Mercantilism
82 comments
·April 5, 2025ViktorRay
makeitdouble
Regardless of current events: Both are looking at volume, when the nature of what's exchanged probably matter as much if not more.
If a country massively imports raw materials and exports a low but steady volume of high level finished products, as long as the raw materials are reasonably cheap it will be a winning strategy.
A country importing high technology goods and balancing that with raw resources will potentially be in a worse condition if raw materials stay a commodity or deplete.
Eddy_Viscosity2
Any of the maximize or minimize arguments are going to be simplistic and reductionist. The optimal real world strategies are always going have to account for other factors like relationships, political stability, goal alignments, power/dynamics, etc, etc. These factors will be different for each nation you're dealing with and will greatly affect what the best import/export and tariff ratios should be. And these may also change over time. The importance of these factors (different for each nation) are so strong as to overwhelm any of the economist theories about maximize/minimize.
rawgabbit
Friedman was not saying we should maximize imports. Instead he was saying we should maximize the ratio of imports to exports. Essentially to get as much stuff from others (imports) while paying as little as possible (via exports).
”And the proper objective for a nation as Adam Smith put it, is to arrange things so that we get as large a volume of imports as possible, for as small a volume of exports as possible.”
With that said. He appears to be arguing for colonialism. Take stuff from others and pay a pittance for it.
MyOutfitIsVague
It's more an argument for classical economics. Getting the most benefit for the least cost is the most fundamental economic motivation.
TZubiri
This always felt quite subjective to me.
There's also the tautological paradox where price is defined by trade, so the trade balance will always be equal by any measure, if country A exports 1T bushels of wheat and country B exports 1 computer chips, we subjectively know who is winning in the exchange, but it will tally up to equal values in the balance sheet.
ViktorRay
I think many economists would argue that both countries are winning in this exchange. Many would argue that such a transaction would be an example of a “positive sum game” where each side gains more than they lose.
TZubiri
Oh yeah that trade can be positive sum is a given.
And that most trade is generally positive sum is also a quite reasonable take that we seem to share.
That said, even if a trade is positive for both parties, the surplus/profit of a trade might not be (and mathematically almost never is) 50/50.
In the example outlined 1B wheat for 1 computer chip might be positive for both countries, but everyone would agree that the exporter of 1 chip is getting the better end of the positive sum trade.
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owebmaster
and what does Milton Friedman say about a country having enough money to import without export?
fsckboy
>a country having enough money to import without export?
there's no such thing. when you import, you send your currency overseas to pay for the goods. There is nothing they can do with your currency except send it back to you by buying things from you, lending it to you, or making direct equity investments in your companies. (otherwise there is this huge growing pile of your currency accumulating overseas which drives down your purchasing power since it's in surplus)
not sure if Friedman said that, but he did know more about econ that me, and what I've said is accurate.
otterley
> when you import, you send your currency overseas to pay for the goods.
As a general rule, this is false. Mexican importers do not pay for U.S. goods in pesos. With few exceptions, importers have to sell their local currency on the market, exchange it for the exporter’s currency, and pay for the goods with that.
Some exporters will accept the importer’s currency as an accommodation, but they’ll just sell the currency to exchange it for their own, because they have to pay for everything at home with the local currency. If I were a U.S. exporter, I couldn’t pay for my groceries with Euros.
8note
thats not accurate to how the US trade works
coutries trade with the US to get USD, but then trade that USD with each other
some countries stack up the USD like saudi arabia, but theyve got a pretty strong partnership with america on defense and foreign investment
daseiner1
USD remains the world’s reserve currency, and the primary currency of global trade. i.e., the exporter, paid in dollars, can also use those dollars to buy goods from other nations beside the US.
nine_k
A country could mine gold, pay with it for imports, and never have this gold brought back.
Currently you can replace gold with oil: say, Saudi Arabia could literally exchange many things it imports to oil, which can be nominated in USD to accommodate for the fluctuating monetary price of oil, but could be nominated in barrels directly, in a barter trade. They won't see this oil back, even e.g. as plastics made out of it, and they're fine with that.
The US can (so far) replace the gold and oil with USD, in cash, investment, or even credit purchase form, because there's enough demand for US cash as a store of value and a currency to trade with non-US entities, and enough trust that the US is going to service its debt, so it's an investment. The US may (effectively) never receive much of these USDs it sends abroad back; they are still a good deal in an inflationary fiat-currency economy. This pump continues to work as long as things like Silicon Valley, Wall St, and the US military continue to be world-dominating in their respective areas. (And this is one reason why isolationism is a silly policy for the US, toxic for its economy.)
cjbgkagh
The US is able to exports its inflation, not all of it but a lot of it. A membership tax for the ‘rules base order’.
owebmaster
OP mentioned a country, so not just the US, that is why I asked.
Edit: Alright, by reading the link, what Friedman means, I think, is that a country still need to export more than import, but should export just the minimum enough to pay for the imports. In volume (so I'd guess manufactured products not commodities).
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smogcutter
[flagged]
Raymond122
[dead]
Jedd
I remember reading in a PJ O'Rourke book about Comparative Advantage - I've found the section, as the 'non-trivial and non-obvious' sleight stuck with me, even decades later:
> Todd G. Buchholz, in his book New Ideas from Dead Economists, says, “An insolent natural scientist once asked a famous economist to name one economic rule that isn’t either obvious or unimportant.” The reply was “Ricardo’s Law of Comparative Advantage.”
>
> The English economist David Ricardo (1772–1823) postulated this: If you can do X better than you can do Z, and there’s a second person who can do Z better than he can do X, but can also do both X and Z better than you can, then an economy should not encourage that second person to do both things. You and he (and society as a whole) will profit more if you each do what you do best.
There follows some droll examples around the implications of this law, comparing John Grisham and Courtney Love's contributions to society, which doubtless helped consolidate the lesson.Point being - this foundational law would seem to trump any interest in mistakenly attempting to optimise for inputs vs outputs to your nation.
EDIT: From his book 'Eat The Rich: A Treatise on Economics' (1998)
mikojan
Any model of international trade that does not also model externalities is worse than useless. International trade accounts for 30 percent of CO2 emissions alone.
Maybe you should produce X and Z.
topkai22
That 30% number seems very wrong. The entire transportation sector is 12.5% of global emissions. International trade is more like 3% or less.
trilbyglens
I think you could easily get into the 30% range if you factor in manufacturing that happens that otherwise would not without global trade.
washadjeffmad
If only there were a mechanism to capture or deter those externalities and return them to the market.
Are tariffs a veiled carbon tax?
TZubiri
I've seen that postulate in the very first chapter of wealth of nations. But perhaps Ricardo expressed it in mathematical terms?
And I'd argue that there are properties of nations that make them distinct from individual humans or even companies.
The relative autarky possible for a country is much higher.
I've read a similar position by a libertarian Hayek I think in "I pencil", but I never did buy the argument, the idea that a pencil is the product of global trade, I don't buy, you can make national pencils without a sweat.
roenxi
> the idea that a pencil is the product of global trade, I don't buy, you can make national pencils without a sweat.
It is, obviously, possible. Pencils are about as simple as it gets. But it is hardly a no-sweat process. It made international news when China declared itself capable of producing a ballpoint pen using only native tech and materials. It was a point of significant pride to the Chinese government at the time - as well it should be, it was something of a manufacturing and policy tour-de-force.
https://www.washingtonpost.com/news/worldviews/wp/2017/01/18...
TZubiri
Pens I would say are significantly more complex than pencils. Props to china for that.
ViktorRay
Is the following video the “I pencil” you are referring to?
TZubiri
The original is an essay from Hayek
marcosdumay
Hum, no.
Adam Smith didn't understand that people would trade even if one of the peers was better at every single thing. He got lots of stuff right, and even some things that took until the 19th century to make into mainstream economics. But not this one.
TZubiri
Is it possible that he never posited the question? I'd say it unfolds naturally from his readings that it is the case. That said, isolating and framing the question and its consequences is not insignificant.
Dracophoenix
The paper Hayek wrote is titled The Use of Knowledge in Society. I Pencil is meant to be a simplified and poeticized example of Hayek's evaluation by Leonard Read.
TZubiri
Oh my bad!
no_wizard
This seems to be the economic model conservative “populists” seem to hitching themselves to with the thrusting of these tariffs onto the American public
_heimdall
That really raises the question of how we want to define "conservative" though.
They aren't conserving what we already have (they're cresting new policy and abandoning trade partnerships already built).
They also aren't supporting free trade. Maybe that isn't technically conservative, but its always been my understanding that free trade was a pretty big part of American conservatism (at least in recent decades).
no_wizard
Free trade was core to both parties. Conservative is perhaps an overwrought term nowadays, but I also don’t like using the “left-right” terminology as it also suffers from lack of specificity.
To which I conclude, this is apparently what the Republicans are offering up as their form of populist policy
_heimdall
Sure I'd agree there. I can get behind Republican/Democrat labels when people are trying to broad brush describe US politics.
The left/right split doesn't make sense here (as you said). Liberal/conservative really doesn't fit either, the waters have gotten too muddied and many arguments I've seen made that should fit under a liberal banner get categorized as Libertarian or even Anarchist.
csense
Tariffs aren't conserving the status quo. Rather, they're an attempt to return to an (allegedly) better past state.
Specifically, a past state where foreign companies were unable to outcompete domestic ones [1].
It's also a policy going against internationalist norms (which encourage you to free trade even if it seems to be hurting you), and toward nationalist ones [2].
[1] A lot of people who like tariffs have a sense that our free trade policy was an honest attempt to play an honest game where a rising tide would lift all boats. But that didn't happen; instead of a win-win, foreign companies won big by cheating, and we lost. (And we did lose, at least if you ask just about anyone in the Rust Belt.)
For example, tariffs of their own; subsidies; IP theft; currency manipulation; various abuses of their people with low wages; bad working conditions; low or non-existent safety / environmental standards; and totalitarian governments willing to shoot anybody who complains about any of the above.
Trying to play fair to lift everybody's boats when everybody else is pouring water from their boat into yours isn't a recipe for success. It just makes you a sucker sunk by the cheaters -- too honest for your own good.
[2] Again, there's a sense of grievance. Our past policies were honestly trying to unselfishly help the world, and other countries selfishly took advantage of us. So we're done being suckers; it's our turn to be selfish. If other countries don't like us being selfish now, well, they should have thought of that instead of being so selfish themselves before.
Rightly or wrongly, that's really how the current administration thinks about many other countries. That attitude came out loud and clear in the Signal messages they accidentally sent to that journalist: https://www.youtube.com/watch?v=YHU5HDQL6F0
wqaatwt
> and we lost
Lost due to lack of redistribution not because of foreign companies outcompeting everyone.
US won, its economy was basically built on exporting dollars and effectively buying “free” stuff with it. Almost any other country besides the US that had a similar fiscal policy would have already imploded. Instead you got to export your inflation to the rest of the world and even that wasn’t good enough…
no_wizard
I could get on board with tariffs on known bad actors like China, but they hit everyone needlessly. Europe has been a great partner, Mexico and Canada even more so
The problem with any of these narratives is it burns decades of good relationships and allows our enemies, for lack of a better word, to fill any void that is left over. I’m sure China is trying to woo the EU right now as we speak, and I couldn’t blame the EU for not taking some of their possible proposals, as they now need to replace hundreds of billions of dollars of trade overnight
Free trade with western/ US aligned countries actually works extremely well. China being the largest of the bad actors (but hardly the only one) is problematic, so I understanding targeting that, but not our historically close Allies
saghm
> With the efforts of supranational organizations such as the World Trade Organization to reduce tariffs globally, non-tariff barriers to trade have assumed a greater importance in neomercantilism.
That might need to get updated within a few years...
mizzao
Works better when you're trying to hoard gold.
Not so well when you have a fiat currency that's also the world's reserve currency...
edwardoelliott6
[dead]
I know some economists during the second half of the 20th century had the exact opposite view of the Mercantilist philosophy.
For example Mercantilism says a country should maximize exports and minimize imports as much as possible.
Meanwhile Milton Friedman, one of the most prominent economists of the 20th century, said that a country that had large amounts of imports with minimal exports was a very successful country. The idea being that such a country was essentially buying things from other countries at minimal cost.
Edit: The following link quotes something he said regarding this:
https://fee.org/articles/milton-friedman-the-way-we-talk-abo...