CHAPTER XIII.

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].

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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.

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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.

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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].

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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.'

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