The Great Liberalisation of 1860
Some debates, it seems, never go away. In the first half of the 19th century, France has some of the most extreme protectionist laws in the world. It had 58 prohibited items for import and 12 items for export. Ideas of free trade, espoused by Jean-Baptiste Say and Bastiat, had few takers. It would take away the jobs and the better quality goods produced in Britain would slay the domestic industry, claimed the industrialists. In 1846, two important associations were formed – association pour la liberté des échanges and association de défence du travail national – one promoting free trade and another opposing it.
Meanwhile, Great Britain was following an open trade policy and was doing very well. It was, after all, the largest and most advanced exporter. Napoléon III was in exile in Britain and liked what he saw. He viewed free trade as a means to national economic development and improved welfare. When he became the emperor of France in 1852, amidst growing protectionist and nationalistic fervour, he tasked Michel Chevalier to undertake secret negotiations with the British to dramatically reduce trade barriers. The result was the first grand liberalisation of trade in the form of the Cobden-Chevalier treaty of 1860.
Because the treaty was concluded secretly and without direct input from commercial interests, it came as a shock. Nevertheless, the French industry adapted smoothly to the new competitive environment. Research showed that:
Supported by government adjustment loans, French producers upgraded their operations, diversified their export base and differentiated their product lines. Instead of losing market share to Great Britain and moving towards net import status, France was able to sustain global sales even as imports surged.
One of the key reasons for this, the researchers find, is that the adjustment process was largely intra-industry. Liberalising trade allowed firms in France to specialise and produce differentiated products. “Intra-industry trade as a share of total French trade tripled between 1859–60 and 1872. While some products lost market share, French factories survived and thrived by producing unique brands”. The researchers point out that the sectors that concerned protectionists most — cotton, wool, and silk cloth — did see intensified competition, but exports and imports rose together.
After this initial success, France signed new trade treaties with half a dozen other nations, and this time, with the knowledge of the industrialists. However, the French industry continued to thrive and the consumers would have received greater benefits (cheaper products and increased variety).