Friday, June 18, 2010

The Other Trade Deficit With China, and Opium

The current trade dispute with China harkens back to an earlier dispute that eventually led to the famous 'Opium Wars' that forced China to give the West control of its ports and trade.

During the 17th and 18th centuries , there was heavy demand for commodities and finished products from Asia in the West. China became the so-called global sinkhole of silver during this time, as this was generally the only Western commodity the Chinese accepted in exchange.

Although Europe had plundered silver from the New World, the trade imbalance with China put strains on their financial system, which was based on metals.

Importing opium into China, via its monopoly in India, was a way for Britain to reverse the drain of silver. China now began 'accepting' opium - at least in the aggregate flow of trade. As opium use increased, the flow of silver was reversed.

After the West decisively won the two Opium Wars, they demanded and received large amounts of silver from China's reserves .

How did one ex-U.S president describe trade with China at that time ?

John Qunicy Adams said in 1841: "the cause of the war is the kowtow – the arrogant and insupportable pretensions of China that she will hold commercial intercourse with the rest of mankind not upon terms of equal reciprocity, but upon the insulting and degrading forms of the relations between lord and vassal.”(1)

Does it sound not dissimilar from the rhetoric we hear from Congress today ?

1'China as “Victim”? The Opium War That Wasn’t', Harry G. Gelber Visiting Scholar, Center for European Studies, Harvard

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