By Brian D. Varian (Newcastle University)
This blog post is based upon the author’s research note forthcoming in the Economic History Review.
From 1854-72, Britain’s exports grew at a rate of 4.5 per cent per annum. From 1872-1902, the rate was a mere 1.9 per cent per annum. To what might the late-Victorian deceleration of Britain’s exports be attributed? To what extent were Britain’s exports sensitive to (rising) foreign tariffs? Economic historians have long been divided over this last question. The macroeconomic literature on the late-nineteenth century has tended to argue against an effect of foreign tariffs on British exports. In his classic work on the subject, Saul (1960) stated that ‘it seems unlikely that in the period before 1914 tariffs seriously hindered the development of British trade taken as a whole’. Yet, other studies, taking a microeconomic approach and focusing on individual industries such as cotton textiles, iron, and tinplate, have argued that British exports were indeed elastic to foreign tariffs.
Figure 1. Humber Docks, Hull, 1884
Source: John Atkinson Grimshaw; accessed from Wikimedia.
My research note, forthcoming in the Economic History Review, falls between the microeconomic and macroeconomic literatures. I make use of the country- and commodity-specific foreign tariff data for the year 1902, which Britain’s Board of Trade compiled for a special study concerning the tariff levels that Britain’s exports encountered in each of 25 overseas markets. To give some examples, steel bars were subject to a 4 per cent tariff in Belgium; caustic soda was subject to an 11 per cent tariff in Japan; and Britain’s exports of linen piece goods were liable to a 310 per cent tariff in Russia! I match these foreign tariffs to the values of British exports of each of these commodities to each of these countries, making use of Britain’s official trade statistics. My (econometric) analysis reveals that Britain’s manufactured exports were elastic to tariffs across a broad range of commodities. This finding accords with the microeconomic literature on the subject.
Astonishingly, the elasticity of Britain’s manufactured exports to foreign tariffs, conservatively estimated to be 3.1, is essentially the same as the elasticity that economists have estimated using modern, twenty-first-century trade data. In this respect, for Britain, the first era of globalisation was not unlike the second.
One insightful counterfactual exercise is the estimation of the value of Britain’s exports if, in 1902, the foreign tariffs on all of Britain’s manufactured commodity exports were 0 per cent rather than their actual values. Such a counterfactual scenario is not so far-fetched; it would have entailed Britain’s trade partners pursuing the same free-trade policy that Britain did. If the trade-liberalizing trends of the mid-nineteenth century persisted into the late-nineteenth century, culminating in worldwide free trade in manufactures in 1902, then Britain’s exports would have been higher by an estimated 57 per cent. Britain’s exports would have still decelerated, i.e. experienced a falling growth rate, during the late-Victorian era, but the deceleration would have been rather mild.
My research note is the first study to make use of the Board of Trade’s foreign tariff compilation for 1902. These data have permitted the advancement, although not conclusion, of an old debate in British economic history.
To contact the author:
Saul, S. B., Studies in British overseas trade, 1870-1914 (Liverpool, 1960).