History warns us: the real danger of Brexit is a globalization backlash

On June 23rd 2016, the UK voted to leave the European Union. What are the main dangers to the UK economy at this juncture, and what lessons can we draw from economic history?

The main danger is that the UK may become protectionist and inward-looking in the wake of this recent backlash against globalization. Discontent with globalization is nothing new. As the economic historians Kevin O’Rourke and Jeffrey Williamson point out in their book Globalization and History, the first great era of globalization from 1850-1913 was met with a backlash of protectionism and immigration controls in nation states, both in Europe and the New World. The backlash was modest at first, but it intensified during the late 19th century and the 1914-45 interwar period as tariffs were raised and immigration restrictions were introduced -- and then tightened (see table).

The trade backlash began in continental Europe with the influx of cheap grain from America and Russia in the 1870s and 1880s – the so-called ‘European Grain Invasion’. Germany raised tariffs on agricultural products from single digits in the early 1870s to very high levels: 33% on wheat and 47% on rye by 1887. Over the same period, French tariffs on wheat were increased to 22%. In the 1890s, the backlash spread to manufacturing: Spain strengthened protectionism in cotton textiles, iron and steel in 1892, and France introduced tariffs of more than 25% on industrial goods. The New World also imposed strong protection of manufacturing interests in the late 19th century – from the advanced economies of Canada and the US to the less developed nations of Latin America.

During the same period, an immigration backlash began in the New World. Argentina turned from a pro-immigration stance in the 1860s to a neutral stance by the mid-1890s, before implementing a series of restrictive immigration policies up to the mid-1920s. In the US, immigration policy started out neutral in the early 1860s but took an anti-immigration stance from the mid-1870s onwards, culminating in the infamous Quota Laws of the 1920s. Other New World nations changed policy in both directions but ended up with a strong anti-immigration stance. As Timmer and Williamson put it: “whereas immigration in the 1860s was generally unrestricted, the doors to the New World were effectively closed by 1930.”

The UK must beware of such a popular backlash. The first great era of globalization provides us with an important lesson here: those countries who gained most from globalization embraced free trade and open borders; those whose pursued protectionist policies did not beggar their neighbours but themselves. And yet it was the first group of countries who chose to imitate the policies of the second, once anti-globalization sentiments took hold. As we move forward from the Referendum, these lessons of economic history must not be forgotten. Our future prosperity will depend on it.

Michael Hatcher, University of Southampton.