The dangerous rebirth of mercantilism

Donald Trump wants to make American great again. But his trade protectionism will hurt Americans and trade partners alike

Roslyn KuninHow do you make a country great?

We in the enlightened West generally agree that a liberal democracy with free markets works best. Look at the United States in the 20th century – the richest and most powerful country. Its political power and military might were eclipsed only by the high and rising standard of living its citizens enjoyed. That living standard was aspired to by people around the world.

A second example of democracy and free markets contributing to national greatness is found in post-Second World War Europe. The democratic and free-market economies in Western Europe prospered. In some cases, standards of living rivalled the United States.

The centrally-planned, controlled economies of Eastern Europe fared much worse. Even in the 1990s in smaller centres, you still didn’t always find indoor plumbing, but you often did find dirt floors.

Much depends on how you define national greatness. In the West, we tend to think of philosopher Jeremy Bentham’s well-known measure: the greatest good for the greatest number. A high or at least comfortable standard of living, distributed reasonably widely, becomes a major component.

Can we call a country great when most of its citizens are not sharing in its prosperity?

Not very long ago, the answer was definitely yes. Mercantilism preceded open market economies in much of Europe. The goal of mercantilism was to make a country great, but only in the sense of political and military power, not in the well-being of its citizens. Trade surpluses were good, yielding cash or precious metals for governments and the military. Self-sufficiency, especially in essential items like food and resources, was good. No need to rely on a potential enemy for basic needs. Trade, especially imports, must be tightly controlled. The country (read government or rulers) was now rich, independent and strong.

The ordinary people pay the cost of greatness in mercantilism. A trade surplus means a country is sending out more goods than it’s getting back, leaving the people poorer even as the treasury gets richer. Limiting the importation of food in the interests of self-sufficiency means a more costly, less secure and certainly less varied diet for the people. Limiting other imports means that the cost of everything rises, even as quality and availability decline. It’s an expected outcome when domestic producers have no foreign competition.

Mercantilist governments care about their people but not in the sense that people want to be cared about. They see the population first as a tax base from which they can extract ever more wealth for their own coffers and war chests. They also see their people as cannon fodder for their armies. People’s well-being need only be high enough to keep them from starting a revolution.

Hearing U.S. President Donald Trump talk about making America great again and looking at the direction he’s moving makes you think that mercantilism is again rearing its ugly head, this time at the expense of the American people. Actual and proposed trade restrictions hit all Americans in the pocketbook. For example, tariffs on aluminum add up to a cent to the cost of every can of beer and limitations on softwood lumber add at least $1,000 to the cost of a house.

Not only Americans are hurt by Trump’s misguided attempts to make America great. Every country (including Canada) that now has access to U.S. markets will suffer. If we react in kind, by restricting U.S. imports into our countries, we may find ourselves in a trade war of the kind that contributed to the Great Depression of the 1930s.

It’s said that when you have two economists, you have three opinions (full disclosure: I’m an economist). So when the University of Chicago’s Booth School of Business found 40 world-class economists in agreement, that’s noteworthy, especially since the 40 represented 100 per cent of those polled. They all agreed that Trump’s proposed tariffs on aluminum and steel would hurt America. One illustrated his response by hitting himself in the face. The reaction to other trade restrictions would be similar.

You can find examples of the beggar-my neighbour mercantilist approaches in other countries, like Russia. That’s not good but it’s not so surprising since those countries have a history of dictatorships that ignored their people’s welfare.

It is surprising and scary to see the leader of the “land of the free” defining greatness in a way that hurts the people.

Troy Media columnist Roslyn Kunin is a consulting economist and speaker. 


mercantilism, trump

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