The impact of protection in the 1930s

The performance of the UK economy improved significantly in the decade of the 1930s. The evidence presented suggests that the role of tariffs in this economic revival has been underemphasised in much of the previous historical literature. Between 1932 and 1937 the UK economy witnessed a marked fall in import ratios and import propensities that could be partly attributed to the impact of the General Tariff. A comparison of import and export competitiveness shows that export competitiveness improved by 2.5 per cent in the period 1931–7 relative to 1929, while import competitiveness improved by 5.4 per cent compared to 1929 or 7.1 per cent when compared to the period 1925–31. The impact of the tariff on imports is verified by estimates of UK manufacturing import functions for the interwar years. The tariff effect is estimated to be significant and much larger than a simple relative price effect. This could either be because the tariff is capturing a long-run price elasticity of demand or because the tariff had feedback macroeconomic effects on the economy. The changes in the pattern of British import shares from different trading blocs provides further evidence of a tariff effect.

The newly protected sector of 1932 saw an improvement in economic performance relative to the poor performance of the 1920s; these industries increased their annual growth rate by 3.9 per cent in the period 1930–5 compared with 1924–30.