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Ye olde Chinese-American trade imbalance

Our lopsided exchange with China dates back to the days of whale oil and silver.

Two hundred twenty-eight years ago, a Boston-built ship inaugurated one of the longest and most fraught trading relationships in our country’s history. As the sun rose in the brilliant blue sky and gentle winds rippled the surface of water on Feb. 22, 1784, the Empress of China sailed down New York’s East River, embarking on a 15-month round-trip journey to Canton, modern day Guangzhou. The voyage rewarded its backers with a 25 percent return on their money—not as much as they had hoped, but enough to prove the viability of the trade. Through the mid-1800s, a veritable armada of ships followed in the Empress of China’s wake, venturing from the young nation of the United States to the ancient empire of China, the mysterious so-called Middle Kingdom.

The merchants who funded those voyages, and their countrymen, saw China as a golden economic opportunity. China grew from roughly 300 million to 400 million people during this period; it was then, as now, the world’s most populous country. It was a rich source of tea, silk, and porcelain. Businessmen here dreamed that it would also become a major market for American goods, fueled by the purchasing power of Chinese consumers.

That is not what happened. Instead of becoming a major market for American goods, China racked up what would now be called a huge trade surplus with the United States. Americans purchased far more Chinese goods than the other way around. And by the end of the 19th century, that early dream of China as a leading booster of American commerce had long since been abandoned.


Today, a little more than 30 years into our new trade experiment with China—a far different and more extensive one—the early relationship between the two countries offers a cautionary tale about the limits of commerce and ambition. America’s current frustration with the relative lack of Chinese consumerism is nothing new, and our past experience suggests that dreams of what we might gain from another country may reveal more about our imaginations than they predict about the future.


If the “made in China” label had existed at the time of the American Revolution, it would have been nearly ubiquitous here. From the mid-1600s up until the eve of the Revolution, the British East India Company supplied the American Colonists with black and green teas, great varieties of chinaware, and lacquered furniture, among other exotic items.

But Americans themselves had been barred from trading with China: The British East India Company held a monopoly on Far Eastern commerce. Indeed it was American disdain for the company’s monopoly, as well as anger over the taxation of tea, that led a band of Colonists to dump Chinese tea in Boston Harbor in December 1773.


When America won the war, the British East India Company’s monopoly no longer applied, and not surprisingly Americans quickly jumped into the China trade. But before doing so, they had to answer a very important question—what goods did the Chinese want? What China wanted, it turned out, was mainly silver. More specifically they wanted Spanish silver dollars, or pieces of eight, the global currency that greased mercantile transactions from West to East.

For more than 150 years before America won its independence, British traders had run into much the same problem: They’d tried to interest the Chinese in British goods, with only limited success. So to get the Chinese items they desired, the British had to send vast quantities of silver, which the Chinese people used to pay their taxes, and the Chinese government used to pay government officials and military personnel.

The Americans followed suit. When the Empress of China sailed down the East River, its cargo consisted of ginseng, lead, cordage, furs, alcohol, and $20,000 in Spanish silver dollars. In subsequent years, the Americans expanded their trading repertoire, sending a great range of goods to China, including iron, cotton, spermaceti candles, sandalwood, and even sea cucumbers, but silver trumped them all.

Up until the mid-1820s, silver coins—which continued to be legal tender in the United States until 1857—paid for roughly 65 to 75 percent of America’s purchases from China. And from that point through the end of the Civil War, instead of using silver to finance their purchases, Americans relied increasingly on another financial instrument—“bills on London,” which were essentially paper credits or advances from British banks that American merchants could take to China, where they were negotiable.


Thus it was that throughout the first 80 or so years of the American-Chinese commercial relationship there was a hefty trade deficit. America eagerly imported Chinese goods, and China happily accumulated American money.


This lopsided relationship frustrated America’s China merchants as well as American farmers and manufacturers. China seemed so promising: After all, if the hundreds of millions of Chinese could be enticed to start buying American goods, the possibilities were almost limitless. They shared the vision of the British cotton manufacturer who observed, “If we could add but one inch to the shirt of every Chinese, we could keep the mills of Manchester running forever.”

The gap between America’s hopes and the reality was perhaps most evident in the wake of the first Opium War, fought between Britain and China. Not long after the British defeated the Chinese in 1842, America negotiated its own treaty with China, which, among other things, opened up four more ports, besides Canton, to American trade. This led many American merchants to become excited by the prospects of expanded commercial opportunities. Freeman Hunt, the editor of the influential Merchants’ Magazine and Commercial Review, reflected a widely held view when he called the new order established by the treaty “one of the greatest commercial revolutions that ever took place.” He compared the opening of the China trade to the “discovery of a new continent” full of “rich, industrious people,” and he was hopeful that the Chinese would soon clamor to purchase more American goods.


Although trade increased, the expected boom did not take place. Throughout the 1840s, 1850s, and 1860s, the American China trade remained a significant, but relatively small part of the American economy, averaging roughly $13 million per year, representing only about 2.5 percent of US foreign trade, placing China, most of the time, behind Britain, France, Germany, Canada, Cuba, and Brazil on the list of America’s main trading partners.

There were a number of reasons that the American dreams of a China boom never materialized. For one thing, China simply wasn’t that interested in many American products. While America exported an impressive range of domestic goods to China—in addition to the primary export of cotton goods, these included wheat, flour, coal, iron, whale oil, guns, petroleum, tobacco, shoes, lumber, and even ice cut from ponds—the demand for most of these things was limited. Though huge, China wasn’t nearly as rich as many American merchants had imagined. Its wealth lay in the hands of a very small percentage of people, while the large majority of Chinese were extremely poor. And much of the spendable cash Chinese citizens did have went to purchase opium, which worked against the sale of American goods.


Historical events also intervened to depress the trade. The American Civil War temporarily dampened American exports. And the decades after the Opium War, during which China was buffeted by internal strife and rebellion on a massive scale, and a string of devastating natural disasters (floods, droughts, and famines), only made China’s weak economic situation worse. Purchasing foreign goods often took a backseat to survival.

Today, emerging from a violent and disruptive 20th century, China is the United States’ second largest trading partner, behind only Canada. Trade between the two countries is measured in the hundreds of billions of dollars, rather than tens of millions, and China has a much larger internal market, buying American goods from scrap paper to Boeing jets. But the enormous trade deficit remains. Whether that deficit is a problem for the United States is debatable, but it is noteworthy that this lopsidedness in the China trade is just as it was in the beginning.

Still, many Americans keep hoping that the vast number of potential Chinese consumers—who are still, by and large, far poorer and less interested in American goods than we like to think—will one day start buying so much that they will make the deficit disappear. The old dream of China becoming a vast, almost limitless market for American goods lives on, as unrealized in today’s fast-moving economy as when our ships departed for the Middle Kingdom under power of wind, loaded with silver.

Eric Jay Dolin is the author of “When America First Met China: An Exotic History of Tea, Drugs, and Money in the Age of Sail” (Liveright, September 2012).