Author: Scotty Hendricks / Source: Big Think
- The use of tariffs by the Trump administration has confused more than a few leading economists.
- The policy and the motivations behind them do reflect an economic theory with a long tradition: mercantilism.
- Understanding mercantilism can help us understand why there is a call for more tariffs, and what might happen to the economy as a result of them.
Nobody can say that President Trump’s implementation of tariffs (with the promise of more on the way) hasn’t had an effect. What confuses many people is the nature of, and motivation behind, the tactic. Most economists agree that tariffs are a double-edged sword in the best cases and rarely recommend their use. The current trade war strikes many as strange at best and counter-productive at worst. There is a method to the madness, however. Donald Trump’s trade policies call back to mercantilism.
What is mercantilism?
Those of you who didn’t sleep through history class might remember that the early modern period was shaped in part by an economic theory called mercantilism. Not so much an ideology as it was a rationalization for policies that countries were implementing, it drove colonization and imperialism for much of the 17th and 18th centuries before being replaced by capitalism.
The idea was to maximize the value of your exports and minimize the value of your imports in order to increase the amount of wealth your country had. This was accomplished by preventing imports of finished products by means of tariffs, the promotion of domestic manufacturing, and strict control over the money supply.
These policies were best expressed in France under Jean-Baptiste Colbert, who reorganized the entire French economy to follow mercantilist theories, and in England and during the 17th century.There was also a significant national security element to mercantilism, since a bad trade deal would reduce your economic standing compared to another country and potentially place you at a military disadvantage over the long run. This reinforced the idea that every country was out for themselves and motivated countries to try and maximize the amount of wealth they had; preferably at the expense of everybody else.
How is this different from the economics that came afterward?
There are several differences, not only in the policies each philosophy endorses but how Mercantilism views trade and economic interactions compared to how we see them now.
While…
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