Mercantilism is haunting us hundreds of years later

Mercantilism in the 18th century is one of the earliest systems of economic thought. Mercantilists were businessmen who were involved with domestic businesses and as such were protective of manufacturing and limited imports as much as possible, even going as far as to say that no importation should be allowed for goods that are sufficiently supplied at home.

Today, economists know that this system does not make economic sense; the law of comparative advantage is what we should follow. Comparative advantage is the idea that a country should produce the goods for which it has the lowest opportunity cost, export those goods, and then import the other goods for which it had a bigger opportunity cost to produce. Going along with this idea, there should exist open trade, free of barriers.

Back to the Mercantilists: their ideas are hundreds of years old and we are more economically advanced today, thus their principles are not relevant anymore. Right? Not quite.

Focusing on the United States alone, so many of the Mercantile ideas are still floating around. Politicians today run with various Mercantile principles in their platforms, which gain support and are pretty easy to promote to the general public. The ideas of “supporting domestic manufacturing” and “saving jobs at home” and are just two examples. Going back in history, presidents have been putting tariffs on imported goods to protect domestic interests, a policy that Mercantilists would support. And it’s not just a Democrat/Republican thing: President Obama put tariffs on tires from China, just as President Bush put tariffs on steel imports. Even if you look back to President Reagan, he placed tariffs on imported motorcycles.

(Other countries also place high tariffs on imported goods, just one example of this being Peru. Some goods cost almost 40% more than market price, which has created a black market and increased the smuggling of goods. However, for the purposes of this post, remember that I’m focusing mainly on the United States.)

If more U.S. politicians were to forget about trying to gain popularity with outdated ideas and instead followed economic principles, everyone would be better off in the long run. If we’re able to get a good cheaper from another country than it would cost to produce here, it would make more sense to import it and put our own resources toward better uses that have a lower opportunity cost. Politicians say they’re saving jobs, but those people would be better off doing more effective jobs that would benefit us more overall. (This is a hard fact to face with the current high unemployment rate, but as I mentioned, this is a problem that has been going on for decades.)

So, I say, out with promoting Mercantile ideas, and in with no-barriers free trade so everyone can benefit.