Washington’s Missing China Strategy
To Counter Beijing, the Biden Administration Needs to Decide What It Wants
THE question of tariff preference within the British Commonwealth of Nations has been prominent in our domestic and imperial affairs ever since Mr. Joseph Chamberlain launched his tariff reform campaign in 1903. It was not by accident that the demand for economic arrangements with the dominions and colonies should have arisen in Great Britain at the turn of the century. The Victorian ambition to make England the workshop of the world -- a position which for a while she held, indeed, on the strength of free trade at home and widening markets abroad -- faded as other countries grew in industrial power, often behind the shelter of tariff walls, and as the dominions themselves took the path of industrial protection. The tariffs of Canada and Australia lent as much force to the plea for imperial preference as did those of Germany and the United States. But Mr. Chamberlain died with his plan unfulfilled. As industrial prosperity continued, the electorate felt itself to be well enough off without such dubious economic experiments, and the Liberal landslide of 1906 set up in office a government pledged to strict free trade.
The war wrought a great change in the problem of imperial preference. In the first place, it united the countries of the British Commonwealth in a joint endeavor, contrasting sharply with their normal devolutionary tendency, and gave them an unwonted sense of common interest. The Imperial War Conference of 1917 passed unanimously the following resolution:
The time has arrived when all possible encouragement should be given to the development of Imperial resources and especially to making the Empire independent of other countries in respect of food supplies, raw materials and essential industries. With these objects in view this Conference expresses itself in favor of the principle that each part of the Empire, having regard to the interests of our Allies, shall give specially favorable treatment and facilities to the produce and manufactures of other parts of the Empire.
In the second place, the exigencies of war gave rise to a world surplus of productive capacity in a large number of industries, among them several in which Great Britain had previously held a dominant position; and partly because of this, economic nationalism both in Europe and in the New World flourished more strongly than ever. It was natural, in these circumstances, that Great Britain herself should have listened more attentively to the advocates of protection, and that imperial preference should have become an important feature of her actual tariff policy and of protectionists' plans. It is remarkable, indeed, that arguments against imperial preference as such have taken a minor place in post-war fiscal dialectic. All political parties have concurred in associating imperial preferences with any tariff which we might happen to possess, though free-traders have denied their intrinsic value as a positive reason for raising a protective tariff; even the last Labor Government freely undertook, at the Imperial Conference of 1930, to maintain all existing preferential margins, subject only to budgetary necessities.
Nevertheless, progress towards a system of agreed mutual preferences, such as Mr. Chamberlain envisaged, has been very slow, especially by contrast with the great constitutional changes that have been effected meanwhile. The 1923 Imperial Economic Conference, held during Mr. Baldwin's first ministry, reiterated the resolution of 1917, and accepted promises made by the United Kingdom Government to grant new or increased preferences on tobacco, wine, dried fruits and one or two other commodities. The 1926 Conference did not deal with preference at all. In 1930, the second Labor Government were forced to declare to the imperial representatives that "the interests of the United Kingdom preclude an economic policy which would injure its foreign trade or add to the burdens of the people." Nevertheless, they suggested that examination of the methods whereby each government could make " the greatest possible contribution to economic coöperation within the Empire" should proceed, in preparation for a fresh conference. This new conference is to assemble at Ottawa in July 1932.
For this unimpressive record two causes are plainly responsible: first, the refusal of the British electorate to countenance the abandonment of free trade; and second, the growing economic nationalism of the dominions. Public opinion in Great Britain was particularly impressed by the statement, in the report of the Balfour Committee on Industry and Trade (1925), that since 1914 the main increases of tariff rates on British exports had been within the British Empire, and that in fact the incidence of foreign customs dues on our exports had altered slightly in our favor. In the next half dozen years after that was written there was, of course, an enormous world-wide rise of tariffs emphasizing ever more sharply the isolation of Great Britain in her free trade policy.
That was the background against which the problem of imperial preference was set when the Imperial Economic Conference to be held at Ottawa was mooted by the Labor Government, as a means, we may suspect, of delaying the final admission that their fiscal policy effectively prevented the elaboration of an imperial economic system based on tariffs. The possibility of the success of such a conference seemed to diminish as the necessity for it grew. On the one hand, while successive British administrations praised and practiced the principle of imperial preference, its scope was limited, by the maintenance of general free trade, to minor articles of commerce. The dominions, on the other hand, accorded to Great Britain a large and invaluable measure of preference, but as their primary preoccupation was in most cases to protect their local industries, the rate of duty accorded to Great Britain was frequently fixed at the level necessary to keep out the bulk of imports, the foreign rate being then almost prohibitive.
The last few months have greatly altered the Conference's prospects. The change of government in Great Britain swept away at a stroke one obstacle to a systematic exchange of imperial preference. It is clear that the first motive of the electors last October was fear of financial disorganization and of inflation which appeared imminent under a socialist régime of unbalanced budgets; but it is equally certain that, beneath the pressure of the monetary and commercial crisis, the majority of the voters were willing, as they had never been before, to try tariffs as a practical measure of defense; and that the attraction of tariffs was considerably enhanced in their eyes by the possibility of contracting advantageous preferential arrangements with the dominions. This reasoning was backed by a certain irrational anti-foreign sentiment. Whatever the explanation, Great Britain has now a moderate tariff covering the greater part of her imports and embodying the principle of imperial preference. On the other hand, while it is far too early even to hint that the high tariff phase in the commercial policy of the dominions is ended, there are signs that its merits and defects are being much more critically scrutinized than hitherto. In Australia, for instance, the new Nationalist Government has definitely begun to reduce tariffs -- the first important move in that direction anywhere in the world for the past four or five years. Moreover, the common economic interest of the different members of the British Commonwealth of Nations has been underlined by the divorce of sterling from gold, which brought with it the simultaneous depreciation of the currencies of every country of the Empire except South Africa. There, the retention of the gold standard has become a political and even indirectly a racial issue, but it is significant that General Hertzog's government has had to take special measures, by way of import duties and export bounties, to counteract the effect of the cheapening of the pound. The position of the Canadian dollar, roughly midway between its parities on New York and London, reflects the contradiction between the commercial and the financial interests of Canada. In parenthesis it may be added that the association of non-Empire currencies (notably those of the Scandinavian countries and Argentina) with the depreciation of sterling has likewise emphasized the interdependence of the Empire with the rest of the world and the impossibility of establishing an exclusive British economic system.
Some idea of the inevitable limits to the development of an Empire economic group is given by consideration of the obstacles that oppose the project of "Empire free trade," associated especially with the personality of Lord Beaverbrook. Its fulfilment would in any case be prohibited by the determination of the Dominions, constantly reiterated by their responsible spokesmen, to maintain their secondary industries. The governments of the dominions (i.e., Australia, Canada, the Irish Free State, Newfoundland, New Zealand and South Africa) have had, throughout their existence as dominions, complete fiscal autonomy; and they will continue to base their commercial policies upon their own necessities and ambitions. India, though constitutionally subject to restraint, in practice possesses almost equal liberty, and moreover has avowedly and inevitably directed many of her protective measures against her chief supplier, Great Britain. The other parts of the Empire, from Southern Rhodesia or Ceylon to the obscurest colony, all have some voice, usually decisive, in the construction of their own tariff systems; and, whether their purpose is protective or fiscal, immunity of all British goods from import duty would be out of the question. In the territories that we govern under mandate we are pledged to maintain the principle of non-discrimination between British and foreign goods.
Above all, Great Britain has to consider her own obligations and necessities. Her economic system has been built up on the basis of cheap imports, especially those foodstuffs and raw materials which the Empire itself produces; hence she is very loath to limit in any way her sources of supply. Her trade with foreign countries is of vital importance for her welfare, and she must view with distrust all measures which might limit their ability or willingness to buy from her. Roughly two-thirds of her exports go to countries outside the Empire, from which it follows that for every x percent by which those markets for her goods are diminished, imperial markets must be enlarged by twice x percent. Nor are her interests in the rest of the world commercial only. She is the world's greatest ship-owner and (in normal circumstances) the greatest financier of international trade. She has some £4,000 million (nominal) of long-term investments abroad, one half of which have been placed outside the Empire. While, therefore, there is no irremovable impediment to her preserving free entry for all the products of the Empire, the implication of the Beaverbrook scheme, that she must forthwith clap tariffs of a protective height on most if not all imports from foreign countries, is laden with the most alarming dangers.
Great Britain's interest in particular foreign countries will also be among her arrières pensées at Ottawa. In 1930, exports from the United Kingdom (excluding re-exports) totalled £570 millions, of which £322 millions were for foreign countries. The three Scandinavian countries together took £33 millions, and Argentina £25 millions; apart from the dominions, only the great industrial Powers came near these figures. The £350 millions of long-term capital which it is reckoned Great Britain has invested in Argentina reinforces the trade connection; indeed it accounts directly for a great part of our export business with that country, whose railways, for instance, are almost entirely owned in Great Britain and purchase their locomotives, rolling stock and materials here. The reliance of these countries on Great Britain for the disposal of their exports is of little less concern to us. Retained imports from Denmark, Sweden and Norway -- with the last of whom, unlike the other two, we had a positive balance of trade -- totalled £87 millions in 1930, and imports from the Argentine £55 millions, out of total retained imports of £957 millions, including £259 millions from the rest of the Empire. Even the most ardent economic imperialists admit that these foreign countries stand on quite a different footing from, say, the United States, since their impoverishment through the reduction of their sales to Great Britain must react directly and immediately upon their ability to buy from us and to contribute to our "invisible exports." Some would even include them in the schematic British zollverein, the desirability of which, it is argued, is indicated by the balance within the Empire between manufacturing and raw-material-producing countries. This conception of economic groups, be it said in passing, leaves out of account the fact that, as the mechanical and biological sciences advance, the production of unmanufactured foodstuffs and of raw materials takes a smaller and smaller toll upon the world's economic effort, and the exchange of manufactured goods and services forms a larger and larger proportion both of local and of international trade. This consideration should remind Great Britain how inevitable is the development of the dominions as manufacturers, and how essential her markets in foreign manufacturing countries are bound to remain.
Thus general bounds are set upon the elaboration of an imperial fiscal system both by political and by economic factors. When we turn to examine particular commodities other difficulties appear. Of the two most notable primary products entering into trade among Empire countries, wheat and wool, the exportable surplus of the Empire producers easily exceeds the total consumptive capacity of Great Britain and other British importing countries. Hence whatever concessions were arranged within the Empire, markets would still have to be found in foreign countries, and in default of a concerted "hold-up" (such, for instance, as might be organized by compulsory wheat pools) neither imperial quota nor imperial tariff preference could secure for Empire producers a higher return than the world price, or guarantee the disposal of the whole of their crop. The Australian Minister of Commerce, calling attention to this, has stated that he did not intend to encumber his case at Ottawa by seeking preferences on wheat or wool, but would concentrate on tariff concessions for meat, eggs and dairy produce.
These are items in which other parts of the Empire are also keenly interested. As far as beef is concerned, Argentina is our principal supplier of chilled beef, with which the Australian frozen beef only indirectly competes. The dominions already provide two-thirds of Great Britain's imports of frozen beef, while the same proportion of her mutton imports also comes from the overseas Empire. Hence on these two commodities, while a tariff could do little harm, it would be equally limited in its advantage. On the other hand, Great Britain buys only 6 percent of her imported bacon from Empire countries; nearly two-thirds come from Denmark alone, who would be severely injured if a tariff were placed on foreign bacon. We buy only a small proportion of our imported hams from the Empire, the principal purveyor being the United States. By far the greater part of our imports of eggs, too, come from foreign countries, Denmark leading again and the Irish Free State being the chief Empire supplier. In the dairy produce group, the main sources for British imports of butter are Denmark, New Zealand and Australia, the first-named providing more than the two dominions together. Cheese is imported almost entirely from the dominions.
These desultory facts, relating to commodities which the Australian Government, at least, thinks will be the most important in the Ottawa negotiations, lay bare the objection that if special treatment is accorded (whether by means of exemptions from the tariff or by means of preferences involving the abandonment of the most-favored-nation principle) to the group of foreign countries specially connected in trade and finance with Great Britain, there will not be much preferential advantage left for the dominions. Aggregate imports of certain commodities, namely, beef and veal, mutton and lamb, pork, ham, bacon, eggs, butter, cheese, milk and milk products, into the United Kingdom in 1930, were divided as follows:
|Irish Free State||5.1|
|Other Empire countries||0.4|
|Other foreign countries||22.4|
|Total, foreign countries||69.8|
There is certainly room for expansion of Empire production, but it is equally obvious that any attempt at rapid diversion of trade would be very dangerous.
There are, of course, other primary commodities which the dominions and colonies produce in large quantities and for which they might seek further advantage in the British market -- corn (anglice, maize), which is a staple crop of South Africa; coffee and sisal, grown largely in the East African colonies; sugar, the existing preference on which is regarded as inadequate by the British West Indies; timber and fish, which interest Canada and Newfoundland; fruit, which is grown for export in many parts of the Empire, notably in South Africa; oilseeds and ground-nuts, the produce of India and tropical Africa; tea from India and Ceylon, (though it already has a substantial preference); and a number of others. On the other hand, Great Britain, as a great commercial and manufacturing country, has always to consider very critically the advisability of clapping tariffs on raw materials or on foodstuffs which enter into the diet of the masses. Her present tariff illustrates the difficulty of her position in this regard; the "free list" includes, inter alia, wheat, corn, meat (including bacon and ham), raw cotton and wool, cotton seed and linseed, soya beans, hides and skins, wood pulp, newsprint, metallic ores, copper, pit props, and coal and coke. No duty under the general tariff is chargeable on imports from the colonies, and none on imports from the dominions, India or Southern Rhodesia until November 15, 1932, that is to say, until arrangements for the future have been reached at Ottawa.
The different dominions, it will have been observed, are interested in widely different commodities. A preference on wood pulp, for instance, would not be of great value to Australia, nor one on mutton to Canada. This consideration alone seems to rule out any comprehensive agreement to which all the participating countries would be signatories. Indeed it is likely that the only profitable course for Great Britain to adopt will prove to be the negotiation of separate understandings -- not, presumably, definite treaties pledging the parties to maintain certain levels of duties, for these are repugnant to the fiscal and political traditions of British countries throughout the world -- even if that were to imply discrimination between the various dominions. For their part, the latter have their own political and economic problems limiting their ability to assist the mother country.
South Africa, for instance, has a trade treaty with Germany securing to the latter all preferences granted after the date of the treaty to Great Britain or to any other country of the Empire, though it is understood that the South African Government is prepared to denounce the treaty if they are sufficiently pleased with the outcome of the Ottawa Conference. Similarly, the "Canada First" policy may handicap the northern dominion in granting British goods more liberal terms of entry than at present, and she has further to consider her special economic relations with the United States. The readiness with which, as in the past, branches or subsidiaries of United States firms could be set up over the border discounts, in some cases almost to zero, the value to British manufacturers of a mere increase of the Canadian tariff on foreign goods, while certain Canadian markets, like that for electrical equipment, are barred to Great Britain either by private international agreements or by the employment of American standards or by the existence of industrial combinations which laugh at frontiers. Newfoundland is at present too much embroiled in financial and political difficulties for her attitude to have clearly emerged. In Ireland an unfortunate political dispute has injured the good relations that have subsisted for ten years between the Free State and Great Britain, and although an Irish delegation will attend at Ottawa the British Government seems unlikely just now to accord the commercial advantages of imperial membership to a member which attempts to resign from its constitutional responsibilities; in any case, the Fianna Fáil Government is pledged to a course of high protection which, since so large a proportion of the Free State's imports are British, must be directed in some measure against the United Kingdom.
India has never been able to commit herself to imperial preference, since the outstanding competitor with her own industries is Great Britain; but the strong delegation which she is sending to Ottawa, including the leader of the Nationalist Opposition, indicates that she may find it possible to alter her policy -- if she is offered sufficient inducement. New Zealand, on the contrary, has always afforded a high degree of preference to the mother country, and while her willingness is doubtless unchanged her ability to go further is limited both by the intention to defend existing industries and by the necessity of securing a favorable balance of trade in order to meet her financial obligations. Australia has similar preoccupations, but her new government seems determined to lop off the more extravagant parts of her protective tariff, and under the leadership of Mr. Bruce, the former Prime Minister, she is sending to Ottawa a delegation well versed in the necessity and the potentialities of a more rational division of industrial effort within the Empire. The commercial and industrial advisers who will accompany the British and other delegations will probably bend most of their attention to this problem, which is primarily one of agreement among groups of manufacturers and only secondarily one of tariffs.
Nothing has yet been said as to the other economic questions that are bound to crop up at Ottawa. They may be put into three groups: organization, currency and migration. In Great Britain, representatives both of employers and of trade unionists, as the parties most nearly concerned with industrial prosperity, have urged upon the government the need for establishing a permanent economic secretariat for the Empire, as well as the need for holding regular imperial economic conferences of experts and officials. Already there exist a number of bodies, like the Empire Marketing Board (for scientific and economic research as well as publicity) and the Imperial Economic Committee (an investigatory and advisory body of officials), which might be merged in such an organization to the better coördination of their work. But considerations of finance as well as the sentiment of the dominions make it clear that the time is not yet ripe for any grand new administrative structure, corresponding, as has been suggested, to the economic and financial organization of the League of Nations, with its paraphernalia of committees, secretariats and conferences. The British Empire has nothing to compare with the League largely because it has no Geneva. It has no neutral center, only a metropolis whose predominant influence is suspect among the outer parts, which dearly cherish their political autonomy and fear to see it lost in administrative and economic subservience. Most emphatically does that apply to monetary affairs, and, if for no other reason, the project for an Empire currency system -- brought very much to the fore since the British suspension of the gold standard -- would be ruled out because it would give the Dominions the not altogether baseless impression that they were being made subject to the financial policy of London. The issue will undoubtedly be raised at Ottawa, but the uncertainty regarding the future of the pound sterling renders it impossible to expect more than provisional stabilization of exchange rates within the Empire.
Still more likely to rub sore places is the question of migration. The dominions -- except, of course, Ireland, herself a great emigrant country -- have long been regarded as the natural outlet for the overflow population of the British Isles, especially since the United States set such severe limits upon immigration; but as the world depression has deepened, conditions there have become progressively less attractive compared with those prevailing in Great Britain, with her elaborate social services. As a result thousands of unemployed emigrants are now clamoring for repatriation. Many have already found their way back, and in 1931 the number of passengers entering the United Kingdom from other Empire countries actually exceeded by 23,000 the number of those sailing in the opposite direction. In these circumstances, governments both in Great Britain and in the dominions will undoubtedly be anxious for some time to come to restrict their intervention in, and hence responsibility for, migration movements; nevertheless, the Ottawa Conference may be expected to make at least a declaration of principle on the subject.
That this account of the prospects of the Conference should have been largely a chronicle of doubts, dangers and difficulties was, perhaps, inevitable, for the higher the ambition the greater the hazards that beset its attainment. In the minds of the thinking British public the principal aim of the Ottawa Conference is certainly a high one -- to accomplish within the British Empire some mitigation of the restraint of international trade that characterizes the post-war world. Success in this sense will be difficult indeed to secure; whereas success in the sense of engineering an agreement based on still loftier tariffs against the outside world may prove fatally easy. In such a course Great Britain, with her vast foreign trade and her intricate financial connections throughout the world, could never have any real or permanent interest. She seeks, above all, greater freedom of world trade; her new tariff and her efforts to use it for the enlargement of her markets in the dominions reflect her inability, hitherto, to obtain much satisfaction from foreign countries in pursuing that goal. Hence if the Ottawa Conference genuinely succeeds it will represent for the rest of the world an opportunity lost and an example gained; while if it fails, it will be for everyone an opportunity wasted and an example inflicted.