II. Our Foreign Trade
A glance at our Imports and Exports shows, as we should expect, the special importance to us of foreign trade. In essence, it is an extension of home trade—an exchange of goods; similar in its motive and conduct; similar, too, in its method of payment, for, as gold does not pass, the values of goods either way are put in contra-account, and Exports tend to balance Imports.
III. The Balance of Trade
The constant excess in our Imports over our Exports is due to statistical necessities. It is explained, from the side of exports, (1) by shipping charges; (2) by bankers’ and other commissions—these two are “invisible exports”: from the side of imports, (3) by returns on capital lent and invested abroad; (4) by boarding expenses, and by some smaller items.
ALLOWING for time and accidental disturbances, there should, apparently, be equivalence in value between the Exports and Imports of a country.
IV. The Equivalence of Imports and Exports
The equivalence we should expect is equivalence simply between a country’s total imports from, and its total exports to, the rest of the world. Imports call out a return current of exports, and exports of imports, through the rise or fall of (1) the foreign exchanges, (2) the freights. But payment is made in very roundabout ways; not necessarily in imports from the country to which exports are sent, but from any other country with which there are commercial relations.
V. Some Conclusions and a Moral
Conclusion I.: the foregoing explanation disposes of the suggestion that our excess of imports is paid by “selling securities”—which is, in any case, an appeal to the unknown. Conclusion II.: the Balance of Trade in itself never indicates either prosperity or decay. Moral: whatever checks imports, checks exports.
IF what has been said is true, there seem to be two obvious deductions to be drawn, and at least one practical warning to be given.
VI. The Rival Policies
Every nation needs a revenue, and so levies customs duties. But, while a Free Trade country has in this no object ulterior to revenue, a protected country has. Apart from political considerations, which, in many cases, determine fiscal policy, the protectionist argument is based on the assumption that the interests of the producer are not the same as those of the consumer, and come first.
THE difficulty of defining Free Trade seems very much due to this; that the word “free” is itself so entirely ambiguous.
VII. Protection
Protection is protection against competition from outside. It does not say that home producers must for ever be subsidised. It uses generally the Infant Industry argument, which might, indeed, have some weight if it were not for the notorious fact that these infants never grow up. What does grow up is the Vested Interest, against which nothing short of an economic revolution seems strong enough to prevail.
VIII. The Principle of a Protective Tariff
What principle regulates the differentiation of rates in a tariff? Is it prohibition, or equalisation of labour costs, or equalisation of costs generally? Whatever principle be alleged, experience shows that rates are determined by warring interests, either as a victory or as a compromise.
IX. Possibility of a Scientific Tariff
In the framing of a tariff by a country hitherto Free Trade, certain broad principles would be accepted, but each presents its own difficulties, (1) Exotic goods allowed in free would not, indeed, compete with home industries, but they are the favourite objects of revenue taxation. (2) Free food conflicts with the interest of the home agriculturist. (3) Free raw materials conflict, not only with agricultural and mining industries, but with those who use home-produced raw material.
X. Conclusions as to Protection
A protective tariff which does not present all manner of anomalies and inequities is impossible. Protection tends to political and commercial immorality. It raises cost and checks exports.
FROM what has been said, four conclusions seem to suggest themselves.
I. That it is beyond the wit of man to draw up a tariff which will protect whole ranges of industries without causing all sorts of anomalies and inequities.
XI. Protection as Indirect and Delegated Taxation
Taxation is a price paid to government for common services rendered. In its indirect form, certain goods are charged customs and excise duties, and the extra we pay goes first to the government, and then comes back to us, minus the expenses of collection, in benefit. But, under Protection, the government, wishing to benefit its producing classes, delegates the power of taxation to them; it shuts out foreign competition; and the extra price, made possible by taxing foreign goods, is taken by these producing classes.
