When wheat beat cotton

Trade and politics

In the 1840s a great debate took place in Britain over the Corn Laws—tariffs on imported grain. The laws protected the owners of British farmland by shielding them from foreign competition. The laws hurt British eaters—which was to say all Britons—by raising the cost of their food. For centuries the landowners had been overrepresented in British politics, but electoral reforms in the early 19th century apportioned power more equally to Britain’s growing cities. The cities were the locus of manufacturing, and the manufacturers sought to repeal the Corn Laws. Some wanted to make life easier for their workers by lowering the latter’s grocery bills; others observed that lower grocery bills for workers would allow the manufacturers to pay the workers lower wages. The predominant model of emerging capitalism called for reducing costs wherever possible. Repeal of the Corn Laws was part of the cost-reduction scheme.

The economic arguments over the Corn Laws were accompanied by political predictions. Repeal, by opening the door to grain imports from places like America, would make Britain politically vulnerable, the critics of repeal declared. Britain’s foreign policy would have to conform to the wishes of the countries on which Britain came to depend for food.

When immediate benefits are balanced against distant costs, the benefits usually win. This is the more true when the distant costs are hypothetical, as in the political concern over repeal of the Corn Laws. The repealers carried the day, and in 1846 Britain embarked on a new era of free trade in food.

As expected, grain imports rose dramatically. What economic historians call the “New World Grain Invasion” displaced domestic production and indeed made Britain dependent on foreign grain producers, especially the United States. For a time the dependence had little effect on British politics, and the boost to British manufacturing from the lower cost of living quelled lingering worries

Then came the American Civil War. Southern secessionists boasted that Britain would have to side with the Confederacy, given the dependence of Britain’s textile industry on southern cotton. “Cotton is king,” the rebels proclaimed.

They turned out to be wrong. Britain wasn’t as dependent as they thought. The American war didn’t come from out of the blue, and British brokers had been hedging for years against a disruption in the Atlantic supply chain. British warehouses bulged with cotton bales bought in advance, and British textile firms had cultivated suppliers in India and Egypt. Moreover, the blockade policy of the Union called for seizing ships from Confederate ports but quickly sending any cotton on to Britain. Cotton wasn’t king for the Confederates; it was a minor princeling.

Economics aside, Britain had reason to keep its distance from the Confederacy. It didn’t want a war against the Union, which recognition of the Confederacy might entail. Nor did it wish to be seen as rescuing a regime based on slavery. The British had abandoned slavery for themselves decades earlier, and since then they had tried to rid the world of the scourge. When Abraham Lincoln issued the Emancipation Proclamation, affirming an end to American slavery as a Union war aim, the moral cost of aiding the rebels grew still higher.

There was a last consideration, which might have been the most important. In the decade and a half since repeal of the Corn Laws, Britain had grown increasingly dependent on American wheat. Britain’s cotton connection to America had been more obvious, for being concentrated. The wheat link was more diffuse and therefore less visible. Wheat prices in Britain had fallen sharply, making food cheaper for everyone. Even if British recognition of the Confederacy didn’t provoke the Union government to war, Lincoln’s administration would be sorely tempted to embargo wheat. The shock to the British economy would be severe. The British government chose not to risk it.

Few in Britain complained about the way repeal of the Corn Laws diminished their country’s political freedom in dealing with the United States. Most Britons disapproved of slavery and were glad not to be drawn into complicity with the slaveholders of the Confederacy. To put it differently, most were happy for the handcuffs King Wheat had put on the minority of Britons—textile makers and some merchants—inclined to bow to Prince Cotton.

The lesson bears remembering, not least by modern supporters of free trade. The economic arguments in favor of free trade remain as nearly unassailable as ever. When people are free to do what they do best and trade with others similarly free, the world benefits. The free trade era of the late 20th and early 21st centuries saw billions of people lifted out of poverty. Some producers suffered in the short term, but adjustments have always been required in free economies. Anyway, more than a few of the job losses attributed to trade were really lost to automation.

The political perils of free trade were harder to deny. German dependence on Russian gas gave Moscow leverage over Berlin. Japan’s dependence on Chinese phones put Tokyo at a disadvantage to Beijing. Everyone's dependence on the American dollar made them all hostage to Washington. 

But such examples reveal the limits of trade-induced influence. Germany still supported Ukraine in its war against Russia. Japan's addiction to Chinese phones didn't stop Japan from rearming against possible Chinese adventurism. And the ubiquity of the dollar didn't deter Russia, Iran and North Korea from carrying on in the face of American economic sanctions.

In other words, while the possibility of political consequences should be considered in deciding trade policy, it shouldn't dictate policy. The economic benefits are usually greater than the political costs. The British probably wouldn't have sided with the Confederates even if their bread hadn't been baked from American wheat. That it was so baked provided an additional reason to defy the cotton rebels.