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Keywords:
Britain, China, Opium Wars, Economic policy, Mercantilism
Abstract:
World economic policy shifted from mercantilism to free trade ideology in the middle of the 19th century. While Britain is often seen as the main proponent of such a shift, the example of the Opium War suggests otherwise. The paper aims to debunk the common perception that the Opium War was motivated by Britain’s free trade ideology, when in fact, it was a war guided by mercantilism. Ultimately, the paper provides a more comprehensive understanding on the nature of British economic policy, that is, a dual nature of the co-existence of free trade and mercantilism.
Introduction
In the years 1839 and 1856, Britain waged two wars against China, known as the First and Second Opium War, to force open a commercial market with tremendous potential. The Treaty of Nanking and the Treaty of Tianjin that were signed after the two wars, respectively, enabled Britain to carry out trade at an absolute advantage, reversing the flow of silver back into the British market. It is commonly thought that the Opium War was motivated by the ideology of free trade. However, the paper argues that the motivation behind the two Opium Wars is more of mercantilism than free trade ideology by considering three perspectives: the text of the treaties, the perception of Chinese and British society on the wars, and external factors of tariffs and the balance of the budget. The paper will begin with a brief literature review on the common interpretation of the motivation of the war, followed by an overview of mercantilist and free trade ideologies in order to draw a comparison to Britain’s practices in later parts. The paper is then divided into three sections. In the first section, I will focus on the analysis of a few relevant clauses from the two treaties to demonstrate their incompatibility with free trade ideology. The second section features a Chinese and British perspective to illustrate the implementation of British terms in China does not reflect free trade, but mercantilism. The third section focuses on a few other factors that demonstrate the practice of mercantilism, such as the adjustment of the tariff rate and the urgent need to reverse the flow of wealth in a purely economic sense.
Literature Review
There is an extensive body of literature which suggests that the motivation for the war is the promotion of the free trade ideology. For example, Zhong indicated in his research that the ideology of free trade was regarded as the “lifeline” of the state. Therefore, the ideology dominated the economic policy in the second half of the 19th century, especially in the relation regarding China. This paper aims to critically challenge and rebuke this assumption, because it tends to overemphasize the impact of free trade ideology in practice, although it is certainly true that the ideology had gained considerable traction among British politicians and economists. An alternative interpretation comes from Gallagher and Robinson, who acknowledged that the implementation of free trade ideology during the Mid-Victorian era was forceful in dealing with states which would potentially generate high profits but had little political affinity with the British government. Gallagher and Robinson termed this aspect of British economic policy “ the imperialism of free trade”, but their theory still assumes that such policy was free trade because mid-Victorian Britain upheld fervent enthusiasm towards the ideology. Instead, it is necessary to recognize that in a period of transition from mercantilism to the formal adoption of free trade, the effect of mercantilism was persistent and states were willing to resort to mercantilist practices to solve urgent economic challenges.
Overview of Ideologies
In order to analyze the practice and policy that were undertaken by Britain in the two Opium Wars, it is necessary to provide a brief overview of the ideologies of mercantilism and free trade.
The major proponent of free trade ideology, Richard Cobden, had defined mercantilism as “delusive and injurious” in the speech he delivered in the British House of Commons in 1844. After concluding that protectionism was not beneficial, he expressed his fondness for free trade because of its tendency to decrease the price of agricultural products as a result of the weaker influence of regulated prices. Consequently, workers were able to obtain higher benefits, thus increasing the overall value of production in the society. Therefore, the essential purpose of free trade is to break down trade barriers and respect the natural order of market adjustment, further enabling international trades with less state intervention and protectionism.
In comparison, mercantilism, the economic theory that dominated international trade before the arrival of free trade had taken a more protective approach. One of the leading figures of early mercantilism, the British economic-courtier Samuel Fortrey, pointed out that a central goal of the national economy was to make the state richer and more populous than the neighbouring states. More importantly, a state had to cultivate the capacity to offer goods with lower price and better quality to increase the quantity of exports. Otherwise, the state’s economy would be damaged. Therefore, for an empire as enormous as Britain, it was of vital interest to ensure a constant inflow of wealth to maintain the vitality of its economy. In a similar fashion, Adam Smith provided a concise account of mercantilism as a system that grants protections and privileges to domestic producers and merchants, because their profits are associated with the safety of the nation. It becomes evident that the mercantilist principle directs the state to embed merchants’ economic profits into the security of the state. As a result, the state government has the obligation to resolve the obstacles that impede its merchants from acquiring profits on behalf of the state.
A Perspective on the Text of Treaties
A number of scholars have acknowledged that mercantilism requires states to frequently interfere in economic processes to solve the problems that merchants may encounter. The role of Britain in the Opium War fits the characteristics of a mercantilist state because Britain had claimed the responsibilities of assisting its merchants in solving a number of challenges that they had encountered in the trade with China.
The first challenge for British merchants to trade consisted of a number of man-made barriers. More specifically, before the Opium Wars, only goods that were approved by the Chinese government were allowed to be imported into the Chinese market. However, direct interaction between British merchants and Chinese consumers was not possible because all the transactions had to be carried out through appointed agents. This policy significantly limited British exports to China, meaning small profits for British merchants. As discussed in the previous section, one of the principles of mercantilist trade is to stimulate the growth of the domestic industry through the constant accumulation of exports, but the situation in the Chinese market clearly failed to provide Britain with the conditions desirable for this goal. In order to solve the problem, Britain created specific clauses in the Treaty of Nanking signed in 1842 at the end of the first Opium War to transform the circumstance favourable to the British side. More specifically, in Article II of the treaty, Britain ordered China to create five free trading ports, including Canton and Shanghai. As for the issue with intermediate agents, Article V specified that there ought to be freedom of trade between all trading parties. In this clause, Britain specifically denounced the policy in which “[t]he Government of China ha[s] compelled the British Merchants trading at Canton to deal exclusively with certain Chinese Merchants called Hong Merchants”. Instead, British merchants should have the right to “carry on their mercantile transactions with whatever persons they please”. Furthermore, Britain also asked the Chinese emperor to pay the loss of “Three Millions of Dollars” incurred to British merchants due to restrictive conditions created by the Hong Merchants. By doing so, Britain successfully acquired tremendous access to ports and could trade with little restrictions, thus increasing its overall profits from the trade.
The second challenge is a trust problem. Because merchants had the dominant role in the mercantilist trade system, they had the paramount responsibility of negotiating a profitable transaction for their respective states and maintaining communication between producers and consumers. However, China imposed significant restrictions on British merchants in terms of communicating directly to local consumers. A more complex issue revealed by this problem was the disruption of Britain’s power network. More specifically, mercantilism was not only a means of obtaining economic profits, but was also a means for Britain to expand its influence through the power of its economy, or, as Gallagher and Robinson put it, to create an “informal empire” through trade. Therefore, the limitation on Britain’s ability to effectively extend its reach was regarded as an assault on its political power, which made it evident why the style of trade with China was not welcomed. Because of the existence of an intermediate agent and the need for the approval of the goods, the opportunity to negotiate was taken away from the British merchants, forcing them into an extremely passive stance. In order to effectively solve the problem, the Article II and V of the Treaty of Tianjin specified that Britain and China had the right to appoint ambassadors to the respective states to oversee all affairs that are related to trade. Consequently, Britain was able to establish a reliable means of acquiring information on trade in the Chinese market through trustworthy ambassadors. More importantly, it enabled Britain to effectively extend its political power in the East Asian sphere through frequent interaction between the British officials, the merchants, and the locals.
Perspective from Chinese and British Society
In order for the trade to constitute “free” trade, it is reasonable for both parties that are involved in a trading relationship to perceive the process as such. However, China often labels post-Opium War trade with Britain as “unequal”. By the same reasoning, the Treaty of Nanking and the Treaty of Tianjin are perceived as “unequal” treaties. Generally, two factors have contributed to the belief in China that the trade is not so-called “free trade”. First, China was forced to conduct trade on foreigner’s terms with little room for negotiation. It has been mentioned in the earlier section that Britain promised equal political and legal rights to its counterpart, but unfortunately, Britain demonstrated no commitment to the promise. In fact, , Britain implemented a set of forceful and diplomatic measures to compel China to accept what is deemed to be the “equal” and “free” international economic policy, such as deploying cruisers on the Chinese coast. In terms of diplomacy, despite Britain’s repeated claim that the Chinese and British officials who oversaw their trading affairs enjoyed completely equal status, the Chinese Maritime Customs Services remained staffed by an overwhelming proportion of British officials, rendering China effectively powerless in trade negotiations.
The second factor is that Britain forced open the Chinese market through the smuggling of narcotics. It is worth noting that the implementation of the practice was condemned and regarded as illegal not only in China but also in the British parliament and therefore caused fundamental divisions in the British parliament. For instance, William Gladstone, a member of the Liberal Party, led the Tory opposition to campaign against the Whig government’s conduct in the Opium War, condemning it on the grounds that it was unacceptable conduct for a civilized state. A few British news agencies, such as the Chartist newspaper, also took an active role in denouncing the practice. Ironically, when the Tory opposition later took over the government in 1841, they suddenly ceased all accusations regarding the opium trade. Instead, they devoted the government to trade by continuing the war and increasing the quantity of opium export. By the year of 1858, the end of the Second Opium War, the total value of export to China was 7,192,759 pounds per year, out of which 6,365,319 pounds were generated from Indian opium, which amounts to 89% of the total value of exports. Evidently, the British government had deliberately committed to an immoral practice that was widely condemned in Britain and was regarded as illegal by Chinese law. In comparison, the colonial practices of the United States respected moral and natural market principles. In the 1858 Treaty of Amity and Commerce signed between Japan and the United States, more commonly known as the Harris Treaty, the US emphasized that the export of opium was prohibited and that the Japanese government had the right to confiscate and destroy opium if the Japanese authority discovered any in the belongings or the goods of the US merchants. Therefore, the export of opium into the Chinese market was an illegal transaction that the British government imposed through military might, for the purpose of maximizing its economic profits.
The Perspective of External Factors
The previous section demonstrated that free trade encourages less state intervention and protectionism, meaning the rejection of protective tariffs. Accordingly, in order to determine if free trade ideology was Britain’s economic policy in its trade with China at the end of the Opium Wars, it is important to compare the international tariff rate then with that imposed on China in the Treaty of Tianjin. In the United States, the government had adopted a 25% protective tariff by 1857. Interestingly, the tariff kept rising to an astonishing level of 47% at the end of the Civil War in 1867. A similar situation can be found in Canada when the Canadian government passed the Cayley-Galt Tariff as a remedy to the economic depression in 1857, allowing a protective rate of 20% on manufacturing goods and 25% on clothing. While the tariff rates in some of the Western states remained above 20%, the situation was drastically different in China. According to the Article XXVI of the Treaty of Tianjin, the agreed tariff in the Treaty of Nanjing was at “the rate of five per cent”, a rate that was forcibly pushed down significantly below the international level. A similar situation can be found in other states that are forced open by Western colonial power as well. Considering Japan as an example, the Harris Treaty and its amendments eventually imposed a tariff of 5% on Japanese foreign trade, seriously affecting the Japanese economy. Consequently, mercantilist policy in which the state relies on its military power to gain an advantage for its traders was more desirable in trade involving less industrialized states such as Japan and China. While Western states had the freedom to set their protective tariffs, colonized states were robbed of such autonomy as a result of the prevailing mercantilist ideology.
Another urgent issue was the economic deficit caused by the flood of Chinese goods into the British market. As this paper has previously noted, trade was critical to maintaining the inflow of wealth. However, the demand for Chinese silks, ceramics, and tea in the British market far exceeded the demand for British goods in the Chinese market. Consequently, an enormous portion of the silver that Britain extracted from America was used to pay for Chinese goods, putting a heavy burden on Britain’s national finance. Therefore, upholding free trade ideology by not enforcing any state intervention would inevitably result in constant loss of wealth on Britain’s side. For this reason, Britain was forced to abandon free trade and intervene militarily in order to protect its economic profits. Initially, Britain discovered that it could export cotton and indigo grown in India to pay for Chinese goods because these were among the few goods that China would buy from Britain. Ultimately it discovered opium, a highly profitable export abundant in India and in nearby regions, which completely reversed the flow of silver and saved Britain’s finances.
Conclusion
It is commonly perceived that Britain’s economic policy in the mid-Victorian era was a product of free trade ideology. However, this paper has shown that although a free trade system was well-established in Europe and North America by the time of the second Opium War, Britain continued to implement mercantilism in the Chinese market to maximize the economic profit for the Empire. The analysis of the text of the Treaty of Nanking and the Treaty of Tianjin also clearly indicates that the British government, under the guidance of the mercantilist principle, took on an active role in resolving obstacles that its merchants encountered in the Chinese market. Furthermore, Britain’s practice was not perceived as free trade by British society or by the Chinese government. The reason that the war received continuing support from the British government was the mercantilist motivation of initially reversing the flow of wealth, followed by the extraction of tremendous profits. To conclude, there is a dual nature to mid-Victorian British economic policy, in which free trade was upheld in the states with a political affinity to Britain, while mercantilism was militarily imposed upon states that rejected Britain’s views regarding political and economic structure.
Yidi Guan is studying international relations at the University of Toronto.
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