International trade in a polarized world – lessons from history (3): concessions and public debt

In May 2025 US president Trump announced that Apple and Nvidia are granted an exemption from the ban on selling advanced microchips to China. These export restrictions were imposed earlier by the Biden administration for reasons of national security. They purported to limit China’s access to advanced semiconductors to slow down the country’s development of advanced AI and military potential. Trump’s exemptions are closely connected to a plan to impose tariffs of 100 per cent on imports of semiconductor chips, except for companies that have production facilities in the United States. Moreover, the policies mentioned are linked to a scramble for rare earth materials, some of which are mined in large quantities in China. Furthermore, in August 2025, it emerged that the measures mentioned are part of US policies to reduce government debt. Nvidia and AMD received the right to export certain chips to China in exchange for a participation of the US government in 15 per cent of the profits of these companies. 

Closed trade policies, in particular for rare raw materials and commodities, have always went together with grants of exemptions. Throughout history, restrictions on imports and exports have been imposed to create or strengthen domestic advantages. In the period of c. 1500-c. 1790, many countries in Western Europe had restrictive trading regimes, which were combined with monopolies for merchant firms and chartered companies. In the later eighteenth century, these approaches were categorized as “mercantilist”. However, in practice, protectionist monopolies were always eroded by ad hoc advantages which monarchs gave to traders afterwards. One main reason was the continuous need for credit. Exemptions were then granted to merchants who were willing to lend substantial sums. Another reason, which became more important over the course of the seventeenth century, was competition from interlopers. Eventually, in the eighteenth century, this competition would result in the demise of protectionist policies.

The example of Portugal between approximately 1490 and 1550 is revealing in regard of the matters mentioned. Since the early fifteenth century, the Portuguese Crown was involved in maritime expeditions along the African coast. Vasco da Gama opened the Cape route and established trading connections with the Indian west coast. From the later 1490s, large quantities of spices (pepper, ginger, nutmeg, clove, and others) were sent to Lisbon.

Initially, this colonial trade was part of a geopolitical strategy. The goods had to shipped in Portuguese vessels, which sailed in fleets (the so-called Carreira da Índia). However, participation in the trades by foreigners was not prohibited. This was possible because the Portuguese navy controlled the entries to the Persian Gulf and the Red Sea, which resulted in Portugal’s factual monopoly in the maritime spice trade. In Southeast Asia, the Portuguese spice trade was a derivative of local trade and did not rely on the exclusive ownership of farms and plantations. The Portuguese merely traded what came on to the local and regional markets.

Starting from approximately 1503, the Portuguese King Manuel I (d. 1521) implemented a spice trade policy that was more economic. One of the challenges for the Portuguese Crown was to combine profitability with stability in the pepper trade. In the first half of the sixteenth century, only a small percentage of the spices that were shipped to Lisbon were consumed domestically. The revenues for the Crown depended on exports. Since the 1470s, the Portuguese kings had used privileges as a tool to secure a steady revenue from trade taxes. Foreign merchants were granted exemptions on the import taxes for some goods and reduced tariffs for others. They were allowed to equip vessels of their own and sail to Portuguese territories overseas. When resorting to privileges of this type, the Crown expected that the volume of trade would compensate the lowered custom rates.

At the same time, the measures mentioned outsourced the costs of transport. The privileged merchants were required to offer their cargo, or a fixed percentage thereof, on sale in Lisbon first. This method referred to the medieval staple idea, which combined grants of free shipping with the obligation to touch the markets that were controlled by the sovereign awarding the privilege. In February 1503, the Augsburg Welsers were given a privilege for a period of fifteen years. Indian goods that were shipped from Lisbon were levied a five percent export duty.

In 1505, the privilege was given to a consortium of South Germans, which was involved in the equipping of the fleets of the Carreira da Índia. However, in the same year of 1505, Manuel I changed course. He required that spices at their arrival in Lisbon were purchased by the Casa da India. This institution was established in 1500 to oversee and manage the Portuguese colonial trade. The purchasing price of spices was low and the Casa resold the merchandise at a high price. This new policy revoked the earlier agreements with the South German trading firms. It was combined with the establishing of the feitoria da Flandres in Antwerp, which was used as the main distribution hub for Portuguese pepper.  After having rebought their cargo from the Casa da India, non-Portuguese merchants were completely free to sell it where they wished. The Casa retained a share of the spices imported for the sale to consumers in Portugal. Duties on spices leaving Lisbon were only due when the merchant sending them was the initial importer of the spices.

When implementing this new policy, King Manuel was soon confronted with problems. Pepper and nutmeg were initially in high demand but thereafter the demand dropped. As a result, South German merchants were not always willing to repeat the investments that they had made earlier. In response, the Portuguese king restored their preferential rights. They were exempted from the export duty and their prices of repurchase from the Casa da India were lowered. Manuel aimed to reduce the debt of the Crown and expected that the privileges thus renewed would stabilize the custom revenues. The South German merchants were invited to subsidize the spice trade. Their deposits were exchanged for remittances, with which they secured a fixed share in the spices brought to Lisbon.

However, at the other end of the trade new troubles were on the horizon. In the early 1500s, the Portuguese fleets imported around one third of Malabar pepper into Europe, but this share dropped quickly. The Ottomans increased their trade in spices overland. The Portuguese navy experienced more resistance when protecting its routes. In the 1520s and 1530s, the Portuguese public debt mounted because of these challenges.

Manuel I, as well as his successor João III (d. 1557), were forced to fix the leaks in Portugal’s trading system with individual concessions. One was concerned with the extension of the rules on portage. The shipmaster and his crew had a customary right to bring merchandise as personal cargo on board of the ship. This portage was not taxed and typically remained outside the purview of trade policies. Now, the Portuguese kings allowed merchants to have more exempted goods on board of vessels in which they had a stake, in compensation for their loans. These gasalhados became a normal part of the Portuguese trading policy and marked the individual rights of the most important financiers of the Crown.

In the end, the facts and figures of trade mattered and the Crown could not keep up the colonial trade that had been set up in the later fifteenth century. João III abandoned several cities on the west coast of present-day Morocco. In 1549, the feitoria da Flandres in Antwerp was closed.

Portugal’s government debt continued to rise because of military expenditure. New expenses were necessary due to the intensifying confrontations between the European and Ottoman powers in the Indian Ocean. In 1560, the Portuguese Crown went into default, as its Spanish counterpart had done in 1557. In the seventeenth century Portugal lost most of its footing in Southeast Asia following the rise of Dutch and English presence. However, Portugal’s government debt remained high.

Portugal offers an example of an empire of trade that was in decline. Early on, it experienced high costs to maintain an earlier trading system that was often not profitable. The growing importance of trade from Brazil did not change this situation. As a result, Portugal's public debt could not be reduced with revenues from trade.

Bibliography:

S. Halikowski Smith, Portugal and the European Spice Trade, 1480-1580, Florence, unpublished PhD dissertation European University Institute, 2001.

M. Eugénia Mata, “From Pioneering Mercantile State to Ordinary Fiscal State: Portugal, 16th-19th Centuries” in B. Yun-Casalilla and P.K. O’Brien (eds.), The Rise of Fiscal States: A Global History, Cambridge, CUP, 2012, 123-145.

N. Steensgaard, Carracks, Caravans and Companies: The Structural Crisis in European-Asian Trade in the Early 17th Century, Copenhagen, Danish Science Press, 1973.