Tyler Cowen: prediction

Transcript context

…Well the specific reason there definitely has to do with the Corn Laws. With the repeal of the Corn Laws, Britain also repealed lots and lots of tariffs, but if you go back— Taussig first noticed this — that they removed lots of tariffs, but often on things that were a trivial part of trade. In contrast, many of the tariffs that even Adam Smith complained about in The Wealth of Nations, in particular the wine tariffs, were not touched. When the British often proposed bilateral free-trade agreements with both France and Spain, the first things the French and the Spanish asked for was to renegotiate tariffs on wine, and the British said, “No, no, no, we can’t touch that,” and they said, “Well, those are our big exports to you. How do you expect us to have a free-trade agreement?” So that killed any attempt at bilateral trade. I think the modern analogy would be to think about Japan. Japan could negotiate completely open tariffs in every manufacturer item, but so long as they kept agricultural tariffs, and their heavy constraints — in fact, virtual prohibitions — in the US rice in many cases, there’s not much change there. That’s what Britain did. Britain had a comparative advantage in manufacturers, so they were willing to go to free trade in manufacturers, but they were very, very protectionist when it came to consumption items and, in particular, beverages — wine, but also all alcoholic products, rum, sugar, tea, coffee, et cetera. If elites have so much influence over trade policy, why is it that Britain got rid of the Corn Laws at all? Because the Americans were one of the major beneficiaries. It hurt some British interest groups. Why did that happen? I think part of the reason for that is that the long 19th century is a period in which the industrialists are becoming much more important. And you have two aspects about this. The bilateral agreement in 1860 between Britain and France allows Britain to get access now to French markets in terms of their manufactures by having the French remove their prohibitions and lower their tariffs. But it also is a world in which increasingly those who were benefiting from some of these restrictions wanted to have them removed as freer trade was being more and more favorable to Great Britain. Finally, the other thing that occurred is that people forget that initially, the wine tariffs, which go back to the late 1600s and early 1700s, were primarily protectionist. They were an attack on France, but because of the high tariffs, the British were able to impose very high taxes on domestic alcohol, in particular things like beer, but also gin, whiskey, et cetera. They became so dependent on the revenues from those alcoholic products that, in fact, one of the things that happened is, even when the consensus was growing for liberating trade in alcohol, there was still concern about tariffs, and so the rise of the income tax and other forms of taxation gave them increased leeway to make these changes.…

Stored transcript either side of the excerpt. The highlighted words are the published quote; the surrounding text is unedited source, never generated.