CHAPTER XV. RETALIATION ON PROTECTIVE TARIFFS: METHOD AND EFFECTS.

If we retaliate by Import Duties, what kinds of goods are we to tax without greatly hurting ourselves? And will any possible Retaliation seriously hurt the country retaliated on? Meanwhile, the effect in disturbing our own industries may be serious enough. Protective tariffs already do us two injuries; let us see that Retaliation does not add a third.

SUPPOSE, however, that, in spite of all the considerations just advanced, the government gets a mandate from the country to retaliate.¹ How is it to retaliate? The only way suggested as yet is by Import Duties against the offending country. But import duties cannot be imposed without raising prices, and the bearing of this must now be considered.

It is not a small matter for Great Britain to shut out anything. We have so long been free traders that our industrial organisation is very much based on buying everything as cheap as the world has offered it. If, then, we resolve to make a retaliatory attack on a country whose tariff, in our opinion, is too high, we must look at the various kinds of imports which we might tax, and consider the effects.

I. Are we to tax goods we cannot make or grow ourselves? What would be most prominent in such a case is the cost of it—and the futility of it. It would be taxing a foreign monopoly. Say we tax Bechstein pianos from Germany. This would mean dear Bechsteins here. But would it hurt Germany? Would not our consumers, as for the most part rich persons, pay the extra price, and the import from Germany continue as merrily as before? There might be a slight falling off in demand; that is all.

II. Are we to tax Food? This would be very serious. It would not only raise the price of imported grain, but raise the price of our own grain; thus raising for us the cost of production of everything made by human hands.

III. Are we to tax Raw Materials? But we have held the lead in the world’s manufacture so long because we got the cheapest raw materials from all countries.

IV. Are we to tax Manufactures? It has already been pointed out that there are certain manufactures, the taxation of which is open to all the objections urged against the taxation of raw materials. It does not matter to us whether a material is “raw” or “partly manufactured,” so long as it is the foundation and substance of our industries.¹ And to tax machinery and tools seems suicidal.

Beyond these, a somewhat careful calculation seems to show that there are some £50,000,000 of manufactures which it would be possible to tax without hurting British industries. On these fifty millions, then, we might retaliate, in some confidence that the only hurt would be to our consumers who would pay dearer prices. This is, perhaps, the most innocuous form of Retaliation in which we could indulge.

This is the one side—the side of what we suffer. But I suppose we are going to retaliate to make other countries suffer; for, unless they suffer, we should have all the trouble and expense for nothing. I do not believe in kicking a bicycle that has thrown me. Nor do I believe in the blow that hurts the man who gives it, and falls on a person who does not feel it. If we are going to retaliate, let us first see what it is going to cost us, and then make sure that we hit hard.

Perhaps £50,000,000 looks a large figure—large enough to retaliate on at any rate. But the fifty millions come from all the world, and we are not going to retaliate on all the world. And some of the goods we do not make; while others of them are goods—even if “made in Germany”—which are better than anything of the kind we do make. It is when we come to Retaliation in practice that the full difficulty meets us.

Take Russia, sending us £25½ millions of exports. £13 millions of these are food-stuffs, and £10 millions are raw materials. This leaves a field for retaliation of £2,000,000. Would it be common sense to retaliate on a couple of millions worth of goods? Really, it reminds one of the “Private Secretary”:—“If you don’t stop, I shall be compelled to give you a little knock.”

Or take the United States, sending us £127,000,000 of exports. Of this, £106,000,000 are raw material and food-stuffs, leaving £21,000,000 on which to retaliate. But these £21,000,000 are scattered over forty categories, of which only five are over a million; namely, Leather manufactures, £3½ millions; Iron and Steel manufactures, £3½ millions; unwrought and partly wrought Copper, £2¼ millions; Oil, £1.3 millions; Oilseed Cake, £1.1 millions.

The possibility of retaliating on Germany is a great deal less. Of her manufactured exports, only two categories are over the million; namely, Woollen manufactures, £1½ millions, and Cotton manufactures, £1.1 millions. The next items are Musical Instruments and Toys, some three-quarters of a million each.

Consider, again, what must be done in the process of giving this “little knock.” One, perhaps, thinks of a million and a half worth of Musical Instruments and Toys coming over from Germany all in one ship; it seems so easy to put 10 per cent. duty on the cargo. But these goods come in small lots, in perhaps hundreds of ships, along with other cargo which is not being retaliated on; yet every ship must be arrested and searched to see if there are not a few toys or fiddles on board. Nor is it only German ships that are to be arrested and searched. It is all ships from Germany, including our own that carry for Germany. Duties, again, call out smuggling devices. So Belgian imports must be watched, and Dutch, and Austrian, and Italian; even French and Swiss, in case the German goods should be sent through these countries.

I can only say that, if this is the answer to how we are to retaliate, it seems to be a very inadequate one. The Retaliation is calculated to take the most skin off our own knuckles with the least damage to the skin of the foreigner.

But there is another effect besides the raising of prices to our consumers, and hurting the foreigner. According to our principles, we are bound to take off the retaliatory duties whenever the policy has secured its object. Under tariff duties, as we have seen, vested interests spring up, and have a claim on consideration. Under retaliatory duties, it may be said, there will be no time for vested interests to spring up. But the Retaliation may last long enough to have very unpleasant effects.

Suppose that we decide to retaliate on Germany, for the injury done us in that she sends us £33½ millions of goods and takes from us only £22¾ millions; and that we impose a retaliatory duty on Toys.¹ The immediate result is a rise in the price of toys here. This comes, not from the “rapacity” of the English toy makers, but from the sudden shutting off of so large a part of the supply: the old demand cannot be met at the price. And, it may be added that prices are likely to rise all the higher if competition has hitherto been very keen, and if it is suspected that the “close time” will be short. The further consequence will be—perhaps not that capital will rush into this trade and give hostages to fortune in the shape of new mills and machinery, but—that those who are already in the trade will spread their sails to catch the favouring breeze. They will extend their operations as far as they can; probably add to their buildings, certainly, to their plant. Meanwhile our children suffer so far as the family purse cannot afford the raised price of Noah’s Arks.

This, let us say, brings Germany to her senses. She gives in, and reduces her tariff, on condition of our taking off the retaliatory duties. What now is the position of the English toy makers? For a time, they have been sunning themselves in the warmth of Protection—a Protection they did not ask. Unaccountably, so far as they were concerned, the British government gave them Protection. As unaccountably, from their point of view, the government withdraws it. The favouring breeze dies down, and the free import of German toys begins again. The British toy maker finds himself with extended premises and increased plant, and possibly with long contracts for supply of material. And a large part of his demand has suddenly fallen away. Will it not be a little difficult to convince him that his trade should have been trifled with and upset, for the benefit of the trades which export to Germany?

The question is not, Are we injured by foreign protective tariffs? Of course we are. We are not injured so much as we appear to be when we look at our small direct exports to such countries; for, happily, other countries are always anxious to export, and the door that opens outward opens inward. They must be paid for their exports; and, though they may not take the payment from us direct, they must take it from other nations to which we export. But, all the same, we are injured. And we are injured in another way that does not so readily meet the eye. Protection, in itself, as I have tried to show, does not increase the wealth of a nation; so far as it is indirect taxation, it fetters its growth by redistributing its wealth in the wrong way, giving to the rich and taking from the poor. But this hurts us, for these nations are our customers, and our exports depend on their purchasing power. It is not only, then, that we are not allowed to send them so much as we would, but that they, not being so rich as they might be, have not so much to send us. We are doubly injured by protective tariffs.

But this Protection is the settled and believed-in policy of other nations. It is a pity, perhaps, that they were not content that we should remain the “workshop of the world.” But they were not content. They determined to be manufacturing nations. At great cost, as we believe, they have made themselves so by Protection, and, rightly or wrongly, they consider that their manufacturing still needs the protection of high tariffs. And before we try to break down these tariffs by Retaliation, I should like to be sure that we are not going to make things dear in this country, and so inflict a third injury on ourselves all to no purpose. Certainly we shall expose ourselves to the ridicule of the protected world as well, if we have no thought-out policy of how to retaliate beyond the expedient of Bluff.

But, so far as I can see, the only part of Retaliation for which we are prepared is the threat of it. So great is the power of the British Lion’s roar that it even seems enough to show that he is opening his mouth ominously. Suppose the other beasts of the forest do not fall down and creep to his feet, what then? Would it not be better to change his mind? It will scarcely be dignified to pretend that he was only going to yawn.

¹There is nothing in the theory of Free Trade against Retaliation as retaliation. It is “an expedient; not a policy.” It must be judged by its success and its effects.

¹It may be thought that no harm is done if we accompany such taxation by drawbacks on exports—a drawback system, as has been said, being the safety-valve of Protection. This is very shortsighted. Does it seem reasonable to make it easy for our producers to sell goods abroad cheap, while the same goods are sold to us dear? Is foreign trade the only thing to be considered? Have our own people not some claim on us for cheap goods? But, even if there were no other arguments against it, the drawback system is notoriously an inadequate compensation for dear material.

¹The illustration looks a little ridiculous, but that is the fault of circumstances. The alternative to taxing toys seems to lie between taxing woollen or cotton manufactures and taxing musical instruments. The consequences of the incidental protection to our woollen and cotton manufactures would, probably, be too serious, while a tax on pianos at any rate would not have any appreciable effect in diminishing the sale.