The Yankees Strike Out
How Nineteenth Century America Ceded the Brazilian Market to Britain
Why did those crafty Yankee traders lose their knack in the nineteenth century? American merchantmen, setting out from Boston and New York, had been some of the most adventurous traders in the eighteenth and early nineteenth centuries. They dominated the trans-Atlantic passenger and mail service until 1840, and the California clipper ships, inspired by gold-fevered passengers, were the world’s fastest for a while. Robert Fulton was one of the first to develop commercial steamships. Yet despite a lead in shipping, a mercantile calling, and one of the world’s fastest growing economies, Americans turned away from their earlier vocation in international trade. By the end of the century, Americans had a trade deficit. U.S. trade with Brazil illustrates the sad story.
Americans were by far the greatest consumers of Brazilian coffee in the world. With such an overwhelming market position, one would have expected American traders, bankers and shippers to dominate trade. With so many ships laden with coffee and rubber unloading in New York and Baltimore, freight rates south should have been extremely low. With such a large proportion of Brazilian goods being purchased with dollars, American banks should have dominated exchange, discounting and short-term credit. And with such commercial and transportation infrastructure, Yankees should have been able to export to the Brazil market.
But that didn’t happen in the nineteenth century. Although taking most of Brazil’s exports, Americans supplied only one-eighth of Brazilian imports. The British found themselves in the exact opposite position. Tea drinkers, they purchased only one-fifth to one-third of Brazil’s exports while supplying as much as one-half of all imports.
North Americans had ceded the Brazil market because of the more prosperous, booming home market. While building the world’s largest railroad network, the merchant marine had been allowed to fall into obsolescence.
The problem began in the ports of North America. Freight rates from New York were higher than from London, even though New York was 25 percent closer to Rio than was London. North American steamships were 25 percent to 50 percent more expensive to operate than their European competitors because of higher ship construction costs in the United States, higher sailor wages, and greater coal consumption. Steamers were so expensive that even as late as the 1890s, four times as much cargo was carried in North American sail ships (which charged half the rate) as in its steamers. The ratio was almost the reverse for European ships clearing New York and Baltimore for Brazil.
Moreover, the much greater export trade of European countries to Brazil and Argentina (ships en route to or from Buenos Aires often put in at Rio) meant that many ships crossed the Atlantic southward at near full capacity, allowing a relatively low freight rate per unit. To take advantage of this trade, there were five regular British lines, three French, two Italian, two Austrian and two German companies. Twenty steamships a month arrived in Rio from Europe, but only one from the United States. The ratio was far worse in Argentina, where 1,153 British steamers arrived in 1885 while no U.S. ships did. These ships competed for return cargos to Europe, driving down the fares on the northward leg. They also were willing to carry Brazilian exports to the United States. Consequently, there were five regular lines and many tramp steamers that made the Brazil- to-U.S. run but only one company, the United States and Brazil Mail Steamship Company, regularly left the U.S. for Brazil. And it only sent two ships a month, one to Rio and one to the Northeast. As a result, not only did European exporters pay substantially less than North American traders for freight from their home countries to Brazil, but the freight tariff from New York to Rio was four times the rate of the return trip, encouraging the U.S. trade deficit with Brazil.
The considerable barriers to entry for U.S. shippers were heightened even more by a British-dominated shipping conference that set rates between Rio and New York. Shippers also used devices such as deferred rebates and contracts for future transport to lock in customers and marginalize new competitors.
To compete in this market, United States carriers would need government aid. The U.S. merchant marine had fallen into obsolescence after the Civil War. Despite the founding of the United States and Brazil Main Steamship Company (USBMSCo.) in 1883, complaints from consuls were constant and vituperative. Noting that only 8.2 percent of all U.S. imports and 15.5 percent of her exports were carried in North American bottoms, U.S. minister Thomas Thompson concluded that “to extend the commerce of the U.S., a merchant marine is absolutely necessary.” The Brazilian government did award the USBMSCo. a $105,000-a-year subsidy in the late 1880s, but the U.S. Congress refused to provide more than a nominal sum of $11,743. Meanwhile, the company’s British competitor received the much more sumptuous total of £109,653 ($531,817) from her majesty’s exchequer. Moreover, the Brazilian subsidy was not to encourage international trade between Brazil and the United States. Rather, the North American shipping line was paid to carry coastal freight in Brazil, forcing its ships to make stops in Pará, Recifeand Bahia.
Despite the hearty advocacy of President Harrison, strong political resistance from the South and the Midwest of the United States prevented the Merchant Marine Act of 1891 from providing adequate subsidies. Consequently, the United States and Brazil Mail Steamship Company, one of the few companies covered by the 1891 act, had to charge higher rates to cover its expenses and could not afford to expand its service to reduce unit costs and make itself more attractive to exporters. The company purchased two new North American ships for $450,000 each in anticipation of large subsidies since the new law required the use of North American–built ships. When the funds were not forthcoming, the line that had survived for eight years before the Merchant Marine Act went bankrupt in mid-1893.
As a result, the percentage of the Brazilian trade carried in North American ships did not increase. In 1889, 21.8 percent of the trade was carried in U.S. bottoms; in 1892, the figure was 22.8 percent. By 1897, U.S. ships carried only 5 percent of the commerce between the two nations. Three years later, there was no regular shipping line between the United States and Brazil.
The absence of the U.S. merchant marine in the Brazil trade is startling when one recalls that the United States had been the world’s largest market for Brazilian coffee since at least 1850, importing more than half the crop while the British imported a small and declining amount. Coffee rates between Brazil and New York, according to the Alexander Commission in 1913, were “fixed at the highest possible level.” Because coffee was the main cargo in the Brazil trade, it subsidized cheaper fares for exports to Brazil in the coffee freighters anxious for two-way cargo. Ironically, it was the British who took advantage of this by engaging in a triangular trade, coffee to New York, U.S. goods such as cotton, meat, and grains to London, and then British manufactures back to Brazil.
Americans did not cede the seven seas because they were nautically challenged. Clipperships, steamers, even the first submarine were American inventions. And vast amounts of U.S. commerce traveled over water—on the internal rivers such as the Mississippi, the Ohio, the Missouri and the Hudson, the Great Lakes, and along the coastline. Moreover, the U.S. government was not at all reluctant to assist private carriers with subsidies.
Americans lost the Yankee trading knack in the nineteenth century because of their incredible success in expanding westward. Their continental system was all within one nation. Thus, long-distance trade, as in China, was not even international trade. It was simply called regional commerce. Within the empire of the U.S. boundaries, American shippers and railroad men reigned supreme with a virtual monopoly. They were perfectly willing to allow other nationals to carry goods on the other seas.
Steven Topik is a professor of history at the University of California, Irvine. With Kenneth Pomeranz, he is the author of The World that Trade Created: Society, Culture and the World Economy, 1400 to the Present, published by M.E. Sharpe.