Tuesday, 17 April 2018

Tea Party Trade

Came across this passage in a biography of Pitt the Younger, which has modern implications.

Trade in contraband goods had grown during the years of war with America until it was estimated to exceed 20% of imports, and the East India Company believed that the illegal trade in tea approximated to the quantity passing through customs at authorized ports of entry. Reports of a Commons committee set up by the coalition government recommended the strengthening of laws against smuggling but concluded that the most effective deterrent would be a reduction of duties ‘to make the temptation no longer adequate to the risk’. In the short term, the resulting loss in revenue must be made up by the increase or imposition of other taxes, but it was reasonable to suppose that a general expansion of trade and increased home consumption following the reduction in price would, in time, compensate for much of the loss.

Pitt’s previous discussions with the East India Company had brought him into contact with the tea merchants and he listened with care to their objections and suggestions. His Bill, introduced in June 1784, became law in amended form on 20 August. The varied duties on tea, averaging 119%, were reduced to a uniform 25% on value. There were, of course, complications: stocks proved to be inadequate, and the wealthiest smugglers banded together to force up prices in the auction rooms; but Pitt, with the active co-operation of the East India Company and the merchants, crushed or circumvented all attempts to break his policy. Within five years the quantity of tea passing through customs at the lower rates of duty had doubled, the smugglers’ trade in tea had been stunted, and the finances of the East India Company improved. A graduated rise in the window tax had more than compensated for the loss in revenue. At the end of the first year the Exchequer had benefited by an additional £200,000.

Neat trick!

Another passage describing Pitt's 1786 trade agreement with France:

There was nothing to prevent Britain from further reducing the duties on Portuguese wines, without any similar reduction for the French, and it was later accepted that Spanish wines might be dutiable at the same rate. The agreement on the carrying trade was unlikely to benefit the F rench since the possibility of Britain’s being engaged in a war that did not also involve France was remote; but it was possible, even probable, that Britain might remain aloof from a war in Europe that engaged France. Where reciprocal duties applied, it seemed certain that British manufacturers would gain the greater profits. The exclusion of French silk, on the other hand, protected the hand-weavers of Spitalfields who would have been ruined by direct competition with Lyon. Most important of all, the treaty opened to British manufacturers a market which, as Adam Smith had pointed out ten years earlier, was eight times as populous as the American Colonies and, because of its proximity, able to trade three times as fast.

Quite pertinent to the Brexit argument and the 'we'll trade with the rest of the world' trope. Proximity is key in trade for a number of reasons.

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