The Rise of German Protectionism in The 1870s: A Macroeconomic Perspective
In 1879 Germany imposed tariffs on a wide variety of industrial and agricultural goods. The German tariff marked a turning point in the nineteenth century European tariff history: the decades preceding it were characterized by trade liberalization while the following decades were characterized by return to protectionism in continental Europe. This paper challenges the leading political-economy explanations for the adoption of the tariff that focus on the effects of a decline in European grain prices on Germany’s income distribution. Instead it claims that severe macroeconomic imbalances caused by the Franco-Prussian war indemnity played the crucial role in the rise of protectionism in Germany in the 1870s and in the eventual adoption of the “iron and rye” tariff.