+2000 years of Chinese trade surplus: a history lesson

“China, a vortex for the world's gold” is an intriguing article by Keith Bradsher (NY Times) on ancient history of Chinese trade surplus. Chinese reserves of foreign currency already exceed $800 billion, up from just under $4 billion in 1989. But it is nothing new if we travel back in time for 2000 years.

“Ancient Rome, for example, found that it had little except glass that China wanted to buy. Nearly 2,000 years ago, Pliny complained about the eastward flow of Roman gold along the Silk Road in exchange for Chinese silk.”

“...from A.D. 600 to 750, from 1000 to 1300 and from 1500 to 1800 - China again tended to run very large trade surpluses. By 1700, Europe was paying with silver for as much as four-fifths of its imports from China because China was interested in little that Europe manufactured.”

And history suggests that Chinese products will remain very cheap despite huge trade surplus and “appreciation” of money.

“A longstanding mystery for economic historians lies in how so much silver and gold flowed to China for centuries for the purchase of Chinese goods yet caused little inflation in China. Many of China's manufactured goods remained much cheaper than those from other countries until the early 1800s, despite the rapidly growing supply of silver in the Chinese economy. One theory is that Chinese output was expanding as fast as the supply of precious metal. Another is that the Chinese were saving the silver and gold, not spending it.”

British Empire worked out a way to maintaining a large long-term trade surplus with China by getting Chinese addicted to imported opium. In the twenty-first century, however, we have a better solution:  Chinese invest much of its foreign currency reserves in U.S. Treasury securities or mortgages on American homes.

On thing I am very sure: we should always try to learn from history. Let me tell you a story.

A famous historian, Niall Ferguson,  was talking to a mid-ranking official in the US Treasury about American plans for the post-war reconstruction of the Iraqi economy. She had just attended a meeting on precisely that subject. "So what kind of historical precedents have you been considering?" Prof. Ferguson asked. "The post-Communist economies of Eastern Europe," she replied. "We have quite a bit of experience we can draw on from the 1990s."

Well, she obvious is not aware that British used to invade Iraq more than 80 years ago.

"What happened in Iraq last week so closely resembles the events of 1920 that only a historical ignoramus could be surprised. It began in May, just after the announcement that Iraq would henceforth be a League of Nations "mandate" under British trusteeship. (Nota bene, if you think a handover to the UN would solve everything.) Anti-British demonstrations began in Baghdad mosques, spread to the Shi'ite holy centre of Karbala, swept on through Rumaytha and Samawa - where British forces were besieged - and reached as far as Kirkuk.Contrary to British expectations, Sunnis, Shi'ites and even Kurds acted together. "

Prof. Ferguson has to reach a conclusion in his op-ed "This Vietnam generation of Americans has not learnt the lessons of history" that:

"For many Americans - including the Democratic contender for the presidency, John Kerry - the only history relevant to American foreign policy is the history of the Vietnam War."

Comments

[Kate]

I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

Kate

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