The Industrial Revolution That Changed Trade Forever

Introduction

The late 18 th and early 19 th centuries were a time of immense change in Europe and around the world. The Industrial Revolution, beginning in Britain in the mid-1700 s, led to new manufacturing processes, mass production, and rapid urbanization. This reshaped economies and societies. At the same time, the era saw nearly constant warfare, with the French Revolutionary and Napoleonic Wars lasting over two decades from 1792 to 1815.

These twin forces of industrialization and war disrupted traditional economic relations and required new systems of international trade and diplomacy. Countries needed access to raw materials to fuel factories and markets to sell their new mass-produced goods. The scale of industrial production outstripped the capacity of domestic markets. This necessitated an unprecedented expansion of international trade networks.

At the same time, the wars upended alliances and closed off markets. This volatility highlighted the need for stable commercial relations that rose above political conflicts. In this context, trade policy and negotiating trade agreements became a distinct diplomatic priority for the first time. Countries realized trade was too important to be used as a blunt weapon of war and politics. They needed new tools of diplomacy to create an international system that facilitated the flow of commerce in an industrial age, regardless of political quarrels.

The First Transformation

The late 18 th and early 19 th century marked a pivotal shift in international trade relations and diplomacy. For centuries, trade had been used as an instrument of war and control. Countries would impose tariffs and trade restrictions as a way to weaken their opponents and exert power. But the Industrial Revolution brought about a change in mindset and approach.

Diplomats started to view trade as an end in itself, negotiating agreements and treaties with the aim of expanding and facilitating commerce rather than using it as a weapon. There was recognition that freer trade could provide economic benefits on all sides. Nations began negotiating treaties that lowered tariffs and opened up bilateral trade, not for a military or political advantage over the other nation, but with the goal of growing trade and prosperity for both parties involved.

This transformation saw trade policy and agreements become distinct from broader diplomatic maneuverings. Trade was now driven by its own economic logic and incentives. Diplomats crafted trade-specific pacts and negotiations rather than tying trade to wider political issues. It marked an important evolution - trade liberalization for its own inherent merits rather than trade as a tool of statecraft and warfare. This shift laid the groundwork for an unprecedented expansion of international trade in the coming decades.

Liberalization in Perspectives - Adam Smith

A defining argument for opening up international trade came from the Scottish political economist Adam Smith in his seminal 1776 work, An Inquiry into the Nature and Causes of the Wealth of Nations. Smith put forward a comprehensive case for free trade and economic liberalization, believing it would increase prosperity for all nations. He argued against the prevailing mercantilist practices of his time that emphasized maximizing exports and minimizing imports using tariffs and other trade restrictions.

Smith made the case that trade should flow freely according to market forces of supply and demand rather than artificial constraints. He reasoned that specialization and division of labor would allow every country to focus on what they could produce most efficiently. By exporting this surplus and importing what other countries produce more efficiently, the collective result would be greater economic growth and standards of living for every nation involved. Smith also contended that free trade expands the market and promotes competition, keeping prices lower for consumers. His theories formed the intellectual basis of a movement towards economic liberalization and free trade that would steadily gain influence in the 19 th century.

Liberalization in Perspectives - Hamilton and List

While free trade advocates like Adam Smith argued for removing trade barriers, others like Alexander Hamilton in the US and Friedrich List in Germany had more nuanced views on trade policy. They argued that rapidly industrializing economies needed protectionist measures to allow their nascent manufacturing sectors to develop before facing foreign competition.

Hamilton was the first Secretary of the Treasury and is considered the father of the American economic system. He pushed for protectionist tariffs and subsidies to allow American industries to grow and compete against more established British firms.

Similarly, List was an economist who called for temporary protectionism. He felt protecting new industries was crucial for developing economies to advance from agrarian to industrial, especially when facing established foreign rivals. List pointed to Britain itself as an example, which had protected and nurtured its manufacturing base through protectionist policies before becoming an advocate for free trade.

In essence, Hamilton and List argued for pragmatic trade policies to foster industrialization in developing nations. While open borders and free trade were beneficial overall, targeted protectionism could sometimes better serve developing economies seeking to establish competitive domestic industries. Their ideas presupposed state actors shaping trade policy, rather than complete laissez-faire approaches.

Industrialization Driving Trade

As Marx and Lenin argued, the mass production of goods that industrialization enabled generated surplus output, requiring markets for the consumption of manufactures that inevitably would extend across national borders. Industrialization dramatically increased the need for goods to be traded across borders – a necessity for diplomacy in international trade.

The advent of industrialization and mass production techniques fundamentally changed manufacturing, enabling the production of far more goods than could be consumed domestically. This created a pressing need for foreign markets to export excess production to. As a result, industrialized nations became dependent on international trade to sell their surplus manufactured products abroad.

The dramatic expansion of manufacturing drove demand for new markets across borders. With production outstripping domestic consumption, international trade became crucial to sustain this new economic system. Industrialization made cross-border trade an imperative, not just an option, creating the conditions that necessitated the evolution of trade policy and diplomacy between nations on an unprecedented scale.

New Diplomatic Instruments for New Trade Policy

As the Industrial Revolution transformed manufacturing and trade, new diplomatic instruments were needed to facilitate the expansion of international commerce. Whereas previously, trade policy had often been used as a tool of warfare and political leverage, now trade began to emerge as an end in itself, requiring dedicated diplomacy.

Three key innovations in diplomatic instruments emerged to meet the new realities of trade:

• New types of trade and commercial treaties - To govern the new openness towards international trade, structured bilateral and multilateral trade treaties were negotiated, dealing specifically with issues like tariffs, quotas, and shipping. These went beyond the more informal trade privileges of the past.

• New negotiating strategies - With trade policy now complex and economically meaningful, skilled diplomats were needed to negotiate favorable trade arrangements. Specific bargaining techniques and leverage strategies emerged.

• New institutions - Entirely new entities were created to oversee international trade, like trade boards and ministries. This bureaucratization helped manage the intricacies of tariffs, quotas, and regulations.

Whereas previously trade policy had been ad hoc, now a professional class of diplomats skilled in commerce and trade law emerged. Dedicated diplomatic instruments allowed the expansion of trade while managing tensions between nations. Trade became not just a political tool, but an economic end in itself facilitated by robust diplomacy.

Congress of Vienna and Corn Laws (1846)

The Congress of Vienna in 1815 was a seminal moment in European diplomacy following the Napoleonic Wars. It established a new balance of power on the continent. For Britain, it also provided an opportunity to solidify its dominance in international trade.

At the Congress, Britain was able to get most favored nation trading status with many European powers. This allowed Britain to expand its exports across Europe. Britain also secured agreements to abolish the slave trade, which further expanded markets for its manufactures.

The effectiveness of British trade diplomacy was evident again with the repeal of the Corn Laws in 1846. The Corn Laws were tariffs on imported grain designed to protect British agriculture. Their repeal demonstrated Britain’s commitment to free trade principles. It was a unilateral move, without requiring reciprocal action from other powers.

By removing protections for domestic producers, Britain enabled cheaper food imports for its growing industrial cities. This also allowed it to access new markets abroad. The Corn Laws repeal showed how Britain was transitioning from mercantilist policies to using trade as an instrument of influence and power.

Britain’s trade diplomacy in this era set the stage for its dominance as the “workshop of the world” during the Victorian period. The foundations laid at Vienna and with domestic reforms like the Corn Laws enabled immense growth in British trade and strategic advantage.

Diplomacy in the Mercantilist Era

Trade agreements signed in the mercantilist era from the 1600 s to 1800 s were negotiated primarily for political purposes rather than economic gains. The main goal was to strengthen the nation’s economy and weaken rival powers.

Mercantilism viewed trade as a zero-sum game where one nation’s gain was another’s loss. To maximize power, nations tried to accumulate gold, establish colonies, and maintain trade surpluses through protectionist policies.

Tariffs and quotas restricted imports to boost domestic industries. Monopolizing key resources and trade routes gave a nation leverage over rivals. Trade pacts aimed to expand colonial holdings for their raw materials and exclusive markets.

Diplomatic negotiations focused on political alignments, not free trade. Agreements granted privileges like lower duties or access to ports mainly to allies as a way to strengthen political bonds. They did not reduce trade barriers broadly.

This mercantilist approach saw trade as an instrument of national power, not mutual economic benefit. Trade pacts were negotiated to contain rivals or reward allies rather than maximize commerce and prosperity for all parties. The lack of open trade meant diminished economic gains.

The Limits of Free Trade Public Diplomacy

Following Britain’s unilateral trade liberalization and public diplomacy efforts on free trade, trade liberalization was on the political agenda in Europe. However, Britain faced more complicated challenges with respect to its more powerful trading partners.

While other European nations also liberalized trade to some degree, this was often in response to domestic political debates rather than solely due to British advocacy. These states did not liberalize to the full extent that British free trade proponents had hoped for.

Britain found that advocating for total free trade was sometimes at odds with its other foreign policy goals related to maintaining influence and alliances. Pushing free trade too aggressively with major powers could jeopardize political relationships.

As a result, Britain often had to temper its free trade ambitions, and accept partial trade liberalization measures from other nations. This demonstrated the limits of relying predominantly on public diplomacy to achieve free trade, when partner nations had their own political and economic considerations.

Overall, Britain realized that unilateral free trade and public diplomacy alone would not be sufficient to achieve the level of multilateral trade liberalization it desired. This set the stage for Britain to develop new diplomatic strategies and eventually new trade institutions.

Conclusion

The period following the Industrial Revolution and Napoleonic Wars marked a major shift in international trade diplomacy. As industrialization drove greater demand for international trade, European nations transitioned from using trade as an instrument of war to negotiating trade agreements for economic gains.

This transformation required new diplomatic strategies and institutions. Britain led efforts to promote free trade and unilaterally liberalized its own policies through repealing the Corn Laws. However, broader European trade liberalization proved more gradual and complex due to domestic politics in nations like France and Germany.

Ultimately, the early 19 th century planted the seeds for modern international trade diplomacy even if full liberalization took time. The principles of using trade for mutual economic benefit rather than war aims emerged. New forums for negotiation like the Congress of Vienna also developed. This allowed the gradual expansion of trade despite ongoing political tensions between nations.

The era highlights how economic transformations shape diplomacy. As methods of production evolved, international economic integration became more imperative. This compelled nations to cooperate more on trade regardless of political conflicts. The experience of early 19 th century European trade diplomacy illustrates the potential for economic interdependence to act as a stabilizing force in international relations.