions and colonies of the British Empire, as well as duties on imported goods including food and grain, for the best part of 50 years. The move was designed to fortify the market against other global actors and protect domestic workers.

As with Brexit, the simplicity of the idea was its primary selling point. Chamberlain specified that he preferred “a little common sense” to economics. The Daily Mail and the Daily Express were vociferous in their support with the latter declaring that “we are protectionists none the less. We stand for the protection of our own people.” But much like Brexit, imperial preference was a misguided attempt to react to a changing world. Its aim was to reinforce existing industry, rather than expand and modernise. Similarly, for all the talk of Global Britain, the insularity at the heart of most Brexiteer analysis betrays its pretence to internationalism. And far from being a remedy, both events came from delusions that have periodically revealed themselves again and again through the years.

Then, the world had been through its first great period of globalisation. Writing about this “extraordinary episode in the economic progress of man,” in The Economic Consequences of the Peace, John Maynard Keynes reflected that the “inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth… and reasonably expect their early delivery upon his doorstep.” Britain had been a leading force driving this new world, but shifting power structures, driven both by globalisation and industrialisation, had also caused upheaval to the established international order the latter part of the 19th century. Factors such as cheap grain in Russia and the United States, alongside America’s and Germany’s development (and protectionism), had put stress on Britain’s position. Manufacturing—not least of iron and steel—was facing stiff competition, and imports of manufactured goods had increased significantly over the preceding decades. But entangled with the political aspirations of Chamberlain, imperial preference was also a presented as a panacea to the pace of technological change brought by the industrial revolution, which had impacted on workers at home.

The debate over imperial preference had already brought down governments, including Arthur Balfour’s Conservative-Liberal Unionist coalition in 1905. It had been repeatedly and resoundingly beaten as a campaign issue at elections, and opened up foreign policy fault lines in the Conservative Party between those who were happy with “splendid isolation” and those who believed in a more expansionary approach that sought to build new friends and allies.

What ultimately paved the way for Ottawa was the Great Depression. As a response to this, the US had enacted nearly 900 import duties through the Smoot-Hawley Tariff Act. The economist Douglas Irwin has estimated that of the 40 per cent fall in US imports over the next two years, nearly a quarter was a result of the effective tariff. Countries that were part of the gold standard were unable to use monetary policy to stimulate their economies, they instead restricted trade. This then contributed to financial panic and bank failures, with the UK leaving the gold standard in 1931, followed by the US two years later. The introduction of the Import Duties Act in 1932 in the UK then placed tariffs on manufactured imports, which with imperial preference, signalled the end of the era of free trade and the abandonment of an openness that had been in place since Robert Peel’s repeal of the Corn Laws.

The economic fallout was swift, while the damage to global cooperation was severe. The interwar period became one of decreasing multilateralism, the economic and political ills of which were well-documented following World War II. The corrective action was the Bretton Woods Conference and the signing of the General Agreement on Tariffs and Trade in 1947, the forerunner to the World Trade Organisation. But arguably Britain’s decision to eschew the talks that founded the European Coal and Steel Community in 1951 can be linked to the bigger picture of this debate and near perpetual pull we have between being a plucky, front-running nation that likes to go it alone, and the forces of pragmatism that put forward our need to be open and engaged with the world.

In Brexit all of these strains are evident, but if there is a clear lesson of both events it is that once ideas are unlocked in politics, they can have long gestation periods and far-reaching consequences, many of which are almost impossible to predict. The turning circle of a country can also be quite wide, and correcting ill-fated decisions can take a generation or more. The impact is not only economic but can also shift the balance of relationships across the world. At another crucial point for Britain’s future direction, policymakers cannot fall back on delusion. Hard thinking about how to reorient the British economy is more than a question of the country’s relationship with Europe. But history shows us that bad decisions get made when political zeal is unleashed and not effectively challenged.