From the archive: Trade with China

July 1954: The case for defying American pressure on Sino-British trade

Photo by Tom Hutchins/VCG via Getty Images

In 1954, Britain had recognised the People’s Republic of China but faced pressure from America not to trade with its perceived enemy. The historian and economist GDH Cole made the “material and moral” case for Sino-British trade.

The Chinese trade delegation, which has just completed its visit to Britain, has been a “success” in the sense that it made valuable contacts, examined possibilities of enlarged commerce in the light of practical British demand and manufacturing capacity, and paved the way for reciprocal visits to China by British merchants and industrialists. But it left, inevitably, without solving a problem which is primarily political.

During the past two or three years, Britain’s trade with China has been reduced to a trickle. We have stopped short, admittedly, of the complete boycott which the Americans would like their allies to impose on trade with the People’s Republic; nevertheless, both directly and as the controlling power in Hong Kong, Britain has undoubtedly gone much further than other Western European nations in shutting down trade with China. While Western Germany and some other countries have been supplying the Chinese market with increasing quantities of goods – some of them, ironically, being “re-exports” of U.S. manufactures – British exports to China have remained exceedingly low. Further, the services of British shipping – whatever our American critics may say – have not been forthcoming for conveying to the Chinese any substantial quantities either of British or of other goods from the outside world. Ceylon [Sri Lanka], it is true, has driven a highly profitable bargain with China for exchange of rubber against rice; but, with this notable exception, the Chinese Republic has been compelled to divert most of its foreign trade to USSR and countries of the Soviet Bloc – for the simple reason that only these countries have been ready to supply the goods China needs.

The form taken by this trade is that of so-called “barter” agreements. These are not, however, based on barter in the strict sense; they are rather arrangements for balancing bilateral trade covering a wide range of products. China, under Communist rule, is no longer running a trade deficit; it is limiting its imports to what it can afford to pay for with exports – mainly agricultural products. It is seeking to carry through its extensive plans of industrialisation with a minimum of imported supplies; and because it has to keep imports down to the lowest practicable level, it has to be very careful about what imports it lets in – China cannot afford to admit imports of luxury goods, or even large quantities of consumer goods of any kind. So pressing is its need for the means of industrial development that it has to ensure that the limited supplies of goods which can be spared from “investment” are used to pay for those imports which will help it most in raising its own future productivity.

This is the root of the trouble. In American eyes, practically all exports of capital goods, or of materials for making capital goods, to China are calculated to increase the military potential of the People’s Republic, and ought therefore to be banned. The Americans reject the view that it is enough to prevent China from importing actual munitions of war, or even materials which can be put to warlike uses. From their point of view, anything that makes “Red” China stronger is anathema; and they have been able to insist on the inclusion in their list of banned exports the great majority of the goods which the Chinese need for such purposes as the improvement of their transport system, the development of electricity supply, and the building of industries. This attitude is doubtless logical – on the assumption that war with the Communist world is inevitable, and that it is essential to destroy the People’s Republic and reinstate a puppet regime under Chiang Kai-shek. Save on that assumption, the American list of prohibited goods is nonsensical.

Now it is obviously inconsistent for Britain to recognise, as it does, the present Government of China, and to follow the American policy of seeking to compass its destruction by refusing it supplies which it clearly needs for its economic development. Britain has, in fact, been forced, as a consequence of the Korean crisis, into a policy which is both self-contradictory and exceedingly damaging to her own best economic interests. In the present state of the world, it is likely that the major part of China’s external trade will be carried on with the Eastern Bloc; but, even so, there remains a considerable market for British goods in China, and the development of such commercial exchanges would make a big contribution to lessening present tensions in the Far East, and to opening a field for British exports which would help towards easing the strain on Britain’s balance of payments.

These possibilities are examined in a pamphlet just issued by the British Council for the Promotion of International Trade, a body which grew out of the Moscow Economic Conference held about two years ago. China’s Foreign Trade begins with a study of what was happening to Chinese trade between 1945 and the Korean crisis, and what has happened to it since. It then goes on to consider along what lines and to what extent trade between China and Britain could be developed if the present boycott were limited to the exclusion of munitions and other supplies clearly destined for warlike purposes. The results of the analysis are impressive. In 1950, the Eastern Bloc, including Russia, accounted for a quarter of China’s total foreign trade; in 1953, it accounted for three-quarters of a greatly increased total – roughly 3 billion dollars, against 1.2 billion. From Britain and Hong Kong combined, exports to China were $256 millions in 1950, and $288 millions in 1951; after that, they fell to $104 millions in 1952, and were $112 millions last year. Imports from China over the same period have been relatively steady, at an average of just over $170 millions annually. Meanwhile, between 1950 and 1953, Ceylon has increased its exports to China from nil to $49 millions and its imports from almost nothing to over $38 millions.

What is China in a position to send us, if we supply the goods the Chinese need? The answer given in the pamphlet rests partly on an analysis of the goods we got from China before the trade was so drastically cut. The conclusion is that immediately practicable imports by Britain from China might reach between £38m. and £50m., made up mainly of five groups of goods—eggs and egg products (£8-10m.); vegetable oils (£8-10m.); soya beans (£6-8m.); maize (£2-4m.); bristles and textile materials (£8-10m.), plus a miscellaneous group representing a further £6-8m. This, of course, would not amount to a large proportion of total British imports; but it would save quite a substantial amount of U.S. dollars. The question arises whether China is now in a position to spare the quantities of exports, especially foodstuffs, which these target figures – assuming them to be realistic – postulate. That is primarily a matter for the Chinese; and the answer appears to be that they can spare them, provided they get really worthwhile imports in exchange. This, in turn, means that British exporters must be able to enter into firm contracts, and not be held up indefinitely for export permits, with the constant risk of having permission finally refused even if the goods in question are not definitely on the banned list. For a considerable part of the present difficulty lies in the fact that so many goods are “marginal” – neither quite in nor quite out of a banned category – so that endless arguments take place, and provisional permits are apt to be revoked under American pressure.

Clearly there is more trade with China to be done if Britain is prepared to do it. This was the main argument of the Chinese trade mission during its visit. And Britain is not the only country concerned: there should be large possibilities for the sterling area as a whole, and if trade can be got going, there is no reason why it should be limited to a strict bilateralism. China might be content to balance her trade with the sterling area as a whole, allowing some elasticity between its individual members.

A little, but only a little, has been achieved already, by means of the private bargains concluded after the Moscow Conference. But a number of these private deals have been made abortive by the refusal of permits to export the goods the Chinese have agreed to accept. China’s greatest needs at present are for machine tools, electrical equipment, semi-finished steel and other metal goods, chemicals and medical supplies. Only when these demands are being met, will there develop a demand for such things as motor cars or any substantial quantities of other consumer goods: China cannot afford to import these until her own production has risen further.

Materially and politically the case for increased Sino-British trade is overwhelming. American-imposed embargoes apart, its growth would be gradual, for the Chinese have no intention of asking for credits: their policy is to pay “on the nail” for what they can afford to buy. But it is a market worth pursuing, both for economic advantage and for the contribution improved trade relations would make to improved political relations with Asia.

[Further reading: From the archive: Reagan’s outrageous invasion]