Britain’s Formation of a Trade Bloc and the Foretold Tragedy

In 1931, in the aftermath of the Great Depression that shook the world, an unusual national unity government was formed in Britain. As MacDonald’s second Labour government collapsed, a new cabinet (1931–1935) was established under MacDonald once again, this time backed by the Conservative and Liberal parties.

In response, the Labour Party denounced MacDonald as a traitor and expelled him, refusing to join the newly formed cabinet. It also fiercely criticized him for proposing anti-depression measures that were unfavorable to workers, including cuts to unemployment benefits, reductions in the salaries of public employees such as administrators, teachers, and police officers, cuts in social policy spending, and increases in direct and indirect taxes intended to achieve a balanced budget.

Nevertheless, Britain’s national unity government proceeded step by step with measures to address the Great Depression. In addition to the policies already mentioned, these included abandoning the gold standard as gold flowed out of the country.

At the same time, recognizing the need to formulate external economic policy, the MacDonald government convened the British Empire Economic Conference in Ottawa, Canada, in 1932—the Ottawa Conference. Participating in the meeting were not only Great Britain itself but also a number of dominions, including Canada, Australia, New Zealand, Ireland, Southern Rhodesia (present-day Zimbabwe), India, South Africa, and Newfoundland.

This is where the problem arose. They decided to reduce or abolish trade tariffs among members of the British Empire by applying low tariff rates and establishing a system of imperial preference, while imposing punitive tariffs as high as 200% on goods coming from foreign countries outside the Empire, thereby closing off this vast market. In other words, they rejected free trade and formed an exclusive bloc economy centered on Britain. This was how Britain responded to the global Great Depression at the time.

By contrast, Germany and Italy, which at the time lacked comparable resources or colonies, were unable to take the same kind of measures Britain used to escape the economic crisis. Instead, they chose the misguided means of an extreme “totalitarian” path and “war.” That “war” was none other than World War II, which claimed countless lives.

Even today, although the reasons differ, some countries are waging trade wars against nations with which they have poor relations, using retaliatory tariffs and similar measures. Powerful sanctions imposed by each side only deepen conflict and confrontation, and some countries in particular have found themselves in serious difficulty, even falling into economic crisis in the process. Of course, even major powers are not immune to such hardship.

Looking back at the case discussed above, however, one cannot help but think that such measures may ultimately boomerang on the countries that adopt them. Even nations that have maintained friendly relations for a long time may see resentment build up to the point that their ties begin to fray. In the worst-case scenario, a modern-day Peloponnesian War could even break out. How far, really, can “my-country-first” policies go?

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Original title: 영국의 블록 경제 형성과 예고된 비극

Author: Seong-woo Jung

Date: 2020-02-25

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=15&idx=22417