Reversing a trade deficit with China is no simple matter – just ask Queen Victoria

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Geoff Read is an associate professor of history at Huron University.

Earlier this month, U.S. President Donald Trump issued a 90-day suspension on plans to place 145-per-cent tariffs on Chinese goods coming into America. Refusing to back down completely, however, Mr. Trump left in place a new 30-per-cent tariff on products from China entering the United States.

Mr. Trump favours tariffs for two reasons. First, he sees trade deficits as proof that countries are “ripping off” the United States. According to the U.S. Bureau of Industry and Security, China imported US$151.1-billion worth of goods from America in 2021, while Americans bought US$506.4-billion worth of goods from China that year. This brings us to the second reason why Mr. Trump favours tariffs: He believes that the resulting US$355.3-billion “deficit” America has with China is the result of decades of American business strategy that offshored its domestic manufacturing capabilities to cheaper labour markets. As the White House’s own fact sheet on the matter states: “Large and persistent annual U.S. goods trade deficits have led to the hollowing out of our manufacturing base [and] resulted in a lack of incentive to increase advanced domestic manufacturing capacity.” Thus, the tariffs are an attempt to reverse both the U.S.’s perceived trade deficit with China, and American de-industrialization.

But outside of Mr. Trump’s influential adviser Peter Navarro, co-author of the diatribe Death by China, economists are skeptical of this strategy. History suggests that the doubters are right.

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Prior to the 1800s, the West had a centuries-long trade imbalance with China, a country that accounted for roughly one-third of the world’s economic output. The reasons for this, and the story of how Britain (and then others) temporarily displaced China as the centre of global production, are instructive.

Throughout its long history, China has had advantages. It had fertile soil and nutritious rice and peanut crops, allowing population growth. In turn, the country was able to specialize its labour market, facilitating industrial growth, a strong economy and the simultaneous development of a powerful state. The mechanisms of statehood provided stability, which favoured further progress, and so on. We can contrast this with Europe where, after the fall of Rome, chaos reigned, and small states warred incessantly with one another.

As China’s trading empire grew, so did its exchange of knowledge with other civilizations. China became a hothouse of human progress, becoming the first to develop paper, the printing press, the compass and gunpowder, to cite just a few examples.

And so, from the European Middle Ages until the 1800s, China was the linchpin of an intercontinental trading network. Chinese finished goods were shipped to the Spice Islands (now the Maluku Islands in Indonesia), India, the Middle East, Africa and Europe. This trade was so lucrative that it fuelled the Italian Renaissance and sent Europeans, like Genoa’s Christopher Columbus, to the high seas in search of direct access to Asia.

The Chinese purchased spices from the Spice Islands and textiles from India, but Europeans produced nothing of value to Chinese consumers. This remained the case into the 1800s. As late as 1820, China’s economy was six times the size of Britain’s, the largest in Europe at the time.

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Britain was certainly on the rise, however. With wealth and resources pouring in from its empire (including the proceeds of the slave trade and slave labour), Britain was emerging as a rival to China. This influx of capital sparked the British Industrial Revolution, allowing for greater efficiency and productivity.

Even so, the British did not reverse their deficit with China until they found something the Chinese market desired: Indian opium. The British acted as middlemen between Indian producers and Chinese consumers in the expanding opium trade. Concerned by the social problems that followed, China outlawed the growing or importation of the drug in 1800 and its consumption in 1813, transforming the British East India Company into the world’s largest drug-smuggling operation.

But these laws were paper tigers; exports of opium to China increased from 4,500 chests a year in 1810, to 40,000 in 1838, finally reversing Britain’s trade deficit with the Heavenly Kingdom. This so pleased Queen Victoria’s government that when China enforced its opium prohibition in 1839, seizing opium from British warehouses in Guangzhou, the Royal Navy sailed steam-powered gunboats into a nearby river delta and traded blows with Chinese forces. This triggered the First Opium War (1839-1842) and set events in motion that would kill millions of people, subject China to a century of foreign domination, and culminate in the Communist Revolution of 1949.

So, if Mr. Trump is intent on reversing the trade deficit with China and reindustrializing the U.S., he will need to find his own opiate for the Chinese masses. China’s advantages are many and tariffs alone will not turn back the clock. Whether Mr. Trump sets tariffs at 10 per cent or 145 per cent, it makes no difference. The U.S. is far from China’s only market, and even with outrageous tariffs, the prices of goods made in China may still remain competitive. Moreover, the Americans do not have anything akin to the British-Indian opium that Chinese consumers wanted centuries ago.

It would surely be better if Mr. Trump accepted that China‘s role as the world’s workshop is the natural order of things – an order that was upset only temporarily by the combination of industrialization and British imperial violence. He should drop his tariffs accordingly.

Editor’s note: A previous version of this article incorrectly stated Geoff Read is affiliated with Western University. He is an associate professor of history at Huron University.