Figure 20.1 shows the changing composition of U. S. foreign trade between 1850 and 1900. This transition portrays the shift in U. S. comparative advantage internationally, away from agriculture and toward manufactures. On the export side, Figure 20.1 shows that the most striking change was the decline of raw materials (such as cotton) from three-fifths to one-fourth of the total. Crude foodstuffs, which had swelled from about 1 percent in 1850 to nearly one-quarter of all exports in the late 1870s (reflecting the piercing of the West by the railroad), declined to 17 percent by 1900 and continued to fall until 1915. Finished and semifinished manufactures, on the other hand, rose from 22 to 35 percent of total exports.
Opposite movements, although not as remarkable, can be seen on the import side. Crude materials rose from one-twelfth the value of imports in 1850 to one-third by 1900. The chief crude materials imported—those that were necessary to a great industrial structure but that could not be found in the United States—were rubber, tropical fibers, and metals such as nickel and tin. Crude foodstuffs showed uneven ups and downs but did not change materially over the half-century as Americans imported coffee, tropical fruits, and olive and coconut oils, which could be produced domestically only at great cost, if at all. Imports of semimanufactures increased somewhat, but finished manufactures declined greatly in importance as American productive capacity grew.
Trade linkages altered as well. American exports to Europe began to decline relatively after 1885. During the 1870s and 1880s, Europeans were the recipients of more than four-fifths of all U. S. exports; by 1920, this share had dropped to three-fifths. In the meantime, the United States remained Europe’s best customer. The sharp decline in the proportion of American imports from Europe between 1915 and 1920, a result of wartime disruption, however, permanently injured this trade.
In the first 20 years of the twentieth century, Americans found new customers in Asia and Canada, and their interest in the Latin American market was just beginning. On the import side, the Asian countries and Canada were furnishing a great part of the crude materials that were becoming typical U. S. imports. South America had already achieved a substantial position as a purveyor of coffee and certain key raw materials to the United States.
FIGURE 20.1
Composition of U. S. Foreign Trade,
1850 and 1900
Percentage Percentage
Source: Historical Statistics of the United States, Earliest Times to the Present, 2006, Table Ee446-457.
What was the source of the American preeminence in manufacturing achieved by 1900? As Gavin Wright’s research has shown, America’s preeminence resulted not so much from a relative abundance of capital or skilled labor or technological knowledge but from the relative abundance of nonreproducible natural resources. In 1913, the United States produced 65 percent of the world’s petroleum, 56 percent of the copper, 39 percent of the coal, 37 percent of the zinc, 36 percent of the iron ore, and 34 percent of the lead, and the country was the world’s leader in the production of each of these materials. It was the leader, or among the leaders, in the production of many other minerals (Wright 1990, 661). America’s abundance of nonreproducible resources did not result from a series of lucky accidents of nature. The large and stable internal market for manufactures, combined with a flexible system for establishing property rights, promoted intensive exploration for and exploitation of natural resources. This is another clear example of Economic reasoning proposition 3: incentives matter.
It merits emphasis that this preeminence, founded in raw material abundance, did not lead to prosperity based on raw material dependence as it does in many oil-rich countries in the world today. The expansion of materials and institutions favoring many diverse production and distribution forms sustained growth even as national resources were being used up and dependence on oil and other raw material imports increased.
World History
