Bismarck's Economic Policy: Free Trade and protectionism

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Free Trade

In the 1870s:

  • Bismarck promoted Free Trade, which was influenced by Zollverein and Liberal ideas.
  • Zollverein was a good advert for free trade.
  • Free trade was considered the embryo for the new German State. 
  • Free Trade is an international trade that is left to its natural course, without tariffs, quotas or other restrictions.

However, in 1879:

  • Bismarck decided to change this policy and began to support Protectionism (a system of tariffs).
  • Protectionism is the economic policy that shields the country's domestic industries from foreign competition by taxing imports.
  • Take a look to see why this occured?
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Advantages and Disadvantages of Free Trade

The advantages of Free Trade include:

  • It stops barriers between other states.
  • Creates and maintains unification within the German State,
  • It provides more varitey of goods in Germany. 
  • It makes everything cheaper to buy. 

The Disadvantages of Free Trade include:

  • It means that the economy is not protected.
  • It creates disagreements.
  • It also means that the Govt would earn less money. 
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Advantages and Disadvantages of Protectionism

The Advantages of Protectionism includes:

  • It protects farmers and industrialists.
  • It means that the Govt would earn more money than they would in Free Trade.
  • There would be less disagreements as everything would be agreed with.
  • It also increases industrialisation.

The Disadvantages of Protectionism includes:

  • It creates more barriers.
  • Protectionism decreases unification. 
  • It also provides less variety and choice for the German citizens. 
  • Also everything will be more expensive than in a Free Trade economy.
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Why Bismarck changed from Free Trade to Protection

Bismarck changed the German's economic policy from Free Trade to Protectionism because of:

  • Agriculture Factors.
  • Political Factors.
  • Economic and Financial Factors.

Agriculture Factors:

  • In the late 1870s, German agriculture suffered badly from the bad harvests and there was the importation of cheap wheat from the USA and Russia, that also contributed to the agriculture suffering. 
  • Bismarck was a landowner himself, therefore he had empathy towards agriculture.
  • The federal govt's revenue was raised from customs duties and indirect taxation.
  • This proved  that it was inadequate to cover the growing costs of armaments and administration.
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Why Bismarck changed: Political Factors

Political Factors:

  • In the late 1870s, landoweners and industrialists were insistent to have protective tariffs.
  • Bismarck won influential support by espousing protectionist policies.
  • There was growing tension with the National Liberals:
    • The Liberals had large support.
    • The Liberals also tried to make the Constitution more democratic.
  • The tension with the National Liberals created an opportunity to build relationships with the 2 Conservative parties, and this could outvote the National Liberals in the Reichstag.
  • Breaking with the Liberals, widened Bismarck's support. 
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why Bismarck changed: Economic & Financial Factors

Economic and Financial Factors:

  • There were problems with the German agriculture, due to the bad harvest.
  • The industrial growth decreased after 1873.
  • France, Russia and Austria pursued protectionist policies.
  • The Federal Govt's revenue (raised from customs duties/indirect taxatio) proved to be inadequate due to the State's increased costs.
  • This meant that individual states were making extra payments.
  • Bismarck did not like this and didn't wish to be dependent on individual states and the Reichstag.
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