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POLI 354 (26)

Pax Britinnica and Decline of the Free Trade - Power Money and Trade

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McGill University
Political Science
POLI 354
Mark Brawley

Pax Britannica and the Decline of Free Trade GermanyFirst to defect from free trade regime i The political structure of the new unified German empire was dominated by Prussia and Prussian interestsii The new states first adopted free trade because it was in the interests of the Prussian aristocrats and the Junkers y HO Model and the StolpherSamuelson Theoremy The industry argued for free trade while agriculture pressed for free trade The Junkers dominant position meant Germany adopted low tariffsy Germany had a low capital to labour ratio compared to Britainiii Germany was not yet industrializedthe country exported those goods made intensively with its locally abundant factors of production iv In the 1870s the new improved technology altered the competiveness of Germany in various sectorsy Cheap grain flowed into Europe from the plains of the USCanada Russia and Argentina Coalition of Iron and Rye i Brismarks effort to protect the economicpolitical and social status of the Junkersii Protect their income from grain production by establishing a protectionist tariffiii Gathered a coalition uniting the conservative agriculturalist and the new industrial capitalisty Offered a protective tariff to industry the tariff united heavy industry and the Junkersy He reorganize the conservatives into a new political partydeveloping the partys program around economic policies designed to appeal to agrarian interestsReactions of other countrys to the abolition of free trade from Germany i Free trade regime in place was completely informal there were no explicit obligations to the regimeii Since the purchases of the exports were already low retaliations would not have achieved much Britains reaction to the erosion of free trade regime i Britain earned substantial sums from the services associated with international tradeii It could afford to have a balance of trade deficit because it made so much more from international investments and services that it still came out ahead in the overall BOP iii If Britain had retaliated against the protectionist policies of Germany or other countries it would hurt itself iv So in the response to the erosion of the free trade regime in the 1870s80s Britain did nothing
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