Imbalance of trade

TFSmith was kind enough to lay out his model for the economic balance of a Trent War.

Economic costs are huge to both sides, but the British, ultimately are losing $5 in sales to the US for every $3 in purchases from the US

This is particularly kind, because it enables us to show how fundamentally wrong his understanding is.


TFSmith does not attribute this statistic to an actual historian, which means that we cannot tell if the fault lies with his own research or that of the historians he chooses to trust. However, we can show that his figures are wrong based on British government statistics. This shows that on average for the period 1859-1873, the British sold 70c of goods to the US for every $1 of goods they bought from them. The only three years that the British sold more to the United States than they bought from them were 1863-5, and the balance of payments peaked in 1865 at $1.16 to $1, or $3.49 to $3 rather than $5.

In reality, the US is far more dependent on British trade than Britain is dependent on the US. In 1862-3, US total exports of $306m included $121m (39.5%) to Britain, and her total imports of $253m included $113m (44.7%) from Britain. However, this includes imports only from mainland Britain: when we add imports from British colonies, including the West Indies and British North America, Britain actually controlled $147m (58%) of Union imports.

By contrast, according to the British statistics, the United States represented £19m of £121m exports (15.9%) and £28m of £160m imports (17.3%) for 1862.* In 1863, the relative importance of the US dwindled: £20m of £142m exports (13.9%) and £20m of £164m imports (11.9%). What this shows is that access to the British market is far more important to the United States, in terms both of exports and imports.

However, TFSmith's decision to give approximate values only for the direct trade between the Union and Britain may have had a more insidious purpose. Critically, it glosses over the differential effect of the two parties' war strategies, and the different financial positions of the two.

TFSmith tells us that the Union have 'active commerce raiding in the Atlantic and (somewhat) Caribbean, Mediterranean, and Indian', as well as in the Pacific. Curiously, he leaves the Baltic free of commerce raiding - presumably he forgot that he had the Susquehanna interned in Christiana in 1862. Had he known how important Baltic and Channel trade was to Britain, he would probably have chosen differently. In 1863, British trade with these areas** comprised 41% of its imports and 51% of its exports.

If the British also manage to secure the Mediterranean - hardly an impossible task, with the presence of the Mediterranean fleet and control of bases at Gibraltar, Malta and Corfu - this would protect a further*** 23% of imports and 20% of its exports. Contrary to TFSmith's belief, Britain has a large number of spare corvettes, sloops and smaller vessels. By securing home waters, the Baltic and the Mediterranean, Britain would leave only 36% of her imports and 29% of her exports vulnerable to American commerce raiding. This is lower than the proportion of American trade conducted directly with Britain (45% and 40%).

Commerce raiding is also a far less effective tactic of economic warfare than blockade. Union ships can only cause damage to British trade in the limited areas where they have a presence, and they can only cause this damage as and when they track down ships. By contrast, Britain has blockaded all the significant ports available to the Union, which allows it to disrupt 100% of the Union's outgoing and incoming trade. They can seize or sink all Union-flagged merchant vessels without having to constantly roam the oceans, and can stop, inspect and delay any neutral vessels. The difference between these two strategies is the difference between the disruption caused to the Union economy, and the complete destruction of the Confederate economy.

TFSmith also overlooks the different funding models of the two governments. For 1862-3 (p.36), US government revenue relied almost entirely on customs duties. Customs contributed $69m to government income of $111m (62%), but even when combined with loans and printing money this income was insufficient to meet the expenditure of $715m. As a result, the balance in the treasury dropped from $13m at the start of the 1862-3 year to $5m at the end of the year.

This suggests that the disruption of trade with Britain, the source of 58% of Union imports, would on its own reduce the customs revenue to $29m. The cut to overall government income would be just over 36%. Britain's national finances were much healthier, drawn from a more diverse range of sources: in 1863, customs duties of £24m formed only 34% of government's gross revenue of £70m.*** In other words, even if the Union could throw an impenetrable blockade around the British isles, the effect on government revenue would still be less than Britain ceasing to trade with the Union (36% vs 34%).

The other significant sources of British revenue included excise and licenses (£17m, 24%), stamps (£9m, 13%), taxes (£3m, 4%), property and income tax (£11m, 15%), and the post office (£4m, 5%). It would be dramatically easier for the British to raise the rates of their existing diversified suite of taxes than it would for the Union to introduce entirely new taxes, along with the apparatus to collect them. Some of these, like income tax and stamp duty, would certainly be susceptible to downturns in the British economy that might be caused by a decline in trade. However, the same is true of Union taxes such as insurance duty and the income tax- and, more importantly, the Union economy is far more susceptible to British economic warfare than vice versa.

Unlike Union commerce raiding, the British blockade could affect 100% of Union trade: not only imports and exports carried in Union hulls, but also trade in neutral bottoms. And, as much as TFSmith would like the Union to have been an autarky, the truth is that without access to key imports the domestic economy would begin to grind to a halt. Once again, this is the difference between the economic collapse of the Confederacy, which raised 91% to 99% of its war revenue through loans and printing money, and the economic survival of the Union, which kept this proportion below 91% throughout the war.

We have here a perfect storm of circumstances. On the one hand, the Union needs to fund a second war against the British. To do this TFSmith indicates he would have them double the size of their army to a million, as well as to spend heavily on coastal and land fortifications and converting ships to steam propulsion and ironclads/chainclads. However, not only can they not raise taxes, but their existing revenue has been cut by at least a third. This is a recipe for disaster.

Unfortunately, TFSmith chooses not to recognise any of this. His belief that economic costs are 'huge on both sides' (though, naturally, affect the British more) is based on the flimsiest framework of facts. More importantly, he has completely overlooked a vast weight of evidence for Union economic vulnerability which would prove inconvenient.


* Note that these figures are not strictly directly comparable, as US government years end on 30 June and UK government years end on 31 March. In this post, '1859' represents the year ending 31 March 1859 and '1858-59' represents the year ending 30 June 1859.
** Defined as the northern ports of Russia, 'Sweden and Norway,' Germany, Denmark (including some negligible trade with Iceland), Holland, Belgium and France.
*** Including trade with Russia's southern ports, Algeria, Portugal, Spain, Italy, Austria, Greece, Turkey, Wallachia and Moldavia, and Egypt.