Closed shop or open market?

By Greg Neale
Correspondent, BBC Newsnight

Modern Canary Wharf hides ancient trade rivalries at the riverside

The trade dispute which has seen millions of pounds worth of Chinese-made clothes locked in European ports and customs warehouses may be over, but it has highlighted one of the perennial arguments in politics and economics.

Stripped to its basics - on one level, this is an example of a historic argument between the principles of Free Trade and Protection, two of the strongest clarion calls in hundreds of years of economic debate.

Britain's geography has made overseas trade one of the defining factors in its history.

London's Canary Wharf, with its towering modern, steel and glass buildings, is now one of the city's commercial centres.

But while today's trade at Canary Wharf is in high-tech, electronic communications, financial services and information, the modern skyscrapers have been built on the site of some of Britain's most historic docks; wharfs which played a key part in the development of the country's commercial prosperity in the late 18th and 19th Centuries.

History repeated

Today, the Museum in Docklands offers an array of insights into London's economic development.

But behind the exhibits are arguments over how trade is best conducted - historic arguments that continue to this day.

Medieval monarchs might have imposed taxes on goods entering their realms, whether as means of raising revenue or to protect local trade guilds.

As trade opened up to the world, tax levies also increased

But as the late 17th and early 18th Centuries saw British traders increasingly opening routes to Asia, Africa and North America, and commercial rivalries with other countries intensifying, so new thinkers entered the debates.

While some British landowners and farmers were arguing for protection for their crops against foreign imports, the Scottish academic Adam Smith put forward a new thesis - the case for what would become known as Free Trade.

Revolutionary idea

Smith, the founder of modern economics, and his disciples, put forward a new idea on international trade.

Why make something when you can buy it more cheaply, he argued.

At a time when countries would go to war to build trading empires, this was revolutionary stuff.

And after the wars against Napoleon and revolutionary France, which included trade blockades, arguments over Free Trade intensified.

The political philosopher John Stuart Mill went even further than Adam Smith, arguing that countries that erected trade or tariff barriers against their foreign competitors would actually damage their own economies.

In 19th-century Britain, the battle for Free Trade became almost a religious crusade for its advocates.

After Robert Peel split the Tory Party over the need for cheap food imports, the movement for the Repeal of the Corn Laws spearheaded the Free Trade Movement, and the gradual removal or reduction of import taxes or tariffs until, by the mid-19th century, British fiscal policy was dominated by Free Trade thinking.

In the industrial north great buildings such as Manchester's Free Trade Hall, or the vast, cathedral-like Town Halls of High Victorian Britain symbolised the importance of Free Trade, contributing to the power of the British Empire. The Albert Memorial, with its emblems of Empire and Commerce, signifies this ideology.

Level playing field

But in the early 20th century, British industry began to find itself in competition with new rivals.

The Conservative politician Joseph Chamberlain raised a new banner, and called for new policies of Protection.

One of the earliest known pieces of film propaganda, John Bull's Fireside, was produced in 1903 as part of the campaign for protectionism for British industry, or Fair Trade, as it called it.

The John Bull film suggested foreign competition was a threat

The film suggests that easy-going John Bull and the British Empire was being threatened by unfair foreign competition.

Chamberlain's campaign split the Tory Party.

In 1906, the Liberals won an election landslide, arguing that Protectionism would mean higher prices for food, and portrayed the argument as between the "Big Loaf" of Free Trade, and the "Small Loaf" that Protectionism would bring.

Chamberlain suffered a stroke shortly after the election, and would play no further active part in British politics, but his supporters continued the campaign for tariff reform, arguing that Britain's foreign competitors were increasingly menacing her economic and political supremacy.

In a climate coloured by such rivalries, Europe slipped towards war.

Protective tariffs

After the First World War, Free Traders saw their doctrine under renewed assault.

In a world gripped by recession, there were calls for import tariffs to protect struggling British industries. Such calls were not confined to Britain.

In the United States, for example, President Coolidge's decision to introduce protective tariffs on hundreds of products - the so-called Smoot-Hawley Amendment, was said by some critics to have helped the economic recession into the full-blown depression of the 1930s.

Again, international trade wars deepened into military tensions as the world faced renewed hostilities.

Since the Second World War, attitudes towards Free Trade and Protectionism have co-existed - sometimes uneasily.

The birth of the European Community, and ventures such as the European Free Trade Area, were attempts to encourage free trade within the countries that belonged to these initiatives.

Safeguards

But often this was accompanied by subsidies for domestic industries that distorted free international trade.

Memories of the "wine lakes" or "butter mountains" are testimony to the political rows such policies occasioned.

Caribbean banana farmers hope 'favouritism' will grow their industry

In recent years, the rise of multi-lateral agreements on trade, and institutions such as the World Trade Organisation, have seen Free Trade arguments increasingly occupy the forefront of economic debate.

But there are many who have argued that Protectionism is still an important means of safeguarding jobs, working conditions or the environment.

Caribbean countries whose banana crops cannot yet compete with the bigger producers from Central America, for example, have argued for preferential treatment from Europe to continue

And let's not forget, sometimes it's the strongest advocates of Free Trade who are the quickest to impose tariffs or subsidies to protect their own industries.

In recent years, the US has been a very evident case in point. British goods - from jam to cashmere scarves - have been threatened with loss of American markets in recent rows.

Old arguments over trade are likely to be with us for many years to come.