Anglo-Portuguese trade figures prominently in seventeenth- and eighteenth-century economic literature because it was a central linkage in the Portugal– England–Americas triangular trade, which raised monetary issues ranging from workings of exchange rates and the balance of payments to the effects of money changes on domestic output. These issues overlap with the perennially relevant and wide-ranging questions of how slavery, trade, and European expansion contributed to economic growth and the Industrial Revolution.
England supported the Brazanga (or Bragança) house after the Duke of Bragança staged a palace coup and took the throne as João IV. Commercial-diplomatic relations evolved within the context of successive Anglo-Dutch and Anglo-French conflicts. England’s trade with Portugal was largely an indirect trade with Brazil, which increased considerably in the late seventeenth century as exports of Brazilian sugar were augmented by gold from Minas Gerais and Portuguese fortified wine. In return, England exported light woolens, and at times grain, to Portugal and onwards.
Exempt from Portuguese prohibitions on the export of gold, English naval ships and packet boats carried Portugal’s trade deficit back to London in gold. Richard Cantillon’s “Essay on the Nature of Commerce in General” (in French, 1720s) illustrated the workings of the foreign-exchange market with the London rate of exchange against Portugal and argued that laws against the export of specie raised prices to Portuguese consumers. David Hume’s Political Discourses (1752) reiterated aspects of Cantillon’s position, but also emphasized that imported New World gold had increased output and employment in England.
Adam Smith steered clear of this in The Wealth of Nations (1776). Smith substituted national savings for the balance of trade as a causal factor behind economic growth and harshly criticized the 1703 Methuen Treaty with Portugal. The treaty lowered tariffs on English textiles, ending a brief period in which Portugal had protected manufacturing; in exchange, England guaranteed Portuguese wine a lower tariff than French—a policy Smith portrayed as likely to reduce savings and growth by increasing the cost of wine consumption.
Napoleon’s 1808 invasion led the Portuguese royal house to flee to Brazil and ushered in direct British trade and investment. Nevertheless, David Ricardo famously chose to illustrate the gains from international trade in his Principles of Political Economy (1817) with an exchange of English cloth for Portuguese wine. In his example Ricardo supposed Portugal to be more efficient than England at producing both textiles and wine, but he demonstrated that trade could leave both nations better off—both could have cheaper commodities in greater abundance. Part of this gain would be devoted to savings and capital formation. This aspect of trade ran parallel to Ricardo’s wider argument that British growth was suffering from diminishing returns to capital and labor in agriculture and would revive only if cheap grain were imported. Friedrich List highlighted the asymmetric aspects of this trade pattern in his National System of Political Economy (in German, 1841). In his view, Portugal had allowed itself to become trapped in the production of agricultural goods, whereas England enjoyed continuing technological progress and manufacturing supremacy.
SEE ALSO Trade; Trade, Bilateral
Cantillon, Richard. [1720s] 2001. Essays on the Nature of Commerce in General. Trans. Henry Higgs. New Brunswick, NJ: Transaction Publishers.
Darity, William A., Jr. 1987. The Hume Process, Laws of Returns, and the Anglo-Portuguese Trade. Southern Economic Journal 54 (1): 119–133.
Fisher, H. E. S. 1963. Anglo-Portuguese Trade, 1700-1770. Economic History Review 2nd series 16 (2): 219–233.
Hume, David.  1987. Essays, Moral, Political, and Literary, ed. Eugene F. Miller. Indianapolis, IN: Liberty Classics.
Smith, Adam.  1976. An Inquiry into the Nature and Causes of the Wealth of Nations, eds. R. H. Campbell and A. S. Skinner. Oxford: Clarendon Press.