II. A Preferential Tariff System for the Empire, and its probable Influence upon British Trade.

The establishment of a system of preferential tariffs for the British Empire will be regarded by many as necessitating a step backwards in the fiscal policy of the United Kingdom. Much depends, however, upon the point of view, page 50 and many prefer to regard such a system as a step towards that world-wide Free Trade which all desire to see inaugurated. The British Empire embraces countries of wide area and every variety of climate, peopled by races of the most diverse character and attainments. If the contention of orthodox Free Traders be true, that the adoption of a free trade policy by the nations of the earth would benefit all who shared it, then it must be equally true that lesser benefits will follow when such a policy is followed by the scattered group of countries and peoples known as the British Empire.

At present, tariff barriers exist at various points within the Empire. The removal, or reduction in height, of these barriers to trade, is the aim of those who support the principle of preferential tariffs for the Mother Country and her Colonies.

The most important of the objections urged against any change in the fiscal policy of the United Kingdom, is that based upon the relationship between the value of our exports of manufactured goods and the imports of the same by our Colonies and dependencies. If this country is at present exporting goods far in excess of the imports of these classes of domestic produce by the various portions of the Empire, it is evident that we might lose more than we gained by the establishment of a system of preferential trading. There must exist an adequate market for our goods within the Empire before we can risk the loss of markets outside it.

A judgment upon the reality of this danger can only be formed after a study of figures, showing the values of the imports of manufactured goods by the various component portions of the Empire; and the values of the exports of similar classes of goods, by the United Kingdom, during the same period of time. This comparison must be carried over a series of years, since, for the reasons already touched upon, trade comparisons for single years are never conclusive, and may lead to untrustworthy results.

The totals given in Table II. are based upon the official figures published by the Board of Trade in the "Statistical Abstract for the Colonial and other Possessions of the United Kingdom." These totals have been compiled with the expenditure of much time and energy, for the classification adopted in this Blue-Book does not facilitate any separation of food-stuffs and manufactured goods.

The countries included in this summary of the imports of the Empire are the following: The United Kingdom, India, Canada, Newfoundland, Cape Colony, Natal, Australasia, New Zealand, and the West Indies.

It may surprise many to learn that the United Kingdom itself imported manufactured goods, valued at £98,700,000,

¹ The values of new ships have been deducted in 1899 and 1900 because not included in the earlier returns.

page 52 in 1900. A market might, therefore, be found at home for 43 per cent, of our total exports of this class of goods. The values of the imports of manufactured articles by the United Kingdom have been rapidly increasing. In 1893 these imports amounted to £72,100,000 in value; each year since that date shows an increase. A growth of 36 per cent, in eight years is striking proof of the activity of our trade rivals in the home market. There is at present no sign that this activity is decreasing, and the admitted policy of the American industrial financiers is to manufacture on a huge scale, and to utilise the United Kingdom and her Colonies as the "dumping-ground" for the surplus goods that remain after satisfying the home demand. To check this charitable design of our American cousins, and to save the home market and manufacturers from this unfair competition,¹ would be one of the beneficial effects of the change we are discussing. The figures given in Table II. show that there already exists within the Empire an adequate market for the whole of the manufactured goods produced in the Mother Country. Should the proposed change in our fiscal policy cause a total loss of our export trade in manufactured goods to countries external to the Empire (a result which is by no means certain), this loss can, therefore, be faced with equanimity.

Turning now to the results of a similar investigation concerning food-stuffs, the position of the United Kingdom is not so satisfactory. The Empire may be regarded as self-dependent as regards manufactured goods, but it is not yet self-dependent as regards foods. The figures represent the value of the food imports of the United Kingdom, and the value of the exports of the Colonies and dependencies of the Empire, for the years 1893—1900. They have been compiled from the Board of Trade publication already referred to.

An examination of the detailed figures¹ shows, however, that the exports of food-stuffs by certain portions of the Empire are rapidly increasing in value; Canada and New Zealand lead the way in this development of their agricultural resources. There; is little doubt that under favourable conditions these two Colonies might become the granary for the remainder of the Empire. Those who are incredulous upon this point are referred to an article by Professor James Long, which appeared in the Nineteenth Century six years ago. In considering this question of food-supply, it must also be borne in mind that the inauguration of a system of preferential tariffs for the Empire would not require as an essential preliminary that the food-supply should be wholly produced within it. A deficiency in production could always be overcome by

¹ See Appendix.

page 54 purchase of food-stuffs grown in other countries. The fact that the Empire is not yet self-dependent as regards food-supply, while, therefore, an undoubted disadvantage, is not an absolute bar to the practical inauguration of the change in our fiscal system.

Objections of minor importance to the adoption of a system of preferential tariffs for the products of the British Empire are that this change in our fiscal policy would lead to an increase of price for articles of large consumption, and that it would facilitate the formation of rings and monopolies, designed to keep prices at an exorbitant level.

The first of these is probably true. It is cheapness alone that causes food-stuffs of non-colonial origin to find a market in this country, and it is cheapness again that causes foreign-manufactured goods to supplant British-made goods in the home and colonial markets. Those who regard this probable rise in prices as a fatal objection to any system of preferential trading within the Empire, however, ignore two facts that influence a right decision in this matter. The margin between the costs of British goods and those of foreign manufacture is only great in comparatively few instances, and the same remark applies to the difference in price of food-stuffs grown within and without the Empire. In such cases, where the article or product is one of large consumption, it might be wise to place it on the free list. In the majority of instances, however, thè difference in price to the consumer is small. Under the present system of trading, such slight differences in price are sufficient to turn trade into foreign channels, and to hamper the development and expansion of home and colonial industries.

In considering this question of rise of price, it should also be remembered that many of the foreign articles which displace those of British and colonial origin, are produced under conditions of labour which we forbid, and that the difference in price in certain cases is chiefly due page 55 to this fact. By our continued purchase of such goods we are thus assisting to maintain in other lands conditions which we have condemned, and by our laws have made impossible, at home. The inconsistency is obvious.

As regards the danger arising from the formation of monopolist rings and trusts under any system of preferential trading within the Empire, the writer admits that this would exist, and might lead to extortion of unfair prices from the consumer. The danger could, however, be easily removed by the passing of anti-trust laws by the Parliaments of the Mother Country and of her self-governing Colonies. Under such laws the competition between producers scattered over our world-wide Empire would keep the prices of manufactured goods and of food-stuffs within reasonable limits. This competition would also be necessary to prevent manufacturers and producers from falling into ruts, and from using out-of-date methods of production, and stereotyped plant or machinery. The reality of this danger has been proved by facts published in a recent article.¹ Anti-trust legislation would, therefore, be a necessary accompaniment of any system of preferential trading within the Empire.

The fourth and final objection that demands consideration is one based upon the present fiscal policy of our Colonies. It has been urged that preferential trading within the Empire is impossible, because our Colonies raise their revenue chiefly by import duties, and to exempt goods of British origin would result in large deficits in their Budget accounts. But preferential trading does not necessarily involve the admission of British goods duty free. It can be attained by granting a rebate on goods of home or colonial origin; and the Government of Canada, which has led the way in this matter, has shown that there are no real difficulties in the practical operation of the system. The revenues of our Colonies could, in fact,

¹ "Industrial Trusts and National Prosperity," Fortnightly Review, April, 1902.

page 56 be as easily collected under a system of preferential trading as is now the case; and no serious falling off in receipts from Customs duties need be associated with the inauguration of such a system for the Empire.

Having considered in detail the objections to any system of preferential tariffs, the advantages offered by the adoption of such tariffs may be briefly noticed. The first and most important of these is, that it would check the decline in our export trade of manufactured goods, revealed by the figures given in Table I. This falling off in our export trade, if it continues, will have most disastrous consequences for the credit and prosperity of the Mother Country. Several of our staple industries are already seriously undermined, and a continuance of the present system of so-called "free trade" is likely to bring about their final ruin.

The British Empire is largely made up of countries and territories only partially occupied and developed. The growth of population in such districts, under favourable conditions as regards markets for the agricultural and dairy produce, will be more rapid than in the overcrowded town populations. Were this market reserved by a system of preferential trading for goods produced within the Empire, it is probable that the decline of certain of our manufacturing industries would be checked. The figures given in Table II. show that already there exists in countries under our flag a demand more than sufficient to balance our export trade in manufacturing goods. As our Colonies develop this demand will increase; and the growth shown in the period 1894—1900 is of good augury for the future.

The second gain from the point of view adopted in this Chapter, namely, that of the Mother Country, is, that the adoption of a preferential tariff system for the Empire would prepare the way for the later political federation, which all parties in the State now believe to be inevitable at some future date. Commercial federation must either precede political federation or accompany it, and there are page 57 many reasons which render its precedence the more desirable. A mother country producing manufactured goods chiefly for use at home or in the dependencies and colonies of the empire, and colonies producing food-stuffs and raw materials for consumption in the mother country, would be obliged by the necessities of this interchange of products to take a deep interest in each other's welfare. Such a study and interest would be of great service in developing the resources of the outlying portion of the Empire, and would lead to that thorough knowledge of the needs and claims of each portion of it, which must precede the inauguration of any scheme of political federation. The consideration of the advantages that would accrue to the Colonies themselves, is outside the scope of this Chapter. Otherwise the protection and development of colonial industries, now threatened with extinction (e.g., the West Indian sugar industry), the provision of an adequate market in the United Kingdom for the surplus colonial agricultural and dairy produce, and the creation and maintenance of a healthy and strong agricultural population, trained to live in the open air, might be commented upon. The latter is, in fact, an advantage that would be of immense help to the Mother Country. The agricultural population of the United Kingdom is rapidly declining in numbers, owing to the conversion of land formerly used for root or other crops to grazing purposes. Large areas of land in certain districts have also been allowed to fall entirely out of cultivation. The town populations are unfitted by training and physique for military service. The War Office statistics of recent years show a lamentable decline in height and chest measurement of the average recruit, especially in the Northern and Midland industrial districts. The South African War has proved that, in the future, our best fighting materiai will be drawn from our Colonies and over-sea dependencies. To assist in the development of agricultural pursuits in these countries, and thus to page 58 provide the reserves upon which we may draw for the personnel of our army and navy in years to come, is the duty of our home Government. A preferential tariff system for the Empire would assist in the removal of a danger that is the more serious, because it is at yet so inadequately recognised by the majority of the British public. A change in our fiscal policy, which would provide the Empire with both food-stuffs and men in time of war, is not to be dismissed as futile because it might involve the addition of a few shillings per quarter to the price of wheat.