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21 March 2018

Corn Laws and Donald Trump



I can remember studying nineteenth century British history at school. There were the exciting bits with the battles, like - pace French readers - Trafalgar and Waterloo; there were the imperialist episodes, like the Indian Mutiny, Rorke’s Drift, Omdurman and the Boer War;  there were the feelgood bits of electoral advance, demonstrated by the 1832 and 1867 Reform Acts; there were the utterly bizarre elements - what were Britain and France doing in Crimea in 1854 - waiting for Tsar Putin?   And then there were the Corn Laws and the ten year-odd fight about their repeal. What I remember most about studying the Corn Laws is that I don’t remember much, because history lessons were mainly in the afternoon, the hot sun always - in my memory - streamed in through the classroom windows and the topic, and the master’s voice, created a sense of soporific bliss. I don’t believe I was the only one who dozed off, but it may explain my A level grade……..

The Corn Laws were a system of tariffs introduced by the British government in 1815, which were imposed on grain imported from overseas. They were one of the few genuine examples of British mercantilism, as they were specifically intended to protect British agriculture from foreign competition. They did that, but one of the side effects was to hold food prices artificially high; after all, if the foreign product had been more expensive than the domestic one, then there would have been no point in the tariff in the first place. And that’s what caused the arguments. On the one hand, the agricultural landowners who wanted to keep the price of their cereals as high as possible and on the other, the industrialists who wanted to keep food prices and thus manufacturing wages down. In Parliament, the landowning classes were mainly represented by the Tory Party, and the industrialists and manufacturers of the industrial revolution by the Whigs. From the early 1830s, the Tories were led by Robert Peel - and as a sidenote, he was the one who effectively changed the name from Tory to Conservative, a change sometimes forgotten still today - and initially he was a supporter of his party’s stance of keeping the law in place. However, the Irish famine of 1845 caused him to change his view, and, with the support of the Whigs, he dragged the repeal through, in the face of opposition from a significant part of his own party.

Now, that was a blow struck for free trade. Did it do what was intended, and make food prices more affordable? In one sense, that’s one of those questions to which we can never know the answer, since we can’t say how keeping the status quo would have panned out. What is apparent, though, is that grain prices went down after the repeal, and never - for the rest of the century - hit the same level they had prior to the change. So although we can’t discount other factors, the reasonable conclusion would be that the change in law did indeed result in lower grain prices. Was that a good thing? Again, it’s impossible to say with certainty (and anyway, good things are a subjective issue) but there is a strong argument made that the actual result was to weaken British agriculture for years to come, as cheaper foreign imports were readily available. On the other hand, people paid less for food, which probably contributed to the level of manufacturing wages. For the rest of the century, power was shared between Tory/Conservative administrations and Whig/Liberal ones, so there doesn’t appear to have been a significant party political effect. 

But why talk about the Corn Laws now? Well, simply because tariffs have come back into the news, both in the discussion of Brexit and its implications and, particularly, because Donald Trump has announced new import duties on steel and aluminium entering the USA from certain origins. But the US is a resource-rich country with a long history of production of both those metals; indeed, for a large part of my lifetime, it was amongst the biggest producers of them. Now, for all the mockery of Trump - and a lot of it seems entirely justified - I do actually believe he understands the demographic that elected him, and he is selling the concept of tariffs as protecting American jobs, or even, bringing American jobs back home. That will probably play pretty well in rust belt states. 

Will it work, though, other than as a political statement? (I should add here that the US is not unique; there are tariff barriers all over the place in the world, most of them nominally to protect domestic employment, or, sometimes, for governments to raise revenue just because they can.) The risk is that - behind the protective wall - domestic industries become over-comfortable, slow to react to changing technology and development and perpetuate high prices for consumers. The brutal reality is that it costs less to produce steel and aluminium in China - which is in truth what this is all about - than in the US. Putting in place trade barriers will do nothing to change that. Maybe - because of the different cost of labour - it can’t be changed, and yet the US is far richer in the necessary resources than China. It’s a tough nut to crack; I absolutely understand the pressures on the administration to do this, but I can also see that the long-term effect may very well be to make the gap widen even further. Protecting your own from reality is a nice idea, but is it a long-term solution?  


   

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