Russel Wallace : Alfred Russell Wallace (sic)
But if a countervailing duty is a Free-trade measure when applied to neutralise a "bounty," it must be equally so when applied to neutralise a protective duty. The "export bounty" and the "import duty" produce the same result, by different means. Both enable the foreign producer to sell his goods in our market at or under cost price, while still leaving him a profit. The bounty does this directly; the import duty indirectly, by giving him a monopoly of his home trade, and therefore larger profits. It then becomes advantageous to him to increase his production to the utmost, as he thereby decreases the proportionate amount of fixed charges; and then, by selling cheap in our market and dear in his own, he strikes a fair average of profit, at the same time that he undersells us. It is clear, then, that countervailing duties, exactly balancing the unfair advantage given to foreigners by bounties and protective import duties, are justifiable on Free-trade principles; and this is the exact form of "reciprocity" which I have maintained to be "true Free-trade." I cannot myself believe that the practical difficulties in the way of its application are insuperable, because circuitous routes and reshipments from foreign ports would, in many cases, be unprofitable. If, however, the principle of such countervailing duties was adopted, and carried into execution as far as was found practicable, it would relieve almost all our domestic industries from a heavy burthen, while it would certainly have considerable effect in inducing foreign Governments to relax their present policy of almost universal Protection.--I am, Sir, &c.,
Alfred R. Wallace.
1. i.e., S306.