Page 176 - Merchants and Mandarins China Trade Era

162.

Although to many merchants the limits of the China

trade appeared infinite, such growth could not continue un­

impeded. Too much of this trade operated on unso�nd credit

with inadequate capital reserves. The use of credit in the

1
China trade had developed since the 1790 s, when the American
government had instituted a commercial policy beneficial to

American foreign trade. Merchants could delay the payment of

duties on their imports up to two years, while they stored

the imported articles in bonded government warehouses. Such
measures allowed merchants in the China trade to speculate

heavily in teas, as they continually postponed paying their

customs duties. (These duties often exceeded the cost of the

teas at Canton.) This system operated successfully and pro­

fitably until 1826, when the government demanded payment from

several commercial houses whose debts had become enormous.

Most affected by the government's action was T.H. Smith & Co.

of New York, a leading establishment in the American China

trade. Smith consequently declared bankruptcy, the result of

which was a chain reaction that touched most merchants in the

trade. One after another, houses in New York, Boston and

Philadelphia had to stop payment. Not surpr_isingly, those most

affected in 1826 were merchants who recently had entered the

China trade. Although the older houses suffered setbacks,
22
they survived. The debacle of 1826 led to a reorganization

22
Barrett, Walter fJoseph A. Scovilly, The Old Mer­
chants of New York City (New York, 1873), pp. 33, 37, 87-92.