Brexit, the Corn Laws and the Common Market: a brief history of Britain’s trade deals
They allow consumers to buy more, better-quality products at lower prices, and as such are credited with driving economic growth and encouraging innovation. It’s little wonder, then, that the future of Britain’s trade deals post-Brexit are dominating headlines worldwide. Here, Professor Kevin O'Rourke charts the history of Britain’s trading agreements and explains why they have often proved divisive…
On 2 July 2018, Theresa May was preparing for a crucial cabinet meeting to be held four days later in Chequers. The United Kingdom had finally been given the green light to start negotiating with the European Union on the future trade relationship between the two parties, but in order to do so it needed to decide what it wanted. And this was proving difficult, given the huge gulf that existed between Tory Europhiles and Eurosceptics. Broadly speaking, the former group wanted a relationship between the UK and EU that was as close as possible, involving no new barriers to trade or costly border formalities. The latter wanted Britain to be free to make its own laws and regulate its trade as it saw fit. Mrs May’s problem was to find a common position behind which the two warring factions could unite.
Robert Peel’s Corn Laws
A backbench Conservative MP named Jacob Rees-Mogg warned Mrs May in a newspaper article published that morning (2 July 2018) that unless she held firm to her Lancaster House promise to leave the EU's Single Market and customs union, she would suffer the fate of Robert Peel in 1846. Peel had taken a decisive move towards free trade in that year  by abolishing the Corn Laws. This was surprising, since Peel was a Conservative, and the Conservatives had traditionally been the party of landowners. Allowing tariff-free imports of grain would, everyone assumed, lower food prices and agricultural incomes. And so the Conservative party split; the Liberals came to power; and the Tories were largely excluded from government for a generation.
1846 was a traumatic year for the party, and Rees-Mogg has not been the only Conservative to invoke it at times of stress. In 1961 Harold Macmillan, who was trying to engineer the UK's entry into the European Economic Community (EEC), faced opposition from Tory backbenchers worried that this would undermine Britain's links with the Commonwealth. In his diary he noted that things were “getting terribly like 1846” [see The Macmillan Diaries, Vol II: Prime Minister and After (1957–66) edited by Peter Catterall (Macmillan, 2011)].
Trade deal facts
- The UK’s decision to leave the EU (by 29 March 2019, under Article 50) will fundamentally change its terms of trade with the 27 other member states, and with the rest of the world
- As a member of the European Union (EU), the UK is part of some 40 trade agreements which the union has with more than 70 countries. If the UK leaves the EU in a ‘no-deal Brexit’ on 29 March, it will immediately lose these deals
- The government estimates that about 11% of UK's trade relies on the EU's agreements with other countries
Trade policies are about economics, but they are also about a country's place in the world, and they have often proved divisive. By the late 19th century the virtues of free trade had become an article of faith for most British politicians, but some Conservatives remained sceptical. In 1881 the Fair Trade League was founded, advocating an end to commercial treaties with other countries “unless terminable at a year's notice” so as to avoid “entanglements” that might limit the country’s freedom of action.
It also argued in favour of moderate tariffs on imports of foreign food, and tariffs on manufactured goods coming from countries not treating British exports “fairly”. The Conservative party was split on the issue of fair trade in the 1885 general election: Sydney Henry Zebel, a historian of the controversy, commented that: “Many found it wiser to declare themselves free-traders and opposed to any reversal of the fiscal legislation of 1846. Others attempted to gain fair-trade support in the constituencies by a frank espousal of that cause. Still others attempted to straddle the issue”.
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The Conservative Party split again over trade after 1903, when Joseph Chamberlain began his famous crusade for Imperial Preference. Chamberlain wanted to use trade policy to promote the political integration of the Empire: he argued that the UK ought to have lower tariffs on imperial than on foreign goods. Since British tariffs were for the most part zero, it would be necessary, in George Dangerfield's words, to “build a tariff wall around England for the single purpose of knocking holes in it, through which Imperial goods might pass” [see The Strange Death of Liberal England, 1966 (first published in 1935)].
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But this meant imposing tariffs on imports of foreign wheat and meat, thus increasing food prices and lowering workers' real wages. The then-prime minister Arthur Balfour sought desperately to keep his party together – in the words of Alan Sykes, a historian of the period, Balfour was a great believer in “verbal formulas as a means of resolving genuine conflicts of belief”. And so he constructed tortuous policy platforms involving inter alia tariffs that did not have protection as their “primary object” – whatever that meant. The Conservatives were trounced by the Liberals in the 1906 general election.
It fell to Chamberlain's son Neville to implement the policy of the father: no sooner had he been appointed chancellor of the exchequer, in November 1931, that he set about introducing tariffs. And those tariffs fell disproportionately on foreign goods (as opposed to goods from the Empire/Commonwealth). As he said to the House of Commons on 4 February 1932, with his mother in the visitors' gallery and his half-brother Austen sitting on the Conservative benches:
There can have been few occasions in all our long political history when to the son of a man who counted for something in his day and generation has been vouchsafed the privilege of setting the seal on the work which the father began but had perforce to leave unfinished. Nearly 29 years have passed since Joseph Chamberlain entered upon his great campaign in favour of Imperial Preference and Tariff Reform. More than 17 years have gone by since he died… His work was not in vain. I believe he would have found consolation for the bitterness of his disappointment if he could have foreseen that these proposals, which are the direct and legitimate descendants of his own conception, would be laid before the House of Commons, which he loved, in the presence of one and by the lips of the other of the two immediate successors to his name and blood.
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Imperial Preference remained a cornerstone of British economic policy in the aftermath of the Second World War, and it reflected the very real human, economic, political and strategic ties that still existed between Britain and the Dominions and which had been crucial in allowing Britain to emerge triumphant from two world wars. The Commonwealth was the political expression of these ties, and it had functioned effectively before 1945 despite its lack of a formal rulebook.
It is understandable that many British politicians should have wished to see these ties continuing into the future. But it is also understandable that many also hoped to create closer links with Europe. There was no apparent reason why Britain should have to choose between these alternative sets of relationships, and alternative identities: loose free trade arrangements and loose political arrangements would allow Britain to enjoy free trade with the European continent while retaining Imperial Preference. Or so many hoped.
But then, in the 1950s, the Europeans decided that they wanted not a free trade area, but a customs union. Not only would goods exported from one member state to another be exempt from tariffs; all member states would have the same tariffs vis à vis third countries. This would mean that there would be no need for checks at borders to ensure that wine being shipped from Italy to France, say, was actually Italian (and thus not subject to tariffs) rather than Argentinian – since all Argentinian wine would be taxed at the same rate no matter where it entered the EEC. And a common tariff policy would also increase the new community’s bargaining power.
It all made perfect sense from the European point of view, but the decision placed British politicians in a painful dilemma. If they stayed aloof from the Common Market they would face discrimination in Europe’s biggest markets. But if they joined it, they would by definition have to abandon Imperial Preference. Which is one reason why Britain did not join the EEC from the outset, and why Harold Macmillan found himself worrying, in the spring of 1961, that it was all “getting terribly like 1846”.
Britain's 19th-century past thus mattered a lot during the critical years when European integration took a decisive step forward. And the fact that Britain initially remained aloof meant that it eventually joined a Common Market that had been shaped by other countries in a way that reflected their own histories. Not only did it make sense for them to form a customs union rather than a mere free-trade area, it also made sense for them to complement that customs union with a range of policies that protected farmers and helped to ensure that the EEC would have a social and a political, as well as an economic, dimension.
For while it was important to obtain the economic benefits of continent-wide free trade, it was equally important to ensure that economic competition did not lead to regulatory ‘races to the bottom’: the aim was to create institutions that would accommodate not only markets, but the welfare state; mixed economies; and regulations that were felt to be necessary in order to protect workers and consumers, and avoid a repeat of the disastrous 1930s.
This basic function of European integration may sometimes have been honoured as much in the breach as the observance, but it continues to shape European attitudes and ‘red lines’ today. For example, it would be inconceivable for the European Union to allow a country on its very borders, as large as the UK, to freely access European markets without there being constraints on its ability to deregulate its economy.
It is the interaction between these distinct British and European histories, not to mention the history of Ireland, which produced not only Brexit, but the negotiations that followed the 2016 referendum. A history of Tory party division not only gave rise to the ill-fated (and Balfour-esque) Chequers plan that Mrs May concocted last summer, but the referendum itself: as David Cameron told the leader of the Liberal Democrats Nick Clegg in 2012, it was “a party management issue”.
History cannot tell us how this story will end. But history is essential if we are to understand how we got to where we are today, and it will also help us to make sense of whatever it is that will happen tomorrow.
Kevin Hjortshøj O'Rourke is Chichele Professor of economic history at All Souls College, University of Oxford. He is the author of A Short History of Brexit: From Brentry to Backstop (Penguin, 2019).