“China is killing us.”

It is a favorite phrase of Donald Trump, the real estate mogul, turned reality television star, turned Republican nominee and now, President-elect of the United States. Chinese action to keep the value of its currency low, Trump insists, is “robbing Americans of billions of dollars of capital and millions of jobs.”

I<p>President Barack Obama and President Xi Jinping toast during a 2014 State Banquet in Beijing, China (official White House Photo by Pete Souza).</p>

President Barak Obama and President Xi Jinping toast during a 2014 State Banquet in Beijing, China.

In most recent presidential election cycles, candidates take shots at the People’s Republic of China. Some single out human rights issues, others Chinese foreign policy, but the most common rhetorical barbs tie back to trade and currency.

This is not new.

Since the founding of the United States, merchants, government officials, economists and journalists pondered how to increase trade with the world’s most populous nation to benefit American economic growth. And they have often sought to create closer links between the American and Chinese monetary systems to help foster this trade.

From 1757 to 1842, almost all Western trade with China was confined to this neighborhood known as the Canton Factories in present day Guangdong Province. These office buildings off the Pearl River were known as the American Garden.

Chinese officials in the 19th and 20th centuries at times resisted these American overtures and at times sought to draw the United States into supporting China’s currency and, in turn, its government.

After the death of Mao Zedong in 1976 and the start of Reform and Opening under Deng Xiaoping in the 1980s, trade between the United States and China increased dramatically. However, by end of the 20th century and into the early 2000s, the fixed exchange rate between the Chinese renminbi (the people’s currency, RMB) and the dollar became a source of tension between the two largest economies in the world as many in the U.S. Congress sought to label China a “currency manipulator.”

The currency question in U.S.-China trade relations has been around for more than 200 years. It will not be going away anytime soon.

The Early American Republic and the Qing dynasty

In 1783, the ship Empress of China left New York harbor and headed to Canton, the sole port open to foreign trade during the Qing dynasty. Founded in 1644, the Qing was the last imperial dynasty in Chinese history but, before its end, it became one of the largest and most prosperous empires in the world whose trade goods—teas, silks, porcelains—became valued all over the world. The newly independent United States wanted a part of this trade.

The Empress of China in 1876, nearly 100 years after it left New York harbor for China as the first American merchant vessel to enter Chinese waters.

Backed by Robert Morris, financier of the American Revolution, the Empress of China departed the newly established United States with furs, ginseng, and other goods to trade in Canton. The ship also had something else in its cargo: more than 20,000 Spanish silver coins. The goods the Americans were bringing would not be enough to procure the products they hoped to buy. The traders had to settle the remaining balance with Spanish silver dollars.

From Mexico City to Manila, Spanish silver dollars flowed through the arteries of global commerce in the 18th and 19th centuries. In the United States, Alexander Hamilton used them as an important reference point for his “Report on the Coinage” that ultimately put the United States on a bimetallic monetary system. In fact, Spanish, and later Mexican, silver dollars were legal tender in the United States through the 1850s.


Silver peso of Philip V of Spain minted in Mexico in 1739 (left). 1888 “Trade Coins” from Mexico with multiple “chop” marks made by Chinese merchants to verify their authenticity (right).

Spanish silver was an important part of the Chinese monetary system. Deposits of the metal in China were not significant, so it came from abroad, first from Japan and then from the Americas. (Copper coins were generally used in local trade while silver was used in interregional and international trade.)

The Qing monetary system, from the perspective of the present, may appear cumbersome and complex. However, the intricacies of the Qing currency did not prevent the Empress of China from securing a large profit.

Chinese coins from the Tang to the Qing dynasties (618-1911).

Hearing the news, John Adams wrote to John Jay that “there is no better advice to give to the merchants of the U.S. than to push their commerce to the East Indies as fast and as far as it will go.” Merchants listened that advice and set sail to China.

Bound by Silver

Over the course of the 19th century, the Qing dynasty suffered from foreign wars and internal rebellions. After its Civil War, the United States took the first steps toward becoming an international economic power.


(Left) An 1898 French cartoon depicting England, Germany, Russia, France, and Japan dividing up China while a stereotypical Chinese official ineffectually tries to stop it. Largely predating American expansion efforts toward China, the U.S. was not included. (Right) The 1901 cover of Puck, a satirical magazine. Columbia, the personification of the United States, puts on a warship-shaped hat representing the United States’ grab for “World Power,” which would include more influence over Chinese trade.

Silver increasingly bound the two countries together: the United States became one of the chief producers of the metal after the discovery of the Comstock Lode in Nevada and the Qing was the most populous place that remained on the silver standard as many nations, including the United States, switched to gold.

After much discussion and controversy, the United States moved toward the gold standard in the 1870s. The Coinage Act of 1873 took away the legal tender quality of the one silver dollar coin that had been a part of Hamilton’s original legislation.

Soon thereafter, the Coinage Act of 1873 became known as the “Crime of 1873” for, its critics claimed, surreptitiously putting the United States on the gold standard. The bill ultimately framed American economic and political debates of the 1880s and 1890s as Williams Jennings Bryan and others lashed out against the gold standard.

But the Coinage Act of 1873 also did something else: it created a special coin, the U.S. Trade Dollar, to be used in commerce with China.

A political cartoon from Harper’s Weekly titled “Rags for Our Working Men-Specie for the Foreigners” (1874). The caption reads: “Columbia: Dear me, I do think it very wrong that the good nice trade dollar (worth 100 cents) should be sent out of the country for the benefit of the ‘heathen Chinee,’ for if these gentlemen are permitted to have their own way, it will take a basket full of greenbacks (worth--?) to buy dinner for my children.”

Previous U.S. silver dollar coins had not been welcomed by Chinese merchants, who still preferred Spanish or Mexican silver dollars.

With the Comstock Lode silver mines proving some of the richest deposits in the world, but with the United States heading toward the gold standard, the U.S. Trade Dollar was meant as an outlet for American silver. American politicians and traders hoped that the new coins would become Chinese merchants’ dollar of choice.

The Trade Dollar did find a few footholds in the south of China, where silver coins were commonly used, but the coin was “chopped” by Chinese merchants with stamps of small Chinese characters to attest that is was a real coin. American officials complained that these “chopmarks” defaced a beautiful coin. Other coins ended up in the melting pot as they were heavier, and thus contained more silver, than many of the other coins circulating at the time.

The creation of the Trade Dollar was the first attempt by Americans to influence China’s currency by creating a market for American silver. It was hardly America’s last foray into the Chinese currency system.

Imperialism and the Chinese Currency

At the end of the 19th century, the Qing dynasty suffered a number of blows.

Qing forces defeated by Japanese troops during the First Sino-Japanese War (1894-1895).

In 1895, Japan defeated the Qing in the first Sino-Japanese War. The Qing granted Japan a number of concessions and also had to pay a large indemnity. Several years later in 1900, during the Boxer Rebellion, a band of mystics tried to expel the foreign population from China but were ultimately defeated by an army composed of eight imperial powers. Afterward, foreign countries, including the United States, saddled the Qing with another huge indemnity.

In the first two decades of the 20th century, China became a center of great-power political competition as European countries, Japan, and the United States both cooperated and clashed over loaning money to the Qing and how China should reform its currency to facilitate trade.

An 1898 cartoon depicting the U.S.’s Open Door Policy towards China as a tug of war over “Trade Supremacy” with the U.S., England, and Japan on one side and Russia, Germany, and France on the other seeking trade restrictions.

As the Qing dynasty faltered, the United States issued the “Open Door” notes. The goal of the notes, issued by Secretary of State John Hay, was to maintain equal commercial opportunities for all nations in China. Hay hoped to prevent any imperial power from exercising exclusive power over the trade, politics and administration of China. However, the policy was aspirational and the United States lacked the means to enforce its vision.

One way the United States tried to realize the Open Door policy was through issuing loans to the Qing dynasty. In the first decade of the 20th century, the Qing borrowed a significant amount of money to pay off debts and for a series of modernization projects.

The Qing was a good borrower, not defaulting on any payments. Qing officials were also savvy, often playing bankers from different European countries against one another in order to secure better terms. European bankers were themselves no fools and soon formed a banking consortium so the Qing could no longer negotiate for better deals.


A political cartoon from 1913 in which Uncle Sam sits at a table with a Chinese official while representations of Great Britain, Mexico, and Japan look on. The sign in the background reads: "The New Diplomacy formerly dollar, now 30 [cents]" (left). William McKinley (right) ran for president in 1896 on the promise that adopting the gold standard would ensure U.S. prosperity.

The United States government wanted American bankers to join the international consortium. At the time, President William Howard Taft (1909-1913) pursued a policy of "dollar diplomacy," which entailed diplomats and bankers working together to loan money to countries and projects in Latin America and Asia.

In 1910, a consortium of American banks led by J.P. Morgan agreed to loan money to the Qing for the development of Manchuria and to reform the Chinese currency system. For the Qing, the purpose of the loan was expressly political. The government sought to balance the growing Japanese presence in the northeast by drawing American economic and political interests into the area.

Soon after in 1910, a consortium of English, French, German, and American banks signed a contract with the Qing for Manchurian development and currency reform, a short time before the fall of the Qing dynasty in 1912.

That year was also a significant one in American politics as Woodrow Wilson became president. Upon taking office he recognized the fledging Chinese republic under the Hawaii-educated Sun Yat-sen and looked forward to the flowering of democracy in China. Wilson went even further and withdrew the United States from the international banking consortium it had only recently joined.

A poster commemorating the Republic of China, Yuan Shikai (left), and Sun Yat-sen (right).

The political and economic situation in China was precarious. Yuan Shikai, a key military figure under the Qing, seized power from Sun who ultimately fled to Japan to regroup. Yuan, helped by a loan from the international banking consortium, consolidated power in the period before World War I.

The outbreak of World War I changed the contours of East Asian politics. Japan entered the conflict on the side of the allies and seized German islands in the Pacific Ocean as well as the German treaty port of Qingdao on China’s Shandong peninsula.

The Japanese government soon sent Yuan Shikai a document known as The Twenty-One Demands that, taken together, would give Japan unprecedented control over the political, economic and military affairs of China. Yuan played for time, hoped for an American intervention that did not come, signed some of the demands and relied on leaking the contents to create international objections in order to stave off the worst clauses.

While most of the world focused on the conflict in Europe, Japan sought to take advantage of the increasingly unsettled situation in China. Yuan’s acolytes and associates then vied for power. Japan again tried to take advantage of the situation, arranging for merchant and middleman Nishihara Kamezo to seal a number of loan agreements with the nominally national government under one of Yuan Shikai’s associates.

One of these loans related to currency reform and specified that the Chinese currency would be linked to the Japanese yen in an emerging currency bloc.

This step roused objections from the United States. In 1917, the American minister in Beijing cited America’s “long-standing interest” in the question of currency reform in China and protested the recent loan agreement.

He was not the only one.

The Chinese populace protested against the terms of a number of the Nishihara loans. At the same time, American diplomats and bankers maneuvered to reenter and reform the international baking consortium it had left at the beginning of the first Wilson administration.

As world leaders met at Versailles to usher in a new world order after the First World War, bankers labored over an agreement to reform the international banking consortium.

After the Treaty of Versailles, China continued to fracture. Though there was a nominally national government in Beijing, a number of warlords held power in different regions of the country.

Chinese students protesting the Treaty of Versailles in 1919.

Sun Yat-sen, returned to China and his political party, the Nationalist Kuomintang (KMT), had a foothold in the far south. The Chinese Communist Party (CCP)—formed in 1921—was still a small organization. Sun, thinking the two groups had similar short-term interests, formed an alliance, though he died soon thereafter.

By the late 1920s, the KMT, then under the control of Chiang Kai-shek, marched north hoping to unify the country and end the rule of various warlords. Chiang, suspicious of the CCP and its revolutionary doctrine, also used the march to purge communists from the ranks of the KMT. The CCP fled to the countryside and the Nationalist party consolidated power, established its capital in Nanjing, and embarked on what became known as the Nanjing Decade, 1927-1937.

Chiang Kai-shek, leader of the Nationalist, Kuomintang (KMT) party, in 1943.

At the time the KMT consolidated power in the late 1920s, China was still on the silver standard monetary system. From the late 19th century through the 1920s, the price of silver continually declined as most countries adopted some form of the gold standard. Though the price of the metal rose briefly during World War I, it sank throughout the 1920s.

This trend made Chinese exports cheaper and conversely raised the price of imports from abroad. As the Great Depression spread across the world in the late 1920s and early 1930s, China initially avoided the worst of its effects, in part because its silver-based currency floated in relation to the currencies of nations on the gold standard.

However, certain American politicians had a different idea about the role of silver in China. Efforts on the part of the United States to manipulate Chinese currency took new, more urgent directions.