Trade Triangle and the First Opium War

Q. What was the trade triangle? Was it responsible for the First Opium War?

In 1757 two almost simultaneous processes of British interest came to be seen. First, the establishment of British Empire in India following the Battle of Plassey and second, the emergence of a highly formal system of trade relations between the Chinese and the West - the Canton System.

This trading system, dominated by the Chinese philosophy of Confucianism, aimed at achieving social harmony and political stability in foreign relations. In the economic sphere the Chinese were very self-sufficient. Whatever trade existed with the foreigners was highly restrictive and took place on Chinese terms. In Qing dynasty’s (1644-1911) policy expressions, commercial interests were subordinated to political interest and reasoning. While for the Western countries, especially Britain, it was a means of achieving their capitalist desires invigorated by the Industrial Revolution.

According to Frederic Wakeman, the essence of the Canton system by which China's European trade was regulated from 1760 to 1834 was hierarchic subordination: first, of the foreign traders to the licensed Chinese monopolists, known collectively as the ' Cohong'; and second, of the Cohong members to the imperially appointed superintendent of maritime customs at Canton, known to Westerners as the 'Hoppo'. The governor-general (or 'viceroy') was placed to supervise this “single port commerce system.”

In the early stages of trade, China enjoyed a favorable balance and Britain had to pay in specie for the large quantities of exports from China. After the European-Chinese trade system had begun to develop and the export of silver into China became systemic, a new trade system began to grow. This new system was the trade triangle between Britain, China, and India, which began to boom in the late eighteenth century. This boom came as a result of Britain’s rapidly growing desire to import tea from China, because of its monopoly over Chinese tea exports, beginning primarily between the years 1781 and 1790. Early on, Britain’s rapidly expanding, import-oriented, triangular trade system was sustained primarily by exporting silver to China, according to Tan Chung (“The Britain-China-India Trade Triangle (1771-1840)”). The development of silver as a medium for trade was the outcome of internal developments within Europe and China, which made silver the most logical resource for China to import.

The heavy outflow of bullion from Britain was a cause of worry and hence began their search for commodities to balance their Chinese trade. Initially, the British tried to introduce woolen products into China, which were manufactured in plenty by the textile manufacturers of Manchester and Liverpool. However the woolens which the Company took to Canton were sold at a loss since there was no market for it in South China, where the warm climate was unsuitable. Towards the end of the eighteenth century, the shift away from silver began. As an answer also to the issue of remittances (i.e., how the revenue collected from India should be transferred to England) faced by the East India Company, the trade system started to see a rapid export of Indian goods to China. This led to the subsequent reduction in Britain’s need to export silver to China.

At first Indian coarse cotton yarn was sent to China. It achieved limited success. However, Britain could not take over the Chinese cotton industries, as it had done in India. Thus by the 1790s, the English could not recover the cost price of the huge cotton supplies brought from India. The value of all British goods imported into China from 1781 to 1793, including woolen fabrics, cotton yarn and cloth and metals products, amounted to only one-sixth of the value of the teas China exported to Britain. Once again, silver was used to pay for Chinese goods (Tan Chung).

The Western traders finally discovered a very profitable product for the Chinese markets – opium. Opium entered the British-Chinese-Indian trade triangle shortly after the East India Company began to seek control over the cultivation and sale of the drug in India. The introduction of opium marked a huge turning point in British-Chinese trade, as Britain finally had a product that China consistently desired more than silver. It resulted in a massive increase in profit for Britain.

According to Chan Tung, “Trade between India and China was originally meant to be a one way India-to-China wealth movement, using China as a relay station and finally transmitting the wealth to Britain.” However, following the introduction of opium into the market, the British were forced to make changes in some of their colonial policies towards India. With the rapid growth of the opium trade, the Company had to cycle some of its revenue back into the Indian treasury to sustain the cultivation of opium.

Initially, the Company was directly involved in the opium trade. But after 1796, the Company disengaged itself officially from the opium trade by auctioning off whole opium crops to the country traders (private traders under the Company’s license) who smuggle the opium on their ships to China. Thus the Company perfected the technique of growing opium cheaply and abundantly in India, while piously disowning it in China. Legally and officially, it was not involved in the illicit trade. In 1833, the British government abolished the monopoly of the East India Company over the China trade through the Second Charter Act. This led to a further increase in the activities of private traders, giving an immense boost to the already existing opium smuggling.

Within China itself, a sophisticated network for distribution of opium emerged. This included Chinese collaborators as well. The opium trade could not have flourished without this support. They also made huge profits, while the higher officials turned a blind eye in return for bribes. Thus the opium trade was pushed from both sides.

The shift from silver to opium as the primary trade medium in the British Chinese trade system had social and economic impacts on the British and Chinese Empires that would eventually cripple China and leave it vulnerable to European imperialism.