For the most part, mainstream economic views in the United States (and most of the developed world, for that matter) can be traced to a long-established line of theory in the history of economic thought.
Adam Smith’s invisible hand. David Ricardo’s views on free trade and comparative advantage. Joseph Schumpeter’s concept of creative destruction. If you’re on the right, you look perhaps to 19th century marginalists or monetarists like Milton Friedman. If you’re on the left, perhaps you look more to John Maynard Keynes and other macroeconomic theories.
But Donald Trump’s view of economics and world trade seems to have its roots, intentionally or unintentionally, in a brand of economic theory that predates Smith and Ricardo — the mercantilist school, which essentially views world trade as a zero-sum exercise. The key to wealth is to maximize your exports, limit your imports and, for good measure, amass as much gold as possible. England’s loss was France’s gain.
Those kind of mercantilist theories are at the heart of Trump’s economic pitch to voters. It was on full display in his victory speech after Trump handily won the New Hampshire Republican presidential primary:
We’re going to beat China, Japan, beat Mexico at trade. We’re going to beat all of these countries that are taking so much of our money away from us on a daily basis. It’s not going to happen anymore.
Sir Thomas Mun, one of the leading lights of mercantilism, wrote something eerily similar in his 1630 tract England’s Treasure By Foreign Trade:
The ordinary means to increase our wealth and treasure is by foreign trade, wherein we must ever observe this rule: to sell more to strangers yearly tan we consume of theirs in value…
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.
If ‘mercantilism’ seems a bit outdated and parochial, that’s because it is. Virtually no serious economist has embraced mercantilist theory since Smith published Wealth of Nations in 1776. Smith and Ricardo discarded the theories of mercantilism in Enlightenment of the 18th century, and generations of their acolytes in the 19th, 20th and 21st centuries buried mercantilism as a serious school of economic theory.
Today’s regime of global free trade rests on the basic idea that nation-states are richer when they produce what they’re best at producing instead of trying to produce, inefficiently, all of the goods they need for self-sufficiency. If France is better at making bread and wine and if England is better at making textiles, France should focus on agricultural production trade with England for textiles, and vice versa. Both countries benefit from the trade, and reducing the barrier to that trade is a positive-sum game, not zero-sum.
By any measure, though, the US economy is beating just about every other country in the world today — and without resorting to economic theories discredited three centuries ago. The US economy today is larger, on an absolute basis, than any other country on the planet (including, for now, China), and American per capita GDP is higher than in China, Japan or Mexico. Japan has been mired in a deflationary, low-growth pattern for a quarter-century, and China is entering its own downturn after two decades of double-digit growth.
It’s hard to say that the US economy isn’t ‘winning,’ even though it may not feel like it for many of Trump’s supporters.