Worldwide protectionism flourishes
Following the Wall Street share-market crash of 1929, and the related commodity-price slump, many economies protected their producers from foreign competition. In March 1932, after 90 years of free trade, even the British government imposed a 10% tax on most ‘foreign’ (non-British Empire) goods. No tariffs were imposed on goods from the dominions – self-governing members of the British Empire such as New Zealand – pending discussion with them.
The Ottawa Conference
The Ottawa Conference, held in mid-1932 in the Canadian capital, aimed to reconcile the new British trade policy with the dominions’ wish to have favoured access to the British market. The British offered preferential treatment on products imported from the dominions, but only up to a point. Britain wanted to protect its own farmers, and it did not want to forego all trade with ‘foreign’ (non-British Empire) nations such as Argentina, which were important markets for British exports. Britain therefore demanded reciprocity from the dominions – if New Zealand wanted secure access to the British market for its dairy and meat exports, in return it had to consider increasing preferential access for British imports.
The Ottawa agreement, and subsequent agreements, introduced a system of political tinkering to continually adjust the volumes of agricultural exports from New Zealand and other dominions into the British market, depending on market conditions and on Britain’s trade arrangements with foreign countries. New Zealand had to engage in frequent lobbying to make sure its position was not undermined by these adjustments. Lobbying Britain was a key feature of New Zealand international trade from the 1930s to the 1970s.
As a small economy, with a small domestic market, New Zealand’s fortunes have always relied on what it could sell overseas. As early as 1915 it was recognised that ‘[f]rom the very earliest times New Zealand has inevitably been dependent upon foreign intercourse for its development and progress’.1
A surge in imports in the late 1930s led the Labour government to restrict imports by requiring importers to have a licence to bring in goods. They also placed controls on the buying and selling of foreign currency. Their aim was to protect the domestic economy and prevent a rise in unemployment.
However, licensing also became a protectionist measure, with licences being few or non-existent for goods that were also manufactured in New Zealand. It became a central part of trade policy for 50 years. Licensing was defended on the grounds that it protected New Zealand employment and encouraged industrial development, but it was a barrier to negotiating trade agreements with other economies.
The Second World War and after
War caused many temporary disruptions in trade patterns, but some economies grew. By the end of the war the US was the world’s leading economy, accounting for around 50% of total world production in 1945. The US wanted open trade, with lower tariffs and less import licensing. It was sceptical of preferential agreements such as the British Empire’s, and New Zealand’s import licensing and exchange control regime.