## When Free Trade First Faltered

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### Globalization’s first-age contradictions
- The “first age” of globalization (roughly the 60 years or so before World War I) featured rapid global trade growth alongside rising tariff walls erected by the United States, Germany, Russia, France, and Japan.
- Geopolitical conflicts and trade wars increased even as markets became more integrated.
- Emerging economic nationalism after the Great Recession of 2008–09 echoes these earlier contradictions in a world of extraordinary economic interdependence.

### Mid-19th century liberalization and British leadership
- Between the 1840s and 1860s, trade liberalization dominated the globalization agenda.
- Britain’s liberals overturned the Corn Laws in 1846; free-trade advocates argued removing grain tariffs would yield “cheap and plentiful food” for the urban poor.
- Richard Cobden argued trade liberalization would unite the world and prevent wars by undermining militant landed elites.
- The 1860 Anglo-French (Cobden-Chevalier) commercial treaty included a most-favored-nation clause and helped lock Europe into what was effectively its first common market.
- “About 50 or 60 trade treaties were signed,” expanding low-tariff treatment across Europe.
- The US substantially lowered its tariffs in 1846 following Britain’s lead.

### The national system and protectionist counterarguments
- Friedrich List updated Alexander Hamilton’s economic nationalist vision in The National System of Political Economy (1841), urging high tariffs to foster “infant” industries and colonial expansion.
- List accused Britain of attempting to “kick away the ladder” after using protectionism to industrialize.
- List’s ideas gained traction during economic downturns; free trade fell out of favor among Britain’s imperial rivals in the early 1870s.

### Technological tools of the era and the ensuing boom-bust
- Key technological developments:
  - Transoceanic steamship lines lowered transportation costs and travel times.
  - The transatlantic cable, successfully laid in 1866, reduced message times between Wall Street and the City of London to minutes.
  - The opening of the Suez Canal in Egypt and completion of the US transcontinental railway in 1869 further shrank global distances.
  - Cultural reflection: Jules Verne’s Around the World in Eighty Days (1872).
- These advances facilitated deeper integration but also contributed to an unpredictable boom-bust cycle:
  - Low transportation costs, mass industrialization, and trade liberalization cut consumer prices and tightened profit margins for exporters.
  - The British-led gold standard’s deflationary effects harmed debt-ridden agrarians and manufacturers.
  - The first Great Depression (1873–96) saw protectionism and colonialism rise as policy responses.

### Rise of protectionism, monopoly capitalism, and imperial competition
- Protectionist policies produced monopolies, cartels, and trusts; surplus capital and market inefficiencies drove interimperial search for markets and raw materials.
- By 1880, economic nationalists were ascendant and politics moved to the right in many industrializing countries.
- In the US, the Republican Party embraced protectionism; the 1890 McKinley Tariff imposed an unprecedented average rate of about 50 percent, triggering trade wars with European partners.
- Political maneuvers tied tariffs to territorial aims: the McKinley Tariff was promoted with one imperial acquisition in mind—Canada—which instead strengthened ties within the British Empire.
- Germany under Otto von Bismarck and later Wilhelm II, and Russia under Count Sergei Witte, pursued List-inspired consolidation, tariff walls, and railway projects (Trans-Siberian, Berlin-to-Baghdad) to advance imperial designs.
- Protectionist dynamics intensified the scramble for colonies in Africa and Asia, trade wars, and military interventions.

### Intellectual and political responses to monopoly capitalism
- Georgism (Henry George):
  - Henry George’s Progress and Poverty (1879) proposed a “single tax” on land value to break land monopolies and do away with other taxes, including tariffs.
  - The single-tax movement promoted absolute free trade and had international appeal (Leo Tolstoy, Sun Yat-Sen).
  - Lizzie Magie patented a board game in 1904 to teach the evils of exploitative land rents—an antecedent to Monopoly.
- Critics of imperial monopoly capitalism:
  - J. A. Hobson’s Imperialism: A Study (1902) offered a scathing critique of monopoly capitalism and colonial expansion.
  - Norman Angell warned of the “great illusion” that any nation could profit from war given market interdependence; World War I four years later (1914) vindicated his warning.

### Historical parallels and lessons for today
- The quarter century between the end of the Corn Laws in 1846 and the start of the global turn to protectionism in the early 1870s saw unprecedented trade liberalization, as did the 25 years after the end of the Cold War.
- Nineteenth-century liberal free-trade advocates underestimated the political appeal of nationalism and self-sufficiency; late-20th-century cosmopolitans likewise erred in predicting the end of the nation-state.
- The longer-term successes of historical free-trade advocates illustrate how international cooperation can counteract nationalist-driven conflict and transform economic-nationalist eras into more peaceful and equitable free-trade orders.

*marc-william palen is an economic historian at the University of Exeter and the author of Pax Economica: Left-Wing Visions of a Free Trade World.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2025/09/palen.pdf_