The New Opium Wars

This is not another column about the opioid crisis, but about the looming trade war between the U.S. and China.

President Trump, perturbed about persistent U.S. trade deficits but fairly clueless as to their cause, this week dispatched his trade negotiators, led by Treasury Secretary Steven Mnuchin, ostensibly to engage in talks aimed at averting a full-blown trade war. Instead, in what Cornell University economist Eswar Prasad said resembles “the terms for a surrender rather than a basis for negotiation,” the U.S. demands that China:

·       Reduce its trade surplus by $100bn by June 2019 and a further $100bn in the following 12 months (nearly two-thirds of the current deficit of $337bn);

·       Take “immediate and verifiable” steps to end commercial espionage in the U.S.;

·       Strengthen intellectual property protection;

·       Accept U.S. restrictions on Chinese investment in sensitive technologies without retaliating;

·       Cut its import tariffs, which currently average 10%, to the U.S. average of 3.5%;

·       Fully open its services and agricultural sectors to American competition; and 

·       End all subsidies to companies in 10 advanced manufacturing industries (including electric cars, aircraft, robotics, semiconductors, and artificial intelligence) in the Made in China 2025 initiative, which aims to propel Chinese companies to the forefront in important technology-based sectors.

Some of these demands are reasonable, especially those concerning intellectual property and commercial espionage, but others are deeply humiliating, especially given the way Western countries in the 19th century used military force to open China’s markets, regardless of the economic or social cost to the Chinese people and state.

Trump and his minions may be ignorant of this history, or may just have chosen to ignore it, but if you understand what the Chinese refer to as their “century of humiliation,” which started with the first Opium War in 1839-42 and lasted, in most reckonings, until the Communist Party swept to power in 1949,  it is hard to imagine the Chinese acceding to this ultimatum.

Starting in the early 19th century, the British began to run a substantial trade deficit: growing domestic consumption of tea sparked a rise in imports from China, as well as of silver – the only payment the Chinese would accept – from  Mexico, since Britain lacked its own silver supply. As a solution, the British began selling opium cultivated in its Indian colonies into China. Opium was an ingredient in Chinese medicine, and legal in China, but recreational use was not widespread. However, after Britain canceled the Indian trade monopoly of the British East India Company in 1833, British traders flooded China with opium and Americans, eager to get in on the act, began to bring in Turkish-grown product.

Opium consumption skyrocketed, and the number of addicts grew into the millions. The Emperor became alarmed, not only by the growing drug problem, but by the country’s expanding trade deficit and the huge outflows of silver it entailed. In 1839, the Imperial Commissioner Lin Zexu ordered the arrest of foreign merchants and their Chinese accomplices, more than 1,600 people, and he held the foreign merchants hostage until they agreed to surrender  $9m worth of opium (about $230m in today’s dollars), which he then had burned publicly. In addition, he ordered the port of Canton (Guangzhou),  the main foreign trading hub, closed to all foreign merchants, and issued laws banning opium throughout the country.

The British were not amused. They blockaded the Pearl River, and with their superior ships and firepower sank several Chinese ships, defeated the Chinese forces, and seized control of the high ground controlling access to the port of Canton. Lin Zexu was recalled to Beiing in disgrace and his replacement, Qi-Shan, rather than trying to defend Canton, paid the British a ransom of $6m. The war continued into 1842, with the British gaining control of Shanghai and the mouth of the Yangtze, which gave them the leverage to dictate terms to an enfeebled Chinese state.

Under the terms of the Treaty of Nanking, signed in August 1842 aboard a British warship anchored off Shanghai, residence, granted Great Britain most-favored nation status for trade, and paid $9m in reparations to the merchants whose opium Lin Ze-xu had destroyed. China was forced to abolish trading monopolies and to limit import tariffs to five per cent. Perhaps most humiliating to China's sense of nationhood, the signatories accepted the principle of "extraterritoriality," exempting British merchants from Chinese laws. In 1844, the United States and France also gained extraterritorial status for their citizens.

The opium trade continued to grow, but under renegotiation clauses in the original treaty, in 1854 Great Britain demanded that China open all its ports to foreign trade, legalize the importation of opium from British possessions in India and Burma, exempt British goods from all import duties, and permit the establishment of a full embassy in Beijing. The Imperial Court stalled to buy time, but matters came to a head in 1856, when officials boarded the Hong Kong-based merchant vessel Arrow, which they suspected of participating in both smuggling and piracy. The British argued that as a foreign vessel the Arrow's activities did not fall under Chinese legal jurisdiction, and that the sailors who had been arrested should be released under the extraterritoriality clause of the Treaty of Nanking.

To enforce its interpretation of the treaty, Great Britain dispatched forces to Canton in a joint operation with the United States, France, and Russia. They captured Canton late in 1857 and Tianjin, the main port serving Beijing, in May 1858, effectively ending hostilities. In the Treaty of Tientsin (Tianjin) signed in June 1858, the allied powers forced China to open eleven more ports to Western trade. When the Chinese proved slow to enact some terms of the treaty, an Anglo-French force in 1860 landed at Tianjin and marched on Beijing. After an advance party of two British envoys and their entourage, sent ahead under a flag of truce to negotiate terms, were tortured and killed, the British High Commissioner, Lord Elgin, ordered the plunder and destruction of the Old Summer Palace in Beijing, considered an architectural wonder and the apotheosis of Chinese imperial design.

The Convention of Peking, signed in October 1860, imposed further penalties: payment of further reparations of 10m taels (worth about $450m in today’s dollars), to each of France and Britain, and another 2m taels to British merchants for destruction of property. China also ceded the port of Kowloon to Great Britain, and agreed to permit the export of indentured Chinese laborers to the Americas.

I apologize for the lengthy historical digression, but the perspective is important. China's humiliation in the Opium Wars contributed directly to the millenarian Taiping Rebellion of 1850 to 1864, which killed between 20 million  and 30 million people, the anti-foreigner Boxer Rebellion of 1900, which ended the Qing Dynasty and opened large swathes of the country to Japanese and Russian occupation, and to cutting China’s share of the global economy from 33% in 1820 to 17% in 1870 to just 5% in 1950.

The Opium Wars may have been a symptom as much of a cause of China’s collapse. Taxes and government revenues failed to keep pace with a growing population (400 million by the end of the 18th century), leading to a fiscal crisis, spreading corruption and lawlessness, and frequent, if low-level, rebellions. These in turn caused China to miss out on the Industrial Revolution that transformed Europe and North America, and to fail to adapt to European and American expansion in the Western Pacific.

But that’s not how China – both its government and its people – see things. China’s economic transformation over the past 40 years from Third World poverty to parity with the United States is seen as restoration of its rightful place in the world of which it was robbed by Western adventurism (China’s economy is smaller in nominal terms than America’s, but larger in purchasing-power parity, but with a population four times larger, per capita incomes are far lower than those of the U.S. or Western Europe). China’s assertive geopolitical stance, which includes building and militarizing islands in the South China Sea, opening its first foreign military base in Djibouti at the entrance to the Red Sea, and massive investments in industry and infrastructure in sub-Saharan Africa and Central Asia, is intended to cement its status as a preeminent world power.

It is appropriate for the United States to defend its economic and strategic interests from Chinese industrial espionage, and also to insist that China, no longer an impoverished Third World country, play by the same rules that apply to all developed nations. The World Trade Organization is the appropriate forum in which to address most points of contention, though bilateral negotiations may also have their place. But U.S. demands for China’s unconditional surrender on bilateral trade call up vivid memories of the century of humiliation, and stiffens Chinese resolve to resist, whatever the cost.