As Gillian Tett notes in an article in the FT this morning, when discussing the chaos created by Trump and the economic shifts beginning to become apparent within them:
[T]he key point to understand is that a shift in economic philosophy is emerging that is potentially as profound as the rethinking unleashed by John Maynard Keynes after the second world war or that pushed by neoliberals in the 1980s. As Greg Jensen of the Bridgewater hedge fund recently quipped, paraphrasing Milton Friedman: “We are all mercantilists now.” Don't expect that to be reversed any time soon.
I do not have time to create a summary of what mercantilism is at this moment, but Chat GPT offered this, and I think it is fair:
A mercantilist is someone who follows or supports the principles of mercantilism, an economic theory that was dominant in Europe from the 16th to the 18th century. Mercantilists believed that a nation's wealth and power were best increased by accumulating precious metals (gold and silver) and maintaining a favorable balance of trade—exporting more than importing.
Key ideas of mercantilism include:
1.Government Control – Strong state intervention in the economy, including tariffs, subsidies, and monopolies.
2.Colonialism – Establishing colonies to provide raw materials and serve as markets for finished goods.
3.Protectionism – Restricting imports to support domestic industries.
4.Accumulation of Wealth – Belief that wealth is finite, so nations must compete to gain the largest share.
Mercantilists often supported high tariffs on imports, subsidies for exports, and strict regulations on economic activities to enhance national power. The system declined with the rise of free-market economics promoted by thinkers like Adam Smith in the late 18th century.
All of those traits are apparent in what Trump is doing. None of the will work out well.
But as the FT notes this morning in another article, there is a tangent to this little discussed so far, and that is that there may be a new consensus emerging within the Trump administration to force the value of the dollar down. As is noted by the FT:
Before winning his second term, Trump last year said he thought dollar strength against the Japanese yen and Chinese renminbi had been a “tremendous burden” on US industry and an obstacle to America becoming a “production economy”.
They added:
JD Vance, now vice-president, had previously argued that while the greenback had been “great for American purchasing power”, that had come at a cost to US manufacturing.
There is some truth to this. As the world reserve currency, the value of the dollar is over-inflated. US exports are expensive as a result. Imports are cheap. This is the finance curse in play. It is why the US has been in a fortunate financial position and a world power, all of which Trump wants to change.
Trump has pushed the value of the dollar down right now. That, though, is not the result of policy, unless chaos is called policy. That is the consequence of mismanagement.
What will happen if this policy continues?
The euro might become over-inflated. So, too, might sterling be.
More likely, new patterns of trade in and between other countries may emerge. That would be no bad thing. Oil does not, for example, need to be traded in the dollar. The world's international financial institutions do not need to make dollar loans to countries in the Global South.
But, the transition will not be easy, especially if the world moves towards mercantilism, separation, aggression, and so division.
We are living in a dangerous moment. We need a new economic order, but mercantilism is not it.
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Certainly we need a new order and I agree Mercantilism is not it.
In some ways Mercantilism resembles the Far East model, first adopted by Japan in the 19th century,
Japan tried to have a colonial empire and failed but after WW2 became a leading exporter. China and South Korea adopted many aspects from them. Large semi-private corporations working with the state who would support their expansion. It wasn’t ‘free market’ economics . That’s the impression I got from Ha Joon Chang who is a Korean economist.
China doesn’t have colonies but their Belt and Road program is designed to ensure a supply of raw materials and markets.
I was reminded of an interview Varoufakis gave. ‘When I was young we wanted to destroy capitalism. We never thought it would destroy itself. Maybe he has a point.
The list of merchantalist qualities is one way of looking @ a nation (or region’s) economic affairs.
But. It ain’t that simple.
Let’s try energy. In the fossil era, oil, gas, coal were relatively easily obtained from a range of sources. If you oil or coal reserves were difficult to develop – get the stuff from cheaper places. The trajectory now, is to move to renewables, & this boils down to wind or solar. (yes wave and tidal are possibilites – but very CAPEX intensive).
At the moment wind turbines come from the EU, or… China. So the UK & Europe have some choice. Solar? that comes from China.
Which raises a strategic question: is it wise for the UK (or EU) to depend on one country for a critical part of its energy mix?
Picking up on mechantalism & specifically: “Protectionism – Restricting imports to support domestic industries.”
The Euros tried tariffs against Chinese panels in the 2010s – didn’t work. I have argued – endlessly and fruitlessly that the ONLY reason that China was able to build up its PV industry was due to ………low cost financing from the central bank. Sadly the imbeciles in the EU & the neolibtards in the ECB have never bought into the idea that central banks have a role to play with respect to both industrial strategy and the positioning of a country/region with respect to e.g. energy.
The argument can be extended to semiconductors (on this subject the book “Material World” is a must read btw – I used to run SEMI in Europe – which organises semiconductor production standards). Should the UK & Europe be dependent on… China or Taiwan?
I guess there is a balance to be struck between trade that results in some goods costing less and trade that leads to dependency – I fear due to neolibtardism the EU and Uk have swung too far in the direction of the latter (dependency) time to do something about that.
A couple of typos Yrump instead of Trump and you said experts instead of exports!
There is some truth to this. As the world reserve currency, the value of the dollar is over-inflated. US experts are expensive as a result. Imports are cheap. This is the finance curse in play. It is why the US has been in a fortunate financial position and a world power, all of which Trump wants to change
Sorry – it’s been a very busy morning
This post has some piquancy when you consider that some resources are in short supply.
If Iraq was all about oil, where will the first boron war be fought?
Good points there.
I recently watched a video clip of Varoufakis trying to fathom Trump and saying exactly the same regarding Trump’s attempt to weaken the dollar.
He also added that Trump obviously doesn’t want other currencies to prosper either.
So Vaurofakis thinks this is why Trump is pushing crypto currency as an alternative.
Thanks for this. Underlying the trend is the assumption, dominant since the 18th century, that the aim in economics is for the nation to increase its wealth. This means (a) that we don’t care about the wealth of other nations – or even want them to get poorer so that we can compete more effectively; and (b) that the individuals in the nation don’t matter, unless they are helping increase the wealth. (a) inevitably leads to wars. (b) inevitably leads to the rich getting richer and the poor poorer. Before the 18th century the dominant view, at least in Europe, was the Jewish/Christian/Islamic one that the world’s wealth had been given to provide everyone in the world with what they need for a fulfilling life. So nations should not be competing against each other, and individuals should not grow rich while others starve. Much better.