An important issue of nineteenth-century trade and diplomatic history that refers to the policy of signing agreements with another state on the mutual reduction or cancellation of import duties.
In the early nineteenth century, “reciprocity” usually meant “a grant of equal commercial terms on pain of retaliation.” Gradually, the term came to mean a voluntary negotiation of equal terms. Reciprocity integrates notions of fair play between trading partners expecting mutual gains—or equivalent losses. In a reciprocity agreement, each government accepts a loss of revenue as tariffs go down because it hopes to gain more national income through cheaper imports (implying benefits to the consumer and reduction of business costs), while increasing exports.
Free traders, protectionists, and defenders of reciprocity all had to deal with arguments concerning revenue, economic development, the protection of domestic industry (John Stuart Mill’s “infant industry” theory), unemployment, and so on. Some even consider reciprocity as a step on the road to free trade, since it is a form of “negotiated” freedom between two partners, granting each other preferential treatment.
In the history of modern trade, mercantilism was the dominant feature until Great Britain decided to abandon this policy in favor of free trade. From the 1840s onward, as the leader in world trade, Great Britain decided to move toward uni-lateral free trade, with long-lasting consequences on the British economy and society, on the evolution of the British empire, and on world trade. Recent scholarship has mitigated this traditional view. However, unilateral tariff reduction by Britain came as a shock to nations in the process of industrializing, like Germany or the United States. The most predictable backlash was the tightening of protectionist policies. For most of the nineteenth century, the United States endorsed neomercantilist policies, with an emphasis on balance-of-trade surpluses supposed to ensure national prosperity by promoting exports and restricting imports. U.S. tariff history can there fore be considered as a mixture of neomercantilism and timid applications of the “comparative advantage” theory, which may account for the government’s pursuit of reciprocity treaties with other Western Hemisphere countries.
In the United States, the debate over tariffs was passionate. Public opinion was divided between protectionists, free traders, and advocates of reciprocity with major trading partners. Each side believed that its policy was the best to boost trade, employment, productivity, and consumption. The issue was made even more complex by the party divisions: most Republicans were protectionists in favor of high tariffs, while Democrats tended to defend a policy of reform of the tariff policy (however, tariff reform did not mean the advocacy of reciprocity).
In this context, one of the means to reform tariffs in the United States was reciprocity, which became a buzzword for all those who stood halfway between totally free trade and a high level of protection. Most historians agree that the major defenders of reciprocity were strongly influenced by the German model of the Zollverein, a customs union concluded in the 1834 by the German states. The U.S. government devised nothing so comprehensive, neither did it elicit sufficient support in Congress for a global reciprocity campaign with all its trade partners. Instead, it managed to reach bilateral agreements with a limited list of countries to reduce or abolish duties on certain products. The United States was hoping to export its manufactured goods and semimanufactured foodstuffs while expecting its partners to sell raw materials at lower rates or even duty free.
The first U.S. reciprocity treaty was signed with Canada in 1854. It lasted from 1855 to 1865 but, because of stiff opposition in the United States and later in Canada, it was not renewed. The second U.S. reciprocity treaty was signed with Hawaii. It became effective in 1875 and lasted until 1898, when Hawaii was annexed by the United States in the wake of the Spanish-American War. This treaty became a model for all subsequent treaties with Latin American governments as it combined trade benefits with a rise in American investments and economic development, to the mutual satisfaction of the United States and the participating countries.
In the case of Latin America, the few treaties signed were either short lived or unsuccessful. From 1865 to 1898, there were almost a dozen reciprocity treaties or agreements in operation with Mexico, Brazil, Central American countries, Spain (over Cuba and Puerto Rico), and Britain (over its West Indian possessions). They affected 36 percent of American imports.
During the administration of Grover Cleveland (1885–1889), some—the boldest—went as far as to battle for the establishment of a commercial union with Canada, a kind of common market with a tariff wall raised against the rest of the world, while totally free trade was practiced between the United States and Canada. No consensus was ever reached either in favor of this revolutionary common market, or in favor of tariff reform; both issues were eventually addressed in the twentieth century.
As for Europe, until the 1870s hardly any reciprocity treaties were discussed because of a state of chronic tariff war. The 1860s can be considered a turning point with the Anglo-French Treaty of 1860 (concerning wine and manufactured goods), the first of the kind in Europe, which led to several reciprocity treaties signed by both France and Great Britain with other European countries, who now gave up any resistance to liberalizing trade. A new era of bilateral treaties opened, but all included most-favored-nation clauses, by which all the signatories were entitled to the lowest scale of tariffs agreed to in any of the bilateral treaties, timidly leading to a new perception of a multilateral system of trade. The United States was therefore reluctant to enter into reciprocity treaties with those powerful industrial nations.
Although reciprocity is a perfect example of compromise over mutually agreed on interests, it was bound to be the target of heavy criticism by protectionists and free traders, who easily underscored the drawbacks of the system, one of which was the development of most-favored-nation clauses inside bilateral treaties.
Protectionism dominated policies until the 1930s, when the adoption of the 1934–1935 Reciprocal Trade Agreement opened a new era of free-trade policies, focusing on the reduction of tariffs and the promotion of trade. The twentieth century saw the development of a new division between “free traders” and “fair traders.” And in the post–World War II era, the General Agreement on Tariffs and Trade negotiations placed reciprocity at the core of the multilateral trading system, alongside nondiscrimination.
Aïssatou Sy-Wonyu
See also: British Empire; Comparative Advantage; Industrialism; Mercantilism; Mill, John Stuart; Smith, Adam; Tariff Barriers; Tariffs.
Bayard, Thomas O., and Kimberly Ann Elliott. Reciprocity and Retaliation in U.S. Trade Policy. Washington, DC: Institute for International Economics, 1994.
Cline, William R. “Reciprocity”: A New Approach to World Trade Policy? Washington, DC: Institute for International Economics, 1982.
Goldstein, Judith. Ideas, Interests, and American Trade Policy. Ithaca: Cornell University Press, 1993.
Irwin, Douglas A. Against the Tide: Intellectual History of Free Trade. Princeton: Princeton University Press, 1996.
Laughlin, James Laurence. Reciprocity. New York: Baker and Taylor, 1903.
Magnusson, Lars, ed. Free Trade and Protectionism in America, 1822–1890. London: Routledge, 2000.
Maneschi, Andrea. Comparative Advantage in International Trade: A Historical Perspective. Cheltenham, UK: Edward Elgar, 1998.
Rhodes, Carolyn. Reciprocity, U.S. Trade Policy, and the GATT Régime. Ithaca: Cornell University Press, 1993.
Wolman, Paul. Most Favored Nation: The Republican Revision-ists and U.S. Tariff Policy, 1897–1912. Chapel Hill: University of North Carolina Press, 1992.