5 More Trade Wars in History
Part Two of Our Series
US presidents George Washington, Thomas Jefferson, Theodore Roosevelt and Abraham Lincoln are sculpted on Mount Rushmore National Memorial in the Black Hills region of South Dakota, U.S. in this U.S. National Park Service photo taken on April 12, 2013. Courtesy NPS/Handout via REUTERS
The history of trade since the Age of Exploration has been all but inseparable from trade wars, most of which fast turned bloody. As a trade war unfolds between the US and China, it is worth taking a look at how the most important of these have played out since the 16th century.
Embargo Act of 1807: Jefferson versus Europe
Enraged at British impressment of US seamen and the French plundering of merchant vessels during the Napoleonic Wars, Thomas Jefferson placed an embargo on all French and British products entering the US in 1807. Inefficient both economically and diplomatically, the act only served to bolster British smuggling into the Americas, undermine law-abiding US merchants, corrode the country’s tenuous unity, as many New England merchant interests suffered great losses, and boost demand for British products in South America, where British merchants aggressively sought new markets to offset US losses.
First Opium War: Britain gets an Asian beachhead
As European merchant powers gradually expanded their trade with China in the 17th and 18th centuries, it was not long before demand for Chinese goods (namely tea, silk, and porcelain) vastly outweighed Chinese demand for European products. Faced with a crushing current account deficit, the British East India Company took to cultivating opium in Bengal and plying its poppies to inhabitants of the Qing Empire around 1780.
Further hit by the expansion of cotton production in Egypt and the US South, which severely cut into the Indian production and export markets, the British upped their poppy production to offset these losses.
Along with American imports of Turkish-sourced opium in the early 19th century, the Chinese market was soon flooded with the product, though demand continued apace with supply.
After an unsuccessful full ban on opium in 1796, the Qing Emperor Daoguang began seizing opium stockpiles in 1839 and physically blocking off British merchants from the Pearl River, leading to Canton.
The British responded by dispatching the Royal Navy, which inflicted a series of stunning defeats against the Qing, leading to the first of many “unequal treaties” in which the British were granted a trading port at Hong Kong, a huge indemnity, and the opening of five treaty ports. Thus began China’s long century of humiliation that only ended when Mao’s communist troops entered Beijing on October 1, 1949.
Second Opium War: Into the Chinese Hinterland
Though the first opium war had been a resounding success for the British, the sale of opium remained illegal and most of China closed to European trade. As such, the British had been kitting out Chinese merchant vessels with British flags issued in Hong Kong, whose crews Chinese officials would often stop and search on suspicion of piracy.
Enraged when three crewmen were not released after one such search, the British began shelling Chinese positions at Canton. The French, aghast at the execution of a French missionary, and the Americans soon joined the fray on the British side.
After seizing Canton in 1857, the Chinese sued for peace and opened up ten more port cities to European commerce, including Nanjing.
They also secured the right to establish diplomatic missions in Beijing, until then a closed city, and the right of foreigners to travel to the interior of China, until then forbidden.
After a second round of fighting in 1860, during which time French and British troops burned down the imperial summer palace in Beijing, the Chinese reluctantly legalized the sale of opium, established the freedom of religion, paid a huge indemnity, and allowed the British to carry indentured Chinese to the Americas.
Smoot-Hawley: Enflaming the Great Depression
Named after two GOP lawmakers, in June of 1930 President Herbert Hoover signed into law the Smoot-Hawley Act, a vast import tax that raised tariffs on over 900 products entering the US. With the average US tariff on imported goods now over 45%, not only did the price of daily staples such as sugar, eggs, and onions shoot up; Canada and Europe also struck back with a vast array of tariffs of their own, leading to an even larger contraction of the global economy, which shrank by 25% in volume and 40% in GDP during the Great Depression.
Not only did this hurt bilateral American-European trade; European nations also starting slapping tariffs on one another in 1931 and 1932, not only escalating the trade war but also delivering a measure of relief to the struggling Soviet economy, which remained outside the pale of these deadly squabbles.
The Great Chicken War (1963): The birth of EU protectionism
In mid-1962, the six nations of the European Economic Community’s Common Market—France, West Germany, Italy, the Netherlands, Belgium, and Luxembourg—slapped a unilateral 13.43 cent tariff on American poultry imports in an effort to spur their own domestic markets. Long undercut by mass American production methods, the tariff nearly tripled in places like West Germany, where previously it had only been 4.7 cents.
Within a year, poultry imports from the US were down by 64%, with the US government declaring losses of USD46 million (USD373 million in today’s dollars). The US responded with tariffs on trucks, brandy, dextrine, and potato starch, which hit West German automakers, French brandy producers, and Dutch potato farmers the hardest. Unsurprisingly, this also led to a string of creative new assembly methods in order to get around as many automobile import tariffs as possible.
As such, the ‘chicken war’ has a three-pronged legacy: first, it insulated the US light-truck market from foreign competition, retarding its development vis-í -vis Europe and especially Asia for 40 years.
Second, it launched the beginning of vast international assemblage practices, in which most parts are made abroad and then assembled last-minute in-country to count as ‘made in America.’
And third, it was the opening salvo of what would later become the EU’s immensely protectionist agricultural policy.
Pray it’s halfway full
While the trade war unfolding between the US and China has already affected 16% of their bilateral trade (USD100 billion from a total USD630 billion), the globalization of supply chains is unlikely to bring either country’s economy to a halt, much less lead to war; and in contrast to Smoot-Hawley, which led to a vast international trade war that helped the global economy contract by 15%, total US-Chinese trade only accounts for merely 0.81% of global GDP. That being said, China is far more dependent on exports to the US than vice versa, leading many Americans to assume Beijing will be the first to blink. Workers and farmers in both countries could be forgiven for hoping it will.