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Wednesday, October 27, 1999 Published at 16:00 GMT


Trade wars: What are they good for?



While tempers flare on both side of the English Channel, talk of a trade war between Britain and France remains just that - talk.

E-cyclopedia

Despite the bluster from the Daily Mail and French farmers, a full-scale trade war is still a long way off.

It is known this would only come to pass if both governments set down a raft of specific trade sanctions.

Considering both are members of the European Union - one of the world's biggest single and successful free-trading blocs - this would be highly unlikely.


The BBC's Ed Crooks on Radio 4's Today: "We are a very, very long way from a trade war"
Some shoppers might be boycotting Golden Delicious apples today, but you can bet that where it really matters - multi-million pound industrial orders - businesses will be acting with their heads rather than their hearts.

Bar a handful of exceptions, most countries in the late 20th Century have come to see international free trade as a good thing and protectionism as bad.

But that doesn't mean trade wars are a thing of the past. Only this year there have been limited trade wars involving Europe and the United States.


[ image:  ]
First it was bananas - the US was riled that European states preferred to buy bananas from their former colonies. Then it was hormone-treated beef, which the EU refused to buy from America.

In each case, the United States consulted the World Trade Organisation, before hiking tariffs on a selection of goods imported from Europe.

But in the first half of this century, Washington was singing from a very different hymn sheet.

In the 1920s and 30s, the US, which had a history of protectionism, pulled up the drawbridge to the rest of the world by imposing swingeing tariffs of imported goods.

A year after the Great Depression, the Hawley-Smoot Tariff Act of 1930 raised US tariffs on imported goods to their highest levels ever.

It was to have a devastating effect on Europe's already sinking economies. Other nations retaliated in kind and soon the two continents were in the grips of trade war.

By choking international trade, the action only furthered the spread of depression. Between 1929 and 1932 the total value of world trade declined by more than half.


[ image: British beef and France: Two old favourites guaranteed to stir passions]
British beef and France: Two old favourites guaranteed to stir passions
By 1939, protectionism, together with imperial preference - the forerunner to Europe's recent banana policy - dominated world markets. With hindsight, it is considered as much a cause as effect of the world slump.

Yet there was nothing new in the doctrine of protectionism, which, in the form of mercantilism, was common practice among European monarchies in the 17th and 18th centuries.

The idea was for each country to build up its domestic economy at the expense of other nations.

Not surprisingly, the result was increased antagonism all round.

By the early 19th Century, Britain's supremacy had been established and it began to drop its tariffs. Repealing the Corn Law of 1846, which placed duties on imported grain, was a major step.

Today, opponents of protectionism point to the fact that it is a self-defeating policy - we raise tariffs against France, they raise tariffs against us - that countries can ill-afford in the increasingly global marketplace.

The establishment of the General Agreement on Tariffs and Trade (Gatt) in 1948 and its successor, the World Trade Organisation, which has 134 member states, has helped bring down trade barriers around the world.

Yet protectionism still commands respect - indeed, every country protects domestic trade to some degree.


The E-cyclopedia can be contacted at e-cyclopedia@bbc.co.uk



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