Teacher Background - Importance of Foreign Trade after the Revolution
"Trump to drop labeling China a currency manipulator, report says"
The world that the former British colonies entered as the newly independent United States was one in which countries closely controlled their domestic and international economies. European countries had been practicing mercantilism from the 16th century on as each of them worked to become more powerful than its neighbors and competitors. Wealth in the coffers of the government was the source of power, and to insure capturing as much wealth as possible, the nation/kingdom became the center of a fairly closed trading network which included colonies that provided raw materials.
The economy of the American British colonies at the time of the revolution was extractive. Natural materials such as lumber, fish, rum were harvested and traded within the British empire. Manufacturing and other kinds of trade were prohibited by the Navigation Act of 1651 and subsequent legislation. North American British colonials were thus required to purchase Asian goods through England rather than engaging in an independent Asian trade. One of the contributing causes of colonial unrest was the exclusion of Americans from what was seen in the colonies as a very lucrative China trade.
The demand for Chinese products—tea, porcelain, silk, and nankeen (a coarse, strong cotton cloth)—continued after the Revolution. Having seen the British make great profits from the trade when the colonies were prevented from direct trade with China, Americans were eager to secure these profits for themselves. The need to provide employment for people who had depended on the sea for their livelihood, the need to continue importing manufactured goods as yet unavailable from American sources, and the need to generate capital for development stimulated the development of a new kind of foreign trade. Direct trade with China was part of this trade. With the volume of foreign trade relatively small during the early years of the Republic, trade with China played a significant role.
Trading Strategies
Ships from Philadelphia, New York, Boston, and Salem were the most active in the new China trade. The immediate difficulty which all traders faced was to find commodities to sell in China to offset American purchases in China that were mostly paid for in silver shipped from the Americas to China. Traders from these different American ports settled on different commodities and followed different routes to China to obtain these commodities. In general, all traders engaged in the serial trading of goods, buying and selling in all the ports they visited.
Traders from Philadelphia first sent their ships across the Atlantic Ocean to buy and sell goods in Europe. They then traded around Africa and across the Indian Ocean to China. Around 1810, Philadelphia merchants found a source of opium in Smyrna (Turkey) and they began to ship this commodity to China. However, they continued to ship other goods as well. Ships from New York seem to have engaged in a broad range of trade strategies available and in the mid-19th century, New York became the major port involved in the China trade.
By the 1830’s, trade routes were well established between the United States and China, and the names of ports in the Eastern hemisphere, once exotic and mysterious, were becoming increasingly familiar to Americans as places of importance to the United States’ economy.
Commodities of the Trade
Tea was the most important imported commodity Americans obtained from China through the end of the 19th century. Initially, American imports from China largely consisted of cloth (nankeen and silk) as well as tea. Tea became the dominant commodity, expanding from approximately 36% of the total imports from China in 1822 to 65% in 1860.
Textile imports declined during the 1830s. Silk imports declined although the reason is uncertain. As cotton textile manufacturing developed in the 1820s and the quality of domestic cloth rose and the cost decreased, the U.S. stopped importing nankeen and began to export cotton cloth to China. Machine-spun cloth did not have comparable quality to the homespun, hand-woven nankeen which the Chinese continued to prefer for work clothes. It was not until the middle to the end of the 19th century that western-manufactured cloth provided the serviceability for a comparable price as did Chinese-produced cloth. At that time western cloth began to be imported into China in increasing quantities. By the last quarter of the 19th century, cotton cloth and cotton yarn represented a significant portion of the total American exports to China.
Americans initially looked to ginseng as the commodity which would finance trade with China. This market quickly turned out to be very volatile. Furs also held promise, but this market also proved to be undependable. Without a commodity which consistently found a market in China, the Americans had to use specie (metal and coins) to finance the trade. Without a source of gold or silver, Americans had to obtain specie elsewhere. They did this by engaging in a triangular trade. Goods were shipped to Europe, between European ports, or to South America and sold for Mexican dollars. The specie was then shipped to China to purchase tea. By the 1830s, a significant amount of the trade was financed by credit extended by London banks through their representatives in China.
Some Americans also turned to opium as a commodity to finance the China trade. India produced the highest quality opium, but the British East India Company held a monopoly on opium production in India until 1831. Turkey produced opium of lesser quality and on a far smaller scale than India. Americans began shipping opium from Smyrna by 1805. Turkish opium only made up a small part of the total opium imported into China. Opium did not become an important commodity in American trade with China until the 1830s when it made up approximately 1/4 of the total that Americans sold in China. Opium imported by Americans never exceeded 10% of the total opium imported into China.
Despite all these attempts to find a commodity other than specie that could balance the cost of goods imported from China, Americans could not find one.
Differing Views of Trade
To understand why Westerners had a difficult time finding goods which the Chinese consistently wanted to buy, it is necessary to look both at the economics and ideas about trade. The Chinese economy at the end of the 18th century was quite well developed. Goods that could not be produced locally were supplied from other sources within China. The size, diversity, and the degree of integration of the Chinese empire provided its inhabitants with necessities and its elite with many luxuries. The goods which the West originally offered the Chinese were luxury items, the market for which was soon oversupplied. At that time, over 90% of the Chinese population lived on the land and most of them lived a hand-to-mouth existence.
The West wanted the tea which China produced and believed that it had the right to trade for it. Trade was seen as the means to expand national and personal wealth, so it was assumed to be natural that every one and every country would take part in trade.
The Chinese, on the other hand, had a traditional theoretical disdain for commerce. In Confucian thought, society was divided into four social classes—ranked from high to low—scholars, peasants, artisans, and merchants. The first three groups were seen to produce something, while merchants were seen as making a profit without producing anything. Nevertheless, commerce developed in China to a high degree, but it was not protected by law and always subjected to governmental demands for “contributions.”
Traditional China did also take part in some foreign trade through its history, but it was cast in terms of largess by the Emperor in return for tribute paid by states or tribes which acknowledged Chinese suzerainty. These ideas were very much a part of the Chinese mind-set when the West approached at the end of the 18th century and remained unchanged for most Chinese into the 20th century.
Given these two very different approaches and ideas about commerce, it is easy to see why conflicts developed.
Ships of the Trade
In the years following the American Revolution, speed was the most important consideration for ships. Sailing ships tended to be small and swift so that they could outrun and outmaneuver the British, French, and pirate vessels that tried to capture American ships. A ship like the Empress of China (the first American ship to trade in China), was only sixty-five feet long and twenty-five feet wide below the deck. Living quarters, the ship’s provisions, ballast, and cargo all shared this space. These small vessels made the trip around the globe with a cargo equivalent to that carried in two or three railroad boxcars. Larger sailing ship in the 1820’s and 1830’s could carry 400 to 500 tons of cargo, equivalent to about eight railroad boxcars, but still very little compared to today’s modern container ships that can carry 50,000 tons.
Sailing ships were built larger through the 1830s, 40s, and 50s, as longer trade routes became routine and the threat of pirates diminished. From 1841 through 1860, “extreme clippers” dominated the trade to Asia. These ships were large, carrying huge, lucrative cargoes of tea, spices, textiles, and chinaware to consumers in America and Europe. In the 1860s, while the United States was embroiled in a civil war, European-manufactured steam-powered ships came to dominate the ocean trade routes.
Changes in the Trade
During the decades preceding and during the Civil War, the United States was largely focused on domestic matters and sectionalism rather than foreign policy. But it was also during this time that Americans, who had spent most of their history looking towards the East Coast and Europe, would begin to see the strategic and economic importance of developing the West Coast and maintaining shipping routes to the Far East.
During the late 1850’s, the United States’ trade with China declined. Domestic manufactures produced in factories in the rapidly industrializing northern states were replacing imports: cotton replaced nankeen, American pottery factories replicated Chinese designs on porcelain, and coffee imported from Central and South America was replacing Chinese tea.
The Civil War consumed the resources of the American economy. Meanwhile, European shipyards surged ahead in the manufacture of steam-powered vessels which quickly came to dominate the ocean trade routes. The United States would not catch up to Europe in this area until the 1880s and 1890s, by which time England, Spain, France, Germany, and Russia had all gained a firm foothold in the China trade.
Despite the great profits that could be made in the China trade, Europe offered a more receptive market for American goods and remained the primary focus of America’s foreign trade. As U.S. foreign trade expanded during the 19th century, trade with Europe grew enormously, while the China trade remained fairly constant and became an even smaller percentage of total U.S. foreign trade.
American interests in the Pacific, however, continued to expand. California, Oregon, and Washington became part of the United States. American missionaries and then businessmen settled in the Hawaiian islands and successfully lobbied for American rule. When the defeat of the Spanish fleet at Manila in 1898 provided the opportunity to take control of the Philippines, American business lobbied for American rule there. They believed that an American presence in the Philippines would help American businessmen compete in China where foreign countries were increasingly carving out areas of economic dominance (spheres of influence). Mounting pressure on the U.S. government eventually resulted in the promulgation of the Open Door Policy in 1899.
With the reopening of China to trade in the last quarter of the 20th century, American businessmen have again approached China as a market with great potential. This time, China is not adverse to trade but two factors – a population with little disposable income and a governement that is protecting the development of its economy – has led again to a significant trade imbalance and to questions of how to deal with this issue.
Is China Already Failing To Meet Phase One Trade Agreements?
Trump to drop labeling China a currency manipulator, report says
China has already said they would be wary about making a long-term deal with Trump, and odds are this mini-deal will not get America much past the starting point of Trump's trade war. So the damage is done world-wide, and Trump gets to make an empty boast for the election. That could be the net result of the latest Trump so-called achievement.
Kenneth Rapoza Senior Contributor Markets I write about business and investing in emerging markets.
A soybean import terminal at the Nantong Port in Jiangsu. China and the U.S. are not on the same ... [+]Visual China Group via Getty Images
As China and the U.S. approach next Wednesday’s planned agreement to sign their phase one trade pact, there are renewed concerns that Chinese commodities importers are not living up to their end of the bargain.
China will not increase its grain import quotas to meet demands from the United States, a member of Beijing’s negotiating team told the South China Morning Post on Tuesday .. https://tinyurl.com/r8j3qcf . If they do not make marked improvements in volume purchases, then that puts the trade truce at risk. Everyone expects the phase one agreement to be signed next week, however, regardless. Anything but would be a huge blow to markets, especially China’s A-shares which have weathered the trade war quite well over the last 13 months.
President Trump and his trade team said that China agreed to buy an additional $80 billion in farm goods over the next two years. How they manage to get there is anybody’s guess. Even industry exporters scratch their heads over this one. Last year, for instance, due to what amounted to an embargo on U.S. soy, China imported less than $10 billion worth of soybeans. Soy is far and away the leading item exported to China from American farms. In a good year, China may spend as much as $23 billion, pre-trade war. All other items, including pork and sorghum, are in the single digits.
“We were told that we would see $40 billion a year in fresh ag purchases, but I haven’t seen any of these numbers out of China and I don’t think any farmer here considers that number to be realistic,” says Mary Kay Thatcher, head of federal government relations for Syngenta.
Soybeans do not seem to be subject to any quota limits.
For soy, China would have to at least return to pre-trade war volume, and in a hurry, otherwise a Trump re-election would likely mean an immediate return to tariffs as a tool to go after China. Trump agreed to a cease fire yet again in late November. That decision put an end to tariffs scheduled to rise on December 15. Those tariffs would have targeted consumer goods.
The import tariff quota for corn in 2020 is 7.20 million tons, and those of wheat and rice are 9.636 and 5.32 million tons respectively, according to a document released by the National Development and Reform Commission, the country’s top economic planning agency, in September.
President Donald Trump agreed to lower tariffs on China for a few shifts in China policy, including ... [+]AFP via Getty Images
“This is a global quota. We will not adjust it for a specific single country,” Han Jun, vice-minister of agriculture and rural affairs was quoted saying by the Caixin news service on Tuesday.
Any refusal to lift the quota on crops the U.S. could sell more of in order to reach the targeted $40 billion makes that target harder to hit. The farther from the target, the harder it is to see the trade truce as anything more than a walk back for Trump.
China got a relaxing of tariffs. The U.S. at the very least has to get a return, and then some, to its agriculture market.
There will be a great deal of scrutiny of the details of the phase one trade deal that are supposed to be released at some point on Wednesday.
Concerns around China’s ability to meet agricultural and energy purchase agreements will be the biggest deal breakers, if not next week, then down the road in 2020.
Han Jun, Vice Minister of Agriculture and Rural Affairs has put the quota system in question. ... [+]ASSOCIATED PRESS
“If they fail to meet quotas, then tariffs could be raised,” says Brendan Ahern, chief investment officer for KraneShares, a China-centric exchange traded fund.
“This uncertainty could be problematic for investors as the question is not only whether China can buy the goods, but also whether the U.S. can supply such high amounts,” Ahern says, fresh back from a trip to China. There, Ahern said investors were thinking China wouldn’t raise its agricultural purchases, meaning the best to hope for is a return to pre-trade war volumes.
“Chinese (investors) that I spoke to seemed less concerned about the trade war than their U.S. counterparts,” says Ahern. “They think the mainland investors have moved on.”
China stocks settled higher on Tuesday with both the MSCI China and the CSI-300 Index both beating the S&P 500. Follow me on Twitter or LinkedIn.
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