British trade policy in the 1930s: Protectionism with drastic consequences

The global financial crisis in the 1920s and 1930s was the most far-reaching economic event of the 20^th century, and world production and global trade fell dramatically. Great Britain played a central role in the trade networks of the time and in their collapse. In a recent study, economic historian Markus Lampe and his co-authors examined the consequences of a protectionist trade policy favoring the British Empire. The results show clearly how drastic the effects can be if multilateral trade and equal market access opportunities are no longer guaranteed.

What are the effects of global trade on individual national economies? Can protectionism and negotiating “deals” create advantages? Questions like these are particularly relevant right now in light of current political events like the upcoming Brexit, but can only be comprehensively investigated by taking a look at the past and consulting historical data. In his research, Markus Lampe, head of WU’s Institute for Economic and Social History, investigated the effects of Great Britain’s changing import policies in the 1930s. “Great Britain was a key player in global trade in the 30s. We wanted to find out if the drastic increases in import tariffs introduced in the early 1930s and the resulting deals made with other countries had any significant effects on international trade. That way, we can obtain insights into the results of Great Britain’s current trade policy, which is protectionist due to Brexit.”

Origin of imports shifted

For their study, Lampe and his colleagues examined the printed British trade statistics for the period from 1924 to 1938 and identified representative products and the most important trade partners. Some 250,000 observations were combined in statistical models to find out how imports reacted to tariff changes and restrictions in the amounts of imported goods. The results showed that Great Britain’s trade policy was only responsible for only about a quarter of the over 43% decrease in British imports between 1929 and 1933. “The other major problems plaguing the global economy were more influential here – countries that produce less also import less,” Lampe explains. The British trade policy did have a strong effect on the countries of origin of imported goods, however: Between 1929 and 1933, the percentage of imports from the British Empire rose by over 10%, from 27 to over 37%. About three quarters of this increase were direct results of a trade policy that gave preferential treatment to countries in the British Empire. “This means that Britain’s traditional trade partners in continental Europe, the USA, and Latin America were disproportionately affected by the decrease in British imports – while trade with its colonies began to recover, trade with the rest of the world continued to be in free fall until at least 1933. This did not go unnoticed and resulted in definitive countermeasures.”

Political unilateralism with consequences

“Multilateral trade and equal market access opportunities are key in today’s global economic system. Our results show that tendencies to abandon this approach have real consequences for international trade flows. Our look at British history suggests that the dissolution of international trading systems and political unilateralism have real consequences that can contribute to national and international tensions. This was the case in the decade before World War II and it would certainly still be a problem today if the current multilateral, cooperative world trade order, a result of the failure of the interwar period, were to be abandoned in favor of national solutions,” says Lampe.

The studies

Alan de Bromhead, Alan Fernihough, Markus Lampe, Kevin Hjortshøj O’Rourke (2019): The anatomy of a trade collapse: the UK, 1929–1933; European Review of Economic History, 23(2):123–144; URL: https://doi.org/10.1093/ereh/hey029

Alan de Bromhead, Alan Fernihough, Markus Lampe, Kevin Hjortshøj O'Rourke (2019): When Britain Turned Inward: The Impact of Interwar British Protection; American Economic Review, 109 (2): 325-352; URL: https://doi.org/10.1257/aer.20172020