Foreign Investment and Trade
FOREIGN INVESTMENT AND TRADE
The European settlement of British North America began as a series of business ventures. Though the Virginia and Plymouth joint-stock companies failed to reap large profits, they did provide the capital and organization through which permanent settlement began in the early seventeenth century. Even after these companies disappeared, the overseas trade they inaugurated grew in importance as British North America emerged as a primary supplier of raw materials and a major consumer of British finished goods. After independence, Britain remained a primary investor and partner in international trade, though the United States found new markets throughout Europe and the Western Hemisphere.
late colonial period
The economic effects and even the meaning of mercantilism remain contested, but if nothing else the system tied colonists commercially to English, Scottish, Irish, and British West Indian markets. Nor was that relationship necessarily disadvantageous, as Americans profited mightily from the Atlantic trade. Inadequate evidence prevents definitive conclusions, but work on the period from 1768 to 1772 provides a glimpse into the nature of trade at the end of the colonial period. As Table 1 demonstrates, the British Isles were the primary source of trade for the thirteen mainland colonies. As a result of mercantilist legislation like the Navigation Acts, manufactured and luxury goods from the British Isles composed an estimated 79 percent of colonial imports. In exchange, the colonists exported 58 percent of their commodities—most notably tobacco, flour, rice, fish, wheat, and naval stores—to Great Britain. French and British planters in the West Indies consumed 27 percent of the mainland's exports, exchanging sugar and molasses for foodstuffs and lumber. In the 1760s demand for food in the Iberian Peninsula and the Mediterranean region broadened the market for American rice and wheat, making southern Europe a destination for 14 percent of total exports.
Statistical evidence regarding finance in early America, especially in the colonial period, remains scattered and imprecise. Nevertheless, economic historians have estimated that on the eve of the Revolution, Americans owed British investors around £2.9 million in commercial debt. In addition to this Mira Wilkins, in The History of Foreign Investment in the United States to 1914 (1989), has estimated that there was an additional £1.1 million of long-term foreign investment in land, ironworks, and other ventures.
|Estimated Average Amount of Annual Trade from Thirteen Continental Colonies, 1768–1772 |
(thousands of pounds sterling)
|Destination/Origin||Value of Exports||Value of Imports|
|Great Britain and Ireland||£1,615||£3,082|
|West Indies (British and Foreign Islands)||£759||£770|
|Southern Europe and Wine Islands||£426||£68|
At the end of the colonial period, Britain very much remained the center of American trade and finance.
revolutionary era, 1765–1789
Conditions of war notably altered and restricted trade while also raising the need for more foreign investment from new sources. The nonimportation agreements from late 1774 to April 1776 and Britain's wartime embargo curtailed foreign commerce considerably. The signing of a Treaty of Amity and Commerce with the French on 6 February 1778, and similar treaties with the Netherlands (8 October 1782) and Sweden (3 April 1783), did, however, facilitate the importation of goods from non-British nations. In addition, American privateering against British traders caused an estimated £18 million worth of damage and illegally brought confiscated goods into the United States.
The war shifted the sources of foreign trade somewhat. Though Britain reemerged in the early 1790s as the single most important trading partner of the nation (consuming 31 percent of American exports from 1790 to 1792), American merchants also dealt directly with northern European trading houses, especially in the Netherlands, Germany, and France, nations that consumed 14 percent of U.S. exports. (See Table 2.)
Generally speaking, the war and its immediate aftermath adversely affected exports more than imports, in part because of the need to purchase supplies for armies. To make up for the resulting trade deficit and to fund the war effort, Americans were forced to borrow large sums of money. In December 1776 the Continental Congress authorized the first of several loans from France, which by war's end totaled $4.4 million. Dutch and Spanish allies contributed additional sums of $1.8 million and $200,000, respectively. Overseas investment and finance
changed during the Revolutionary period as Britain's rivals became the chief lenders to the new nation. Particularly important were the Dutch, who in 1782 floated the United States additional loans of around $2 million. By the time Alexander Hamilton prepared his Report on the Public Credit (1790), the country's total federal debt at the end of 1789 had reached $54 million, of which 21.6 percent ($11.7 million) was held overseas. A portion of Virginia and South Carolina's state debts were also foreign-held, meaning that at least 29 percent of the public debt was held overseas, predominantly in the Netherlands and France.
early republic, 1790–1830
The implementation of Secretary of the Treasury Alexander Hamilton's financial system helped to stabilize the nation's public credit and attract increased European (especially British) investment in the federal debt and the stocks of the First and Second National Banks. By 1803, about 62 percent (or $6.2 million) of the stocks in the First Bank of the United States were foreign-owned, including $4 million by British firms like the prestigious House of Baring. In that same year, largely as a result of the loans necessary to pay for the Louisiana Purchase (1803), the percent of foreign investment in the federal debt reached its all-time high of 56 percent.
Better credit along with international circumstances made the period from 1793 to 1806 a time of considerable growth in foreign commerce. Direct trade with Europe remained an important part of American overseas trade, especially after Jay's Treaty (1794) secured peaceful relations between the United States and Britain. But with the outbreak of war in Europe in 1793, America's position as a neutral nation allowed it to profit from the reexport trade. American merchants and shippers indirectly transported sugar, coffee, cocoa, and pepper from French and British West Indian colonies to Europe, a carrying trade that contributed considerable wealth to northeastern port cities. By 1805 the reexport carrying trade of foreign goods was valued at slightly over $53 million, while that of domestic products was only $42 million. This trade's profitability, however, further embroiled the United States in European conflicts, leading to commercial retaliation under the administrations of Thomas Jefferson (1801–1809) and James Madison (1809–1817). (See Table 3.)
In December 1807 Congress passed, at Jefferson's request, a complete embargo or ban on American exports. Despite some smuggling, Jefferson's embargo and accompanying enforcement legislation dramatically reduced foreign trade. Total exports of U.S. merchandise dropped from an estimated $49
million in 1807 to $9 million in 1808, while imports fell from record highs ($139 million) to decade lows ($57 million). The end of the embargo early in 1809 would briefly allow for a recovery of the export and to a lesser extent the import trade. However, the buildup to war against England in 1812 further restricted international commerce. The extended period of commercial and actual warfare from 1805 to 1815 would increase the nation's nascent manufacturing capabilities and provide some viable domestic sources for finished cloth and metal goods that previously had to be imported from Europe.
The return of peace in 1815 meant a decline in the significance of the reexport trade, but America's direct trade to Europe, and especially Britain, quickly rebounded. The industrial revolution in Britain and the emergence of cotton as a cash crop in the lower southern United States brought Anglo-American trade to new heights. By the 1820s cotton had risen to approximately one-third of total U.S. exports, most of which went to Britain and some of which was exchanged for finished cloth. Wheat and tobacco destined for Europe remained important segments of international trade. An important, if often neglected, part of American foreign commerce involved the growing trade within the Western Hemisphere, which included the sale of foodstuffs, naval stores, and even some manufactured goods to the West Indian islands, Brazil, and Canada. (See Table 4.)
As the early national period progressed, foreign investment in the federal debt grew less significant, though British and Dutch interests would continue to invest in U.S. stocks, even after the War of 1812. In 1818, 26 percent of the $99 million federal debt was held overseas, with the British holding $12.6 and the Dutch $11.1 million. British investors would play an important role in funding the second national bank (1816). Andrew Jackson, in his 1832 veto message blocking renewal of the bank's charter, claimed that 30 percent of the bank's private shares were held abroad, principally in Britain. Foreign investment grew in the 1820s as individuals and states turned increasingly to Britain to fund banking and internal improvement projects. By the 1820s American states such as Pennsylvania, Virginia, Louisiana, and Ohio had followed the lead of New York, which in 1817 sold state bonds for canal projects in London securities markets. In addition, during the 1820s European and particularly British investors were increasing their investments in various facets of the cotton trade. These post-1815 investments were a prelude to the rapid expansion of foreign investment and speculation in U.S. markets in the mid-1830s, a development believed by many to have contributed to the Panic of 1837.
Hancock, David. Citizens of the World: London Merchants and the Integration of the British Atlantic Community, 1735–1785. Cambridge, U.K.: Cambridge University Press, 1995.
McCusker, John J., and Russell R. Menard. The Economy of British America, 1607–1789. Chapel Hill: University of North Carolina Press, 1985.
Nettels, Curtis. The Emergence of a National Economy, 1775–1815. Armonk, N.Y.: M. E. Sharpe, 1962.
North, Douglas. The Economic Growth of the United States, 1790–1860. Englewood Cliffs, N.J.: Prentice-Hall, 1961.
Pitkin, Timothy. A Statistical View of the Commerce of the United States of America. 1835. Reprint, New York: Johnson Reprint, 1967.
Shephard, James, and Gary Walton. "Economic Change after the American Revolution: Pre- and Post-War Comparisons of Maritime Shipping and Trade." Explorations in Economic History 13 (1976): 397–422.
U.S. Bureau of the Census. Historical Statistics of the United States, from Colonial Times to 1970. New York: Basic Books, 1976.