Economic Protectionism

What is free trade?

Unrestricted trade without import tariffs.

Why is free trade good?

It allows people to purchase goods cheaply.

Why is free trade bad?

It endangers a country’s industrial and agricultural production, e.g. from cheaper foreign imports.

What economic and financial factors were there for introducing protective tariffs?

• A series of bad harvests in the 1870s and the importation of cheaper grains from Russia and the USA meant that agriculture suffered.

• As the price of wheat fell, farmers suffered.

• Bismarck feared that if Germany was reliant on foreign grain, it would be weakened in the time of war.

• Protectionism would aid German self-sufficiency.

• A slowdown in industrial growth reduced confidence in free trade. Industrialists and workers wanted the government to protect their interests.

• Most other countries had taken up tariffs.

• The federal government’s revenue was not able to cover the government’s growing costs of armaments and administration. They were relying on payments from the states. Tariffs would give an extra source of income and separate it from the states and Reichstag.

What was indirect taxation?

Taxation place

What was the federal government’s revenue raised from?

• Customs duties

• Indirect taxation

What political factors were there for introducing protective tariffs?

• Would win Bismarck support from landowners and industrialists.

• This was Bismarck’s chance to break from the National Liberals who believed in free trade. Bismarck didn’t need them anymore since Conservatives had enough votes to outvote them.

What did the 1879 Tariff Act say?

Duties were imposed on imports

What were the political results of the act?

• Bismarck was firmly in the Conservative camp.

• The National Liberals splintered.

What happened to the National Liberals after the act?

• Those believing in free trade and parliamentary government united with the Progressives to form a new radical party.

• The rest remained loyal to Bismarck but he was no longer dependent on them.

• This was the end of the liberal era.

What were the economic results of the act?

• Consolidated the work of unification by drawing north and south Germany together.

• Accelerated the growth of a large internal market.

• Higher bread prices but didn’t mean that workers had lower living standards.

• Tariffs protected German jobs.

What was the ‘Frankenstein Clause’?

• An effort by the Centre Party and the National Liberals to frustrate Bismarck’s attempts at the government being less dependent on the states and the Reichstag.

• All revenues coming to the federal government in excess of 130 million marks were to be divided between the states and then returned as part of state payments.

• It protected the budgetary rights of the Reichstag and the state parliaments.

• Bismarck was not financially independent.