Being “pro business” doesn’t necessarily mean “pro free markets.” Reality TV star and wannabe Republican presidential nominee, Donald Trump reminds us of this. Writing for The Stream, Acton’s Director of Research, Samuel Gregg, argues that not only does Trump seem to be a mercantilist, but, if implemented, this medieval economic system would weaken the United States.
What exactly is mercantilism? This system was popular between the 1500s and 1700s and was particularly good to government officials and their allies in the business world. Gregg explains:
At the core of mercantilism were two things. The first was cozy relationships between certain business leaders and the government. The second was the extensive use of tariffs, quotas and even bans on certain imports to protect domestic manufacturers. Mercantilists wanted to limit competition (particularly from foreigners) rather than embrace competition as a discipline that helped companies and countries discover and develop what they did best in terms of low-costs and high-returns relative to everyone else.
Much of Adam Smith’s Wealth of Nations amounts to a shattering critique of what he called “the mercantile system.” Smith observed that, contrary to mercantilist doctrine, free trade encourages people to specialize in what they are good at, or what economists call “comparative advantage.” This promotes economic growth and lowers prices over time, something that directly benefits lower-income people.
Smith didn’t think the collusion between rich government officials and established merchants was particularly good for nations as a whole. It especially hurt regular people who lacked political connections, consumers who were forced to pay high prices for goods, and the employees who stayed in increasingly less competitive industries. Mercantilism ceased being the norm, partially because Smith’s critique was so effective, but also because the system was incredibly expensive. It encouraged “businesses to become complacent, sluggish, and slow to adapt to technological change.” Despite western society moving on from mercantilism, Gregg describes the close similarities between this bygone system and Trump’s plans:
Trump, for instance, has talked about imposing tariffs ranging from 25 to 35 percent on imports until China (which in Trump’s lexicon seems to function as a catch-all phrase for all foreign competition) plays ball. That would most likely provoke a trade war with China. Unfortunately, a trade war would make both China and the United States poorer.
But even before such a trade war, the costs of such tariffs would be passed onto ordinary Americans. They would find themselves paying far more for all kinds of things, and not just for retail items imported from abroad. It’s easy to forget, for instance, that your average American car built in Michigan or Kentucky consists of materials from all over the world.
Likewise, Trump’s vocal defense of broad interpretations of eminent domain comes straight out of a mercantilist playbook. The primary purpose of eminent domain is to allow governments to undertake certain indispensable functions (building roads, bridges, etc.) by expropriating private property for public use, while generously compensating private owners. But the Supreme Court’s ruling in Kelo v. City of New London, 545 U.S. 469 (2005) allowed governments to permit specific businesses to take over even perfectly nice, non-blighted private property so they could build, say, strip-malls or limousine parking-lots, as Trump sought to do back in the mid-1990s. It is hard to imagine a more mercantilist tactic.
This anti-competitive system will not fix any problems supposedly caused by the free market. As Gregg puts it, “[i]t may enrich the Donald and his well-connected friends, but it won’t make America great again.”
Read “Trump is a mercantilist, and mercantilism will weaken America” in its entirety at The Stream.