Ming Dynasty America: Trade as a Self-Inflicted Wound

Asia

Ming Dynasty America: Trade as a Self-Inflicted Wound

Conrad Copeland

by: Conrad Copeland

May 23, 2017

Ming Dynasty

Many people have compared the Trump administration to Ming dynasty China in various ways, no less than the new President himself characterised the similarity in terms of the Great Wall (which he characteristically misdated and arguably inflated in length).  Most of the more reasoned comparisons of Ming dynasty China and Trump dynasty America are focussed on the perceived isolationist attitudes of both governments.  This is a fundamental mischaracterisation of both nations.  The actual similarities are much more subtle and involve the nature of the interaction of both states with the outside world, primarily in terms of trade and its use as an instrument of hegemonic foreign policy.

Ming Policy: Control not Isolation

Principal in this discussion must inherently be a clarification of what happened in China under the Ming dynasty.  The oft-repeated myth is that after the famous voyages of Admiral Zheng He in the vast Treasure Fleets, the Emperor and government decided that they had had enough of this foreign interaction thing and ended the voyages, destroyed the ships, burned the records, banned trade, and in some accounts even went so far as to relocate whole populations away from the coast.  This shift is often attributed to the superseding of the eunuchs and merchants by the Confucian faction at court.  This is a gross mischaracterisation of Ming government policy and this supposed inward turn was in reality nothing of the sort, it was actually a reordering of how China interacted with its neighbours and the world at large and it was started many years earlier under the first Ming Emperor.

The idea of an isolationist China in this era comes from the conflation of two different things:  the Haijin, or sea ban; and the discontinuation of the Treasure Fleet expeditions.  The first was a unique policy instituted to restrict the conduct of foreign commerce and maintain control of trade relations.  The second had very little to do with foreign trade and in fact represented a rescaling of policy rather than a reversal of it.

Under the first Ming Emperor, Zhu Yuanzhang or the Hongwu Emperor, China enacted a major change to the way it conducted foreign trade.  In 1371, only three years after his overthrow of the Mongol Yuan dynasty, the Hongwu Emperor decreed the Haijin – a severe restriction on trade throughout China that effectively declared all foreign trade must be done through official channels and by representatives of the Ming government.  The punishment for private foreign traders was death for the merchant and exile for their families.  This was a massive shift in how foreign commerce was to be conducted and a fundamental shift in Chinese policy, which until this time had shifted between overt reliance on foreign trade and tacit encouragement of it.

The Haijin created a system of tribute to replace foreign trade in which the vassals and neighbours of Ming China were expected to offer tribute to the Ming Emperor in exchange for Chinese goods – in essence a highly ritualised trade regime that also projected Ming power by requiring at least nominal obeisance on the part of the foreign state.  The seriousness of this relationship naturally diminished with distance and enforceability, but the goal remained the same: to project Ming power through what were seen as beneficial sanctioned trade missions.  This is far from the closing off of trade assumed by the isolationist narrative and more closely resembles a monopolisation of trade relations by the government in an attempt to extract value, albeit of a political more than commercial variety.

Zheng He’s vast Treasure Fleets fit very well into this system, and can be easily characterised as the apogee of the tributary-trade policy.  Rather than a sudden international foray by the Ming government, the Admiral’s expedition is rather the culmination of the pressures to extend Chinese power as far as possible.  The construction of massive fleets consisting of hundreds of ships, some of which were over 100 meters long, crewed by tens of thousands was a clear statement of the superiority of Ming power and supremacy.  Admiral Zheng’s missions of tribute collection extended into the Indian Ocean and even as far as the Swahili coast in a massive expansion of the Ming policy of tributary-trade.  Similarly, the end of these expeditions is found in practical reasons from the highly documented rivalry between many at court and the adventuring Admiral to the prohibitive cost of outfitting such an expedition – much less the seven of them known to have occurred.  This is supported by the fact that even after the ignominious end of the Treasure Fleets, tributary-trade continued to be practiced by the Ming government with most nations in East Asia.

Far from being an isolationist policy, the system of tributary-trade was a way to extract value from existing trade relations and control the process of trade in a way that was seen to be beneficial to the regime.  Further, the expeditions of Treasure Fleets and their end fit well within the confines of this extractive policy.  Rather than signifying an end to China’s engagement with the world, Ming policy was merely an attempt to redefine China’s relationships with its neighbours – and those further afield – in a way that more suited the Ming government.

An American Hongwu Emperor

This clearer understanding of what Ming-era policy was concerning trade and the wider world creates a more straightforward comparison with Trump-era policy in the United States.  That being said, there is the obvious caveat that since the new Presidency is merely three months old, many of the assumptions about President Trump’s trade policy must be taken from the campaign and post-campaign rhetoric of himself and his staff.  Broad policy goals can be easily gleaned from this, despite the potential lack of policy details.

Generally speaking his administrations says it will seek to renegotiate many of its existing trade deals in order to, as he so often put it, get ‘better’ or ‘fairer’ deals.  This seems somewhat ambiguous, but from the context of Trump’s rallies, speeches, and statements it can be seen as an attempt to make trade more favourable for the United States.  The legitimacy of this approach to trade aside, it is very much in line with how the Ming dynasty viewed trade: something that should benefit the country in specific ways.  These ways invariably tend to be of the extractive kind, whether in the form of demanding political loyalty from presumed vassal-states or driving out competition to domestic industry from imports – the end goal is always to capture a higher proportion of what are often termed the ‘gains from trade’.  While the approach of the United States to this will obviously be different from the Ming dynasty, the American policy will likely create similar effects; namely a reduction in broad-based trade and commerce in order to maintain control over trade-relation outcomes.

Effectively, Ming China and Trumpist America had and have similar stated, and unstated, goals.  Where the Ming government sought to extract goods and political deference from trading partners by forgoing the dynamism of organic trade linkages, the Trump administration seeks to increase its net gains from trade at the expense of broader commercial relationships.  Both governments sought and seek perceived benefits through the increased control over trade relationships.

What lessons can be gained?

Given these similarities what can be learned from the experience of China under the Ming dynasty?  The problems that the tributary-trade policies of the Ming emperors brought on their nation were manifold and entirely self-inflicted.  Two major themes can be traced linking all the individual problems together: an increase in smuggling and piracy, and a financial crisis.

The issue of piracy was always a problem along the Chinese coast, particularly in the south.  The Ming policy of restricting trade, however, created an epidemic.  Merchants, both local and foreign, and their trade were supressed right at a time when Chinese goods were in high demand throughout East Asia creating lucrative opportunities for those willing to take the risks.  The subsequent increase in smuggling and piracy created security problems for the Ming state and local communities along the coast.  The government’s response was, unfortunately, to increase restrictions and crack down on smuggling.  This only further exacerbated the problem, creating a spiral of repression and suppression along China’s southern coast.  It also tied up large numbers of government soldiers to garrison coastal outposts to defend against pirates and deter smuggling, significantly increasing government expenditures.

The Ming dynasty was also continually faced with fiscal problems.  The expense of the coastal garrisons, the cost of expanding the frontier and subjugating the peoples of the north and west, and the empire’s numerous other projects all weighed heavily on state finances.  This was compounded by the Haijin – the tributary-trade policies of the government significantly restricted the amount of silver flowing into the country creating an acute shortage of specie for coins and financing state ventures.  The problem became so severe that by the middle of the 15th century there was a significant monetary crisis leading to a harsh economic contraction.  The dearth of coinage in the kingdom became such a pronounced problem that a large proportion of internal, domestic trade reverted to being conducted through barter.  The situation grew so dire that the paper currency issued alongside silver coins collapsed due to a lack of confidence and people began to hoard coins, further depriving the economy of liquidity.

Eventually the Haijin policy was abolished under the enormous pressure it put on the Ming economy, but the damage was done.  Ming government finances continued to suffer from shortages even after normal trade was resumed and the country suffered repeated economic crises until another major currency crisis in the 1600s caused the collapse of the dynasty.

The dangers posed to the American economy from Trump’s attempt to control trade flows will not be the same.  The US dollar is not linked to precious metals; nor is the prevailing trade regime the same.  What looms on the horizon of an American tributary-trade system is the potential collapse of vital trade links and the significant reduction in the exchange of goods.  This could have implications for the US currency in a similar vein to the fiscal and monetary problems experienced in Ming China by reducing the availability of products in the United States, hurting consumers, and severely impacting the use of American currency in the world.

The primary impact of Trumpian trade policy will be its stated objective: the reduction of imports and the increase of exports.  Given that exports are unlikely to surge past the current level of imports through some gigantic expansion of productive capacity in the US; this will naturally reduce the number and variety of imported goods for American consumers, leading to inflation and pain for those consumers – particularly for lower-income people.  The indirect effects on the currency come from the flow-through impacts of this rebalancing of trade.

Increasing exports and reducing imports means that consumers and importers in other countries will purchase more US products than they sell to the US.  In order to purchase these goods, importers in other countries will need to buy American dollars from their governments and central banks to pay American producers for their goods.  These dollars will then flow into the US as American goods flow out into other countries.  If this continues to happen in this way, US dollar reserves in other countries will shrink as the currency is funnelled back into the US through foreign importers buying American goods.  In order to correct this, the US must find a way to pump more US dollars into the rest of the world – traditionally done through US importers buying foreign goods, or US firms investing in other countries.  Both of these traditional mechanisms are opposed to the stated Trumpian goal of creating more exports than imports and keeping investment in production in the United States.

So why does this matter?

In political terms, it will reduce the ‘power’ of the US dollar by having it no longer being the principal reserve currency of the world.  Less US dollars being held by other countries reduces its effectiveness as the default currency of most international transactions, creating space for other major currencies to gain traction in international financial markets.  The possible political implications of this – or if there are even any political implications – is the subject of an entirely different debate among international relations scholars.

The economic effects would be more immediate, it will have a compounding effect on demand for the US dollar, causing a depreciation of the currency.  This decrease in the value of the currency will lead to more inflation on top of that already created by the import-export policy itself.  The weaker US dollar will make exporting easier and importing more expensive, further expanding the effect.  Essentially the United States will be caught in a cycle of depreciation, inflation, and export expansion hurting American consumers and damaging the purchasing power of the US currency.  This will be especially impactful on cheap imported goods such as clothing, food, and other essentials not produced domestically – leading to disproportionate impacts for low-income consumers who spend the highest proportion of their income on these types of goods.

This increase in inflation and reduction in disposable income for consumers could affect the strength of the US economy.  With a larger proportion of income going towards staple goods and less income left over to purchase other items, consumers may scale back other purchases in order to weather the storm.  This reduction in consumer spending on other goods could cause a significant reduction in total demand in the American economy, leading to a slowing of growth and consumption.  Alternatively, in order to maintain the same level of spending, consumers may increase their debt burden by borrowing more to keep their consumption high – further exacerbating the private debt problem in the US economy.  Either outcome will weaken the fundamentals of the US economy and could lead to future instability and vulnerability to either another financial crisis – due to high private debt loads – or a long period of low growth and stagnation.

In short, the United States could experience significant problems with its currency due to its own tributary-trade dreams.  While most of these effects may not be as extreme as outlined above, the impact on the currency could be quite severe depending on the extent to which such a one-sided trade policy is pursued.

The American Haijin

The similarities between the Ming tributary-trade policies and proposed American relationships with international partners are subtle but apparent.  The idea that the relationships must directly and obviously benefit the state and the government are present in both – effectively ignoring the more ancillary gains accrued from mutually beneficial trade relationships.  This view of international trading relationships represents a zero-sum perspective in which the dominant power must extract as much as possible from weaker partners.  While the policies will likely manifest in different ways – I would not expect the United States to start sending out treasure fleets or shutting down American ports any time soon – the impetus for them is the same and they will have similar effects.

The fiscal and monetary constraints faced by the Ming dynasty are in many ways directly attributable to its policy of restricting trade.  This led to inflation, currency hoarding, and constriction of the economy, eventually culminating in several fiscal crises that perpetuated the decline and eventual collapse of the dynasty’s control over China.

The United States could experience similar problems regarding its potential trade policy.  Forced increases in exports could disrupt the exchange rate, devalue the currency, and increase inflationary pressure, leading to a weakening of the American economy and hardship for domestic consumers.  This would leave the United States more vulnerable to financial and economic crises and disproportionately hurt those citizens who are most vulnerable.  While it is unlikely to lead to a collapse of the US government, it is nonetheless a misguided policy that can only lead to hardship for the countries and peoples involved.  Similarly to the Ming Haijin, it is an unsustainable policy objective and will sooner or later need to be abandoned in the face of either increased political or economic pressure.  In this sense, it is a road best not travelled – Trump-era America should be wary of mimicking Ming-era policy, lest it create a similarly self-inflicted wound.