The closing of the Chinese shops in Manila and the expulsion of the Chinese merchants was the beginning of a new state of things in the islands. A joint-stock company was formed to buy clothing and staple goods for the Philippines, and sell at 30 per cent. advance. But the Spaniards lacked the keenness at bargaining that their predecessors possessed, and the company soon failed. Another company followed, under the favor of the King of Spain, who took a large block of its shares and gave it abundant privileges and monopolies. It—the Royal Company of the Philippines, fully organized in 1785—was given exclusive rights of trade, aside from the galleon trade with Acapulco. Foreign ships were not allowed to bring goods from Europe to the Philippines, though they could land Chinese and Indian goods.

There were old treaties that prohibited Spain from seeking the Pacific by the eastern route, her trade being via Cape Horn and Mexico. Charles III. quashed these treaties in favor of the Royal Company, whose ships were allowed to sail by way of the Cape of Good Hope. No one seriously objected—Spanish commerce was not worth an objection. With its large capital and its privileges the Royal Company should have flourished. But it never did. Yet it benefited the Philippines, and gave a great impulse to agriculture, on which large sums of money were expended. The culture of sugar, tobacco, cotton, indigo, and pepper was much developed, and these long remained the staples of many provinces.

The company had splendid opportunities, but failed to make the most of them. It broke down the vexatious prohibition to trade with the East and with Spain, which had checked Philippine enterprise, but the dry rot of Spanish incapacity caused its decay. Influence and intrigue brought men into the company that lacked ability, but received large salaries. As a result, it lost the power to compete with experts, while the contraband trade ate into its profits, and the merchants of Manila opposed its monopolies. Finally, in 1830, its privileges were taken away, and the island-colony was opened to the trade of the world. Five years afterward the Company ceased to exist.

Early in the nineteenth century foreigners made their way past the bars of restriction. A Mr. Butler first asked the privilege of residing in Manila, and opening up trade with Europe; but his humble petition was rejected as something monstrous,—an innovation that would put an end to the political security of the colony. Yet the needs of commerce forced Spain out of this illiberal attitude, and an American firm, Russell and Sturgis, was soon after admitted by favor of the Governor-General. Then Mr. Butler came back. Many others have since followed, and there are, to-day, about a dozen British and as many German and Swiss firms in the ports of Manila, Iloilo, and CebÚ, together with firms of other nations.

The house of Russell & Sturgis was long prominent in Philippine trade. It opened up the sugar culture in the isle of Negros, invested a large amount of money in agriculture, and was long the mainspring of Philippine enterprise. But it was, in the end, victimized by the natives, to whom its capital had been largely advanced, and in 1875, to the amazement and consternation of the people, the great firm failed. For a time its failure paralyzed trade, but the minor firms it had overshadowed soon expanded, and business grew brisker than before.

But while foreign merchants were thus forcing their way into the Philippines, they had to contend against the peculiar Spanish ideas of commercial enterprise. The customs duties—at that time seven per cent. on goods in Spanish ships—were double that in foreign vessels. And the most vexatious regulations prevailed. Thus there was a system of levying tonnage-dues on foreign vessels in addition to duties, a cargo-ship being charged double the dues of one in ballast. If a ship in ballast should land the smallest parcel, it was at once charged the higher rate. And it is said that the officials sometimes bribed a sailor to carry a small bundle on shore, to give them a pretext to make the higher charge. The story is told, that, one shipmaster, who had brought a cargo of cobble-stones to Manila, was severely fined because his cargo proved to be one stone short of the number on his manifest.

In 1896 the collector of customs at Manila made $82,000 in this way, all of which went into his private purse. By exactions like these the Spanish officials managed to make their positions profitable, but they drove away trade, foreign shippers avoiding Manila.

In 1869 a Royal decree was passed, making all decrees uniform, abolishing export duties, and doing away with the obnoxious port-charges. Since then foreign trade has been less hampered by Spanish privilege.

To-day subsidized Spanish steamers have most of the import trade, though the export trade is done mainly by foreign vessels. These carry cargoes to Asiatic ports, discharge them, and proceed in ballast to the islands. No foreigner is permitted to own a vessel trading between Spain and any of her colonies, or between one colony and another, or doing a coast-trade from island to island. But this law is readily evaded, by foreigners giving to Spaniards the nominal ownership of their vessels. In this way a large part of the internal trade of the Philippines has fallen into foreign hands.

Despite the fact that foreign trade has forced its way into the Philippines, every step has been gained against Spanish distrust and opposition. Spain is not a mercantile nation, and its commercial ideas are centuries behind the age. Only constant pressure forced the Philippine authorities into more liberal measures, yet the island-trade remained deplorably fettered, as compared with general commerce. Proposed reforms, demands to introduce modern improvements, were alike unwelcome, the Church especially resisting innovation. Useless and obstructive formalities stood in the way of trade; vexatious delays were made; and the development of the colony seems to have been the last thought in the Governor-General’s mind.

By a Royal decree, in 1844, strangers were excluded from the interior of the islands. In 1857 old decrees were used to prevent foreign establishments in the colony. In 1886 foreign trade was declared prejudicial to the “material interests of the country.”

The conservatism and ignorance of the natives have similarly stood in the way of commercial progress. They could not be made to understand that the change in quotations was not due to the caprice of buyers. Many of them lost by withholding goods when the quotations did not please them. Only in 1884, when the whole world was affected by the crisis in the sugar trade, could they be made to perceive that quotations were quite beyond the control of the merchants.

Accustomed to deal with the Chinese, the natives have no fixed prices for their products. The Chinese understand them, and put prices on their goods that will allow for a large reduction. In the end, the native goes away contented, though the shrewd Chinaman has usually the best of the bargain. Even important mercantile houses seldom state prices, business being conducted on the shifting Asiatic scale. Foreign capitalists distrust trade with the natives, whose word usually cannot be depended upon, and employ middlemen to collect produce. These are persons born in the colony, who understand at once the business methods of the foreigner and the shifty customs of the natives. And they generally bring the opposite parties to terms.

The only real basis of wealth in the Philippines is the raw material of agriculture and the forest. Nothing has been done to foster the industrial arts, and the manufactures are insignificant, the cigar product being the principal one.

From the opening of the large export trade until recently, Americans were supreme. But the failure of the great house of Russell & Sturgis made a change. Other traders rose upon their ruins, and of late years England has gained the bulk of the trade. The downfall of the Americans was completed after the outbreak of the Cuban troubles in 1895. The Spanish hatred of the Yankee was reflected in these far-off islands, and, by petty annoyances that soon became intolerable, the last American firms were crowded out.

In 1891 a protective tariff was laid by Spain on the trade of the Philippines. This diverted to the home-country most of the traffic formerly enjoyed by England and other countries. Iron goods and hardware are now furnished principally by Germany and Switzerland, but the Manchester cotton goods are supplemented by similar fabrics made in Barcelona. The imports from the United States are chiefly kerosene oil and flour.

As an indication of the growth of Philippine trade since the intrusion of foreign shippers put an end to the mediÆval obstructions of Spain, some figures may be quoted:

In 1841 the imports of the islands aggregated in value $3,230,000, the exports, $4,370,000. In 1885 the imports had increased to $19,171,468; the exports to $24,553,686. In 1893 the imports aggregated $25,500,000; the exports $30,000,000. These figures are estimated, however, in Mexican dollars, the currency of the islands, which is at a large discount elsewhere.

In 1895 the principal exports of the Philippines were: Hemp, $14,517,000; sugar, $10,975,000; tobacco, $3,159,000; cocoanuts, $356,000. This fell off greatly in 1896, on account of the increased scale of export duties, hemp declining to $7,500,000, and sugar to $10,975,000.

On August 21, 1897, a decree went into effect that imposed an extraordinary customs duty of 6 per cent. ad valorem on all merchandise imports, without regard to the country whence they came.

The trade of the United States with the Philippines has been steadily on the decline within recent years. In 1888 their imports from the islands were valued at $10,268,278; in 1897, at $4,383,760. The export trade has always been insignificant, as compared with European countries. In 1889 it aggregated $165,903; in 1897 it was only $94,567. During the same period the exports of Spain to the islands increased from $890,000 to $7,972,583. These were principally cotton fabrics. The exports from the United States embraced mineral oil, bread stuffs, cotton goods, chemicals, iron and steel goods. Of the imports, the most important were Manila hemp and sugar; other imports include cigars, tobacco, woods, hides, shells, indigo, and coffee.

The foreign trade of the Philippines has always been subject to great fluctuations, owing to insecurity under the Spanish administration, the dissatisfaction of the native population, and to the frequent insurrections. These influences have stood seriously in the way of developing the wealth of the islands. Under a new and progressive administration, there seems nothing to hinder this fertile region from becoming one of the garden spots of the earth.

The possession of the Philippines, on the other hand, has not been a bonanza for Spain. The expenses cut so deeply into the revenues that only a few hundred thousand dollars were left yearly for the Crown. The bulk of the proceeds fell into the hands of the clergy and the hidalgos sent out to rob and misgovern the islands. In addition to the revenue to the King, a few Spanish noblemen receive pensions from the islands. Among them are the Duke of Veragua and the Marquis of Barboles, both descendants of Columbus, and, as such, entitled to the consideration of the United States.

The Spanish receipts were obtained from everything that could be taxed. In truth, the people were crowded wherever possible, and kept in a state of chronic irritation. This made them ready at any time to break into rebellion.

As regards the expenditure of money raised by taxes and duties, while little came to the King, little also was spent on the islands. It was estimated that in 1897 $611,145 were expended on public works. If so, the result was not visible in the Philippines. If a bridge was needed, the neighboring nations had to raise the money to build it. More money was set aside for the transportation of priests than for the building of railroads, while ten times the sum was donated to the support of the Manila Cathedral than was spent for new improvements and for public instruction. Regarding the officials, from the Governor-General down to the lowest underling, they seem to have devoted themselves industriously to robbing the people with one hand and the Government with the other, sowing a crop of hatred of the Spaniard and of Spanish rule, which had its harvest in the fierce insurrection of 1896–98.