The Anglo-Irish Trade War (also called the "Economic War") was a retaliatory trade war between the Irish Free State and the United Kingdom (UK) lasting from 1932 until 1938. It involved the refusal of the Irish Government to continue to reimburse Britain with the "land annuities" derived from financial loans granted by Britain to Irish tenant farmers to enable them purchase lands under the Irish Land Acts during the previous half century, a provision which was part of the 1921 Anglo-Irish Treaty. This resulted in the imposition of unilateral trade restrictions by both countries, which caused severe damage to the Irish economy.
The "war" had two main aspects:
Disputes surrounding the changing constitutional status of the Irish Free State vis-a-vis Britain; and
Changes in Irish economic and fiscal policy following the Great Depression.
On taking over power and coming into office in 1932 the new Fianna Fáil government under Éamon de Valera embarked upon a protectionist policy in economic dealings, and tariffs were introduced for a wide range of imported goods mainly from Britain. This was thought necessary to compensate for the drastic fall in demand for Irish agricultural products on international markets, due to the Great Depression which had begun in 1929. Other means had also to be found to help the disastrously undermined balance of trade and the mounting national debt. A vigorous campaign was set in motion to make Ireland agriculturally and industrially self-sufficient by the then Minister for Industry and Commerce, Sean Lemass. Every effort was taken to add to the measures brought in by the previous government to boost tillage farming and industry and to encourage the population to avoid British imports and "Buy Irish Goods".
The government sought to go further and end the repayment to Britain of land annuities. These originated from the government loans granted to Irish tenant farmers by the Land Commission, which had enabled them purchase lands from their former landlords, under the Irish Land Acts. In 1923, the previous W. T. Cosgrave administration had assured Britain that the Free State would honour its debts and hand over the land annuities and other financial liabilities. Under the 1925 London Agreement, the Free State was relieved from all other contributions to the public debt of the United Kingdom on payment of £150,000 down and £250,000 p.a. for sixty years. The question of land annuities was still outstanding. In 1932, de Valera interpreted that the annuities were part of the public debt from which the Free State had been exempted and decided that the State would no longer pay them to Britain. His government passed the Land Act of 1933 that allowed the money to be spent on local government projects.
However, the Irish Government did not go so far as to waive its own collection of annuities that were costing its farmers over £4 million annually. A further part of de Valera's policy to dismantle the Treaty was revoking the Oath of Allegiance and making the office of Governor General dysfunctional by appointing a close friend Domhnall Ua Buachalla, who never took up office at the Viceregal Lodge or exercised any official function, and the post was abolished under the External Relations Act of 1937. London had little option but to accept these circumstances but was particularly enraged concerning the annuities. The British Prime Minister Ramsay MacDonald, in order to recover the money, retaliated with the imposition of 20% import duty on Irish agricultural products into the UK, which constituted 90% of all Irish exports. UK households were unwilling to pay twenty per cent extra for Irish food products.
Ireland responded in kind by placing a similar duty on British imports and in the case of coal from the UK, with the remarkable slogan (from Jonathan Swift in the 1720s) "Burn everything English except their coal". While the UK was less affected by the ensuing Economic War, the Irish economy was virtually crippled, and the resulting capital flight reduced much of the economy to a state of barter. In the background, unemployment was extremely high, the effects of the Great Depression compounded the difficulties, removing the outlet of emigration from Ireland and reducing remittances from abroad. The government urged people to support the confrontation with Britain as a national hardship to be shared by every citizen. Farmers were urged to turn to tillage in order to produce enough food for the home market.
The hardship the Economic War foisted particularly on the farming community was enormous and exacerbated class tensions in rural Ireland. In 1935, a "Coal-Cattle pact" eased the situation somewhat, whereby Britain agreed to increase its import of Irish cattle by a third in return for Ireland importing more of Britain's coal. But the cattle industry remained in dire straits, the government forced to purchase most of the surplus beef for which it paid bounties for each calf slaughtered as they could not be exported. It introduced a 'free beef for the poor' scheme, the hides finding use only in the tanning and leather industries. For many farmers, especially the larger cattle breeders, the agricultural depression had disastrous consequences. Similar to the "Land War" of the previous century, they refused to pay property rates or pay their land annuities. In order to recover payments due, the government counteracted by impounding livestock which were quickly auctioned off for less than its value. Farmers campaigned to have these sales boycotted, and blocked roads and railways. Police had to be called in to protect buyers of the impounded goods, violence was inevitable and fatalities were frequent.
With the farming community having little money to spend, there was a considerable decline in the demand for manufactured goods, so that industries were also affected. The introduction of new import tariffs helped some Irish industries to expand when Lemass introduced the Control of Manufactures Act, whereby the majority ownership of Irish companies was to be limited to Irish citizens. This caused dozens of larger Irish companies with foreign investors, such as Guinness, to relocate their headquarters abroad and pay their corporate taxes there. Additional sugar beet factories were opened at Mallow, Tuam and Thurles. The Economic War did not seriously affect the balance of trade between the two countries because imports from Britain were restricted, but British exporters were very critical of their government due to the loss of business they also suffered in Ireland, by having to pay tariffs on goods they exported there. Both the pressure they exerted on the British government and the discontent of Irish farmers with the Fianna Fáil government helped to encourage both sides to seek settlement of the economic dispute.
In 1935 tensions began to ease off between Britain and Ireland. With the 20% tax duties on imports coal and cattle were becoming increasingly harder to buy because of the prices. There was such a surplus of cattle in Ireland that farmers had to begin to slaughter their cattle because they could not be sold to the British. Britain and Ireland then signed the Coal-Cattle pact which meant that buying these commodities would be cheaper and easier to get. The coal-cattle pact indicated a willingness to end the "Economic War" and 3 years later it ended.
Effect on Irish elections:
Remarkably, despite the general hardship the government vote held up in 1932-38. Firstly de Valera had called the 1933 election within a year of taking office, before the worst effects had been felt. The July 1937 election saw a drop in support for him, but also for his main rival, the Fine Gael party, and he continued in office with the tacit support of the Labour Party. The number of Dáil seats contested in 1937 had been reduced from 153 to 138 seats, leaving less chance for smaller parties to win seats.
On the same day as the 1937 election the Constitution of Ireland was adopted by a plebiscite, moving the State further away from the constitutional position envisaged by the 1921 Anglo-Irish Treaty. The new Constitution was approved by 56.5% of voters who, because of the high numbers abstaining or spoiling votes, comprised just 38.6% of the whole electorate.
Finally, the resolution of the crisis came after a series of talks in London between the British Prime Minister Neville Chamberlain and de Valera, who was accompanied by Lemass and James Ryan. An agreement to reach an acceptable settlement was drawn up in 1938. Under the terms of the three year Anglo-Irish Trade Agreement all duties imposed during the previous five years were lifted. Although the period of the Economic War resulted in severe social suffering and heavy financial loss for Ireland, its outcome was publicised as favourable. Ireland was still entitled to impose tariffs on British imports to protect new Irish industries. The treaty also settled the land annuities question by a one-off payment to Britain of £10m., a compromise representing 40 years' payments paid up front, instead of being paid annually over the next 47 years. It also included the return to Ireland of the Treaty Ports which had been retained by Britain under a provision of the 1921 Treaty. With the outbreak of World War II in 1939 the return of the ports allowed Ireland to remain neutral.
Protectionism remained a key element of Irish economic policy into the 1950s, stifling trade and prolonging emigration. Ironically its architect, Sean Lemass, is now best remembered for dismantling and reversing the policy from 1960, advised by T. K. Whitaker's 1958 report "First Programme for Economic Expansion". This then became an important part of Ireland's entry into the European Economic Community in 1973. The Republic's population rose in the late 1960s for the first time since independence in 1922.