It is easy to think that China dominates world trade today in a way that is without precedent. Or at least it is if one gets one’s information from snackable newsfeeds.
Today’s Factful Friday compares the position of China in today’s world trade scene with that of two other countries that were once the top dogs of world trade, namely the UK in 1800 and the US in 1948.
The charts below, which come from two different data sources, answer the question quickly, unambiguously, and resoundingly. When modern trade was taking off in the early 1800s, the UK ruled the waves and dominated world manufacturing (as we saw in last week’s Factful Friday).
- The UK accounted for almost half of world trade in 1808 (48% to be precise, but what is two percentage points among friends?).
- The US share was 22% in 1948.
- China’s world share is a paltry 14% in 2023.
If I were wise, I’d end the essay right here and go for a bike ride. But then again, if I were wise, would I spend all this time writing stuff that doesn’t even get published?
Photo: The International Institute for Management Development.
Allow me to share a few bits of historical context and a couple more charts, or three.
Britain’s rapid share decline.
Britain’s share plummeted after the Napoleonic wars ended in 1815. It was down to 20% by 1840. Part of this decline was due to the end of the artificial suppression of trade caused by the blockade of the old continent by His Majesty’s Navy and Napoleon’s reciprocal policy. But part of it reflects the explosion of growth and industrialisation after the wars and the rapid improvement of transportation technology.
After the US Civil War ended, the US industrialised rapidly behind a protectionist wall (that was back in the day when import substitution industrialisation worked). The external implication of this ‘overcapacity’ in manufacturing was a rapid expansion of exports. During WWI, the US overtook the UK, as can be seen in the left chart.
While China’s world share wasn’t too far from that of the US when the data start in 1830, China was not even an ‘also ran’ in the late 1800s and early 1900s. This was due to the interplay of its national preference for autarky (which had been in place for centuries) and British gunboat diplomacy.
China and India in 1820: Small in trade, giants in GDP.
One of the most curious and least recognised economic-history facts is the enormous share China and India made up of the world economy in 1820. In the year 1000, India had the number one economy in the world with 28% of world GDP. China’s share was over 20%, so together they added up to over half the world GDP. Britain and the US had tiny fractions.
In 1820, not much had changed except that China and India had swapped the gold- and silver-medal positions in the world’s largest economy race. The US and UK were still small – probably too small to have qualified for the large-economy Olympics if there were such a thing.
A corollary of this is how weird it was that such a small nation (Britain) dominated world trade. It is even weirder that such a small island was able to dominate two economic giants (India and China) militarily.
Having watched movies about the British colonial days as a kid (like when I was in my 30s) and not having taken any history classes in university, I had the impression that the British army and navy were huge. And they were huge in terms of military effectiveness. But they were not in numbers of soldiers and sailors. The UK’s edge was its industrial base which could churn out masses of modern military equipment that completely outclassed what non-North Atlantic economies could muster.
Comparing the chart below with the one above makes it clear that India and China were spectacularly closed compared to the US and the UK.
Jumping ahead to 1950, we see in the chart below that the US has the top spot on the podium, while India and China, with their hundreds of millions of citizens, are smaller economically than the United Kingdom with its dozens of millions.
At this point – just after WWII, the US had 27% of world GDP and 22% of world trade. It was big and open by the standards of a mega-economy.
Photo: The International Institute for Management Development
Why were India and China so big economically if they weren’t industrialised?
The answer to the question in the heading is easy – a very large share of the world’s population lived in India and China – and always has for the last 80 centuries or so.
As the maps below show, much of the world is not very hospitable to human life. Until modern technology dialled up, people lived where they could scratch a living out of the soil. And that, as it turns out, was largely in the Indo-Gangetic Plain, and the North China Plain. The left map shows the geographical distribution of humans in the year 1. The right map shows the same in the year 1700. Each yellow dot represents a million people.
The determining factor is climate in terms of suitability for growing food. Most of the world is too cold, too wet, or too dry to grow food. India and China just so happen to have gotten VIP portions of the best cropland.
Photo: The International Institute for Management Development
By the way, you’ll enjoy this animation of the rise and spread of humans from the AD 1 to today in this YouTube video made by the American Museum of Natural History. Or at least show it to your students to give them a bit of perspective on why they should think that the world is reverting towards, rather than deviating from, historical norms when it comes to the roles of India and China.
India had about 28% of the world’s humans, and people all around the world were all poor on average. Most lived only a couple bad harvests from starvation. This was the era when Reverend Malthus’s theory fit the facts.
The summary is easy: The UK in 1808 was far, far more dominant in world trade than the US was in 1948, or China is today.
This is a bit curious since it had a very modest share of world GDP and population at the time.
My most faithful readers will have noticed that I haven’t managed to shoehorn in a reference to either of my books, so I’m going to have to add some concluding remarks.
Concluding remarks.
I recently saw a real economic historian, Joel Mokyr to be precise, present ideas from a book he is writing with Guido Tabellini on the “Great Reversal” at the Festival Internazionale dell’Economia in Torino. By Great Reversal, they mean the fact that up to about the year 1000 CE, India, China and the eastern Mediterranean economies dominated every aspect of human civilisation.
Around 1000, today’s “advanced economies” started growing and innovating faster than the traditional centres of economic activity. My favourite line from his presentation was “much of economic history is driven by unintended consequences.” They believe that the European marriage pattern was the turnkey factor in explaining this change of guards, which is surely the world’s greatest reversal of fortune.
Without taking issue with the importance of marriage as an institution, I dodged the primary cause question entirely in my 2016 book (Baldwin 2016). I don’t try to explain why the industrial revolution started in England, but given that it did, falling trade costs allowed first the UK and then the rest of the G7 to ride an updraft to world economic and political dominance. To quote myself:
“As history would have it, the G7 nations specialised in manufacturing, and this launched them on a happy helix. Industrial agglomeration fostered innovation, which boosted competitiveness and this, in turn, promoted further industrial agglomeration in G7 nations.
The helix twirled upwards as the resulting income boosted market size and the bigger markets led to more agglomeration, innovation, and competitiveness.”
What was a happy helix for today’s rich nations was a venomous vortex for the former kings-of-the-hill in Egypt, Mesopotamia, India and China.
Another great reversal started around 1990 when the ITC revolution allowed G7 manufacturing firms to send their firm-specific knowhow to be combined with low-wage labor in a handful of emerging markets – China above all, but also in India after the 1990s reforms. And that, my faithful readers, is the act that led to the unintended consequence of China’s dominance today. Or at least that’s my story and I’m sticking to it.
Richard Baldwin is a professor of International Economics at IMD.
This article first appeared on author’s LinkedIn page.
