Free trade or fair trade? Preferential tariffs, fiscal policy and government division in 1904

Approximate read time: 10 minutes

Trade was a dominant and divisive theme in British politics at the start of, and throughout, the first decade of the twentieth century. Free trade had been long-established British policy. However, as historian John Ramsden notes, demands to move away from free trade “took two directions” in the early 1900s. The first was the demand for ‘fair trade’, which “required that Britain should introduce tariffs, at least against those who placed tariffs on British goods, a retaliatory concept that allowed for an imagined future in which reductions all round could take place”. The second was “demands for a tighter economic union within the empire which aimed to encourage political as well as economic convergence”.^[1]

Among the leading advocates of the latter was Joseph Chamberlain, described by historian A J P Taylor as “the greatest force in British politics between the decline of Gladstone and the rise of Lloyd George”.^[2] Chamberlain believed Britain should introduce a tariff scheme that offered British overseas colonies preferential treatment over the rest of the world. Such was his belief in the policy he was one of several resignations from the cabinet over government trade policy in September 1903, the other five resigning ministers were in support of free trade.^[3]

In a speech in Sheffield in October 1903, Prime Minister Arthur Balfour sought to mediate on the tariff question through the “concept of ‘retaliation’—the idea that Britain should introduce duties on imported goods as a way of forcing protectionist nations to negotiate their tariffs downwards”.^[4] However, Balfour’s compromise ultimately “failed to reconcile the warring factions in his party”. On the one side, Chamberlain “famously scorned the policy”, declaring that “for retaliation I would never have taken off my coat”, whilst for the party’s committed free traders retaliation “represented too much of a concession to the tariff case”, especially were taxing food to be likely.^[5] Balfour’s last two years in office were therefore defined, as John Ramsden observes, by tactical compromises to avoid further splitting the cabinet along its three factional lines: tariff reformers, free traders and a middle group loyal to Balfour.^[6]

1. “Taxation of food”

The tensions over the issue were on display in a House of Lords debate that took place in July 1904. The Duke of Devonshire introduced a motion to call attention to government ministers’ attitude to fiscal policy and to ask the foreign secretary “to state to what extent the government proposes to support the policy of preferential tariffs, including the imposition of import duties on food”.^[7] The free trade-supporting duke had previously been a leading figure in the Liberal Unionists, both as the then Marquess of Hartingdon and later when he succeeded his father to the dukedom. He was among the resignations from government in 1903—which included the chancellor of the exchequer, Charles Ritchie—in protest against the government’s tariff policy. In 1904, he resigned from the Liberal Unionist Association too following its adoption of the preferential tariffs policy.

The duke opened his speech by challenging the government to provide clarity and consistency on fiscal policy, especially where preferential tariffs concerned food taxation. He said this was “a question which occupied the almost exclusive attention of the country” during the last parliamentary recess, and of the “other House of Parliament during the present session”. It was an issue that would likely “form the principal subject for the consideration of the country when next it may be called upon to elect another Parliament”.^[8] The Duke of Devonshire highlighted the government’s apparent internal divisions on the matter, citing ambiguous and inconsistent ministerial statements in a recent House of Commons debate. He said it led “to the inevitable conclusion that there existed within the government two sections of opinion—one favourably disposed towards a policy of preferential treatment of the colonies, the other opposed to it, or at least distrustful of it”.^[9] He questioned the influence of the newly reconstituted Liberal Unionist Association—particularly the government’s alignment with or against Chamberlain’s policy of preference and food taxation—and pressed for answers to explain the government’s position on these matters.

2. “Humble and cautious attitude”

Secretary of State for Foreign Affairs the Marquess of Lansdowne replied.^[10] He stated that the government opposed preferential tariffs that taxed the cost of food. However, he explained the government’s reluctance to be rushed into a decision on such complex matters, citing the need for further understanding of both public and colonial attitudes. He described it as “a humble and a cautious attitude”.^[11] Lord Lansdowne otherwise defended the participation of government members in party associations, arguing their involvement did not equate to endorsement of every resolution. He reaffirmed that the government’s current programme excluded food taxes.

The Earl of Rosebery, a former Liberal prime minister, criticised the government, suggesting ambiguity in its policy remained even more so after the foreign secretary’s speech.^[12] Lord Rosebery argued the government was trying to approach the next general election “perfectly free on both sides—either to adopt the policy of Mr Chamberlain, if it should succeed, or to repudiate it if it should fail”.^[13] He said that the government’s “humble” and “cautious” stance left everyone in the dark, particularly as to what Prime Minister Arthur Balfour’s attitude to imperial preference was. Lord Rosebery questioned whether it was “credible” that the government “should keep the country on tenterhooks as to what their future fiscal condition is to be, with unabated sympathy towards Mr Chamberlain’s policy on the one hand [and] this cautious and humble policy leaving the mind of the country absolutely blank as to what the fiscal condition of this country may be after the next general election” on the other.^[14]

Lord Balfour of Burleigh, who had served as secretary of state for Scotland until his own resignation in 1903, echoed concerns about the government’s lack of clarity.^[15] He thought the debate so far had focused too much on internal party matters. He added that, as one who was “intellectually convinced that free trade is the best policy for the commerce of this country”, he could not “be expected to be satisfied with the present position of affairs”.^[16] He questioned whether the government’s sympathy for preferential tariffs would translate into practical support but expressed concern that vague government positions could be misinterpreted as endorsement of Joseph Chamberlain’s proposals.

First Lord of the Admiralty the Earl of Selborne addressed the debate.^[17] He spoke in a personal capacity first because he felt “censured from more than one quarter tonight, because I am a vice-president of the reconstituted Liberal Unionist Association”.^[18] Lord Selborne said he remained committed to the Liberal Unionists, explaining that while there were internal differences on fiscal matters, the party’s core purpose remained opposition to Irish Home Rule. He asked the House whether he was therefore being “told that the freedom and liberty of political conscience and opinion which has been enjoyed in every cabinet of which our history has record […] are alone to be denied to members of His Majesty’s present government?”.^[19] Lord Selborne asserted that the government’s current policy was negotiation and retaliation, and he refused to speculate on the attitude of any future government.

3. “Vigorous opposition”

Viscount Goschen brought the debate back to asking what the government’s policy was.^[20] A former Conservative chancellor of the exchequer, Lord Goschen was “moved by brain and emotion alike to oppose him [Chamberlain] as strongly as he could”.^[21] He criticised the ongoing uncertainty and the detrimental effect this had on political candidates and the electorate. He believed that the country was “suffering from want of knowledge”, and thought “Lord Rosebery was perfectly justified when he said that this state of uncertainty was having a baneful effect on the commerce of the country”. Lord Goschen noted that, despite repeated declarations against food taxes, the government’s lack of clarity and decisiveness had damaged public confidence. He added “As between Home Rule and protection, I think the disruption of the empire by Home Rule would be the greater calamity; but unless there is vigorous opposition, protection is infinitely more likely to arrive in the near future than Home Rule”.^[22]

The debate ended with Earl Spencer.^[23] He opened his remarks with a response to the Earl of Selborne, who he said had left the tariffs question “as one that could be legitimately left as an open question”.^[24] Lord Spencer argued that the fiscal question was too important to be left open. He said he drew the “broadest possible distinction between a political association which has been in existence a great many years, and every year has passed various resolutions which the government of the day may differ from or not” and an association like the Liberal Unionist Association, which he said was “just formed for the promotion of a particular policy, and which immediately propounds resolutions with regard to it”.^[25] He believed it impossible to “dissociate this new association from Mr Chamberlain and his views. They are practically the views of a protectionist”. Lord Spencer concluded by asserting the government owed Parliament and the country a clear and decisive policy, not just expressions of sympathy or ambiguity.

Balfour would go on to lose the 1906 general election in a Liberal landslide, along with his own Commons seat, having resigned as prime minister in December 1905.^[26] The defeat followed a “tide of by-election disasters [that] was relentless” that saw the Conservatives lose seven seats to the Liberals in 1905 alone.^[27] Given the party split, E H H Green concludes that “Balfour’s attempt to use retaliation to bridge the gulf between the Chamberlainite and free trade sections of his party between 1903 and 1906 was understandable, if perhaps unrealistic”.^[28] Balfour soon returned as an MP after his 1906 defeat and continued to lead his party until 1911.

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Cover image by Jacob Diehl on Unsplash.