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Trump's thinking is that of a 17th Century mercantilist [1]
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Date: 2025-02-20
Back in the days of Reagan and even into the 90’s and through the Bush years, the dominant thinking among conservatives and Republicans was thoroughly grounded in Adam Smith and David Ricardo, late-18th and early-19th economists who had extensively studied the mercantilism that had dominated European economic thinking for the previous 250 years, but found it highly flawed. Smith observed that when nations abandoned mercantilism for any period of time and adopted a more laissez-faire regime of free (or at least freer) trade, they benefited over their previous conditions. Ricardo started with Smith’s work and took it further, developing a systematic theory of international trade known as comparative advantage, which expanded on the already-developed concept of absolute advantage. This is the thinking that has dominated economics ever since.
But this story is not about free trade, comparative advantage, or Reaganomics. This is about the dominant economic system that dominated Europe prior to the modern, post-Smith era: Mercantilism.
What is mercantilism? Let’s go to Wikipedia (where else?)
Mercantilism
Mercantilism is a nationalist economic policy that is designed to maximize the exports and minimize the imports of an economy. In other words, it seeks to maximize the accumulation of resources within the country and use those resources for one-sided trade. The concept aims to reduce a possible current account deficit or reach a current account surplus, and it includes measures aimed at accumulating monetary reserves by a positive balance of trade, especially of finished goods. Historically, such policies may have contributed to war and motivated colonial expansion. Mercantilist theory varies in sophistication from one writer to another and has evolved over time. Mercantilism promotes government regulation of a nation's economy for the purpose of augmenting and bolstering state power at the expense of rival national powers. High tariffs, especially on manufactured goods, were almost universally a feature of mercantilist policy. Before it fell into decline, mercantilism was dominant in modernized parts of Europe and some areas in Africa from the 16th to the 19th centuries, a period of proto-industrialization. Some commentators argue that it is still practiced in the economies of industrializing countries in the form of economic interventionism.
Does this sound familiar? It should: It is exactly the economic policies Donald Trump and the entire alt-right movement have been promoting.
People accuse Trump of wanting to take us back to the 1950’s. What he is actually trying to do is to take us back to the 1650’s.
Donald Trump thinks it’s bad to send money out of the US in the process of buying stuff from other countries. Conversely, he thinks it’s good for the US to produce stuff to sell to other countries, and accumulate money here instead.
Now, in the modern version of mercantilism promoted by Trump, the goal is not necessarily to accumulate money for the sake of accumulating money. Rather, mercantilism is practiced because it is perceived to be better for the working class. They will be better off if they’re busy earning money by making stuff to sell to other people.
This is like saying people are better off making their own furniture, clothing and shelter, and milling their own wheat for dough instead of going to a store to buy all those things. And then, this thinking goes, it would be nice to be able to make some surplus of those things to sell to to the store so you can accumulate a bit of extra cash for yourself if needed. Sure, it sounds thrifty and all that, and it will certainly keep you busy, out of trouble, and looking like you’re industrious. But you sure will be tired!
In this analogy, the person making all those things themselves is the US, and the store you could potentially buy all that stuff from are countries outside the US. Essentially, Trump — and mercantilism — think it’s better to make stuff yourself, and hopefully sell some of your surplus goods to the store, rather than going to the store and buying everything from them. Or, at the very least, buy as little from the store as you can and sell as much to the store as you can.
Back in the 16th through early 19th centuries, when gold was the international currency of trade, it was indeed desirable to accumulate at least some gold so you’d be able to buy things from other countries. And the only way to do that was to sell stuff to those other countries so they’d have to pay you in gold (I suppose you could alternatively declare war on them and plunder their gold, too).
Or, at least it would be desirable to have colonies you could sell stuff to, or have them produce things you weren’t able to produce on your home land (tropical crops, minerals not found in your country, etc.). This, once again, is perfectly representative of Trump’s thinking: He thinks the US needs territorial possession of oil, minerals, etc. (in addition to producing all our manufactured goods ourselves). This is why he keeps repeating his idea of annexing Greenland and Canada: They have an abundance of resources which would make the US self-sufficient if we possessed their territory. This is classical mercantilist thinking.
Trump, like mercantilists in days of yore, is afraid of not having everything he/we need in his/our possession, and having to buy it from another country instead. It’s clear to me there is a psychological dimension to this; it’s as if the people who promote this kind of economic thinking are insecure and don’t want to have to depend on others for things they need. They’re afraid of having to give money to other people, and would rather accumulate it instead.
I can’t help but quip that every psychologist who has studied Trump has observed he is really a deeply insecure person. And that the MAGAs who worship him have a tendency to drive around in big, jacked-up pickup trucks to make themselves feel secure because, they too, are actually insecure. And Trump seems to be a hoarder (of classified documents, and a bunch of other things as well) — just like mercantilists insisted on hoarding money. But psychology is another topic, I suppose. Maybe everybody in the 16th through 18th centuries was insecure, or something.
Anyway … what Smith and Ricardo discovered is that there’s absolutely nothing wrong with buying things from other people; you did not necessarily need to produce it yourself, or have territorial possession of it yourself. Nations would be better off focusing on things they were better at doing while forsaking trying to produce things they weren’t so good at producing, and then just buying those latter things from places that were indeed better at producing them. When everybody focuses on doing things they’re better at doing, everybody ends up better off in the long run.
Sadly, the insecure folks who promote mercantilism seem to be afraid of this interdependence. They don’t seem to want to understand that two nations can trade with each other, focusing on whatever they do best, and both sides benefit. Since the mindset of the mercantilist is one of accumulating money, if one of these trading partners happens to be producing more physical goods than the other, that is deemed bad for the one with the trade deficit, even though it really isn’t. In the modern era of fiat money, the money the nation with the trade surplus earns from selling things to the nation with the trade deficit eventually winds up back in the nation with the trade deficit in the form of investment anyway, a fact which seems to be lost on these modern mercantilists.
Accumulating money is not necessarily better than accumulating stuff. If you go to the store and buy a $5 loaf of bread, the store then has your $5 bill, and you have a $5 loaf of bread. The store is not better off than you just because they have money and you have a loaf of bread. It’s an even exchange.
Likewise, when the US imports a $50,000 car from Canada, Canada then has $50,000 in US currency while the US gets a car worth $50,000. Why is this exchange better for Canada, as Trump claims? It isn’t, it’s really an even exchange. Canada isn’t ripping us off. The modern mercantilist argument is that creating those $50,000 cars in Canada means that some Canadians got employment in a factory to build the car, which could have instead be done by Americans. But think about that: If Americans are able to buy a $50,000 car from Canada at all, that means they’re making plenty of money in other endeavors to be able to afford it. The US is a wealthier nation than Canada, so we are hardly being impoverished by buying some of their cars instead of making all of them ourselves.
The other, really obvious problem with mercantilism is this: If mercantilism were an optimal economic system, then everybody should want to have a trade surplus. Of course, not everybody can have a trade surplus. If one nation has a trade surplus of $1 million, another nation(s) has to have a trade deficit of $1 million. Since some nations must have trade deficits while others must have trade surpluses, quite obviously there is nothing wrong with either, and neither is more or less desirable than the other. If one were objectively better than the other, then the only sustainable economic system would be one in which every single nation in the world were completely self-sufficient, which is clearly impossible.
Here is another link describing mercantilism — and this is an actual treatise written by a 17th Century economics writer:
Thomas Mun, England’s Treasure by Foreign Trade (1664)
Chap. II. The Means To Enrich This Kingdom, And To Increase Our Treasure. Although a kingdom may be enriched by gifts received, or by purchase taken from some other nations, yet these are things uncertain and of small consideration when they happen. The ordinary means therefore to increase our wealth and treasure is by foreign trade, wherein we must ever observe this rule; to sell more to strangers yearly than we consume of theirs in value. For suppose that when this kingdom is plentifully served with the cloth, lead, tin, iron, fish and other native commodities, we do yearly export the overplus to foreign countries to the value of twenty two hundred thousand pounds; by which means we are enabled beyond the seas to buy and bring in foreign wares for our use and consumptions, to the value of twenty hundred thousand pounds: By this order duly kept in our trading, we may rest assured that the kingdom shall be enriched yearly two hundred thousand pounds, which must be brought to us in so much treasure; because that part of our stock which is not returned to us in wares must necessarily be brought home in treasure. . . .
I would recommend perusing more of that link, it’s really fascinating in a sad sort of way to think that the modern MAGA is trying to resurrect an economic paradigm described 361 years ago, but since discredited 200 years ago. As I alluded to in my aside, I highly suspect they’re attracted to this particular economic system because it’s the only economic system that addresses their personal insecurities.
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