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LH3RARY

OF THE

UNIVERSITY OF CALIFORNIA.

Class



RETALIATORY DUTIES



Some Political Books

The Life of Richard Cobden.

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LONDON : T. FISHER UNWIN.



RETALIATORY DUTIES



H. DIETZEL

%\

PROFESSOR AT THE UNIVERSITY OF BONN



TRANSLATED BY

D. W. SIMON, D.D.

AND

W. OSBORNE BRIGSTOCKE

FOR THE UNIONIST 'FREE TRADE CLUB




LONDON
T. FISHER UNWIN

ADELPHI TERRACE
MCMVI



[All rights reserved.}



CONTENTS

INTRODUCTORY REMARKS

PAGE

Distinction between retaliative and protective policy
Timeliness of the subject : scope of the retalia-
tive principle in Germany and in England The
two variants of the retaliative policy : Retaliation
proper and Reciprocity General criticism of Re-
taliation : distinction between retaliative duties
on wares with a world-wide market, and retaliative
duties on wares with a merely national market . 7-38



CHAPTER I

POLICY OF RETORSION (RETALIATION), OR OF
FIGHTING DUTIES

Results of the levy of fighting duties on food-stuffs and
raw materials illustrated by the example of a tariff-
war between Germany and Russia Danger of
fighting duties being converted into protective
duties Fighting duty policy often only a mask
for a policy which is really one of Protection . 39-54

CHAPTER II

POLICY OF RECIPROCITY

Lord Salisbury's argument in favour of such a policy
The point quite open to discussion : the element
of risk and the element of cost needs, however,
to be considered A policy of Reciprocity which
injures one's opponent, and has therefore a
prospect of success, is sure also to injure one's
own i country Analysis of the effects of Reci-
procity according to the kind of objects selected
for penalty How duties affect finished goods,
above all, articles of luxury How do duties on
food-stuffs work ? Results of a differential treat-
ment of American bread-corn on the part of
Germany Results of Retaliation in the form of
a general heightening of Germany's food-stuff-
tariff How raw materials are affected by duties ;

5

166965



Contents

PAGE

results of a differential treatment of American
copper and cotton by Germany alone Results of
such treatment by a Central-European tariff-
league The project of imposing duties on
machines from America The difficulty of re-
tracing one's steps in the case of a policy of
Reciprocity that has failed Mischief to British
industries if, in consequence of the adoption of
the Balfour programme, the country should find
itself in a blind alley ; but mischief also to
Germany Hope that the failure of the Reciprocity
policy inaugurated by Germany in 1902 may be a
warning to England 55" IO 6



CHAPTER III

GERMANY'S POLICY OF RECIPROCITY IN 1891 AND
IN 1902

Causes of the success of the Commercial Treaty
Campaign in 1891 : the Reciprocity policy of
that day had a clear goal and a fixed basis ; the
conjuncture was favourable and Caprivi took full
advantage of it by applying the method of allure-
ment Causes of the failure thus far of the Com-
mercial Treaty Campaign of 1902 ; Billow's policy
of Reciprocity had no clear goal, being a policy
of the via media ; it quitted the fixed basis which
the old tariff placed at its command ; it marred
the conjuncture by resorting to the method of
arming, that is, by giving the new tariff the form
of a tariff for negotiation Twofold fatal effect of
this method : on foreign countries, the outbreak
of the international arming epidemic ; at home,
the unchaining of hankerings after protection by
exciting hopes of higher duties Si vis pacem
para bellum! Tactics according to the maxim,
si vis pacem quaere socios, far more promising
The method of arming has given rise to a coalition
amongst foreigners between our sworn enemies
and our natural allies The arming method
involves an utterly useless detour, and for this
reason the risk of missing the goal, the risk of
a failure to conclude treaties with Agrarian States,
is very greatly increased 107-128




OF THE

UNIVERSITY




RETALIATORY DUTIES



INTRODUCTORY REMARKS

FREE - traders have for a considerable time
had to fight with two groups of opponents.

The one group the Protectionists
absolutely rejects the principle of the "Open
door/' In its judgment, tariff-walls should,
under all circumstances, be erected for the
purpose of preventing foreign competition
tariff-walls, namely, to shut out or impede
the entrance of all articles in which
foreign countries compete with the home
country. Their height also should be pro-
portionate to the intensity of the competition ;
that is, the less the wares affected cost a
foreign country to produce, as compared with



8 Retaliatory Duties

the home country, and the lower the prices
at which in consequence the foreign country
can offer them, the higher must be the
duties.

The other group the Retaliators allows
indeed that Free-trade is in itself the best
system, but maintains that it can only be
adopted conditionally, on the condition, namely,
that foreign countries also adopt it ; that is,
admit home products duty-free. If, however,
foreign countries erect tariff-walls, the home
country is bound to retaliate with the view
of securing freer access to the markets of
these countries. It must therefore impose
duties, not for the sake of excluding foreign
imports, but for the sake of converting other
nations to the principle of the " Open door."

The advocates of the principle of Protection,
i.e., of the principle which in its extreme form
(a form which we Germans now often give to
it) runs, that every nation ought to produce
everything that it can produce, and certainly,
at the very least, go on producing what it has
already begun to produce, the advocates of



Introductory Remarks 9

this principle regard the "protection of national
labour" as a fundamental necessity. Even
though tariff - walls were everywhere else
razed to the ground, Germany would be bound
to maintain them intact, nay more, to build
them still higher, because foreign competition
would then threaten them even more than
at present.

The representatives of the principle of
Retaliation, on the contrary, would regard
every step taken by other nations on the
road to Free-trade as indicating the possibility
of Germany's following suit, at all events as
far as the nations are concerned which had
set the example. They hold also that if
tariff-walls were elsewhere levelled to the
ground, Germany would be bound to level
hers.

Though the " Retaliators," as they are now
termed in England, largely operate with
arguments similar to those employed by the
" Protectionists," the two groups must be
carefully distinguished.



io Retaliatory Duties

Whilst a Free - trader may regard the
Retaliator's doctrine that pure, " one -sided
Free-trade " is saddled with disadvantages as
a radical error ; whilst he may also treat quite
sceptically the hope of internationalising Free-
trade by means of retaliative duties ; yet his
attitude towards conditional Free - traders,
because their aim and his own are the same,
will be essentially different from that towards
Protectionists, and the tone of discussion with
them will be much milder. The following
pages are an attempt at a criticism in the
friendly tone just hinted at.

The theme is one of the greatest practical
interest ; as a matter of fact, tariff-policy is
being considered by various countries at the
present day from the point of view of <( Retalia-
tion."

In England the policy of the Cabinet since
Chamberlain's resignation has been based
exclusively on the principle of Retaliation.
The imposition of duties on certain foreign
goods is advocated by Balfour solely as a
means of inducing the countries from which



Introductory Remarks n

they are exported to lower the duties put by
them on English wares. Although he writes :
11 1 throw no doubt on the Free-trade theory
when expressed with due limitations" (the
limitation, namely, that it be universally
adopted), he himself would probably allow
the principle of Protection also a certain
influence on tariff- policy. But the mass
of his followers Hicks Beach, above all
want only " Retaliation." They would demand
the immediate removal of any hindrances to
importation that might eventually be adopted
by England, as soon as other nations removed
the obstacles which are now laid in the way
of English exports. "When the concession
aimed at is attained, the retaliative tariff
would, of course, be done away with." 1

The position in Germany is somewhat
different. The newest line indeed is to plead
in justification of the increase of duty on so
many articles in the tariff of 1902 the
intention to retaliate against the United States,
Russia, and so forth, with a view to getting

1 Burrell in the Westminster Review, 1904, p. 165.



12 Retaliatory Duties

them to make concessions to our export trade.
This reason has been urged both with
frequency and emphasis. But the tariff-policy
of the German Cabinet is not, like that of
the British, exclusively directed to Retaliation.
At one time we are told from the Govern-
ment Benches that we need higher import
duties in order that foreign wares may not
enter in still greater quantities and check the
existing production of analogous national wares.
At other times it is said: "We need them
in order to compel other countries to remove
their tariff-barriers."

Count Posadowski has spoken sometimes
as if he himself were really a pure Retalia-
tionist ; as if Free-trade were in his view
intrinsically the best system ; and as if
Germany closed its doors only because its
competitors were bent on maintaining Protec-
tion. "We cannot autonomically introduce
Free-trade," he said; "our industries, etc.,
cannot form a ' Free-trade oasis ' in the midst
of a great desert of Protection." 1 Any one

1 Quite like Balfour, "in a world of Protectionists."



Introductory Remarks 13

ignorant of the credo of our Government as
regards tariff -policy might well conclude from
such expressions that it was quite ready to
unfurl the Free - trade flag as soon as the
nations which are now Protectionist should
do the same.

But the conclusion, alas ! would be quite
wrong. The good example set in 1879 by
England, Holland, and Denmark that is, by
a number of countries of the highest impor-
tance for our foreign commerce did not cause
our legislative authorities to remain faithful
to the Regime Delbrilck ; as little likelihood is
there that a future adoption of the Free-trade
principle by Russia and the United States
would induce it to pursue the same course.
As long as the " Kardoff majority" exists,
there is no chance whatever of their drawing
the consequences of the Retaliation principle,
which has been so frequently placarded. It
is quite permissible, notwithstanding, to say,
that our tariff-policy is influenced by, or tends
towards, Retaliation. In point of fact, the
tariff of 1902 is in great part intelligible



14 Retaliatory Duties

solely in the light of the principle of Retalia-
tion ; in other words, it was the outcome of
an effort to possess weapons for use in
negotiating treaties of commerce.

Criticism of the principle of Retaliation,
however, requires a distinction to be drawn
between the two different forms which it
assumes.

i. According to the one variant, Retaliation
is to be resorted to only now and then ; that
is, a so-called fighting-duties policy, or a
policy of retort, is alone justifiable. In the
case of a prejudicial alteration in the tariff
of another people specially in the nowadays
practically most important case of our exports
being more heavily taxed it is demanded
that we should resort to certain tariff-reprisals
with a view, as Frederick the Great said, to
" bring our bad neighbour to his senses," to
induce him to return to the status quo ante.
By means of such retaliation this may be re-
established ; nay more, it is even possible
that commercial exchange between us and
our opponent may become freer and less



Introductory Remarks 15

hindered than before, and a service be thus
done to the cause of Free-trade.

2. According to the second variant, tariffs
ought to be permanently framed in conformity
with the principle of Retaliation ; the true and
right policy is one of so-called reciprocity. It
is demanded, namely, that a national tariff
shall be a more or less Free-trade, or more
or less Protectionist, according as the tariffs
of other nations are the one or the other.
Light import duties for those which treat us
well ; heavier duties, by way of penalty, for
those who treat us badly. By means of such
differentiation, a pressure might be brought
to bear on the nation of whose commercial
hostility we have to complain, which would
lead them to concede to us lower rates as
equivalents for the lower rates conceded by
us.

Opinions differ among the advocates of
reciprocity with regard to the construction
of a differential tariff. Some of them would
have only one general tariff combined with
one conventional tariff. Others, on the con-



1 6 Retaliatory Duties

trary, would have different tariffs for different
nations, varying according to the degree of
the concessions they make.

Formerly the system of differential tariffs
had almost universal vogue, one too corre-
sponding to that described last. In the
mercantile era it was regarded as really
self-evident that to each country special
treatment should be meted out (Oncken,
article, Handels-vertrage im " Handworter-
buch der Staats-wissenschaften," p. 355).

About the year 1880, however, this system
received a vigorous blow. Even the nations
which had not yielded to the Free-trade drift
of the time, but had clung to Protectionism,
mostly let it drop. It was found to be, first
of all, too complicated (certificates of origin !) ;
then, that it exercised a demoralising influence
by putting a premium on false declarations
regarding the origin of imports ; and, finally,
that it attained its object, namely, the punish-
ment of commercially hostile countries, only
very imperfectly. In many directions, accord-



Introductory Remarks 17

ingly, the method of dualistic combination of
manifold differential tariffs was now adopted
a combination which left only one "general"
tariff and one " conventional " tariff, the latter
an outcome of treaties of commerce which
contained the most highly favoured nation
clause. If, for example, a conventional tariff
had been agreed upon with country A, and
concessions were made in later treaties to
countries B, C, and D which went beyond
those made to A, then, on the ground of the
most favoured nation clause, A at once, as
a matter of course, received the right con-
ceded to B, and concessions made to C and
D were, as a matter of course, conceded to
A and B. Any lowering or conjunction of
duties conceded in one treaty involved a
similar correction or alteration of the one
conventional tariff for all the treaty states.

Some states, however (the United States,
Central and South American States, e.g., Brazil,
Eastern States, e.g., Persia, which proclaimed
a much higher tariff in March 1904, and at
the same time entered into an agreement



1 8 Retaliatory Duties

which secured for Russia very decided pre-
ferential treatment in the Persian market),
still cling in principle, at all events, to the
mercantilist^ tactic of "treating each country
in a special way." If they have conceded by
treaty to country A lower duties than those
of their general tariff, and afterwards conclude
a treaty with country B, they do not, as a
matter of course, concede the same advan-
tages to country A, but first require certain
compensatory concessions.

Since the 'sixties, Germany has adopted the
practice of the " unconditional most favoured
country clause." So far as it concludes
treaties, it insists on the application of the
clause to itself, and concedes the same with-
out restriction to its partner. Of late, how-
ever, complaints have been raised against
this practice. A short time ago, for example,
Count Schwerin-Lowitz, at the meeting of
the " German Agricultural Council," contended
in his report that

" The system of the unconditional most
favoured nation treatment would have to be
modified by the inclusion in new treaties of a



Introductory Remarks 19

clause to the effect that other nations could
share in the advantages conceded in the
treaties, not on the principle of the most
favoured nation treatment, but only on the
condition of their making tariff concessions of
equal value/'

It is obvious, of course, that these two
variants of the retaliative principle are by no
means mutually exclusive. On the contrary,
whosoever aims at the permanent establish-
ment of tariff reciprocity, will also in con-
sistency approve of the introduction of fighting
duties, according to the circumstances, more
or less frequently, in dealing with nations
which impose exceptionally high import duties.

The converse, however, does not hold good.
He who grants that here and there a tariff-
fight may be carried on, does not at all need
to allow that such fighting should "be reduced
to a system."

Prince Bismarck, for example, in the middle
of the 'seventies, had in mind merely a policy
of retort, but, so far as one can judge, would
have refused a policy of reciprocity. At the
present moment, too, Hicks Beach in England



20 Retaliatory Duties

wants merely a policy of retort ; whereas
Balfour seems to aim at one of reciprocity.

"The only alternative is to do to foreign
nations what they always do to each other,
and instead of appealing to economic theories
in which they wholly disbelieve, to use fiscal
inducements which they thoroughly under-
stand." From this much-quoted programmatic
utterance of the Premier (Balfour), it may be
gathered that his intention was to follow the
example of Germany, and "to do to these
countries what they do to each other " ; that
is, to operate against them with a standing
apparatus of retaliative duties.

The Economist, indeed, was of opinion
(1903, p. 2140) that what Balfour wanted was
only that " an exceptional duty should in special
cases be enforced as a penal measure." But
so far as I am aware he has never expressly
taken up this position.

Whether he really aimed at tariff reform
merely as "a means to securing Free-trade,"
or whether, in case the elections result
in favour of Chamberlain's programme, he
will aim at it "as a means for Pro-



Introductory Remarks 21

tection," it is impossible to say. The only
thing that seems certain to me is that his
understanding of the principle of Retaliation
differs from that of his former colleague,
Hicks Beach. The latter would apparently
have Retaliation "used more as a menace
than as an actual part of the machinery
of the national finance" (Economist, 1903,
p. 1963); that is, he approves only of the
policy of retort. The former would make
the principle of Retaliation a permanent factor
of the national fiscal machinery ; that is, he
goes further, and approves also of the policy
of reciprocity.

Before subjecting these two variants of the
retaliative principle each to separate criticism,
it is necessary to call special attention to some
considerations which hold good generally of
retaliative policy.

First of all, it is not permissible to justify
it simply from the point of view of national
honour. "The natural sentiment of revenge, 11
says Adam Smith, " impels men to retaliate;
for this reason States rarely fail to resort to
Retaliation/' This was, alas ! the case during



22 Retaliatory Duties

the Age of the Renaissance. From this
" Natural Sentiment" sprang in those days
innumerable feuds, carried on, at one time,
with duty - cannons, at another time with
actual cannons.

It is the desire for revenge which again at
the present day enlists so many under the
banner of the policy of Retaliation. How
often is the question asked Is it not a
disgrace for us that other people should tax
our goods heavily, when we impose only light
duties, or even none at all, on theirs ? Does
not national honour bid us take up arms
against such unfairness ? to give as much as
we take? and when we have to deal with
a rogue, more? If we act otherwise, shall
we not continue to deserve the taunt which
Hegel, after the battle of lena, flung at the
Germans as "the Quaker-nations of Europe,"
which submitted meekly to every trick, and
"when it had received a blow on one cheek,
put itself in a posture to receive one on the
other?"

As among us, so on the other side of the
Channel, the " natural sentiment of revenge"



Introductory Remarks 23

is being inflamed for the purposes of the
Retaliation propaganda. But there can be no
doubt whatever that all such motives must
be set aside. To fight a fiscal duel with
foreign countries, in order that the insult or
disgrace of being badly treated in fiscal
matters may not stick to us, would be states-
manship worthy of a College Freshman
(Fuchs), with his thin-skinned readiness to
pick a quarrel for the least thing.

For it is only in the rarest cases that any-
thing of the nature of insult is designed. The
nations which " treat us badly" have mostly
framed their tariffs, not with the intention of
inflicting a wrong on us ; what they have
alone aimed at, is their own economic
advantage, as they understand it. Nor have
we imposed light duties or none at all on
the goods they export to us in order to
benefit them, but solely because we believed
that by doing so we should best serve
our own economic interests because we
considered it advantageous for us to procure
certain foreign products without artificial
enhancement of price. To be angry at
foreign countries as unthankful, because they



24 Retaliatory Duties

regard a fiscal policy different from ours as
advantageous for themselves, and to deduce
thence the necessity for retaliation is hypocrisy.
This form of hypocrisy, now so often
practised in England, is neatly satirised by
Godard in the Westminster Review, 1903, p. 630.

Hitherto we have been too considerate
towards them ; we have generously opened
our ports to their goods in a spirit of magna-
nimity which they have failed to appreciate ;
we have bought their produce from philan-
thropic motives, and not because we wanted it,
or because we found it cost us less, or because
it fed our people and fed our machinery. . . .
We have set a noble example .... but it
does not pay; we have been too neglectful
of our own interests (it is a national character-
istic) and advantage has been taken of this.

It may indeed happen that a nation
introduces a tariff- divergence manifestly or
perhaps even avowedly for the purpose of
doing us an injury, and certainly we are
as little obliged to put up with tariff-trickery
as with other sorts of trickery. 1 But to try

1 How such fiscal trickery is best to be thwarted is always a
quastio facti. Possibly by means of tariff-reprisals ; possibly
better by force of arms.



Introductory Remarks 25

to get public opinion to regard it as always
an " insult " or " unfairness" for a nation to
put higher duties on our wares than we put
on theirs, or to tax certain articles with
which we chiefly supply it more heavily than
before, is to enkindle and foster passion,
jealousy, and prejudice.

Secondly. Because the feeling of revenge
is a "natural" one, and because forces are
everywhere at work which make it their
business to excite it in Germany the " Pan
Germans," in England the "Jingos," and so
on whenever a retaliative measure is adopted,
we may be quite sure that it will immediately
evoke a counter retaliation. If we, on our
part, resort to retaliation, the people affected


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