III. An International Tariff System based on Reciprocity.

In discussing the objections that have been put forward as a bar to the establishment of a preferential tariff system for the Empire, the consideration of the greatest of these has been purposely left untouched. Its discussion will form a fitting introduction to the subject of this final section.

We English have been for a long series of years the best hated nation in Europe, chiefly on account of the extent and success of our colonial and other over-sea possessions. To a heritage already great we have been compelled in recent years to add immense tracts of territory in Africa; and the South African War has not made us more loved abroad. These additions to the Empire have been forced upon us by the action of our rivals; and they have been dictated solely by the necessity for preserving that open door for trade, which has been for some time past the guiding star of our foreign and colonial policy. If we, acting purely under selfish motives, now reverse a fiscal policy which has been followed for half a century, and has been the excuse for bringing vast tracts of territory under the British flag, and establish a close system of preferential tariffs throughout the Empire, there is strong ground for the belief that the hostility of Europe would no longer find relief in words, but would demand an page 59 outlet in war. There would have to be exceedingly strong reasons for the deliberate adoption of a policy which would drive European nations, and possibly America, into a hostile combination against us. The differences which now divide Europe into two passively hostile camps might be expected to disappear, when confronted with a greater cause of offence, shared in common by all the nations of Europe, against ourselves. The adoption of a preferential tariff system by all countries under the British flag might be regarded in this light; for it would certainly inflict serious injury on many of our industrial competitors, and they might prefer the risks of war to internal troubles with their manufacturing populations. They would also be able to point to a distinct breach of good faith on our part, since, in recent years, every addition to the Empire has been justified to our neighbours and to ourselves, by the plea that we were preserving the open door for the trade of all nations.

But while the strict reservation of British territory for British traders would thus awaken strong passions, and probably lead to a European war, the same result could not be expected to follow if we offered to our rivals in trade privileges equal to our own. At present they possess greater privileges than we ourselves, and by the help of these they are slowly strangling certain of our home and colonial industries. The freedom which they now have to sell their goods in every part of the British Empire, and yet to exclude by hostile tariffs our goods from their own territories, operates to our disadvantage in two ways. It prevents our manufacturers from finding adequate outlet for their goods in foreign countries, or in Colonies under a foreign flag; and it exposes our products in the United Kingdom and in our Colonies to the competition of goods offered below the actual cost of production. The foreign manufacturer is enabled to achieve this latter result, in some cases, through the aid of State bounties;¹ and in

¹ E.g., the sugar industry.

page 60 other cases, by the adoption of that manufacturing policy which demands for its success—large production, high prices in the home country, and a "dumping-ground" for the surplus output.¹ There is reason to believe that the British Empire forms such "dumping-ground" for a very large quantity of foreign manufactures, and the United Kingdom especially is inundated with goods of this character. The writer has already referred to the rapid growth of the import trade in manufactured goods. The value for the year 1901 amounts to £99,739,000, or close upon £100,000,000. A very large proportion of these goods would have been produced in this country under other tariff regulations. The unfairness of such a system is obvious, and it has only been tolerated so long because new markets have been plentiful, and the stress of competition has not been very keenly felt by our manufacturers. Now that these conditions are changing, owing to the appropriation of all the habitable portions of the earth, and to the appearance of new competitors for the trade of the neutral markets of the world, this one-sided system of trade—miscalled free trade—ought to give place to one in which the advantages are more equally shared. The change can be brought about by the gradual evolution of an international tariff system based on reciprocity. Canada, as is well known, maintains a duty upon nearly every class of imported goods, chiefly for revenue purposes. The modification of this system, under which goods from free trade countries obtain a rebate of 25 per cent, upon the ordinary duty, has already been mentioned in Part II. of this Chapter. At present only the United Kingdom and New South Wales can benefit by this policy, for they are the only two free trade countries in the world.² The preferential treatment offered by the Canadian tariff can,

¹ The continental iron and steel industry; the United States electrical industry.

² The Cobden Club was formed in 1866, and has been preaching the benefits of free trade exactly thirty-seven years.

page 61 however, be claimed by other countries, when they are ready to accord equal treatment to Canadian produce. The action of Canada, the value of whose import trade is small,¹ has not, of course, led to any conversions to the doctrine of Free Trade; the inducement offered is too small. But were the example of Canada followed by every country under the British flag the inducement would be enormously increased, and would, without doubt, lead to the reduction in height of many of the tariff barriers which now hinder trade development.

The change can, of course, only occur slowly. It is possible that, in the case of self-governing Colonies, it will come about without any external pressure, since the prosperity of Canada, if it continues, will be an object-lesson of the benefits resulting from the adoption of a preferential tariff.

In the Mother Country the change will be more difficult to effect, for it will involve the re-creation of the machinery and officials for collecting duties on imports of various kinds. The writer has pointed out, however, in the opening portion of this Chapter, that many forces are preparing public opinion for the necessary changes in our fiscal policy. The agreement recently signed at Brussels, relating to the treatment of the bounty-aided sugar industry, is a forward step for this country, for we have bound ourselves by this treaty to shut out such bounty-fed sugar after 1903. The agreement will, therefore, oblige us to provide the necessary officials and machinery for checking the country of origin and quantity of our imports of sugar. From this action to similar treatment of other products, for which this country is the "dumping-ground," is not a very long step in advance. The clause relating to preferential trading is the weak feature of the Brussels agreement, and, in view of the 1902 conference of Colonial Premiers in London, it is surprising

¹ The average annual value of the manufactured goods imported into Canada during the period 1897—1900 was £23,800,000.

page 62 that the Government allowed it to be included without modification. However, Governments change, and although the present Chancellor of the Exchequer is not likely to initiate the proposed reform of our fiscal policy, it is not improbable that the next general election in this country will be fought out upon the respective advantages of preferential trading and so-called free trade.¹

Cobden and Bright and the Manchester School of Economists, Lord Farrer and the Cobden Club, have laboured in vain to convince the business communities in the trading countries of the world that a policy of unrestricted exchange of goods is best, both for themselves and for others. To-day, to whatever quarter of the world one directs a glance, one finds tariff barriers erected, for the sole purpose of excluding British goods.

The writer is of opinion that the time has arrived when the Government of this country is justified in using methods for propagating Free Trade principles that promise to be more effective than arguments and moral force. The adoption of the preferential tariff system, now in force in Canada, by the other countries of the British Empire, is the means whereby the necessary compulsion towards free trade may be given. Our European neighbours are not likely to find a justifiable occasion for war in a change of our fiscal policy, which will still leave them in possession of advantages equal to our own; and free traders ought not to raise objections to a policy which is likely to hasten forward the realisation of their aims, and to tend towards that free exchange of goods and commodities the world over, for which they have been struggling, without success, for more than half a century.