What is economic imperialism?
Economic imperialism is when foreign powers, either government or business, have substantial power and influence over another country’s economy and economic decision-making. In the 19th century, economic imperialism allowed industrialized American and European economies to gain significant power and influence over the economies of the non-industrialized nations. As a result, trade between America and Europe and the non-industrialized economies primarily benefited the American and European economies.
The goal of economic imperialism: Create a trade flow that benefited the economy of the United States or a European power by ensuring that cheap resources were available and markets were available to sell manufactured goods. Economic imperialism also sought a positive balance of trade so that more money flowed into the United States and Europe than into the non-industrialized economy.
What were the causes of economic imperialism?
- Desire to access cheap raw materials in export economies (external)
- Desire to have markets to sell manufactured goods (external)
- Desire to control access to and maintain supplies of vital resources like copper for electrical components (external)
- Desire to support the business class of the foreign power(external)
- Unstable governments in export economies and non-industrialized nations (internal)
- Debt owed to wealthy industrial nations (internal)
- American and European governments and businesses gave corrupt government officials in export economies bribes to gain access to cheap resources (internal)
- Foreign powers engaged in regime change (overthrowing governments) when export economies governments went against the wishes of great powers (external)
Comparing formal and informal economic imperialism
Formal economic imperialism
When an outside power colonized a country, the colonizer maintained formal political and economic control over a countries economy. They could use their authority to pass laws or regulations that structured the colony’s economy to benefit the colonizer.
Informal economic imperialism
When a nation is independent and not under colonial control but has an economy heavily influenced by foreign governments or businesses.
How did economic imperialism work?
Examples of industrial states practicing economic imperialism
The Opium Wars
The Opium Wars were two wars waged between the Qing dynasty and Western powers in the mid-19th century. The First Opium War, fought in 1839–1842 between Qing China and the United Kingdom, was triggered by the dynasty’s campaign against the British merchants who sold opium in China. The Second Opium War was fought between the Qing and the United Kingdom and France, 1856–1860. Europe’s modern military technology led to an easy victory over the Qing forces. After their losses, Europeans required Qing leaders to grant the Europeans favorable tariffs, trade concessions, reparations, and territory.
Causes of the first opium war
1. China had a trade surplus with Europe in the eighteenth century. The British wanted to reverse this and sell more to China than they bought.
2. In the late 18th century, the British East India Company expanded the cultivation of opium in its Indian Bengal territories, selling it to private traders who transported it to China and passed it on to Chinese smugglers. By 1787, the company was sending 4,000 chests of opium per year of opium to China. The British realized that increasing opium imports into China could reverse the trade imbalance.
China becomes addicted to British opium: Opium had existed in China for years as a medicine, but the new practice of smoking opium recreationally increased demand tremendously and often led to mass levels of addiction. The Chinese emperor issued edicts making opium illegal in 1729, 1799, 1814, and 1831, but imports grew as smugglers and colluding corrupt government officials continued to import the drug illegally.
The Chinese respond to British opium: Concerned with the moral decay of the people and partly with the outflow of silver, the Chinese emperor assigned Lin Tse-Hsu to end the trade. Lin ordered the seizure of all opium in Canton, including that held by foreign governments and trading companies. Lin had all the opium destroyed.
The British responded to Chinese actions with force: The British government responded by force. Two wars resulted from the importation of opium into China. The first (1839-1842) and second (1856-1858) opium wars. The British used their superior steam-powered and gunboat naval fleet against Chinese cities near the coast and along rivers in both wars. The Chinese naval fleet and coastal defenses were no match for the industrial might of the British, who defeated the Chinese in both wars.
Outcomes of the Opium Wars
The punishment for China was drastic and humiliating. Britain forced China to sign unequal treaties (the Treaty of Nanjing in 1842 and the Treaty of Tientsin in 1860) that gave the British and other global powers spheres of influence within China. These spheres gave foreign powers control over special rights within portions of Chinese territory.
- The Chinese defeat in the opium wars exposed Chinese weakness. In the decades after the Opium Wars, China began its self-strengthening movement, including its failed state-led industrialization.
- Dissatisfaction with Qing rule increased in the late 19th century. The Wuchang Uprising of 1911 brought an end to the Qing dynasty with the abdication of the 11-year-old emperor in 1912, ending thousands of years of unbroken Chinese dynastic rule.
- Sun Yat-Sen became the first president of the Republic of China, which would last only a few decades until Chinese communist leader Mao Zedong overthrew it in 1949.
Treaty of Nanjing (1842)
Ended the canton system
- four additional Chinese ports opened to foreign trade
- foreign merchants could now trade with whom they wished
- Britain could send representatives to treaty ports, and the Chinese government was required to meet with them upon request
Forced China to pay financial reparations
- the Qing government was required to pay 21 million silver dollars in payments for the cost of the destroyed opium and war costs
- British troops were allowed to remain in China until China finished paying all reparations
China gave Hong Kong to Britain
- Hong Kong became a territory within the British Empire
- Hong Kong remained a British colony until 1997
Treaty of Tientsin (1860)
Ports and trade
- more Chinese ports opened to foreign traders
- granted port access and land grants around port cities to the British, French, Russians, and Americans equally
- Opium importation legalized
- China could not grant trade monopolies of allowing trade cartels
- Foreigners were allowed to live within China to monitor trade
- laws regulating and outlawing Christianity ended
- Christian missionary activity legalized
Foreign person regulations
- British, French, Russian, and American citizens guaranteed entry into China
- citizens of these four countries were not subject to Chinese laws (extraterritoriality)
The Port of Argentina and the Foreign Investment Debt Trap
During the second half of the 19th century, Argentina heavily relied on foreign direct investment (FDI) for infrastructure projects and business investment. Their largest investor was Great Britain. One of Argentina’s largest investors was Barings Bank and Investment, based in London. They were known as “the bankers of Argentina.” Barings invested in railway, roads, government buildings, and the Buenos Aires Water Works (water, sewage, and pumping systems). Without British investment, Argentina would have been unable to build modern infrastructure.
British influence at the Port: When in the 1880s, Argentina wanted to build a new port in Buenos Aires, there were two competing proposals for where and how to build the port. The British-backed proposal ultimately won more support. The British-backed proposal built the port nearest to British factories and warehouses, making the import and export of their products cheaper and more efficient.
Argentina in financial crisis: In 1889-1890, Argentina experienced a currency crisis brought on by high government debt levels that the government could not repay. As a result, Barings bank (which owned much of Argentina’s debt) in London almost collapsed. Argentina sent a government delegation to London to renegotiate with Barings the terms of Argentina’s loans. To have another loan extended to the country by British Banks, Argentina had to agree to the following:
- to not borrow any additional money beyond what they were borrowing from the British
- to prevent local and municipal (city) governments from taking on additional debt
- to raise the gold reserves in the government central bank by withdrawing paper money from their economy
- to send London a percentage of their customs revenues (taxes on imported goods)
- and to buy back the Buenos Aires Water Supply and drainage company, which was losing money, from Barings bank
Britain’s new loan satisfied the Argentine government’s short-term needs but resulted in a further crisis for the ordinary people. When many Argentinian’s attempted to withdraw their money from the bank, they realized it was gone as many banks did not have enough reserves to cover their deposits. Many banks went bankrupt and closed down. It took nearly a decade for Argentina’s economy to recover.
The Ability to Control Global Commodities Created a European and American Economic Advantage.
Industrial nations’ control over certain raw materials gave them an enormous economic advantage. In the nations they directly colonized, industrial powers set up plantation systems, sometimes directly controlled by European and American multinationals. Independent nations with export economies, such as Argentina and Brazil, often had their natural resources owned and controlled by foreign multi-nations.
Demand for palm oil surged in Europe and America as it was a useful lubricant for machine parts, cooking oil, and base for industrial products such as soap. Europeans opened palm oil plantations in sub-Saharan Africa and Indonesia. In 1907 the Unilever corporation opened a palm oil plantation on a land grant given to the company by the British colonial government in West Africa. Owners of palm oil plantations generally exploited workers. Most worked in deplorable conditions in tropical environments. Workers often received little pay or no pay in systems of forced labor.
Advantage given by control of palm oil
- Gave industrial factories cheap machine lubricants and base ingredients for making their products.
- Allowed industrial producers to produce products at lower prices than non-industrial producers.
- Allowed industrial countries to create new food products that provided cheap, calories dense foods to their populations.
Access to cheap cotton gave Western Europe and the United States a substantial economic advantage. While the United States produced much of its own cotton on southern plantations, Great Britain imported cheap cotton from its Indian colony. They also accessed cheap cotton from Egypt, which became a British colony in 1882.
Advantage given by control of cotton
- Cheap cotton allowed industrial nations to produce textiles cheaper than traditional textile manufacturers like India and the Middle East.
- Western textile producers exported their textiles to traditional textile-producing markets, which reversed trade flows. More goods began flowing into non-industrial economies like China, South Asia, and the Middle East. Less finished goods moved towards European economies.
- Traditional textile-producing nations saw their textile industries collapse. Within a few decades of British textiles entering India, Indian cotton textile production collapsed. India had lost its place as the world’s largest textile producer: a title it held for thousands of years. Industrial Japan also became the world’s largest producer of silk textiles.
Copper was an essential component of the Industrial Revolution. The demand exploded with the electrification phase of the Industrial Revolution. Copper is an essential component in products requiring electricity conduction, such as electrical generators, motors, and wires.
Between the 1830s and 1870s, large portions of the copper used in the United States, Great Britain, and other industrialized nations came from copper minds in less developed nations funded by American and European investment and shipped from the western coast of South America to the east coast of the United States and Europe.
Chilean copper: Chile is rich in copper reserves and is today the world’s largest producer of copper. In the early 1900s, at the peak of industrial electrification, Chile opened up its mining sector to foreign investment. Companies from America and other industrial nations quickly came to dominate Chilean copper. In 1906, one of Chile’s largest copper mines, El Teniente, operated under Amerian ownership of the Braden Copper Company. By the 1970s, the Chilean government nationalized (took state ownership) over the Braden Copper Company.
Advantage given by control of copper
- Cheap copper gave industrial powers access to the necessary components for advanced machinery and electrification.
- Control of copper resources allowed industrial nations to quickly lower the prices of new technologies such as electrification and telephones. Increasing production and lower prices gave consumers in industrial nations access to newer technologies.
- Copper machines and technologies increased living standards in industrial nations.
- These technologies also led to further financial successes from newer technologies like computers in the 20th century.