- Historic Sites
Land Of The Free Trade
Foreign trade—import and export alike—has been indispensable in building America from the very start, and many of our worst economic troubles have arisen when that trade wasn’t free enough. A historic overview.
July/august 1993 | Volume 44, Issue 4
By then American imports consisted largely of manufactured and precision goods from Europe and products from the West Indies, such as sugar and molasses, many of which were re-exported. Besides ships, the exports, meanwhile, were fish, agricultural and forest products, and primary manufactured goods derived directly from them, such as pig iron, barrel staves, lumber, rope, and naval stores.
By the 1760s the American colonies had become a major economic force in the British Empire. They supplied close to 12 percent of British imports and bought 9 percent of the mother country’s re-exports. Far more significant, fully a quarter of Britain’s domestic exports went to North America.
After the expensive British victory in the Seven Years’ War (called the French and Indian War on this continent), the British government woke up to the fact that there was an economic giant aborning across the Atlantic. It tried to make it a source of serious revenue, mainly by taxing its trade. The result was the American Revolution.
With independence the new nation found itself free to trade with the whole world. The whole world, that is, except the British Empire, wherein it had always done most of its trading. Much of the West Indies was now cut off, and exports to England were much restricted. Indigo, whose production had utilized about 10 percent of the slave labor in the South before the Revolution, was shut out of the British market, where indigo from India replaced it. The industry collapsed.
But new markets opened. Once forbidden to ship directly to northern European countries other than Britain, American merchants were by the early 1790s selling 16 percent of their exports to those countries. In 1784 the first American vessel bound for the Far East, the Empress of China , set sail from New York. It was not long before Americans were major players in the Far Eastern trade.
Soon American vessels could be found around the world, their captains sailing to wherever profit beckoned. “His vessel went to the West Indies,” one contemporary reported of the merchant Stephen Girard of Philadelphia, “where cargo was exchanged for coffee and sugar; then proceeding to Hamburg or Amsterdam, the coffee would be sold for Spanish dollars or exchanged for cargo which would secure him at the Spice Islands, Calcutta, or Canton the products of those climes.”
Most of the early great fortunes in the United States were based in whole or in part on foreign trade. John Jacob Astor, shipping furs to China, often cleared fifty thousand dollars a voyage. Girard left an estate of nine million dollars when he died in 1831, making him the richest man in the United States except, perhaps, for Astor.
New products were developed as well as new markets. Eli Whitney’s cotton gin made short-staple cotton a profitable export to Great Britain’s fast-rising textile industry. Within a few years it was the country’s greatest export, and by the Civil War the South was producing seven-eighths of the world supply and shipping four million bales a year to Europe.
New England, in the meantime, developed a brand-new product to sell on the world market: ice. Cut from New England ponds in the winter and stored under mounds of sawdust, cargoes of ice were sold in warm climates as far away as Calcutta. By the 1850s ice was the country’s largest export, on a tonnage basis, except only for King Cotton itself.
Trade grew rapidly in the years after the adoption of the Constitution. In 1790 total domestic exports amounted to $19,666,000 while imports that were not re-exported amounted to $22,461,000. By 1807 the figures were, respectively, $48,700,000 and $78,856,000. This apparent trade deficit, which lasted until the mid-1870s, was more than offset by freight charges and commissions earned by American vessels and by the steady inflow of capital from Europe and elsewhere.
(Indeed, the difficulty of figuring the actual trade balance, thanks to these so-called invisible earnings and numerous other complications, has over the years provided a rich and continuing opportunity for self-interested individuals and their political allies to create tendentious statistics. For instance, until the last twenty-five years, the merchandise trade balance—the import and export of physical goods—was not far from the total trade balance, and much easier to calculate. Today, however, services and intellectual property are major and very rapidly growing components of international trade, and notable American strengths. Regardless, those in this country seeking protection habitually use the merchandise trade balance as proof that the country’s competitiveness is failing. Very conveniently for them, if not for the truth, services and intellectual property are not counted in this statistic.)