Holy Roman Empire

With the outbreak of the Second Industrial Revolution, industrial output in various countries grew exponentially, creating an ever-increasing demand for markets and raw materials.

The Austrian government’s urgency in promoting free trade was driven not only by domestic economic needs but also by hidden strategic objectives.

Once the era of free trade began, Austria, with its dominance in emerging industries, would likely amplify this advantage, setting higher barriers for latecomers.

If progress went as planned, the near future might see a global industrial landscape where Britain dominated traditional industries such as textiles and shipbuilding, while Austria controlled emerging sectors like electricity, communications, and internal combustion engines.

This would essentially replicate the economic rise of the Second Reich, though Austria’s foundation was more robust. Austria was already Europe’s largest exporter of agricultural products and had vast colonies as a support system.

If Britain and Austria divided the world’s industrial core between them, what would be left for other nations?

France, in particular, as the third-largest industrial power after the two, faced a dire situation. Whether competing with Britain in traditional industries or with Austria in emerging ones, it had no clear advantage.

The issue wasn’t a lack of technological capability but rather an inability to secure industrial raw materials. Unlike later periods with more developed transportation, high transportation costs made long-distance supply chains prohibitive.

Militarily defeating France carried enormous risks. With nearly 60 million people, France was a major power. Even if Italy contributed little on the battlefield, it could still provide logistical support.

In such a scenario, when the snipe and the clam fight, the fisherman benefits.

Unless the war could be concluded quickly with a decisive blow, the ultimate winner would likely be the neutral observer.

Looking at the map, anyone with basic military knowledge could see that a quick victory between France and Austria was impossible. Geography made it inevitable that such a conflict would drag on.

In contrast, defeating France economically posed much less risk and had a much higher likelihood of success.

In economic terms, Britain, France, and Austria were all competitors. Even though the British government favored maintaining a balance of power on the European continent, this was only applicable to military matters and there was no way to achieve balance in economics.

The economic scales between France and Austria had long been tipped, and Britain had no intention of assisting France, as doing so would mean aiding a rival.

Forget about strategic considerations—capitalists lacked such lofty ideals. Making money was the priority. If eliminating a competitor meant higher profits, why would anyone refuse?

No matter how big the threat posed by Austria, it was a problem for the future. Capitalists would not give up immediate gains for the sake of a potential danger.

A prime example of this was the rise of the Soviet Union in the original timeline. Despite being a far greater threat than Austria could ever be, capitalists still cooperated with the Soviets for the sake of profit.

In an era of free trade, markets dictated economic activity, and government intervention was relatively minimal. Take the British government of this era as an example, it rarely interfered with the market.

Once Austria joined the free trade system, existing beneficiaries would likely push both British and Austrian governments to include the remaining countries, forcing them into the free trade system.

Undoubtedly, most European countries lacked the leverage to refuse. Once everyone joined the free trade system, France would face serious trouble.

If France participated in the free trade “game,” it would lack competitiveness. If it chose not to participate, it would find itself isolated, stuck in “single-player mode.”

Historically, France had already faced exclusion on the European continent. Napoleon III had spent 20 years working hard to gain reluctant acceptance from other powers, and now refusing to play along would return France to its former state of isolation.

While Britain might one day abandon the free trade system, it would never do so to support France. As long as the benefits outweighed the costs, free trade would remain Britain’s signature policy.

Based on current circumstances, as long as Britain didn’t sabotage itself, its industrial and commercial sectors could maintain competitiveness for decades. This was the advantage of being a long-established industrial powerhouse.

…

Franz asked, “What is the reaction from public opinion domestically?”

Prime Minister Felix answered, “The voices of support and opposition are nearly equal. Both sides are arguing fiercely, and it seems unlikely a winner will emerge anytime soon.”

Support for free trade isn’t just coming from emerging industries but also from agricultural processing sectors, which are powerhouses of Austrian economic power. These industries are confident in their ability to compete internationally.

Joining the free trade system and lowering import and export tariffs would benefit these sectors greatly.

However, where there are winners, there are also losers. For example, the cotton textile industry is one of the staunchest opponents of free trade. Without tariff barriers, British competitors would undoubtedly seize part of their market share.

Of course, if these industries were ambitious enough, they could also try to enter British markets. After all, cotton textiles are relatively low-tech, and there isn’t a significant technological gap between competitors.

If it weren’t for the higher labor costs in Austrian Africa, many domestic textile enterprises might have already relocated. In a free trade era, cost control would become an unavoidable necessity for these companies.

Franz said, “Then give them a platform. Let the supporters and opponents debate publicly and let the… citizens be the judges.”

Originally, Franz wanted to say “peanut gallery,” but realizing it might be inappropriate, he quickly corrected himself by saying “citizens.”

“Your Majesty, this could stir things up even further. Many people have already applied to the police for permits to protest and demonstrate,” Prime Minister Felix advised.

Franz shook his head and then said, “Precisely because the situation is escalating, there is a need for public debate. If you don’t give them an outlet to vent, those who stand to lose won’t accept it quietly.”

Letting capitalists argue with capitalists was far better than having the government intervene directly. Regardless of the debate’s outcome, the reforms would still proceed.

This approach merely adds a buffer, redirecting the anger of those who feel disadvantaged.

It’s only fair. As beneficiaries of the reforms, those who stand to gain can’t simply take the benefits without putting in effort. Drawing public ire is one of their responsibilities.

…

Finance Minister Karl stated, “Your Majesty, our negotiations with the British have hit a roadblock. While both sides have reached a general consensus, the British are insisting that we open up our financial sector.

Given the strength of the domestic financial sector, if we open the financial market, it will be difficult for us to gain any advantage.”

Gaining an advantage was out of the question. Austria’s financial sector wasn’t even as robust as France’s, let alone capable of competing with Britain. If the restrictions were lifted, it would essentially be a one-sided beating.

After a moment of contemplation, Franz responded, “It’s impossible to fully lift restrictions on the financial sector. Even domestic capital is regulated. How could foreign capital be left unrestricted?

Continue negotiating with the British. We can allow British capital to enter the securities market, but only under the condition that they adhere strictly to our regulations.

If the British continue to fixate on the financial issue, we might as well propose an agreement where neither side’s capital enters the other’s financial market. That would be fair.”

Austria had never outright prohibited foreign capital from entering its financial markets, but the restrictions were significant. Any attempts to operate freely in the Austrian financial sector would likely end with intervention and confiscation by regulators.

Unlike Britain’s financial markets, where the rule-makers intentionally left loopholes, Austria’s financial market was heavily monitored and regularly updated with “patches.”

Even exploiting a loophole didn’t guarantee profits. It also required swift action to complete transactions before regulatory authorities could respond.

After years of patches, the loopholes in Austria’s financial markets have become very few, making it significantly harder for anyone to exploit them with reckless abandon.

The proposal of “mutually refraining from entering each other’s financial markets” was almost laughable.

For Austria, it was inconsequential. The domestic financial industry was still in its capital accumulation phase, and even if Austria wanted to make inroads into Britain’s financial markets, it lacked the strength to do so.

From Britain’s perspective, however, it was a completely different story. The British financial market was the world’s financial hub, attracting capital from all corners of the globe to engage in its games.

Apart from a select few lucky individuals who managed to turn a profit, the vast majority of foreign investors ended up being “harvested” by British financial conglomerates.

Foreign capital entering British financial markets was seen as easy pickings for British financial giants. Why would they ever refuse such an opportunity?

The British were the first to complete the Industrial Revolution. In the early days, their status as the “world’s factory” allowed them to amass an enormous amount of capital, leading to a state of capital surplus starting two decades ago.

In the original timeline, Britain’s need to export its surplus capital heavily facilitated the rise of the United States. Without this, even the so-called “chosen land” wouldn’t have developed so easily.

Austria’s own rise also benefited from British capital in its early stages. However, Franz took advantage of economic crises and Austria’s position as a rule-setter to trap British investments along the way.

Now, Britain’s insistence on Austria opening up its financial markets was essentially driven by fear of being “trapped” again.

Triggering an economic crisis ahead of time was one thing that could be attributed to a lack of foresight and could serve as a lesson for the future.

However, rules and regulations that restricted operations were a different story altogether. Many seemingly inconspicuous rules might have little impact during normal times, but when an economic crisis hit, they could deliver a devastating blow.

The irony was that these rules had been established in advance and were fully transparent. Since they fell within the bounds of the rules, failing to notice them was the investor’s own oversight, leaving them with no grounds for complaint.

Britain had employed similar tactics in its own British financial market, where rules of this nature were crafted to trip up unsuspecting foreign investors.

Yet, people are often hypocritical. When they exploit rules to harm others, it’s seen as a clever strategy. But when the same thing happens to them, it becomes intolerable.

Having been burned before, British capitalists were eager to see such restrictive rules abolished.

Franz found himself in a bit of a quandary. He wanted to reassure the British that their concerns were overblown.

The same tricks couldn’t be used endlessly. As markets became increasingly regulated, the opportunities to set such traps were naturally diminishing.

Unfortunately, such reassurances would likely fall on deaf ears. From the Austrian government’s infamous waterworks and railway monopoly projects which were financial sinkholes for unwary investors, to the recent preemptive economic crisis, British capital had suffered significant losses.

From Austria’s perspective, all of these actions were standard procedures, entirely compliant with the rules of the game. But from the viewpoint of British investors, they were nothing short of enormous pitfalls.