Our Stake in the Orient

In the year of grace 1798 there came winging home to New York harbor the trading vessel “Betsey,” ninety-three tons. She was re-entering waters she had left almost two years before, when the lure of the China trade had led her out around the Horn. Her lading was intangible as well as material: she brought back tea, nankeens, and china-ware; she brought back also the consciousness of a successful participation in our first overseas saga, the venture to the coasts of Asia. Her crew must have remembered, integral with impressions of exotic ports and outlandish peoples, the contrast between the little “Betsey” and the mighty In-diamen, forerunners of an empire still a-borning, as they swung at anchor off Whampoa, between the individualized trading of her captain and the stately “factories” of the official European companies at Canton. The “Betsey” made a thumping profit on the voyage, in excess of $120,000; but even more interesting and typical is the fact that she cleared it on an initial owners’ investment of $7,867. They had gained to what were riches on a shoestring.

At Shanghai today the overlord of Standard Oil in China officiates from an impressive office building. His are the full state and honor of push-buttons, the clean desk, and yes-men. Yet actually and consciously he is the heir of the “Betsey’s” captain. His first preoccupation is to trade; his second is to sell his wares while tying up a minimum of fixed capital in a convulsed and uncertain country. His keenest satisfaction is derived from the transfer of some part of his machinery and risk of distribution to a Chinese entrepreneur. In this he represents both tradition and the best current American business practice in China. And the situation of extensive trade with comparatively low capital investment holds true not only for China but for all of eastern Asia. The reasons for this vary in the different trade areas of Japan, China, and the Philippines, and will be discussed later; the fact remains that while Americans possess many handsomely engraved obligations denoting ownership of smelters that rust in Bolivia, of sugar centrales that grind profitlessly in Cuba, and of non-productive municipal stadia in Germany, our commitments of capital to the Far East are relatively limited.

Toward China our traditional policy has been that of commercialism, usually enlightened, to which the name of “Open Door” was applied only after it had been in existence for many years. We have on occasion dallied with the idea of economic imperialism, but American capital, our government, and the Chinese authorities have never been able to see eye to eye to any effective extent at any given time. We have never possessed a sphere of influence or interest in China. We have never been vested with a treaty port concession, although we are concerned with that strange body politic, the International Settlement at Shanghai. Two major railroad construction projects have tempted us; but both, fortunately, collapsed before involving major commitments. Underlying and largely motivating this policy have been the factors of Chinese isolation and disorder. Yet these same factors have existed for Great Britain and Japan; and while they have, respectively, total investments of $1,266,000,000 and $1,153,000,000 in China Proper and Manchuria, our stake amounts only to some $250,000,000. Furthermore, about $50,000,000 of this sum represents missionary and philanthropic investment and $46,000,000 more is tied up in Chinese Government securities and obligations which are no better than most bonds of the present era. Our commercial investments thus come to approximately $155,000,000. Through them we transact a commerce which amounts normally to about $190,000,000, and which, even in the year of gloom, 1932, exceeded $100,000,000—say in the neighborhood of twenty per cent of all China’s foreign trade. Thus, despite the great distances involved in the transportation of goods, we usually more than turn over our commercial investment each year. Furthermore, our trade with China, even including Manchuria, is much the same in order of magnitude as that of the British Commonwealth of Nations and of Japan; and we employ for its conduct a capital investment less than one quarter of that sunk by our chief competitors.

Japan, since we have known her, has never presented the vista of chaos and confusion which has been a normal characteristic of China for the last century. In addition, the United States have been, for long periods, not only unsus-pect, but even exceedingly popular in the Island Empire; and the commercial relations between Japan and America have seldom been the sport of politics or the handmaids of policy. The business men of the two nations have been singularly unmoved by the yawps of Occidental and Oriental tub-thumpers. In consequence a large American investment in Japan would appear logical. Actually our stake there is the largest we have confided to the Far East; but by reason primarily of rigid governmental regulation of foreign participation in Japanese enterprises, no wholesale commitments or encroachments have been practicable. The total of our investments in Japan comes to some $466,000,000. Only $62,000,000 of this is directly invested in American concerns established there. An additional $191,000,000 is placed in Japanese corporations. The largest item of all is $203,000,000 in governmental and municipal bonds, sterile from the commercial point of view. Our total business investment in Japan is thus roundly $250,000,000, and our total trade with the country amounts in normal times to $370,000,000 annually. In the boom year of 1929 it soared to a value of some $690,000,000, and in drab 1932 it fell to $270,000,000. Yet even the lowest figure means a complete annual turnover on invested capital, while the normal ratio of trade to capital lifts this figure by fifty per cent. Japan is our third best customer and, thanks to the silk trade, only Canada surpasses her as a source of American imports.

The Philippine Islands, though under the flag of the United States, have erected an important deterrent to wholesale American investment. Primarily agricultural, they offer opportunity for capital chiefly in connection with the soil. However, there are incorporated in their laws provisions limiting the amount of land that can be owned by a corporation to twenty-five hundred acres. This restriction undoubtedly has prevented the formation of vast sugar estates similar to those of Cuba, of broad hemp plantations, and of great forest holdings. In consequence we encounter once again that healthy phenomenon, in a stalled and production-sated world, of low capital ratio to trade. The total of American private investments in the Philippines is estimated at $258,000,000. Some $70,000,000 of this sum represents governmental bonds, leaving a commercial investment of approximately $190,000,000. In normal years our gross annual trade with the Philippines averages $173,000,000. In 1932 it amounted to $134,000,000; in 1929, to $227,000,000. While the ratio of trade to investment is not so satisfactory as in China and Japan, it is still a comparable quantity.

Our reasons for acquiring the Philippines have never been delimited exactly. President McKinley confessed in full earnestness that divine inspiration vouchsafed to prayer was finally the deciding factor. Other arguments advanced for holding them were their strategic value, their potentialities as an outpost of Christianity, the necessity of denying them to other nations, notably Germany. Probably the controlling motive for their acquisition was simply that such action was an old American custom, sanctioned pragmatically by the happy outcome of annexations after previous wars. However, there was an additional consideration which deserves attention here. The Philippines were believed by many to be capable of development into an entrepot, where American goods might be stored and whence they might be shipped to Asiatic markets. Nothing of the sort has happened. The shipping routes from North America to the Philippines pass along the coasts of Japan and China; and our exporters see no reason for their wares to make long and expensive marine excursions beyond their ultimate destinations. Re-exports from the Philippines amount only to about one million dollars per annum.

A similar state of affairs obtains in China. That country, too, is a destination, not a storehouse, and as yet only in limited degree a processing center. With Japan the case is somewhat different. The conversion of imported raw materials into finished products and their exportation to less industrialized areas is one of the dominants of her economic rhythm. For iron, coal, lumber, and pulpwood she leans heavily on continental Asia; but we are her main reliance for raw cotton, with India a not very close second and the rest of the world nowhere. This commodity makes up about one half of the money total of our exports to Japan. A large proportion of the cotton, transformed into textiles, finds its way across the narrow seas to Asia. But aside from this, and from the extraordinary circumstances which result in the deposit of still more cotton on Chinese soil in the form of high explosives and in the winding of long military columns of American motor trucks over the plains and mountains of Manchuria, Japan represents for us an economic destination, not an entrepot.

II

If our trade with the Far East is considered with reference to its permanence, it falls at once into two divisions, one inside, one outside, our tariff wall. The first is the Philippines, the second includes China and Japan. Magellan’s archipelago sends us chiefly sugar, hemp, tobacco, copra, and coconut oil. With rudimentary industrial development, it takes from us processed goods in endless variety. We hold three quarters of the entire foreign trade of the Islands and, significantly enough, take a still larger proportion of their exports. We are thus their vital market. With the possible exception of hemp, by the granting of Philippine independence and the placing of the Islands beyond our customs barrier, we would close our markets to their products. Such, in very fact, is the avowed objective of most of those Americans who lobby and vote in Congress for Philippine independence. They are seeking not so much the vindication of the rights of an enslaved people as they are the promotion of Utah, Louisiana, and even Cuban sugar, and the glorification of the American cow at the expense of the Philippine coconut palm. Now, of course, the closing of our markets to the Filipinos must entail the serious curtailment, possibly the collapse, of their buying power. The whole body of our Philippine trade and the bulk of our capital invested there must be regarded as lying at the mercy of political action. And in this connection our statesmen seem less merciless than unconcerned with mercy.

Coming to China and Japan, we find them also to be primarily sources of our raw materials. But while the Philippines have only the obstacles of distance to overcome in making their products available to our markets, in the cases of the other two countries there is also erected the barrier of our will to economic self-sufficiency. Hence the goods they sell us are almost invariably essential goods, incapable of production in America, and by reason of the long transpacific haul, unobtainable from nearer nations. In the case of Japan, her export trade with us centres around raw silk, which constitutes in value some eighty per cent of what she sends America. Now raw silk is really a by-product of Japanese agriculture. The mulberry trees and caterpillars are tended by the farmers and their families in spare moments and in off seasons. There can be no strong incentive to limit production. Furthermore, as arable Japan is completely under cultivation, there is little opportunity for the expansion of silk culture. The net result is that Japan’s output of raw silk tends toward stabilization, and the amount we buy from her is even more strictly defined. Some may declare that silk is a luxury product and that our demand for it should fluctuate with our circumstances and ability to buy. But not only would sixty million American women rise to deny this imputation; recent experience is also against it. In 1932, as in 1929, we bought from Japan sixty-nine million pounds of raw silk. From the Japanese standpoint there was a fly in the ointment. In 1929 they received $365,000,000 for their silk, while in 1932, thanks to depression, the competition of rayon, and low exchange, they sold almost precisely the same quantity for $106,-000,000. Raw silk, then, is the backlog of Japan’s exports to us. Other articles include tea, china, and camphor; but with the crabmeat, lamp globes, and gimcracks which have aroused such a furor in our isolationist press, they are relatively unimportant. In the last analysis, Japan supplies us with a single staple raw material, unobtainable elsewhere, the acquisition of which is essential to us.

China is in similar case, but her exports to the United States are more diversified. They include raw silk, undressed furs, hides, and skins, oils from the t’ung tree for paints, carpet wool, and bristles. Until recently silk held primacy there, as in Japan; but the quality of Chinese silk has deteriorated and its price has fallen until now the silk trade is no more important than any other. Once again the pattern is repeated: raw materials which America must import and which we cannot buy elsewhere.

III

When we come to what we sell to China and Japan, a different situation is presented. The list of goods is most diverse, ranging from raw cotton, lumber, flour, and petroleum products, through iron and steel implements and utensils, to motor cars, electrical apparatus, and those intricate production mechanisms which seem to possess intelligence without judgment. The heterogeneous roster has but a single unifying characteristic: practically every item can be duplicated elsewhere. That they are not duplicated is, broadly speaking, a function of the obtaining price structure. In an immediate sense there can be no doubt that the goods we sell to China and Japan are limited to essentials which they do not produce and which they cannot buy to such advantage in other marts. But if the list of our products which they import is examined, there is little reassurance that our Far Eastern markets are established permanently and beyond dispute. Indian cotton can come to China and Japan as easily as American; and China herself is a cotton-growing country. Chinese tobacco is steadily ousting ours from the factories at Shanghai. Russian and East Indian petroleum compete with our own. In Manchuria vast stands of timber await the axe, and endless potential wheat fields the sower. Japan is industrialized, China moves in that direction; and the market for our manufactured wares is subject to a steady contractive pressure. Only in the fields of certain specialized machinery, of automotive products, and of machine tools that make machines is our position secure. In a phrase, we represent to China and Japan a market by necessity, they represent to us a future market by skill and salesmanship. There, as in the Philippines, the trade outlook is uncertain; but the variables are, in the one case, economic; in the other, political.

It is easy to see that our whole stake in the Far East is important. Our gross investments there come to almost a billion dollars, of which only some six hundred million are employed commercially. Our total trade with the region is normally in excess of seven hundred millions, and even in 1932 exceeded five hundred million dollars, a sixth of our gross foreign commerce for the year. It is more than a large item in our foreign trade, it is a healthy one. This statement may well evoke bitter cries from a business man of Yokohama, Manila, or Shanghai, pained by the decline of business volume and plagued by the vagaries of exchange. But the fact remains that no trade area, the commerce of which in 1932 was seventy per cent of normal, is entitled to any priority at the economic wailing wall.

On the other hand, our export trade with the Orient is not to be held by divine right, but by good management. In the case of the Philippines, it is dependent on the sale of the Islands’ products, which we almost monopolize. In China and Japan it will depend in the future directly upon skill, intelligence, and friendship.

The question may be raised legitimately as to whether we should regard our trade with this section of the world as a unity. The practical, material independence of our dealings with each of the areas concerned has been pointed out already. A sectional give and take is a conceivable idea. For example, a boycott of Japan might increase our textile trade with China. Or again, a hypothetical arrangement might be envisaged by which we acquiesced in the closing of the Open Door in Manchuria in return for a commercial quid pro quo from Japan. But there are other and equally important characteristics of our commerce that tend toward unity for the whole region. The three countries lie along a single avenue of trade, served by the same ships on continuous schedules. The wares they buy from us are broadly similar in character and are almost identical in quality. The mechanism of credit involved is uniform, though currencies differ in value and stability. Nor can we overlook the close political and psychological relations, actual and potential, existing among these countries. We can do nothing with reference to one that does not provoke a reaction in the others. From the point of view of the American producer and exporter the three markets naturally coalesce into a unified whole of similar characteristics. Where trade with the Far East becomes a concern of government and administration, it is obvious that divergent policies may be indicated. At the same time, the co-ordination of these policies, their consideration in the light not merely of their immediate effects, but also in that of the reactions they may arouse in adjacent areas—this would appear to be matter for inclusion in the primer of statecraft. Yet such rationalizations are almost never brought forward publicly.

IV

It seems even more clear that our trade with Eastern Asia, at once valuable and precarious, ought to be considered as an end in itself. It should be a recognized factor in the determination of our whole foreign policy. This is not a plea for a return to blind traditionalism, for an escape from today’s problems to the “Betsey” and the eighteenth century. The day has passed when trade alone could dominate our dealings with other countries. But at a time when the contacts between nations are prevailingly economic, when world recovery admittedly hinges on the restoration of normal commercial intercourse, it would seem that a frank evaluation of these successful and solid trade relations should be an essential in the determination of our attitude toward events in the Far East and in the world at large.

Now this is something that we, as a people, have not done. Consideration of the prompt fulfillment of our pledge for eventual Philippine independence has been based largely on local considerations, here and there. To some extent the bleak outlook for the Islands’ products has been recognized. But practically nothing has been said about the disappearance of the archipelago as an American market. Again, in the dismal conflict between China and Japan our initial intervention, true enough, was under the Nine Power Treaty in its fundamental aspect of maintaining the Open Door in China. It was not long, however, before the situation was presented to the public, not in the light of economics, but essentially transmuted into a test of the world’s peace mechanism. The ensuing abortive movement for a popular boycott of Japan was a judicial, not an economic, gesture. Why, when the Far East makes the front page with a consistency to be envied by kidnappers, Fascists, and the Polish Corridor, does it have to be presented always in terms of politics, of personalities, and of moral values? Why should we ignore our economic stake in the Orient?

These questions are not addressed to our government. In working out the intricate pattern of our policy, American commerce with the Far East receives, on the whole, adequate consideration. But somewhere between the technicians and the rest of us the whole question falls into a void of indifference and apathy. This should not be so. There should be a general comprehension that our transpacific trade is best considered as a source, not an instrument, of policy. Its linking-up with weltpolitik should command always a most attentive public scrutiny. Its deliberate distortion or its hindrance in any of the three countries concerned, whether by reason of idealism, legalism, or by forces beyond our control, should be subject always to the keenest analysis by those concerned for the welfare of America.