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From Liberal Economy to Mercantilism; Trump’s Trade Policy

Trump’s view of trade has long been criticized by many economists. As we know, the economic structure of America has a completely liberal, free and open. Before the second World War ended, the United States leadership pushed hard to set up a liberal trade order. In 1944, US-led in the creation of a World Bank to make loans and the International Monetary Found to regulate the value of national currencies. A short time later, the US was the primary force behind the General Aggrement on Tariff and Trade ( GATT) that, through a series of summits, would grind down tariffs, quotas and non-tariff barriers. The outcome of this liberal orders would be a trade system that Adam Smith would approve, that is rising levels of free trade that would contribute to the prosperity of all countries particitipating(Henderson, Conflict and Cooperation at the Turn of the 21st Century). For now, in addition to the constructive open liberalism – neoliberalism that America has practiced for years, the current Trump’s view is considered by many economist to be a Mercantilist approach. What is this mercantilism, exactly? it’s an economic philosophy that was prevalent in the 17th and 18th centuries.

To summarize, the mercantilists believed that a country should try to maximize exports and minimize imports. The logic was: Military power comes from wealth; wealth comes from the accumulation of gold and silver; and the way you accumulate gold and silver is trade surpluses. Basically there was no such thing as modern-day trade diplomacy; tariffs were high and no one could rely on anyone sticking to trade agreements, because everyone was trying to protect their trade surplus at once. It was a zero-sum view of the world. Nothing was win-win, everything was win-lose, and everyone was suspicious of everyone else. But then Smith, who we know as the father of Liberalism, emerged and turned his mind to much of this thought. Smith showed that real national wealth doesn’t come from amassing piles of gold, which are transitory. Wealth comes from increasing productivity – that is, by understanding how to make things more efficient, it permanently increases living standards.

How could we increase productivity? By specializing in what you are doing and improving your skills in that area. Then you trade with other people who do other things well. Through to these processes, everyone becomes richer in time. In other words, trade is not zero sum; its positive-sum. So in the light of these explanations, why do we call Trump that he has a mercantilist-neomercantilist approach?

Nowadays we can see noticeably that it is shifting from free foreign trade model to protectionist (which is the main feature of mercatalism; protectionism) foreign trade in America. Such a policy change affects many things in the economy from foreign trade to domestic trade, from production costs to prices.  If I have to explain with statistics, the share of the US in world exports was 11.2% in 1983, but this rate decreased to 9.4% in 2015. While US exports declined in the world, China took the first place and its share in world exports increased from 1.3% in 1983 to 14.2% in 2015. And especially after China became membership of the World Trade Organization (WTO),  American’s foreign trade deficit worsened. In 2016, the foreign trade deficit between the two countries reached 242.8 billion dollars. In addition, the US deficit of 68.9 billion dollars in trade with Japan and 146.3 billion dollars in trade with the EU.

For another reason, Trump considering that the US should no longer pay for the costs of crisis in other contries’ economies. Therefore, he acts as a protectionist and politically interventionist identity in foreign trade. In this context, he opposes the outflow of US capital abroad. Thus, Ford’s blockage of investment in Mexico and its distance from NAFTA are examples of this. One of the most important evidence of this change is the policy Trump created during his election campaign with the slogan ’America First’ and signed it as a decree. What he meant is that in short, America has wasted itself on the world for years, and fetched up nowhere, now we have to proceed with nationalist, unilateralist, protectionist and isolationist identity.

In a statement, Trump said that there is a need for protective measures in the trade of steel and aluminum and said he would impose a 25 percent tax on steel imports and 10 percent on aluminum imports. Although the White House states that taxes will protect the American industry, but  it is also stated by many economists that it will increase costs and not contribute to employment. At the same time, the tariffs and quota barriers against some countries, especially against China, clearly show that it is progressing with a mercantilist view.

Although some senators say that the New Depression is approaching, no one knows exactly where the American economy will go. Recent analysis indicates that the US policy of First America works and has a larger and stronger economy than the Obama administration, but they may be facing an economic crisis a few years later. It will not be too difficult for an American to survive crisis such the Great Depression and the Great Recession. We can better interpret how much Trump’s protective policy works in the coming days.

 

REFERENCES                                                                          

1) International Relations: Conflict and Cooperation at the Turn of the 21st Century, C.W.Henderson, 1997

2) Mercantilism: The theory that explains Trump’s trade war, S.Hendricks

3) Trump’s trade policy is stuck in the ’80s — the 1680s, C. Rampell

4) Trump’s mercantilist mess, R.J.Barro

5) Yeni korumacılık değil, yeni Merkantilizm, Ö. F. Çolak

6) ‘’Trump Çelik ve Alüminyum İthaline Vergi Getiriyor’’

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