Mongolian Foreign Trade History from the Silk Road

1.1 Research Sources and Research Methodology

A history of economics and trade draws on both historical and economic research sources. In this regard, it is closely related to the source base of popular historical research.

Historical and commercial history research sources overlap in most cases, but since economic and commercial history studies economic life, economic material is more important. The more rich and authentic source material of economic research is, the more scientifically based economic research can provide correct conclusions.

Since the history of economy and trade is a science that studies the whole phenomenon of the country’s economy, it basically uses quantitative research methods, many statistical methods, economic mathematical methods, and sociological methods. It means that changes in the development of a certain historical period are expressed by appropriate quantitative characteristics (production fund, total social product, national income, labor productivity, profit, price, etc.). For this reason, the statistical method, which is a science of quantitative research of many phenomena, will be widely used in the history of economics and commerce. The more sophisticated the farm management method and the better the accounting, the easier it is to study the farm using statistical methods. The most important thing here is that this original material has been preserved in a complete and orderly manner that is sufficient for our time (Dorjderem, Sereeter, and Chilkhaasuren 1983).

The main source of research used in this article is the series of books on the history of the Republic of Mongolia issued by the Institute of History of the Mongolian Academy of Sciences, Dorjderem D, Sharavsambuu B, Luvsandorj P, Maisky’s research papers and books.

2.1 Impact of the Silk Road Mongol Empire

The establishment of the Mongol Empire brought about significant changes to the Silk Road’s economic landscape. Under Mongol rule, the Silk Road experienced unparalleled stability and security, allowing for the flourishing of trade and commerce. The Mongols, known for their shrewdness in managing economic affairs, actively encouraged merchants to traverse the Silk Road, ensuring the safe passage of goods. This resulted in an unprecedented growth in trade volume and the establishment of new commercial centres along the route. Furthermore, the Mongols skilfully implemented policies that facilitated international trade. They standardized weights and measures, enforced the use of paper currency, and established relay stations throughout the empire, enabling traders to exchange goods and information efficiently. The Mongols’ extensive network of contacts and diplomatic relations with neighbouring empires also contributed to the expansion of trade routes, connecting China, Persia, Central Asia, and Europe.

The inception of the Silk Road traces back to the Han Dynasty in China (206 BCE – 220 CE), a period marked by the commencement of silk trade between the Chinese and neighboring regions. This era saw the emergence of the concept of the Silk Road, as silk, renowned as a highly coveted commodity, became a cornerstone of commercial exchange, fostering connections between distant lands.

The Southern Route was this route branched off from the northern one, passing through the Indian subcontinent and reaching the Middle East and Mediterranean. It facilitated the exchange of not only silk but also spices, precious stones, and other goods.

The Maritime Route was this sea-based route connected the ports of China with those of Southeast Asia, India, Arabia, and East Africa. It was crucial for the transportation of goods and cultural exchange.

2.2 Goods Traded

Silk: As its name suggests, silk was a prized commodity traded along these routes. Chinese silk was highly sought after in the West.

Spices: Spices like pepper, cinnamon, and nutmeg from Southeast Asia were in high demand in Europe.

Precious Stones: Gemstones like jade and lapis lazuli were exchanged, along with other luxury items. Ideas and Culture: Beyond goods, the Silk Road facilitated the exchange of religious beliefs, artistic styles, technologies, and philosophies.

Religions: The Silk Road played a significant role in the spread of religions, including Buddhism, Christianity, Islam, and Zoroastrianism, as travellers and traders carried their faiths with them.

Art and Architecture: Artistic styles and architectural designs were shared and adapted, leading to the blending of diverse artistic traditions.

Technological Exchange: The Silk Road also contributed to the dissemination of technologies such as papermaking, printing, and gunpowder (Mongols and the silk road | Facts and Details).

The Silk Road not only served as a conduit for goods but also facilitated the exchange of cultures, religions, and ideas. The Mongols, recognizing the importance of cultural diversity, promoted tolerance among their subjects and encouraged the assimilation of different cultures. As they expanded their empire, the Mongols encountered various ethnic groups, each with its own unique customs and traditions. This encounter fostered a vibrant cultural exchange, resulting in a fusion of ideas and practices along the Silk Road. Religions, too, spread along the Silk Road due to the Mongols’ religious tolerance. Buddhism, Islam, and Christianity all found new adherents as a result of their interactions along this trade route. The Mongol Empire’s support for religious freedom allowed missionaries and religious leaders to travel freely, disseminating their faiths to different regions. This resulted in the emergence of syncretic religious practices and the spread of knowledge, including advancements in medicine, astronomy, and mathematics. The Mongol Empire’s control over the Silk Road had far-reaching political implications. By dominating this vital trade network, the Mongols gained significant economic power and political leverage over other empires. The vast wealth accumulated from taxation and trade allowed the Mongols to maintain a formidable military force, ensuring their dominance over the Silk Road and deterring potential rivals.

In according to the text of the book Mongols and the silk road:

The Mongols employed diplomatic strategies to expand their influence. They established a system of vassal states, granting political autonomy to local rulers in exchange for their loyalty and tribute. This system not only secured their control over the Silk Road but also facilitated the flow of goods and information across vast distances. The Mongols’ ability to maintain peace and stability along the Silk Road significantly contributed to the empire’s longevity and prosperity.

3.1 Social Conditions and Foreign Trade

Before the People’s Revolution of 1921, Mongolian society consisted of two main classes: Feudal – People who had the rank of vassals at that time, rich in wealth, and Ards – Ordinary citizens.

For Mongolians with a nomadic culture, livestock is the main pillar of economy and production. According to the 1918 national census, one feudal farm had an average of 2370 animals, while the folk farm (or ordinary citizen’s farm) had an average of 60 animals (Institute of History of the National Academy of Sciences of Mongolian People’s Republic 1984). Thus, feudal lords had 40 times more livestock than ordinary citizens, so full political and economic power was concentrated in them. While meeting their own needs from the feudal farming, they (feudal lords) received rent from the ordinary citizen’s farming, so there was almost no need for trade and commerce with the ordinary citizens. As for the ordinary citizens, they had to pay rent to the feudal lords while meeting the needs of the family with the products of household production and animal husbandry, so there were few opportunities to participate in trade and commerce, and trade between peoples was mainly done by barter (Luvsandorj 1968).

Being under the influence of foreign countries for many centuries, having a nomadic animal husbandry, a feudal social structure, and having a self-defeating economy at the bottom pushed the country to the impossibility of development of production, specialization of labor. They migrated far and wide following their pastures, lived scattered and fragmented, and processed the products and raw materials from animal husbandry individually and within their households and used them for their personal needs.

The above two conditions pushed the country to have trade relations with foreign countries. In other words, there was a strong dependence on foreign trade. Written by Russian researcher Maisky:

Before the revolution, the entire population of Mongolia bought an average of 20.0 million rubles (at the exchange rate of 1913) annually, including 18.8 million rubles or 94 % of imported goods, and 1.2 million rubles or 6 % of domestic goods. (Maisky 1980)

Mongolian Academician Luvsandorj P wrote in his book:

The Development of Trade in the Republic of Mongolia that concluded the trade of Mongolia before 1921 as the development of the productive forces was weak, and because of this, there was no national trade because the social division of labor was not properly developed. (Luvsandorj 1968, 331–332)

Therefore, foreign trade played an important role in the lifestyle and consumption of Mongolians at that time.

3.2 Foreign Trade Partner Countries

In 1911–1912, 470 Chinese, 41 Russian, 7 British, 5 American, and 1 German firms worked in the Mongolian market, totaling 524 firms. According to this data, Mongolia’s foreign trade was in the hands of foreign firms, especially Chinese traders.

3.3 Main Export – Import Goods and Medium of Exchange

As mentioned earlier, Mongolian industry was not developed, so most of the non-livestock products were imported. Among the main imported products, tea, tobacco, daalimba or cloth were very important.

According to Russian researcher I. Maisky, two-thirds of goods imported by Mongolians, or about 61.7 %, were food such as flour, tea, and sugar, about 15.7 % were textiles, 7 % were leather goods, and only 8 % were metal goods (Maisky 1980).

But the main export products were raw materials of livestock origin. Also, according to I. Maisky:

Until 1912, one of the largest Chinese firms, exported up to 500,000 sheep and 70,000 horses to China every year. The Chinese used to sell most of the wool they bought from Mongolia to America and England, while most of the wool was sold to the Germans. There is data that three-quarters of Mongolian wool went to America. (Maisky 1980).

Russians also bought raw materials from Mongolia, and since 1909, 12 % of Mongolia’s exports to Russia were leather, 13 % were wool and game hair, 25.5 % were horse hair, and the rest were horses 10.8 % and cattle 10.5 %, small livestock 24.9 % (Maisky 1980).

At that time, there was no national currency in Mongolia. Therefore, sheep, sable, and tea were used as monetary units for settlement. For example, one head of sheep was valued as follows and used in transactions. It includes: two tablets of tea, five packs of cigarettes, one uncut belt, two black lambskins, five white lamb skins, five ram skins, ten goat skins, two cow hides, 2/3 good fox hide, 2/5 good wolf hides, etc.

In addition, the Mexican dollar, Russian ruble, and Chinese white silver that were in circulation in China became a monetary unit in Mongolia, a means of trading and paying taxes, and later, all this was done with metal money. As a result, the use of money as a means of payment has expanded.

According to the above figures and the state of Mongolian foreign trade in the 20th century, Mongolians were dependent on the Chinese for foreign trade, and Mongolian imports consisted almost entirely of essential goods such as tea, cloth, and tobacco, while exports consisted of livestock raw materials and live animals.

4.1 Autonomous Mongolia’s Foreign Trade and Trade Regulation Efforts

Taking advantage of the international relations and the unstable situation that occurred in neighboring countries, Mongolia became an independent country in 1911.

When the Mongols declared independence from Manchu and established the Bogd Khaan government with autonomous rights, a new situation took place in trade and economic relations between Mongolia, China and Russia. The Chinese and Chinese traders were pushed out of the Mongolian territory, and the Russians were given the dominant right to conduct foreign trade in the Mongolian territory according to bilateral and tripartite agreements. For example, the Russian-Mongolian Agreement of 1912 and the Russian-Chinese-Mongolian Treaty of 1915 gave Russian merchants more favorable opportunities and privileges to trade in the Mongolian market.

However, between 1911 and 1912, Russian traders could not directly replace the space of Chinese traders who were expelled from Mongolia. The Russians became almost the sole importers in the Mongolian market, but between 1910 and 1915, Russian goods provided only 30–35 % of the market consumption of Mongolians, and there was a great shortage of goods in the market due to the fact that Chinese goods could not be imported.

By 1916, the impact of the First World War reduced trade from Russia, and the influence of Tsarist Russia in Autonomous Mongolia began to weaken. Using this, the Japanese tried to increase their influence, but did not have much success (Luvsandorj 1968). However, Chinese traders entered the Mongolian market again, and import and export with China resumed.

As a result of the independence movement of 1911, Autonomous Mongolia was established, but the influence of foreign countries in the economy and foreign trade remained. By 1919, Chinese merchants had regained control of the Mongolian market and maintained their influence.

4.2 Foreign Trade Regulation Efforts after People’s Revolution

With the victory of the People’s Revolution in Mongolia in 1921, there was a real need for radical changes in the country’s society and economy. In particular, there is a very important challenge for the government to take control of foreign trade and economy, which are completely under the control of foreigners. The following number of traders were operating in Mongolia after the Mongolian People’s Revolution (see Table 1 below).

The Mongolian Government believed that the main way to get rid of economic dependence on foreign traders and capital is to make national trade by Mongolians themselves, and took certain steps. In doing so, the direct expulsion of foreign merchants may lead to social and economic difficulties, so the policy of using foreign trade and capital at an appropriate time was combined, and the following important measures were implemented one after another. It includes:

1. A Trade Affairs Department was established under the newly created Ministry of Finance.

2. The official exchange rate of foreign money used in transactions in the country is set. For example, 1 Russian ruble = 250 silver coins, 1 Chinese yuan = 350 silver coins, and one lan silver = 600 silver coins.

3. All debts owed by the population to foreign firms were cancelled.

4. The customs system for the export and import of goods has been established.

In 1912, the Ministry of Customs was established and began to be implemented by collecting taxes on goods imported from abroad. In 1924, Mongolian People’s Republic announced that it would choose a non-capitalist development path. Also, on December 9, 1925, the Mongolian-Soviet joint-stock bank was established, and then the national currency TÖGROG was put into circulation (Shagdarsuren 1988).

Although these steps would affect foreign trade to some extent, it was not enough for the state to fully control it. For this reason, a national trading company, Central Cooperative, was established.

Central Cooperative’s main goal was to establish a national or domestic trade company to compete with foreign traders, to take possession of the national market with its help, to push out foreign firms, and to develop trade that is beneficial to the country and society. Since the newly formed country lacks the financial resources and capabilities to establish a strong trading company, a joint-stock trading company with the participation of the government and the people. In 1922, 116 people contributed shares, while in 1924, 1500 people participated. The capital increased from 8.8 thousand Mexican dollars in 1922 to 60.0 thousand Mexican dollars in 1924, and the turnover increased from 15.7 thousand Mexican dollars to 758.6 thousand Mexican dollars (Ministry of Agriculture, Ministry of Foreign Affairs 2011).

Although certain steps were taken to gain control over foreign trade and Central Cooperatives were established, the position of Mongolians in foreign trade was still small. For example, in 1923–24, the Central Cooperative accounted for only 5 % of total exports and 4 % of imports.

Another way to increase the share of state foreign trade was to cooperate between Mongolian and Soviet trade organizations. One of the manifestations of this was that Soviet traders sold their goods at lower prices than in capitalist countries and received higher prices for raw materials. For example, 1 pound of Japanese sugar was 16.85 MNT, while the same amount of Soviet sugar cost 12.19 MNT and was of better quality than Japanese sugar. 1 gin or 600 g of purchased wool was bought by Siberian state trade for 25–27 cents, while Chinese traders bought it for 20 cents. The Russian side also provided loans with low rate.

Branches and shops of Soviet trade organizations were opened and operated in Mongolia, where they bought goods and purchased raw materials of animal and animal origin. Mongolia has agreed to cooperate with the Sherst Society of the Soviet Union by sharing a share of 750,000 rubles. Since then, Soviet and Russian goods have been widely supplied to the Mongolian market (Ministry of Public Education 1979).

At a time when there were no trained personnel to implement the policy of government and foreign trade, which tried to solve interstate trade at the international legal level from the beginning, Mongolian people first started learning about interstate trade from Russian consultants and instructors. Inter-state trade has already developed in the world, and at least a sale-purchase agreement has become mandatory for trade.

By 1926, folk cooperatives accounted for a very small share of the country’s trade, about 20 percent, while foreign firms accounted for the rest, and their number reached 1700. In this year, foreign firms accounted for 60.7 % of exports and 77.6 % of imports. For example, in 1925–1926, goods worth four million MNT were received from China and Germany, while 0.8 million MNT were received from the USSR (Luvsandorj 1968).

In 1927, a joint-stock association called “Stormong” was established in order to strengthen the cooperation of the Mongolian-Soviet trade organization. Stormong received imported goods at the Soviet-Mongolian border and supplied them to Mongolians through its trading network. Along with this, the role of the Mongolian-Soviet trade organization has also increased participation in trade of raw materials. For example, in 1928, they received 89.4 % of the wool (in 1924, it was 29.4 %), and 55.0 % of animal fur (in 1924, it was 16 %), and the participation of other countries decreased accordingly. Furthermore, 84 % of animal skin, 76 % of sheep skin, and 64 % of goat skin have been prepared by them (Shagdarsuren 1988).

Thus, as a result of the implementation of many policies to squeeze out foreign capital, the foreign trade transactions of Mongolian People’s Republic increased year by year, including the share of the Soviet Union (see Table 2 below).

As a result, in the last half of 1929, with the closure of the border between Mongolia and China, Chinese share and position of foreign trade fell sharply. In 1929, an agreement on the basic principles of relations between the USSR and the Mongolian People’s Republic was established. With this agreement, the USSR assumed the responsibility of providing the Mongolian People’s Republic with all necessary goods. If the Soviet Union did not have any goods needed by the Mongolian People’s Republic, they were bought from other countries on the order of Mongolian organizations.

Furthermore, the process of establishing exclusive foreign trade rights in the Mongolian People’s Republic was basically completed in 1929–1930. In December 1930, the establishment of exclusive foreign trade rights in the country was legally confirmed.