Joseph Chamberlain and the Free Trade Debate
From 'A History of the British Nation' by AD Innes, 1912
In comparison with this everything else sank into insignificance. In May Mr. Chamberlain startled the world by proclaiming that one thing was needful to the consolidation of the Empire. The strength of the bond of sentiment had been nobly demonstrated by the gallant bands of volunteers who had rallied to the flag in the war now happily over. But the bond of sentiment was not sufficient; it must be strengthened by interest, by what Thomas Carlyle called the "cash nexus." The United Kingdom must be prepared to make some economic sacrifice in the interest of the Dominions. The new bond was to be provided by the creation of a preferential market in Great Britain for colonial goods.
No one in effect for fifty years had dreamed of reviving tariffs on imports. Tea, alcohol, and tobacco, and a few other articles, continued to be taxed for purposes of revenue, but no advantage was given to home or colonial producers of the taxed articles. In pathetic isolation Mr Chaplin had pleaded for the protection of agriculture, and for a brief moment an attempt had been made to raise the cry of fair trade, retaliation, and "making the foreigner pay." No one had taken these things seriously. But when Mr. Chamberlain spoke it was impossible not to take him seriously.
Covert Protectionists emerged from their despairing silence, men who had been bred if not born Free-Traders began to reconsider the arguments which they had never thought of disputing. Others whose economic faith was unshaken began to think that the economic sacrifice might after all be less than the political gain. The few Liberals who became immediate converts became also the most uncompromising and enthusiastic of the advocates of fiscal reform.
The Protectionism Debate
But after the first shock of surprise there were no more defections among the Liberals from economic orthodoxy. Nothing perhaps could have been conceived better calculated to close up the ranks of an Opposition which as yet had only partly recovered from its disintegration. The salient fact fastened upon was that no preferential tariffs would be of appreciable value to the dominions unless food-stuffs and raw materials were taxed in their favour, since their manufactures were practically a negligible quantity.
To tax food-stuffs and raw materials would raise the price of the working man's food arid the cost of production to the home manufacturer, who was dependent on foreign supplies for his raw material. There were many Unionists as well as Liberals to whom that argument appealed with great force. But when once Mr. Chamberlain had broken with the principle of Free Trade the attack upon it was developed all along the line. First it was urged that the tariffs would provide a revenue which might be appropriated to a scheme for granting Old Age Pensions, which Mr. Chamberlain had long advocated in the abstract.
Then Mr. Balfour began to perceive a possibility that tariffs, though undesirable in themselves, might be used as battering-rams for breaking down the tariff walls raised against British goods by other countries. Moreover, it was not so clear that tariffs would raise prices. It was argued that the foreigner would pay; he would lower his prices in order to keep his goods on the British market. Finally, the unqualified argument for Protection was brought into play. The competition of cheap foreign goods was on the- verge of bringing to ruin the British producers. The industries which were thus suffering could only be saved by a tariff on the foreign articles - especially such as were "dumped" at less than cost price by bounty-fed producers - which would enable the British producer to sell at a profitable rate. Thus these industries would provide increased employment for the British working-man.
The answers given to these respective arguments were that as a matter of experience retaliation does not reduce hostile tariffs; that we already purchase from the foreigner at bottom prices, and therefore he would not reduce them in order to meet the tariff; that the argument for pure Protection came to nothing at all if the foreigner paid the tariff and supplied us as cheaply as before; whereas, if Protection was rendered effective because it raised the price of the foreign product, it would also raise the price of the home product to the consumer. As for the argument that by protecting British industries employment would be increased, it was replied that the increased cost of all articles of consumption and especially of food would far more than counterbalance the supposed benefits to the workers.
From 1903 till the end of 1905 the battle raged. The Liberals grew daily more united, while Mr. Balfour vainly endeavoured to avert a complete split among the Unionists. Four prominent supporters of the Government, including the Duke of Devonshire, retired from the Cabinet. At last in December 1905 Mr. Balfour resigned; Sir Henry Campbell-Bannerman accepted office, and immediately afterwards appealed to the electorate. The result was overwhelming.
The Liberals were returned with a solid majority of eighty-four over all the other parties put together; and even of those parties they could count generally on the support of more than eighty Irish Nationalists and more than fifty members who had been returned by the Labour party which for some years past had been steadily organising itself. The whole body of the Unionists numbered less than one hundred and sixty. But it must be remarked that the Liberal leaders were expressly pledged not to use their majority to deal with the question of Irish Home Rule; while the fiscal reformers declared that the battle had been won largely on a false issue through the prominence given to the question of employing Chinese labour in South Africa.
It was admitted, then, by the Opposition that the country had for the moment pronounced decisively against fiscal reform, but only because it had not become thoroughly accustomed to the idea. It was not admitted that the country had intended to authorise any positive item in the Liberal programme. This view was naturally not accepted by the Liberals, who for precisely twenty years had had practically no voice in legislation, since in their last brief period of office all their measures with the exception of the budgets had .been either eviscerated or thrown out by the House of Lords.
Almost at once they embarked upon an extensive programme of reforms. They began by accepting a bill from the labour party for the protection of trade unions. It will be remembered that the Act of 1874 was supposed to have protected trade unions from being sued as corporate bodies; but in 1903 a judgment of the law courts known as the Taff Vale Decision had shattered this impression.