A British MP and a French economist negotiated the first modern trade deal in three months.
In the autumn of 1859, Richard Cobden, a Manchester textile manufacturer turned member of Parliament, traveled to Paris on family business. Michel Chevalier, an economist and adviser to Emperor Napoleon III, arranged to meet him there with a proposal.1 Chevalier had spent years arguing that France needed to abandon its protectionist tariffs. Cobden had spent a decade campaigning for the same cause in Britain, having led the Anti-Corn Law League to victory in 1846. Neither man held a cabinet position. Within weeks, Cobden had secured an audience with the Emperor himself.
The treaty they produced, signed on January 23, 1860, reduced French protective duties to a maximum of 30 percent and eliminated most British duties on French silk, wine, and luxury goods.2 Princeton economist Gene Grossman has called it the first modern trade agreement.3 Its most consequential feature was a most-favored-nation clause, which guaranteed that any tariff reduction either country granted to a third party would automatically extend to the other.
The clause proved contagious. Within fifteen years, fifty-six similar bilateral treaties had been signed across Europe, creating what historians call the Cobden-Chevalier network.4 Tariff barriers across the continent fell to levels that would not be seen again until after the GATT negotiations of the mid-twentieth century.
The network collapsed in the 1880s and 1890s as protectionism returned, led by Germany and France. The consequences of that reversal became visible a generation later. In 1930, the United States passed the Smoot-Hawley Tariff Act, raising duties on over 20,000 imported goods. Twenty-three trading partners retaliated. World trade fell by roughly 66 percent between 1929 and 1934.5
The lesson embedded itself in postwar planning. On October 30, 1947, twenty-three nations signed the General Agreement on Tariffs and Trade at the Palais des Nations in Geneva.6 GATT was designed as a temporary framework pending the creation of an International Trade Organization, which the United States Senate never ratified. The temporary agreement lasted forty-seven years. Average tariffs among GATT participants fell from roughly 22 percent in 1947 to under 5 percent by 1994.7
In 1995, GATT was absorbed into the World Trade Organization, which by that point governed rules covering 90 percent of world trade among 125 signatory nations.8