Index > Briefing
Thursday, July 23, 2020
Free Trade is Ending, but Not the First Time in History
Chan Kung

The world is now a battlefield of fierce multilateral and bilateral trade wars. An increasingly obvious example is that the multilateral trade pattern which was previously considered logical and unchallenged is gradually being replaced by bilateral trade waves. Some main powers in the world now have to swallow their pride, put aside those classic economic theories, and witness the revised version of global free trade.

However, this is not the first instance where global free trade has ended.

As the world's first industrialized country, Britain once had the power of the entire world’s raw materials at its disposal, as well as having the rest of the world as the export market of its industrial products. However, with the industrialization of other countries, this situation gradually changed in the 19thcentury. More and more countries sought to protect their raw material supply and export markets. Sometime in the 1870s, British industrial products began to face stiff competition from other countries.

Industrialization too, advanced rapidly for Germany and the United States, allowing them to quickly overtake Britain and France, the two powerful and traditional Western European countries. By 1870, the German textile and metal industry had surpassed that of the British in terms of organizational structure and technical efficiency. Germany had also beaten similar British products in its domestic market. By the end of the 19thcentury, Germany even began to be the "world factory" of the time as it produced these products and exported them in large quantities.

Though Britain, the world's hegemon at the time, did not experience trade deficit thanks to its intangible exports such as banking services, insurance, and shipping, its trade volume as a proportion of the world's total fell from 1/4 in 1880 to 1/6 in 1913. Not only did Britain lose in the competition in the markets of industrialized countries, its products also did not have advantage in the markets of less developed countries. It even lost its once dominant position in trade with India, China, Central and South America, as well as the inland and coastal areas of Africa.

Britain’s predicament in trade was exacerbated by the economic depression from 1873 to 1896. The deflation caused by the recession further increased the pressure on the governments of the world, forcing them to support their domestic industries, which eventually led to the gradual abandonment of the free trade principle globally, especially by the European powers. Germany specifically gave up free trade in 1879 and France in 1881. Britain followed soon after, while the United States gave up free trade as early as the 1860s, during the Civil War.

The result of this was a double shrinkage of domestic and export markets. Short-sighted policies would naturally have short-sighted results, but the laws of international economy and trade had never made people fully aware of this, especially politicians. Under the tremendous pressure of the double economic contraction, government and business leaders in Europe and North America, Canada, and the United States began to use overseas colonies as their new markets. These overseas colonies became the export markets of the sovereign country almost without exception. The battles for market space during this period provided theoretical explanations for today's "spatial determinism".

The colonial market during this period was very different from the world's free trade. They were placed under the protection of the violent trade barriers of the navies of various countries, making it impossible for the products of other countries to compete with the products of the suzerain country. At the same time, they were still a cheap source of raw materials. Although Britain claimed to uphold the principle of free trade until 1932, it actually competed with other industrialized countries for overseas colonies to prevent areas that were originally in its sphere of influence from falling into the hands of other countries. On the other hand, Britain implemented a preferential trade system for commodities from its colonies and dominions, with the aim of consolidating the trading system within the empire. It was not until Britain joined the European Community in 1973 that these preferential foreign trade policies were suspended and trade barriers were imposed on colonial commodities.

In the current world, free trade has once again reached a critical point, and it is also due to the role of the "crisis triangle". Of course, the battles of free trade continue, because the changes in the trade pattern are related to the status and influence of many vested interests. It is also related to the sustainability of many powerful parties. The so-called "new multilateralism", "removal of all forms of trade protectionism" and the benefits of "sharing" can actually become the swan song of free trade.

The world continues to operate, but sometimes not in the way people imagine.

Under the anti-globalization trend, free trade and multilateralism has been severely impacted. It is not the first time that free trade has ended in history. After each end, the world continues to operate in a new way.


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