Mercantilism: The theory that explains Trump’s trade war

Mercantilism, the oldest thing in economics, is back in a big way.

  • 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 today most economists view trade as a win-win interaction, with each trading partner focusing on making a lot of something they can make well and then trading for what they lack, mercantilists viewed trade as a zero-sum game. In every trade, there was a winner and a loser. Each country strove to export only finished products and import as little as possible.

Mercantilists also wanted to make a country as close to self-sufficient as possible, as part of their goal to minimize imports. This runs counter to modern economic theories that suggest a country should produce what it is best at making and import what it cannot make cheaply.

Lastly, while modern economic theories argue that increasing productivity will lead to economic growth, Mercantilists argued that an endlessly positive balance of trade alone was the key. This point was so important that nobody even realized this was impossible until David Hume came along.

How does Donald Trump follow this?

The rhetoric he uses when he tries to rationalize the tariffs hits all of the mercantilist concerns on the head. Tariffs against the industries of American allies are framed as issues of national security, free trade agreements are viewed as bad deals, trade surpluses are emphasized as a sign of economic progress.

Even his love of tariffs as a tool harkens back to old-timey economic theories, even economists who call themselves neo-mercantilists don't advise the use of tariffs.

However, he isn't exactly doing it right. Mercantilists like Colbert tried to get raw materials as cheaply as possible while placing tariffs on finished products to encourage domestic production. Currently, the United States is putting tariffs on things like steel that are used to make other products. This, while potentially having economic or political payoffs, is nonsensical from a mercantilist perspective. They would place the tariffs on cars and washing machines, not steel.

What does this mean for the future?

There is a reason that Mercantilism went out with the 18th century.

At the scale of the entire economy, tariffs tend to increase prices and lower employment. They can, however, preserve jobs and profits in the protected industries as intended. The Trade Partnership, a trade and economic consulting firm, estimated that the steel and aluminum tariffs will cost 100,000 jobs while only 30,000 are gained.

Former Chairman of the Federal Reserve Alan Greenspan called the tariffs "insane" and compared them to excise taxes, which are taxes on production. He further questioned the ability of anybody to win a trade war, saying "There are victors and there are losers in a tariff fight. But that doesn't say that a more important issue is both are losing, it's just the winner loses less."

On the other hand, they are doing the job they are supposed to be doing. The prices of the tariffed goods are rising to a point where some consumers to choosing to buy from American producers again. If these purchases will be enough to stave off the job losses predicted in other sectors of the economy is another question.

The global tendency towards free trade is unlikely to end anytime soon, for the reasons mentioned above. However, the current trend of closing markets and starting trade wars is not without some precedent in history. The final effect of these tariffs on the global economy remains to be seen, but history and economic theory suggest we should be in for a bit of excitement.

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The 'People Map of the United States' zooms in on America's obsession with celebrity

Image: The Pudding
Strange Maps
  • Replace city names with those of their most famous residents
  • And you get a peculiar map of America's obsession with celebrity
  • If you seek fame, become an actor, musician or athlete rather than a politician, entrepreneur or scientist

Chicagoland is Obamaland

Image: The Pudding

Chicagoland's celebrity constellation: dominated by Barack, but with plenty of room for the Belushis, Brandos and Capones of this world.

Seen from among the satellites, this map of the United States is populated by a remarkably diverse bunch of athletes, entertainers, entrepreneurs and other persons of repute (and disrepute).

The multitalented Dwayne Johnson, boxing legend Muhammad Ali and Apple co-founder Steve Jobs dominate the West Coast. Right down the middle, we find actors Chris Pratt and Jason Momoa, singer Elvis Presley and basketball player Shaquille O'Neal. The East Coast crew include wrestler John Cena, whistle-blower Edward Snowden, mass murderer Ted Bundy… and Dwayne Johnson, again.

The Rock pops up in both Hayward, CA and Southwest Ranches, FL, but he's not the only one to appear twice on the map. Wild West legend Wyatt Earp makes an appearance in both Deadwood, SD and Dodge City, KS.

How is that? This 'People's Map of the United States' replaces the names of cities with those of "their most Wikipedia'ed resident: people born in, lived in, or connected to a place."

‘Cincinnati, Birthplace of Charles Manson'

Image: The Pudding

Keys to the city, or lock 'em up and throw away the key? A city's most famous sons and daughters of a city aren't always the most favoured ones.

That definition allows people to appear in more than one locality. Dwayne Johnson was born in Hayward, has one of his houses in Southwest Ranches, and is famous enough to be the 'most Wikipedia'ed resident' for both localities.

Wyatt Earp was born in Monmouth, IL, but his reputation is closely associated with both Deadwood and Dodge City – although he's most famous for the Gunfight at the O.K. Corral, which took place in Tombstone, AZ. And yes, if you zoom in on that town in southern Arizona, there's Mr Earp again.

The data for this map was collected via the Wikipedia API (application programming interface) from the English-language Wikipedia for the period from July 2015 to May 2019.

The thousands of 'Notable People' sections in Wikipedia entries for cities and other places in the U.S. were scrubbed for the person with the most pageviews. No distinction was made between places of birth, residence or death. As the developers note, "people can 'be from' multiple places".

Pageviews are an impartial indicator of interest – it doesn't matter whether your claim to fame is horrific or honorific. As a result, this map provides a non-judgmental overview of America's obsession with celebrity.

Royals and (other) mortals

Image: The Pudding

There's also a UK version of the People Map – filled with last names like Neeson, Sheeran, Darwin and Churchill – and a few first names of monarchs.

Celebrity, it is often argued, is our age's version of the Greek pantheon, populated by dozens of major gods and thousands of minor ones, each an example of behaviours to emulate or avoid. This constellation of stars, famous and infamous, is more than a map of names. It's a window into America's soul.

But don't let that put you off. Zooming in on the map is entertaining enough: celebrities floating around in the ether are suddenly tied down to a pedestrian level, and to real geography. And it's fun to see the famous and the infamous rub shoulders, as it were.

Barack Obama owns Chicago, but the suburbs to the west of the city are dotted with a panoply of personalities, ranging from the criminal (Al Capone, Cicero) and the musical (John Prine, Maywood) to figures literary (Jonathan Franzen, Western Springs) and painterly (Ivan Albright, Warrenville), actorial (Harrison Ford, Park Ridge) and political (Eugene V. Debs, Elmhurst).

Freaks and angels

Image: Dorothy

The People Map of the U.S. was inspired by the U.S.A. Song Map, substituting song titles for place names.

It would be interesting to compare 'the most Wikipedia'ed' sons and daughters of America's cities with the ones advertised at the city limits. When you're entering Aberdeen, WA, a sign invites you to 'come as you are', in homage to its most famous son, Kurt Cobain. It's a safe bet that Indian Hill, OH will make sure you know Neil Armstrong, first man on the moon, was one of theirs. But it's highly unlikely that Cincinnati, a bit further south, will make any noise about Charles Manson, local boy done bad.

Inevitably, the map also reveals some bitterly ironic neighbours, such as Ishi, the last of the Yahi tribe, captured near Oroville, CA. He died in 1916 as "the last wild Indian in North America". The most 'pageviewed' resident of nearby Colusa, CA is Byron de la Beckwith, Jr., the white supremacist convicted for the murder of Civil Rights activist Medgar Evers.

As a sampling of America's interests, this map teaches that those aiming for fame would do better to become actors, musicians or athletes rather than politicians, entrepreneurs or scientists. But also that celebrity is not limited to the big city lights of LA or New York. Even in deepest Dakota or flattest Kansas, the footlights of fame will find you. Whether that's good or bad? The pageviews don't judge...

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