Influences on openness: policy
The traditional history of international trade explains the rising trade ratios of
the nineteenth century as a consequence of trade policy liberalization that
created a ‘liberal international economic order’. This story has often been
focused on Britain. The argument goes that Britain adopted free market and
free trade policies in the eighteenth century, which were a key to its subsequent
rise to trade and economic supremacy. This link became increasingly evident
to other countries that later followed Britain’s example leading to that global
liberal order by 1870. A key event was the Cobden–Chevalier treaty of 1860
which saw the establishment of free trade between Britain and France. Free
trade was achieved in the European colonies by colonial diktat and in inde-
pendent developing countries (Latin America, China, Thailand and the
Ottoman Empire) through the imposition of treaties. The Opium Wars of
1839–42 forced open China to British trade, which was recognized in the
Treaty of Nanking in 1842. This traditional history sees this system unravelling
after 1913 as import tariffs were increased with the outbreak of World War I
and free trade being finally abandoned in the 1930s as Germany and Japan
created controlled trade systems around the needs of their military-based
economies and the US raised tariffs under the Smoot-Hawley Act in 1930.
Between 1929 and 1932, due to a combination of trade protection and the
Great Depression world trade fell by 70 per cent in value terms and 25 per cent
in real terms. After World War II the world returned gradually to free(er) trade,
this time promoted through the General Agreement on Trade and Tariffs
(GATT) and World Trade Organization (WTO) under US leadership. After
1982 trade liberalization was given a new boost by the global debt crisis in
which developing countries swapped policy reform (including, prominently,
trade liberalization) for emergency lending from the IMF and World Bank. The
reform movements in communist China (1980s onwards) and Russia (1990s
onwards) saw them move away from autarchy and regionally based trade
respectively to become more integrated with the global economy.
Other research shows that the real history of globalization is very different
(Bairoch, 1993; Wolf, 2004; Chang, 2007). There was only a very brief period
between the 1860s and 1870s when there was free trade in Europe. Trade
protection returned much earlier than allowed for in the conventional history.
Germany increased tariffs in 1879, France in 1892 and Italy, Sweden, and
Spain throughout the 1880s and 1890s. The motivation was both to protect
farmers from cheap New World agricultural imports and promote newly
emerging heavy and chemical industries. Free trade was maintained much
longer in Britain and tariffs were reintroduced only in 1932. As treaty obliga-
tions lapsed Japan regained its autonomy over tariff policy in the late 1890s
and increased tariffs, as did some Latin American countries, including Brazil,
after 1870. In both cases the motive was to promote domestic industrialization.
The granting by Britain of tariff independence to the self-governing colonies,
Canada, Australia and New Zealand, saw them all (especially Canada) raise
272 Patterns and Determinants of Economic Growth