The Return to Protection

We cannot very well ask a foreign government to stop its individual citizens doing in foreign trade what it cannot stop them doing in home trade. We know how underselling is met in home trade—by similar underselling. But the only retaliation yet proposed against underselling nations is the imposing of Import Duties here, and this, surely, is merely a defensive measure. Will this, however, cure dumping in our case when it has not cured it elsewhere? But, once admitted that dumping constitutes a claim on government protection, where are we to stop? And who or what is to define what “selling at or under cost” means?

GRANTING, however, all the compensations of Dumping; granting that it is more harmful to the nations that dump than it is to us; and granting that the extent of the dumping is small: let us assume that the actualities are so annoying, and the possibilities so great, that we must seek a remedy. In the present chapter, then, we shall consider Retaliation as the proposed remedy. We premise, as before, that we have no thought or intention of protecting home industries; that we are Free Traders in theory, and mean to return to Free Trade in practice whenever we have attained the end aimed at.

Is it duly realised that Dumping is not a government policy like a protective tariff, but a thing done by the individuals of a nation as one of their business methods—“unfair” competition, perhaps, but still individual competition? It is not even a bounty; it is only an indirect result of two things, the government policy of Protection and the private Trust.

In other words, protective duties by themselves are part of a specific government policy. We can fight them either by free imports, as Cobden advised us to do, or by another government policy, namely, counter protection. But this dumping is not an organised attack of the American or German nation on the English; it is not, indeed, a thing recognised by the American or German nation at all: it is an act done by individuals, by Trusts or Kartells, in their own self-interest. What happens is that some individual foreign exporter, for one reason or other, offers goods for sale in this country to some individual firm of importers at a low price. All the nonsense one hears about dumping as a “national conspiracy,” is derived from that fallacious idea which thinks of another nation as an industrial unit.

When, then, we find our trade interfered with by foreign Trusts and their policy of dumping, are we to go to the Government of these countries and say, “You must stop this or we shall—do something”? Why, the American government is as convinced as we are of the evils of Trusts, but it can do nothing; it cannot even prevent one State dumping in another State. Is it reasonable to ask it to muzzle its Trusts when they affect us—to stop this international dumping—to prevent underselling in other countries, when it cannot stop underselling at home?

In what way, then, isthe proposed remedy to be worked? What the merely academic person, who assumes that words have a meaning, understands by Retaliation, is “hitting back,” and, from long experience of a trade where cutting of prices was one of the commonest incidents, I venture to say that this is what the business man means by it. The “negotiation” to which I was accustomed usually took this form: “You are underselling us in X, where you have a small trade and we have a large one. It doesn’t hurt you much, but it is serious to us. If you don’t stop it, we shall go to Y, where you have nearly all the trade and we have very little, and cut prices 30 per cent. or so. This won’t hurt us, but it will be very serious to you.” This was Retaliation; and, as between a large firm and a small, it was very effective. There was simply no answer to it—on the part of the small one. As between two large firms, however, it usually involved a bitter war of cutting prices, much bad feeling, and great loss to both parties and to the whole trade.

But, being curious to find out if the advocates of international retaliation meant this or anything like this—if, perhaps, they contemplated some method of government subsidy by which we could attack some large, and therefore vulnerable and sensitive trade of other nations, without much hurting ourselves—I put this question in a letter to several of the leading newspapers last autumn: How is our Government to take effective measures against the actions of individuals not recognised by their Government?

The answer I got was the answer I expected—that the way to stop dumping was to put a tax on the dumped articles.

Precisely. But why is this called Retaliation? It is not “reprisals”; it is not a counter attack. It is simple defence. America and Germany dump steel on us; we are to answer by putting a duty on American and German steel. May one ask in what this differs from what we used to call Protection of the steel industry? If it differs in nothing, then I submit that the retaliation has overshot its mark. It stops the “unfair” competition, but it does a great deal more. It presumably aims at securing our manufacturers against loss,—against being obliged to meet dumping, and bring down the home prices to, or under, cost. What it does, is to secure them in a quasi-monopoly profit, by giving them the power to raise the price of home steel by something under the amount of the retaliatory duty. What I think we must ask, then, is: Is Mr. Balfour’s Retaliation, after all, anything different from Mr. Chamberlain’s undisguised Protection of home manufactures?

The next question is fairly obvious: Will this stop dumping?

Why should it? Suppose we put a 10 per cent. tax on foreign steel, it is pretty certain that our price in England—the price of home steel as well as the price of imported steel generally—will go up, either 10 per cent. or a little less. Say it goes up 10 per cent. Then we shall be precisely as we were. The foreigner will dump his steel at 10 per cent, higher price than he did before, but he will be as much under our price as before. In other words: If our home price for steel is 100, and America has been dumping at 90; then, if our price goes up to 110, the American will dump at 100, will still be 10 per cent. below our price, and will not make a farthing more sacrifice.

It would be different if, when the 10 per cent. duty was put on, our steel makers kept their prices unchanged. Then the foreigner who meant to undersell as before would have to pay the 10 per cent. duty, and would be 10 per cent. worse off than he was. But it is more than human nature to suppose that the price of home steel would not go up. Suppose it went up only 5 per cent. Then the foreigner would have to sacrifice 5 per cent. in addition to what he sacrificed before in dumping. This would make dumping a little more expensive, but I am by no means convinced that it would stop it. Whether it would stop it or not, depends on the proportion of his home trade to his dumping trade. If the home trade is 96 per cent. of the whole output in the United States, as Mr. Carnegie says it is, then it might pay to send away the other 4 per cent. to be sunk in the sea.1 It paid the Dutch East India Company in past times to destroy some of its produce, and even some of its plantations, rather than sell the produce too cheap. It used to pay Billingsgate to destroy its fish rather than let the surplus spoil the market and bring down prices. Similarly, it might pay America to get nothing for her surplus if the surplus is a small proportion of the total output.

But, as it happens, we have an instance of what a 10 per cent. import duty cannot do. Belgium has a tariff, not of 10 per cent., but of some 13 per cent. ad valorem. The imports of wrought iron and steel into Belgium were 6,885,000 kilos in 1891; 13,223,000 kilos in 1900; 21,423,000 kilos in 1901.2 These imports were, I believe, dumped from Germany. How did Belgium save herself? In the Consular Report, No. 3104, on the state of Belgium in 1902, Mr. Hertslet says: “The iron and steel industries suffered, not only from local over-production, but from that in the neighbouring countries. A market, however, was found for a large quantity in the United States. The crisis was thus averted, and the end of the year saw a general improvement.”

Here, then, is a much needed correction of an ordinary assumption; that we, as the great Free-Trade country, are “the one dumping ground of the world.”3 In the above case, we have first Germany dumping wrought iron and steel into Belgium—a protected country—and then Belgium saving herself by dumping her iron and steel into a much more heavily protected country. Similarly, we find from the Board of Trade Blue Book, that Germany dumps coke into Austria and France, and coal into Holland and Belgium; and that Bohemia in turn dumps lignite into Germany “at any price obtainable.” Finally, we hear that German manufacturers are in a panic at the promised invasion of the United States Steel Trust.4

What it all comes to is;—that this Retaliation, which was to prevent dumping, and may or may not do so, is to end in Protection of the iron and steel industries, and, as a probable sequence, the formation of Trusts on the American model. Our steel makers are to have the privilege of making steel dear at home, and the second privilege of selling it at or under cost to other countries, our rivals. And the Times, in its issue of 5th December, 1903, confirms this by telling us that “an average 10 per cent. duty may be reached by charging 100 per cent. upon some, 50 per cent. upon others, 15 per cent. upon another category, and nothing at all upon the remainder,” and that the principle upon which Mr. Chamberlain would act is, that, “when the Germans charge 30 per cent. upon steel bars, he would put the business on a free-trade footing (sic) by putting the same duty on German bars.” It reminds one of the simple-minded proposal of some people, that we should “let other countries make our tariff for us,” by putting on their goods precisely the duty they put upon ours!

If, however, Protection is the only remedy for Dumping, we may well hesitate. A man may be suffering from a slight cold, but may object to take a medicine that will throw him into fits.

The moment we admit that Dumping is a claim for counter duties, we seem to have taken a long step and a perilous one. At what stage in the dumping is the aid of the State to be invoked? Is it when a thousand tons have been dumped, or a hundred thousand, or a million? Surely, a smaller trade may be ruined by dumping before any large figure is reached. Or are we to stop the danger before it emerges, by putting an “average duty of 10 per cent.” on all manufactures?

And who is to decide what is Dumping, as distinguished from “fair competition”? Is it selling at cost?—or under cost?—or far under cost? What is “cost”? When students in a Political Economy class have got the length of answering that question, they have very little more to learn. Even economists are not agreed as to what elements should be regarded as entering into “cost” and what should not. The wonderful ideas of some Municipalities, as to the place, function, and extent of Depreciation Funds and Sinking Funds, emphasise this.

Or may one take the rough and ready way of saying that a country dumps when she sells at a higher price at home than she does abroad? This, however, as I have hinted, would be to admit the contention of other countries that we are the “champion dumpers,” and justify them in retaliation. I cut this out of an interview with a Canadian woollen manufacturer last autumn: “The outlook is gloomy. Canadian manufacturers are menaced by conditions that make it profitable for British woollen manufacturers to dump their goods in Canada at prices which the home industry simply cannot meet. Canada is being used as a slaughter market.”

Finally, when dumping is so glibly spoken of, has it been considered that low prices are a concomitant of large orders, as well as of dumping? A million tons of coal will not be sold to Germany at the price per cwt. here. Who is to determine that a low price in a foreign country is not due to the economies of having a large order, or to a long contract taken at a time when prices were low?

It is not too much to say that every claim for counter duties against dumping would require a Royal Commission to itself. And one can see the probable corruption and bribery that would be let loose to secure this government aid.5

6 The Census statisticians say 93 per cent. Giving the figures for 1900 as follows:—Agricultural products, £950 millions; manufactured products, £2600 millions; mining products, £210 millions—total, £3760 millions; they add:—“This was all consumed at home, except the sum of £275 millions, or about 7 per cent., representing the value of all articles of domestic merchandise exported in the year 1900.” Twelfth Census of U.S., 1900, vol. vii., p. Iviii.

7 Foreign Statistical Abstract, p. 98.

8 The words are Mr. Chamberlain’s.

9 This possibility of dumping into other countries may remind us that, if the dumping is diverted from us to neutral markets in which we compete, any success we may have in excluding dumped goods from our own country will not necessarily protect our exporting industries at any rate.

10 In the present chapter, I have assumed that Retaliation is directed against foreign nations. But our own Colonies dump. In 1901-2, Germany, Holland, and Belgium together landed 78,615 tons of pig iron on our shores. The United States landed 45,973 tons. Canada, under a direct bounty, landed no less than 103,262 tons. Dumping by kinsfolk is very much the same as dumping by strangers.

• 1“When, on Pike’s Peak in Colorado, the thermometer is down to 12° or 13°, and, in the North-west is only a few degrees above freezing point, in New England it will be moderately cool—say 43°; in the Mississippi valley it will be comparatively warm—say 52°; and in Florida it will be at summer heat—75°.”—Lawson, American Industrial Problems, p. 43.
• 2The above figures of Imports and Exports, taken from the Statistical Abstract 1903, do not include Bullion and Specie, of which we imported, in 1902, £21,629,000 of gold (£8 millions from South Africa, £3¼ millions from India, £5 millions from Australia), and £9,764,000 of silver (£8 millions from the United States), and exported £15,409,000 of gold and £10,716,000 of silver. Nor do they include, either as imports, exports, or re-exports, excisable foreign merchandise transhipped under Bond, (£13,683,000). To the imports should be added £5,380,000 of diamonds from the Cape, not declared to the Customs. It may be noted that fish of British take, landed in the United Kingdom, are not included among imports. The value of these in 1901 was £9,000,000.
• 3Without going into the mysteries of banking, it may suffice to say that the reason why payment for foreign goods is not made by cheque is that each country’s banking system does not extend beyond its own shores.
• 4It is strong testimony to the literal “trust” which underlies the credit system that, in the great majority of home transactions, the promise is not put in documentary shape at all; goods are sold on customary terms of credit, and paid on a mere reminder that payment is due. Perhaps there is no better instance of the recognition of a “common interest” and a “general will” among whole peoples than this.
• 5Giffen’s calculation was first made in 1882 (Essays in Finance, Second Series, p. 132), and was revised in 1898 (Royal Statistical Society’s Journal, 1899, p. 11). His method was to take the British gross tonnage earnings at £15 and £5, for steamers and sailers respectively, at the former date, and at £12 and £4 at the latter. The Board of Trade, on the other hand, took the total exports and imports of the principal countries of the world, which are, of course, the same goods valued at points of departure and arrival; accepted the £224,000,000 difference in their value (see p. 41) as representing freights and insurance; halved this sum to represent our share of the carrying tonnage of the world; deducted 9 per cent. for colonial ships, and further deducted £12½ millions for coals and stores purchased abroad, harbour and other dues; and arrived at the figure of £89½ millions.
• 6IT would be rather short-sighted to gauge the importance to us of foreign trade by the fact that it is perhaps only one tenth or one eighth of our total trade. If the United States were to shut herself up inside a prohibitive wall of tariffs, she would still be almost self-sufficient. But we lie between 50 and 60 degrees north latitude; ours is a very small country at best, with a dense population; and we have, besides, sunk much of our capital and specialised much of our labour in industries which depend on other countries for their material and for their market. It seems, too, as if we were destined by nature to be ocean carriers.
• 7Our foreign trade, then, altogether amounts to £877,000,000; made up of £528,000,000 of Imports, and £349,000,000 of Exports (£65,000,000 of these being re-exports). These are values of solid Commodities brought in and taken out over British seas; and—partly as reflex and consequence—of the 32,000,000 gross tons of shipping in the world, we own the half.
• 8Nor yet is the way in which payment is made essentially different. In due time, home goods are paid by a cheque; foreign goods, by a bill of exchange. Indeed, in many cases, when goods are put on board ship, the Bill of Lading is given to a bank here, which does not give it up till cash is paid abroad, the bank meantime giving an advance to the exporter to a large proportion of the value. In either case, the sender gets his payment, in British money, through his own bank, and each transaction ends with a payment. The export of goods, again, from other countries to us takes place in exactly the same way—merchants and manufacturers, there also, sending out goods for a profit, getting paid in their own money, and the transaction ending with the payment.
• 9It takes a little thinking to realise that, in home trade, payments are made by setting debts against debts, and that this is merely another way of saying, “setting goods against goods.” You send me £100 worth of goods, and I, for the moment, am in debt, and send you a record of it in the shape of a promise to pay in three months. On the other hand, I send you £100 worth of goods, and you give me a promise to pay in three months. The promises may be bought and sold and pass into other hands; in any case, they remain in existence as debts for three months. At the end of that time they are brought together and cancel each other. What really has happened, of course, is that the one sending of goods has been put in contra-account against the other. So banking is just a vast complex system of contra-accounting—value of goods represented for the moment by documents put to the debit and credit sides of bankers’ books. Happily, this need not be dwelt on, because, in international trade, the foundation of the contra-account is quite obvious and prominent.
• 10It may be expected, then, that a nation which owns half the world’s shipping, and carries for foreigners as well as for British merchants, will be paid a very large sum for this service. The amount was estimated by Giffen, in 1898, as £90,000,000. An independent calculation, on quite different lines, was put forward by the Board of Trade in 1903, and makes it £89½ millions.