Eighteen: Shanghai Nights, Beijing Daze -- Reversal of Fortunes

I want to begin with three quotes: The first comes from President Theodore Roosevelt in 1905, when he was beginning to recognize the importance of the Pacific following the conflict between Russia and Japan, and in light of the growing significance of China as a market for American products. It reads:

Our future history will be more determined by our position on the Pacific facing China, than by our position on the Atlantic facing Europe.

This comment speaks for itself, and it must be considered prescient. While the first half of the twentieth century saw American involvement in world wars that were largely caused by the nation’s Atlantic connections, the latter part of the twentieth century saw the growing importance of the Pacific to the United States, with wars in Korea and Vietnam, and with the emergence of formidable economic powers first in Japan and then in China. It now seems demonstrably the case that the United States’ future will be affected more by relations with countries in Asia, than by those in an ailing Europe.

The second quote comes from Wang Tao. 

It reads:

The ways of life cannot be immediately unified; they must first be brought together by the tools or implements of human invention. The steamship and the railway are the carriages of the ways of life.... Therefore, these great inventions, which the western powers are using for their encroachment upon China, are the very things which the sages of a future age will utilize as the means for the unification of the ways of life of all the nations of the earth.

This comment coming from the period when European powers were beginning to have their greatest impact in China, suggests that Wang Tao believed that a time would come when the tide would turn in favor of China – that fortunes might be reversed – that while the penetration of China might be accomplished by “the tools and implements of human invention”, the “sages of the future” might deploy similar “tools” to expand those markets outward, with new beneficiaries, and use them to bring greater unification to the world. 

While Wang Tao seems very optimistic and idealistic – his view perhaps flavored by his positive connections to Christian missionaries – a less rosy view might see the descendants of those who have been victimized by Western intervention, at the very least, profiting by the connection to the descendants of those former imperialists.

My last quote comes from someone who is less frequently read than he once was, Karl Marx. While many in the West believe that capitalism hasn’t collapsed in the ways that he said it would, so that they question his theory’s predictive value, some nonetheless acknowledge that his analysis of the workings of capitalism was very astute. With regard to the history of commodities, for example, Marx has a great deal to say to us.

He writes: [I]t is different with commodities. There, the existence of the things qua commodities, and the value relation between the products of labor which stamps them as commodities, have absolutely no connection with their physical properties and with the material relations arising therefrom. There it is a definite social relation between men that assumes, in their eyes, the fantastic form of a relation between things. In order, therefore, to find an analogy, we must have recourse to the mist-enveloped regions of the religious world. In that world the productions of the human brain appear as independent beings endowed with life, and entering into relation both with one another and the human race. So it is in the world of commodities with the products of men’s hands. This I call the Fetishism, which attaches itself to the products of labor, so soon as they are produced as commodities, and which is therefore inseparable from the production of commodities.

Here, commodities are like religion, and they are like an opiate of the masses – they become a fetish, something that humans strive for, though in fact they often cannot understand the reason why. For me, this comment speaks to the reversal of fortunes that is occurring in the world. Western economies have lost their dominant position in the world, and instead of being able to profit from their control of countries like China and India, as they were able to do previously, they now find that the situation has been largely reversed. And the reason has been the creation of a culture in the United States, and the west more generally, that is largely dominated by commodity consumption. In a way this is a drug that seems far less insidious than the drug that European traders used to help undermine Chinese society in the 19th century, but it is actually equally addictive, and for the long-term prospects of Euro-American societies potentially even more destructive.

I am arguing, here, that relations between China and the United States need to be understood from a perspective that takes into consideration interaction that goes back to the mid-19th century. It is easy to be swayed by political or economic considerations of the moment, or by ideological differences and other geo-political concerns. But over the long dureé the picture that emerges from the American perspective is one shaped by economic considerations – the need for markets for surplus production, the need for labor to lower the costs of production, the need for cheap commodities to satisfy American consumers, and then, as the American economy becomes increasingly service-oriented and less capable of its own production, the need to pay debt to Chinese and other foreign creditors and redress a balance of trade that looks likely to remain in a state of imbalance.

At various times in U.S.-China relations there have been issues or political considerations that have seemed to overshadow these economic fundamentals. Between the 1880s and World War II, there was considerable racism on the part of American workers and others who wished to exclude Chinese immigrants, and during the Cold War era there were significant ideological differences between the leaders of the two nations. But historians tend to write history from the perspective of the present, and in light of the current situation these other issues seem of secondary importance and of less of a concern than the overarching economic history that I will try to outline here.

Part 1: The Encroachment Upon China

Wang Tao’s words (mentioned at the beginning) were quoted by Chinese intellectual, Hu Shih, during a lecture he delivered at the University of Chicago in 1935.  Hu Shih was speaking about the transformation that had occurred in China since the European war.  But he wanted his American audience to understand the state of China prior to the Revolution of 1911. He was clear about the fact that opium had been a major vehicle of change in China. He wrote:

By 1829 the opium import amounted to $10,591,760 gold, forming 49 per cent of all British imports to China. In 1834, it was $11,381,930 gold, forming 51.4 per cent of the British imports. It brought about the Opium War of 1840 and the Nanking Treaty, which gave Hong Kong to England and opened five ports to foreign commerce and residence. It was the first Chinese defeat in war with any European power. China paid for the defeat, but she never could understand why any civilized country would resort to war for the sake of keeping trade open and, least of all, for the sake of maintaining the commerce in a poisonous drug.

In his speech, Hu Shih made a telling comparison between, on the one hand, the first Europeans who had arrived in China in the 17th century, men who he felt had had a positive influence on China, and who had been welcomed, by and large, owing to their desire to learn about Chinese ways and not to disrupt all that they came into contact with, and, on the other hand, the merchant capitalists who had forced their way into China and swamped the population with opium, leading to two wars, and the complete prostration of the Chinese government and people in the face of European and American demands.

The world economy that would be dominated by the British and Americans up until World War I was fundamentally founded in the Opium Trade. It was this trade that made British Colonialism in India economically viable, and it was the so-called success of the British Empire in India that gave justification to the whole Euro-American imperial project extending from the Scramble for Africa through the acquisitions throughout the Pacific region. 

In the context of this collapse, Chinese international standing declined dramatically, such that Chinese immigrants in the United States began to suffer from it as well. American capitalists, like all capitalists over time, constantly feel the need for ever-cheaper labor. One of the key sources for this in the latter part of the 19th century could have been Chinese labor, and for many years after the settlement of California, Chinese indentured laborers were recruited to work in different industries.

In the British Empire the need for labor in the aftermath of the emancipation of slaves was largely taken care of by indentured labor from India. Plantation capitalists from the Caribbean to Africa and Ceylon, all the way round to Fiji in the Pacific utilized what they called “coolie” labor from India. The Chinese were considered as a possible alternative to Indians – particularly when there seemed some likelihood that the Indians would protest their conditions – but generally the access to labor recruitment areas was easier in India, so that British imperial labor needs could be taken care of without resorting to the importation of large numbers of Chinese laborers.

In the United States, however, following the Civil War and slave emancipation northern Republicans sought to protect Southern black labor from being discarded by the planters and replaced by indentured labor, and so they passed laws forbidding the importation of laborers into the American South from places like India and China. As industry became firmly established in the North, the supply of labor from European immigration was such that the northern capitalists could use the large pool of labor to keep wages depressed and undermine the unions – so there was no felt need to import large numbers of laborers from China. In the west, however, no such pool of labor existed, and with the Gold Rush in California, and the labor demands arising from the construction of the transcontinental railroad, the desirability of Chinese labor increased dramatically. 

While this was true from the perspective of the capitalists, the European workers who were moving into the region, drawn by the possibilities of making money in a growing economy, recognized that their advancement was threatened to the extent that indentured and other lower-paid laborers were being used for cheap labor. This led to the Chinese Exclusion Act of 1882, which represented the triumph of late-19th century racism on the one hand, and the impact of the Europeans in China, affecting the Chinese rulers’ ability to protect their people from exploitation abroad.  For example, the Japanese government was able to respond to attempts to discriminate against Japanese immigrants in the United States, in part owing to the standing the Japanese maintained in the world. In the period of instability brought on by the opium trade, the Chinese Government could comfortably be ignored. 

For Americans, China was considered a vital outlet for their products. Leading capitalists, like John D. Rockefeller of Standard Oil and Andrew Carnegie of steel production fame, believed that unless the United States was able to gain access to the huge Chinese market for its products, the American economy would constantly fall victim to over-production and end up dealing with economic recession, like the ones they had experienced in the 1870s and 1890s. This was a major impetus behind the war with Spain in 1898, which led to the acquisition of the Philippines, a gateway, in their minds, to China. These capitalists knew, however, that the United States was weak when compared to other nations in the Pacific region, and that they could not advance simply by using the might of a navy or the armed forces, as the British had done. In 1898, Carnegie observed, the British had a navy of 80 first-class warships, France had 50, Russia 40, Germany 28, and Japan was catching up with Germany quickly. The Japanese would show within six years they were more than a match for the Russian navy, and they were already far ahead of the Americans, who only had 18 first-class ships. 

What men like Carnegie believed was that the United States had three choices in relation to China. One was to continually rely on the support of the British to validate American claims. This had been useful in the procuring of the Philippines, but the British could not be relied on to always be supportive, and the tangle of alliances in Europe, might result in a combination with another country leading the British to turn against the United States. The second choice was to rapidly expand the American navy so that it could compete with the other nations – but Carnegie realized this would take more than 20 years to accomplish. The third choice, that Carnegie enunciated, and which the American government largely pursued, would be to create an alternative to direct colonialism, what Carnegie called “Americanism.”  Here the United States would endeavor to avoid using force – the foundation stone for most imperialist ventures – and promote moral suasion through what would come to be known as dollar diplomacy.

Carnegie wrote: Imperialism implies naval and military force behind. Moral force, education, civilization, are not the backbone of Imperialism; these are the moral forces which make for the higher civilization, for Americanism.

When “the world shall have a wholesome fear, synonymous with respect, for us,” … it will not be a good day for the Republic. Adherence to Washington’s desire seems better to me – that we should be the “friends of all nations” – a wholesome friendship instead of a “wholesome fear.”

Clearly, this wholesome friendship would be established on American terms, with profits coming to the United States economy as a result, but there was a belief that this nonetheless would allow for advantages for those peoples with whom the Americans would be establishing such relations. This was what Rudyard Kipling would describe as the White Man’s Burden, written to celebrate the success of the United States in acquiring the Philippines.

Under such circumstances it would behoove the United States to endeavor to establish an “Open Door” policy for China. Rather than creating conditions where single nations could have control over particular territories, as in the Scramble for Africa, the Americans under Secretary of State John Hay’s leadership argued for the right of all nations to trade equally with China. While this may have been preferable to a situation where the Europeans and Japanese carved up China among themselves, the terms of trade were very much in the foreigners’ favor, and the Chinese government appeared impotent in the face of this capitalist penetration into all parts of the country. This culminated in the Boxer Rebellion, the brutal suppression of the Boxers by Germans, British, and Americans alike, and the collapse of the Qing dynasty following the 1911 Revolution.

But the difference between the Americans and the European imperialists, at least in light of Carnegie’s perspective can be suggested in the career of the aforementioned Hu Shih. How Hu Shih came to be in the United States lecturing Americans on China says something about the different kind of imperialism Americans developed that would influence their interactions with the Chinese considerably. After brutally suppressing the Boxer Rebellion the Europeans and Americans sent the bill to the Imperial Government demanding that they pay the costs for their military campaign in China. While other nations, in typical imperialist fashion, treated these payments as mere reparations, the Americans used the money they received to create a scholarship fund for Chinese students to receive an American college education, and Hu Shih was one of these students, first coming to Cornell University in 1905. 

On arrival in the States Hu Shih shifted his interest from the study of agriculture to philosophy and literature and moved to Columbia University where he came under the influence of the philosopher John Dewey. He would later accompany Dewey to China and act as the translator for the American pragmatist when he lectured to numerous university audiences. Hu Shih returned to the United States in the 1930s (and he would later become the Chinese Ambassador to the United States between 1938 and 1942).

Part 2: The American Century, 1911 to 1989

The world was radically transformed in the period of World War One. This war saw the beginning of United States ascendancy – something that Carnegie had foreseen a little earlier – with New York City replacing London as the financial capital of the world. At the same time, the economies of other European imperialist powers were in shambles, with important implications for China. 

While the Chinese were experiencing the aftermath of their revolution, a number of the nations who had encroached on China were no longer in a position to continue to do so. This left the United States and Japan as the two most influential nations in the region, the Japanese quickly seizing German territories in China as one of the spoils of victory. The Chinese were left with a choice, previously imagined by Carnegie, between the imperialism of the Japanese and the seemingly more benign Americanism. As Japan began to impose itself more on China, with the invasion of Manchuria in 1931 and the Nanking Massacre of 1937, for example, the United States seemed, in the eyes of many Chinese, like Hu Shih, more of an ally against Japan than simply an imperialist. 

The collapse of the other world economies in the Second World War left the United States in a position where it believed itself to be economically insurmountable. Its own domestic market was sufficiently large that American companies very frequently could make profits based upon selling to Americans, and then endeavor to capture segments of the global market by unloading surplus products at below market prices, undercutting farmers and industrial producers around the world. 

Moreover, the United States no longer even felt the need for immigrant labor. The mechanization of farming left large numbers of African Americans without work, and these people moved to cities to become a depressed labor force, taking care of any needs for cheap labor. Meanwhile, with the new car culture emerging around the massive highway construction, undertaken as part of the New Deal of the 1930s and then accelerated under President Eisenhower, the foundation of the American formula for success – and ultimately failure – was laid. This was, essentially, the establishment of a relatively highly paid workforce migrating to spacious housing developments in the suburbs, funded largely by the industry that was benefiting from that same process of suburbanization. The fundamental shift here was something that had been going on since the 1880s, the move from being a culture of production, in which identity was formed around what someone did for a living, to a culture of consumption, where identity revolved around what one could purchase and consume. But this form of identity was far less stable than the producer mentality – it was fueled by the need to consume and to keep up with fashion, and the person who was hip, or fashionable today, was, if he or she wasn’t careful, likely to be considered passé or behind the times if his or her conspicuous consumption didn’t keep up with everyone else’s.

This consumption could initially be supported by the production arising out of American growth, and by the fact that the Cold War gave the United States a standing as a guarantor of stability in the world. Consumption is like a drug, however, the more one does, the more one feels the need to do. As with drugs, consumption highs are ever less satisfying, and need to be constantly fed. At some point, however, that consumption could not be satisfied by the Americanism formula. That formula was that American companies would, in spite of their high cost of labor, continue to prosper in the world economy, and be able to pay high wages. This meant that prices would be inflated, particularly for the home consumer. The need for new and cheaper commodities to feed the consumer would, almost inevitably lead to the rebuilding of other economies, and the development of new ones that could provide cheap labor – Hong Kong, Taiwan, South Korea, and then China – and then the flight of American capital to those areas where they could utilize that labor. Consumption would continue unabated in the United States, but it would be founded less and less on American productivity, and more and more on the ability of Americans to continue to borrow to pay for these, now cheaper, commodities.

As the nation turned from creditor to debtor it could continue to live the way it had done, only if other nations felt they needed the United States and the dollar as a source of stability. While the Cold War continued, and while the Russia and China remained outside the global market, American dominance and prosperity was a luxury that Europeans and others within the American sphere of influence felt they could afford; in 1989 things changed radically. So, in this regard, the loudly proclaimed and celebrated victory of the United States in the Cold War in 1989, with the collapse of Soviet Communism in Russia, was actually the death knell of Americanism, and the beginning of the decline of the United States as the global center of capital. This situation was further exacerbated by the fact that from 1989 China accelerated what it had already been doing earlier in the 1980s, namely opening itself up to a closer engagement with the global market. 

Part 3: Towards the Chinese Century

For a while, instability in the Middle East seemed to be sufficient to keep the United States in its position as guarantor of the world market, especially with the economic backing of some oil producing nations, who feared that their neighbors, like Iraq or Iran, might seek to undermine them in some way. But, committing so many resources to invasions in Afghanistan and Iraq, left the United States with ever-growing mountains of debt, at a time when the declining wealth of many Americans has left them unwilling to support by their taxes the kind of government sponsored initiatives that might have opened up new avenues to the United States to become more competitive (as had happened in the past), or to keep the government solvent.

China clearly has benefitted from the transformation that has occurred since 1989. The need for cheaper goods to keep feeding the beast of consumption in the United States has seen the very rapid turn to China for the production of large sectors of the economy – with almost all major outlets from Walmarts to Best Buy securing their goods from China, and major American high-tech companies like Apple beginning to manufacture all of their products in China itself. And in conjunction with this the US trade deficit with China has continued to grow, and the debt that the Chinese now account for has become almost staggering.

According to the Guardian newspaper, during the debt crisis earlier this year, the U.S. Debt was more than $14.2 trillion. $4.5. trillion of this debt is held by foreign governments, the largest share of which, growing by the day, belongs to China, which owns $1.2 trillion of this debt. Of all the holders of U.S. debt China is the third-largest, behind only the Social Security Trust Fund and the Federal Reserve. The Chinese portion is considerably larger than those of other nations, with only Japan in close proximity. Of course, the largest amount of American debt is still owned by the American government and the American people, but the situation is worsening rather than improving.

I think the current situation was nicely encapsulated in this cartoon, with Hu Jintao showing Barack Obama both the Great Wall and the Great Wallet of China. The Republican Party, in particular, has expressed grave concern over the amount of debt owned by China. U.S. Representative Michele Bachmann, a candidate in this year’s primaries, joked that when it came to the debt, "Hu's your daddy." While this is obviously the exaggeration of paranoid humor and intended to blame the Chinese for American problems, it nonetheless reflects a situation where a reversal of fortunes has occurred. Where the Chinese were constantly paying debts of different kinds to the Americans throughout the American Century, the Americans are now constantly paying debts to the Chinese in what is fast becoming the Chinese Century.

The question now, from the American perspective, is what can be done about this state of affairs, with the United States’ position in the global economy drastically declining? In the short term, things are not catastrophic: China still needs the United States as a consumer for its products. Just as the United States would have suffered major setbacks in the past had countries to which it had loaned large sums of money collapsed, now the Chinese cannot easily withstand the complete collapse of the American economy. 

A brief analogy to the American situation prior to its intervention into World War I is apt. Most people think that the Americans came into the war on the side of the Allies because there was a special affinity between the Americans and the British. This was not so. The largest population group in the United States at the time was the German, and the second largest was the Irish – and both hated the British for obvious reasons. Rather, the fact that the American bankers had taken up so much British, French, and Italian debt, while not being able to do the same in Germany, meant that they had to join the war to protect their economic interests. If Britain had been defeated and had defaulted on its loans, catastrophe would have ensued in the United States economy, and in what was then a volatile society.

The same is true for China today. A great deal of the prosperity that can be witnessed now in Beijing, is a product of the country’s position in the global economy. If that global economy collapses, it would be very hard to withstand the social upheaval that would follow in its train. The perils of prosperity, as the Americans are now showing, can be found in the fact that one cannot guarantee that one will be prosperous tomorrow; and when the time comes that prosperity is on the wane, the level of expectations that cannot be met result in the kind of turmoil that we have seen this year, in Athens, in London, around Wall Street, and even in the Arab Spring.

But one thing is certain, no President of the United States can now ignore the words that Theodore Roosevelt spoke at the beginning of the last century. “Our future history,” Roosevelt had said, “will be more determined by our position on the Pacific facing China, than by our position on the Atlantic facing Europe.” No doubt this was on Obama’s mind when he was in Australia last week, and when he said to other global leaders: “Let there be no doubt: in the Asia-Pacific in the 21st century, the United States of America is all in…The United States is a Pacific power, and we are here to stay.”






A shout out is necessary to: Arthur Power Dudden, The American Pacific: From the Old China Trade to the Present (New York City: Oxford University Press, 1992).  Particularly useful for the Opium Trade, Carnegie and Americanism, and providing an introduction to Hu Shih -- and much more besides.