By a gradual process of better understanding, largely helped by the development of means of communication, the antagonistic extreme was abandoned, and a tendency towards a system of preferential duties within the empire displayed itself.
At the Colonial Conference held in London in 1887 a proposal was formally submitted by the South Colonial preference. African delegate for the establishment within the empire of a preferential system, imposing a duty of 2% upon all foreign goods, the proceeds to be directed to the maintenance of the imperial navy. To this end it was requested that certain treaties with foreign nations which imposed restrictions on the trade of various parts of the empire with each other should be denounced. Some years later, a strong feeling having been manifested in England against any foreign engagement standing in the way of new domestic trade arrangements between a colony and the mother-country, the German and Belgian treaties in question were denounced (1897). Meanwhile, simultaneously with the movement in favour of reciprocal fiscal advantages to be granted within the empire by the many local governments to each other, there was a growth of the perception that an increase of the foreign trade of Great Britain, carried on chiefly in manufactured goods, was accompanied by a corresponding enlargement of the home markets for colonial raw material, and consequently that injury to the foreign trade of Great Britain, while as yet it so largely outweighed the trade between the United Kingdom and the colonies, must necessarily react upon the colonies.
This view was definitely expressed at the Colonial Conference at Ottawa in 1894, and was one of the factors which led to the relinquishment of the demand that in return for colonial concessions there should be an imposition on the part of Great Britain of a differential duty upon foreign goods. Canada was the first important British colony to give substantial expression to the new imperial sentiment in commercial matters by the introduction in 1897 of an imperial tariff, granting without any reciprocal advantage a deduction of 25% upon customs duties imposed upon British goods. The same advantage was offered to all British colonies trading with her upon equal terms. In later years the South African states, Australia and New Zealand also granted preferential treatment to British goods. Meanwhile in Great Britain the system of free imports, regarded as "free trade" (though only one-sided free trade), had become the established policy, customs duties being only imposed for purposes of revenue on a few selected articles, and about half the national income was derived from customs and excise. In most of the colonies customs form of necessity one of the important sources of revenue.
It is, however, worthy of remark that in the self-governing colonies, even those which are avowedly protectionist, a smaller proportion of the public revenue was derived from customs and excise than was derived from these sources in the United Kingdom. The proportion in Australasia before federation was about one quarter. In Canada it is more difficult to estimate it, as customs and excise form the principal provision made for federal finance, and note must therefore be taken of the separate sources of revenue in the provinces. With these reservations it will still be seen that customs, or, in other words, a tax upon the movements of trade, forms one of the chief sources of imperial revenue.
The development of steam shipping and electricity gave to the movements of trade a stimulus no less remarkable than that given by the introduction of railroads and industrial machinery to production and manufactures. Whereas at the beginning of the 19th century the journey to Australia occupied eight months, and business communications between Sydney and London could not receive answers within the year, at the beginning of the 20th century the journey could be accomplished in thirty-one days, and telegraphic despatches enabled the most important business to be transacted within twenty-four hours. For one cargo carried in the year at the beginning of the 19th century at least six could now be carried by the same ship, and from the point of view of trade the difference of a venture which realizes its profits in two months, as compared with one which occupied a whole year, does not need to be insisted on. The increased rapidity of the voyage and the power of daily communication by telegraph with the most distant markets have introduced a wholly new element into the national trade of the empire, and commercial intercourse between the southern and the northern hemispheres has received a development from the natural alternation of the seasons, of which until quite recent years the value was not even conceived.
Fruit, eggs, butter, meat, poultry and other perishable commodities pass in daily increasing quantities between the northern and the southern hemispheres with an alternate flow which contributes to raise in no inconsiderable degree the volume of profitable trade. Thus the butter season of Australasia is from October to March, while the butter season of Ireland and northern Europe is from March to October. In three years after the introduction of ice-chambers into the steamers of the great shipping lines, Victoria and New South Wales built up a yearly butter trade of £1,000,000 with Great Britain without seriously affecting the Irish and Danish markets whence the summer supply is drawn. These facilities, combined with the enormous additions made to the public stock of land and labour, contributed to raise the volume of trade of the empire from a total of less than £100,000,000 in the year 1800 to a total of nearly £1,500,000,000 in 1900. The declared volume of British exports to all parts of the world in 1800 was £38,120,120, and the value of British imports from all parts of the world was £30,570,605; total, £68,690,725. As in those days the colonies were not allowed to trade with any other country this must be taken as representing imperial trade.