Don’t be a Vulgar Mercantilist
Tariffs are (still) in the air, and don’t show any sign of retreating from our newsfeeds. Will they help or hurt? In this recent episode, Scott Sumner makes the case against tariffs and various other forms of government intervention that go by the name of industrial policy. EconTalk host Russ Roberts notes the difficulty in defining industrial policy, which Sumner says encompasses “policies that are directed at reshaping the economy in a different way than a free market would produce to achieve some important national goal.”
Why do such anti-market policies persist, and indeed gain in political popularity? We’d love to hear your thoughts to the prompts below. Let’s keep the conversation going!
1- Roberts points to Sumner’s phrase, “vulgar mercantilism, “which helps to describe people who advocate generally protectionist trade policies for reasons that reflect a lack of understanding of basic trade theory.” Both Roberts and Sumner assert that free trade is of course best… So why is the economist’s case so unpersuasive? How is trade theory counterintuitive, according to Roberts? To what extent do you think non-economic reasons- such as xenophobia or cultural bias- account for opposition to free trade?
2- Roberts reminds us there are only two ways to get more from less- innovation and trade. What’s wrong with running a trade surplus, Roberts asks? Why do trade deficits worry so many people? Sumner reminds us that every nation does some kind of protection/industrial policy. He also says that many of the tales of terrible effects are primarily regional, not national or international problems. (He mentions the West Virginia mining and Michigan auto industries in this context.) What does he mean? What about the human side of trade, as Roberts wants to remind us? For example, what don’t you notice when the tide of imports is slowed or stopped?
3- What are the reasons use to justify industrial policy in the name of national security, and to what extent do you find each convincing? Sumner does allow some room for concern here; what does he point to? On the other hand, how credible do you find Sumner’s assertion that many previous warnings about national security were exaggerated? What does Sumner offer as evidence to support this claim, and how convincing is he? To what extent should the potential confrontation in foreign policy between China and the United States affect the way we trade with China? Why does Sumner harbor more suspicion against China than Russia, and again, to what extent do you agree?
4- The conversation ends with Sumner bemoaning that there was so little discussion of economics in 2024 presidential election, and in particular why there seems to be so little concern over the level of government debt. To what extent do you find Sumner’s fear of the United States becoming more like a banana republic justified? According to Sumner, what is the best indication that our current level of debt is unsustainable?
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