Trump should avoid the temptation to view politics and trade as zero sum game
Since the night of Nov. 8, foreign governments, businesses, interests groups and ordinary American have been watching for signs that will indicate how Donald Trump will govern once he’s president.
There is no prior track record to go on. He never held public office or involved himself in a meaningful way in any national debates over public policy during his life as a real estate developer, brand impresario and reality TV celebrity host.
Everyone wants to know whether he will govern like he campaigned. Was his rhetoric on building a wall with Mexico, a ban on Muslims, slapping tariffs on China, strong-arming Canada and Mexico to renegotiate the North American Free Trade Agreement, disengaging with NATO and scraping the Iran nuclear deal all done simply to win, or does it jibe with his actual ideas and principles?
We don’t know because Trump never previously seemed to have any concrete ideas or principles about how our society and economy should look over the long term.
Trump is not a Republican. He’s not a Democrat. He’s not a conservative. He’s certainly not a liberal. He’s not a progressive, even though he campaigned like one. We don’t even know if he’s particularly religious and what role religion plays in setting his moral compass.
Donald Trump is a mercantilist.
For Trump, in his business dealings, everything boils down to competition and winning. Every issue or decision is transactional and he will do everything in his power to get the upper hand in the transaction. That’s great in real estate, but it won’t work as president.
Centuries ago, mercantilism meant nations pursued economic growth at the expense of some other nation. It was winner-take-all economic policy in which the goal was to attain a favorable balance of trade: sell goods to other countries and buy as little as possible in return. Wealth was considered finite and led European powers to create merchant marines and seek out colonies to supply raw materials for their export economies. They also accumulated precious metals like silver and gold. In some nations, mercantilism manifested itself in the form of high tariffs to keep out goods from other countries.
But the leader of the free world has to think strategically and for the long-term. That means sometimes taking short-term losses, compromising and building relationships to foster good will in furtherance of U.S. national interests.
Trump has talked about using protectionist tactics, unleashing the mining and oil industries (today’s precious metals), and otherwise exerting American power in unilateral ways.
He also is quick to attack, often on Twitter, anyone who criticizes him. That behavior might be counterproductive when trying to make friends on Capitol Hill or in foreign capitals to push certain agenda items to fruition.
Adam Smith, in his 1776 treatise the “Wealth of Nations,” spelled out the concept of comparative advantage that Trump seems to be missing. It is “manifestly absurd,” he wrote, to make wine in Scotland that is 30 times more expensive than French wines because of the extra energy required to grow grapes in hothouses. Instead, Scotland is better off by trading something it has in abundance, such as wool, for French wine. Imposing tariffs to protect the domestic wine industry wastes resources and costs the public money.
A Trumpian mercantilist approach to trade, for example, might raise import tariffs on certain trading partners such as Mexico as a way of addressing a negative balance of trade or jobs losses due to outsourcing. Imports from Country X likely would decline some, Trump would say he followed through on his promise to protect jobs with his tough stance and declare victory.
But looking at outsourcing through such a narrow prism is misguided. Tariffs and jobs are pieces in a much larger economic puzzle. If the price of imports are significantly raised, consumers who are struggling to make ends meet have to pay more for clothing, food, automobiles and other necessities – either by paying the import “tax” or for higher priced domestic substitutes.
The economies of Mexico, Canada and the United States are intertwined in a symbiotic relationship that makes the North American whole greater than the sum of its parts. Many Mexican and Canadian goods are full of American-made parts and components, made possible by the North American Free Trade Agreement and supply chains that crisscross the borders. Those supply chains support millions of American manufacturing and logistics jobs.
NAFTA is also a foundational element for the three partner governments to cooperate on ways to streamline security measures and remove red tape so trade and travel are more efficient. That efficiency makes North America a stronger competitor in export markets around the world.
And free trade agreements are also soft instruments of foreign policy and national security. Countries that actively partner to boost trade tend to share common values about markets, human rights and governance, and work together on other geo-political issues to maintain the stable environment that allows economic relations to flourish.
That is why the Trans-Pacific Partnership agreement, which Trump has said he will officially scuttle on his first day in office, has so much significance. Yes, it would help lower tariffs for U.S. firms and increase access in 11 Asian and South American nations, but what it really does is bind the partners to higher standards set by the United States on treatment of labor, the environment, health and safety, and rule of law so businesses in different countries compete on a more level playing field. TPP nations would be more under the sphere of influence of the United States rather than China, which is now free to rope in countries in free trade agreements without the same social protections while it takes a more aggressive military posture in the Asia-Pacific region.
The world can’t be viewed as a zero-sum game. Unlike business, when a national power loses face it can punch back sometimes, or work to undermine U.S. policies. And since World War II, it has become clear that international collaboration to pursue global stability has laid the foundation for trade and economic growth that has lifted much of the world out of poverty. The bottom line is that nations can grow together, with more peace and prosperity, when partnering to keep in check their baser instincts. That’s why NATO, the World Trade Organization, the United Nations, the G-20, and multilateral agreements on free trade or the environment are so important.
Mercantilism has been discredited by history as an economic blueprint.
Let’s hope Mr. Trump can address many of today’s economic, social and security challenges without undermining the foundation of constitutional democracy, free market capitalism and international engagement that has produced the greatest country on earth and the greatest period of prosperity in history.
COMMENTARY: An American Mercantilist
