The Mercantilism of Donald Trump

The Mercantilism of Donald Trump
AP Photo/ Evan Vucci

Trump’s break from the international free market and security system ignores 200 years of gains

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In Donald Trump’s Aug. 15 speech on foreign affairs, the Republican presidential candidate expressed a mercantilist view of foreign policy, stating that, “In the old days, when we won a war, to the victor belonged the spoils.” Yet in those old days, the United States embraced a much different view: Washington believed that strong alliances and close economic ties created a global tide that lifted all boats, resulting in greater prosperity for the United States than that produced by an inward-focused mindset. While many Republicans remain committed to the principles that supported the U.S.-led construction of an international security order following the end of World War II, Trump has vowed to discard many of the policies that allowed for unprecedented levels of economic growth in the United States and around the world.

Trump’s rhetoric paints a view of a world in which there is a finite amount of wealth and one succeeds only by taking from someone else. Many of Trump’s positions do not reflect the core lesson of modern capitalism that a product I own might be worth more to you, while you might have a good that provides more value to me. Trump’s perspective instead seems to fit with the pre-Enlightenment, mercantilist view of global trade and security, in which countries took resources and constructed security arrangements that focused only on the direct immediate benefit to themselves. In the centuries before the American Revolution, European countries built empires that primarily focused on resource extraction: Establish a colony in Latin America, Africa, or Asia, take the local goods back to Europe, build a navy and army to defend that extraction method, repeat. However, the Industrial Revolution then unfolded, free-market thinkers such as Adam Smith and David Hume advanced economic theory, and it became clear that specialization and trade would best create global prosperity.

Which approach was right? According to U.C. Berkeley professor J. Bradford De Long’s work, average real global per-capita gross domestic product increased by 38 percent from 1600 to 1800. Over the next two centuries, as free-market ideas and practice took root, global GDP per capita increased by 3253 percent. Populations also became dramatically healthier: British scholar Angus Maddison estimates that average global life expectancy increased from 26 years in 1820 to 66 in 2002, after barely moving in the prior eight centuries from 24 in the year 1000. Finally, technological breakthroughs enabled by trade in goods, services, and ideas during this period -- such as the telephone, steam engine, and railroad -- made it far easier to move about and understand the world.

A zero-sum, mercantilist approach also ignores the benefits that the global security architecture, without which prosperity could not occur, has brought about for everyone. Trump’s rhetoric on NATO exemplifies this misperception. By reducing the threat of invasion by a foreign power, such as Russia today or the Soviet Union during the Cold War, NATO has helped cultivate a European economy that has not only brought prosperity to millions of its own citizens but has also directly benefited the U.S. economy. Europe is America’s largest trading partner. Without the European continent as a destination for the products of U.S. companies, many more Americans would be out of work. The U.S. Trade Representative estimated that exports to the European Union supported 2.6 million U.S. jobs in 2014. We benefit from imports from Europe in many other ways as well -- for example, how many more Americans would be sick or worse without the medicines of such companies as Novartis, Roche, and Sanofi?

Trump’s NATO commentary is dangerous in its mere utterance -- whether or not Trump wins the presidency -- as it increases the physical danger posed by Russian President Vladimir Putin to millions of Central and Eastern Europeans. It is worth recalling that former Secretary of State Dean Acheson’s implication that the Korean Peninsula lay outside the U.S. defense perimeter helped lead to the Korean War. Today, it does not seem a stretch to conclude that Putin, who has already invaded two of his country’s neighbors in the last decade (Georgia in 2008 and Ukraine in 2014), would take such comments as encouragement to encroach further upon Russia’s neighbors. The actions by Trump’s team to weaken the Republican platform on Ukraine make this outcome even more likely, as does Trump’s repeated praise of Vladimir Putin, under whom Russia’s economy has declined dramatically. (Russia’s 2015 GDP per capita was actually below 2007 levels.) In fact, Russian actions in Crimea in the last couple of months seem to indicate that Putin may already be taking advantage of Trump’s position.

It is not surprising that many have flocked to Trump: one need only look at the male labor force participation rate, which at 69.2 percent in the most recent reading sits close to the lowest-on-record rate of 68.7 percent, reached in the fall of 2015. Consider also the high rates of substance abuse among the lower-income, rural white population in the U.S. -- where death rates are actually rising among middle-age non-Hispanic whites. The despair is real.

Trump, however, has proposed a path that fails to recognize that the current global security and trade system, even with all its flaws, is by far the best "deal" there is, relative to the alternatives. Working toward another 200 years of improvement on par with the gains seen in the last two centuries requires a system that does not throw the baby out with the bathwater. Instead, we must create companies, tools, organizations, and policies that benefit those who have been left behind in today’s economy, rather than offering language that appeals on a superficial level but, in reality, diminishes opportunities for millions.

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