The reelection of Donald Trump to the American presidency has seemingly brought bought a radical disruption to the political, social, and economic status quo both within the United States and in other parts of the world. Nothing has seemed as potentially disruptive as his insistence that the existing world trade system is rigged to the disadvantage of the United States.
The keystone to Trump’s response has been the threat and initiation of a series of tariff-driven trade wars with both declared enemies and presumed allies of the United States. It has brought about responses from America’s closest neighbors, Canada and Mexico, as well as the European Union and China, in the form of threatened or imposed counter-tariffs and related trade restrictions on American exports.
The world appears to be sinking back into one of the worst aspects of the 1930s, when during the Great Depression all of the major countries of the world followed policies that turned their backs on both the idea and practice of freer, if not free, trade. In its place were introduced barriers to international commerce in goods, services, and investments. Leading voices of the interwar period turned away from free trade to advocacy of even national self-sufficiency. John Maynard Keynes was one such voice.The world appears to be sinking back into one of the worst aspects of the 1930s…
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Keynes’s turn from free trade to autarky
For instance, in January 1923, Keynes initially insisted that free trade was a fundamental principle from which no concessions or compromises should be made:
We must hold to free trade in its widest interpretation as an inflexible dogma to which no exception is admitted wherever the decision rests with us. We must hold to this even if we receive no reciprocity or treatment and even in those rare cases where by infringing it we could in fact obtain a direct economic advantage. We should hold to free trade as a principle of international morals, and not merely as a doctrine of economic advantage.
Yet in 1933, in the pages of the Yale Review, in an article on “National Self-Sufficiency,” Keynes, argued the exact opposite:
I sympathize, therefore, with those who would minimize, rather than with those who would maximize, economic entanglement among nations. Ideas, knowledge, science, hospitality, travel — these are the things which should be of their nature international. But let goods be home spun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national….
We each have our own fancy. Not believing that we are saved already, we each should like to have a try at working out our own salvation. We do not wish, therefore, to be at the mercy of world forces working out, or trying to work out, some uniform equilibrium according to the ideal principles, if they can be called such, of laissez-faire capitalism…. We wish … to be our own masters, and to be as free as we can make ourselves from the interferences of the outside world.
Such a view of national economic independence led Keynes, in The General Theory of Employment, Interest, and Money (1936), to declare his sympathy for the ideas and ideal of 17th- and 18th-century mercantilism:
The Mercantilists were under no illusion as to the nationalistic character of their policies and their tendency to promote war. It was a national advantage and a relative strength at which they were admittedly aiming….
Intellectually their realism is much preferable to the confused thinking of contemporary advocates of an international fixed gold standard and a laissez-faire in international lending, who believe that it is precisely these policies which will best promote peace.
From freer trade to growing managed trade
For a time, in the aftermath of the Second World War, many of the leading nations drew back from the policy of economic nationalism, protectionism, and neomercantilism. While it was still a form of managed trade and not free trade via newly established international organizations such as the International Monetary Fund and the World Bank, governments introduced noticeable degrees of freer trade than had existed in the two decades between the two world wars. As economist Gottfried Haberler observed in 1982:
The first thirty-five years since the end of the war have been a period of almost unprecedented growth and prosperity…. Everyone knows about the German and Japanese economic miracles. But there was also an Italian economic miracle and a French and an Austrian one…. All of them were the result of the application of what Keynes called ‘the classical medicine,’ and [Joseph] Schumpeter the ‘capitalist methods.’… Trade was liberalized under the GATT [General Agreements on Tariffs and Trade] and world trade grew throughout the postwar period as never before.
But a few years after Haberler’s generalized summary of the postwar period, another free market-oriented economist, Jan Tumlir, pointed out in Protectionism: Trade Policy in Democratic Societies (1985):
Many people think of protectionism against imports almost exclusively in terms of tariffs. Tariffs are, however, only a minor part of the problem…. In fact, a very large proportion of international trade is under some kind of nontariff restraint and moves only with the permission of the government concerned, not in spontaneous response to market demand or at market determined prices…. Far more important [than tariffs] are quantitative restrictions, devices by which governments determine a given amount — the limit — of imports allowed to enter the national market.
Thus, when the United States signed the North American Free Trade Agreement (NAFTA) with Canada and Mexico in 1992, it might have been better called the North American Managed Trade Agreement (NAMTA). While a variety of tariffs were lowered on goods sold between the three countries, any detailed examination of the agreement itself demonstrated the degree to which a there were numerous component parts quotas, quantitative import limits, and other restrictions on the types and amounts of goods that could be freely imported or exported between them. It was government managed trade, very far from the idea or ideal of free trade.
This was no less true among the Common Market countries in Europe, or in their more modernized version in the transformed European Union (EU) beginning in 1993. Investments between the member countries have a large labyrinth of regulatory rules and requirements that apply to the flow of goods and services, with the spider’s web of these controls centered in Brussels, the EU’s administrative capital. Matching these internal regulations over the EU’s supposed common free trade zone are networks of tariffs and nontariff restrictions and limits on goods and services entering the EU from other countries around the world.
Especially since the financial crisis of 2008–2009, even the veneer of attempts to move towards degrees of freer trade has broken down around the world. The World Trade Organization (WTO) that has had the official mission of attempting to facilitate international agreements to lower tariff and other barriers is no longer effectively functioning in that capacity. Governments have sometimes given lip service to the benefits of global trade and investment, but, in fact, most governments utilize the policy tools at their disposal to hamper trade through tariffs, regulatory hurdles, and a variety of fiscal measures to serve the interests of domestic producers or the ideology goals of those in political authority.
Trump and the meaning of mercantilism
So what is so new or “shocking” in the international trade policy of the United States under Donald Trump? It is the fact that Trump has declared as his purpose and goal to make America “great again” through the imposition of an ideology of neomercantilism: ending balance of trade deficits; reducing imports through high tariff barriers behind which domestic industry will be protected and nurtured; the pursuing of foreign lands for control of vital resources to feed and support domestic industry (Greenland); establishing control over key geographical points to secure an uninterrupted flow of goods being imported or exported into the home country (Panama Canal Zone); viewing economic relations between countries as inherently and inescapably zero-sum games. And, finally, while declaring a desire to keep America out of foreign military entanglements, the intention to maintain and grow a powerful military to protect American “interests” against nations threatening to weaken U.S. supremacy around much of the world.
Every one of these purposes and goals were a part of the mercantilist ideology and policies of 17th- and 18th-century countries such as Great Britain and France. Its classical study and analysis still remains the focus of the Swedish economist Eli Heckscher’s two-volume work, Mercantilism (1935). Heckscher explains that mercantilist policies had several overlapping purposes and goals.
First, it was a system for national unification to replace the feudal fragmentation of society under the localized authority of the lords of the manors, that is, concentrated control in a centralized authority, the king. Second, a system of power for strengthening the state so it would possess the material capacity to defeat other countries in the context of economic and political domination and the military capacity to do so. Third, a monetary system, meant to ensure a balance of trade surplus rather than a balance of trade deficit through restrictions on imports and subsidies for exports to ensure a greater sum of money would be received into one’s own country than would be paid to other countries. And, fourth, a conception of society, the view that the national interest captures and reflects the interests of the king and takes precedence over the interests of the monarch’s individual subjects.
Invariably, the mother country lacked all of the necessary resources and raw materials to maintain and expand its productive capacity and military superiority to win against actual and imagined competing nation-states. To compensate, the mother country needed colonies and foreign areas under its control to ensure the needed inputs to produce the desired types and amounts of outputs to maintain the political and military ability to win conflicts over competing nations.
Mercantilism as political paternalism and control
As British economist Alexander Gray summarized it in The Development of Economic Doctrine (1931):
Fundamental for the mercantilist was the strength of the country. This was the end to which all means were subservient…. His country was engaged in a race with other countries, and in this race it must not be a loser…. In all their schemes the mercantilist looked to a benevolently paternal government, assumed wise enough to interfere everywhere. Mercantilism was a policy of ubiquitous and perpetual government activity. There was nothing it ought not to do, if thereby its activity was calculated to promote the general well-being. In regard to the primary matter of restraining imports and encouraging exports, the machinery was obviously at hand in the form of import duties to keep out foreign goods, and bounties [subsidies] to encourage exports….
The mercantilist regarded the State as the appropriate instrument for promoting the well-being of the country. Moreover, in his view the country was regarded as a unit; there were national interests to be promoted, quite irrespective of the interests of particular sections or individuals. Indeed, the interest of the State might be in conflict with that of the individual, and in such a case obviously the interest of the whole was to be preferred…. It was of the essence of their view that what one country gained, another lost; the idea of a mutually advantageous trade eluded them.
The idea that the interests of the individual were viewed as something to be sacrificed to the greater and higher interests of the state needs to be emphasized. This conception of the individual human being versus political authority brings out how such an economic system and set of policies are inherently and inevitably inconsistent with any recognition and respect for individual liberty and freedom of choice and association.
Economic nationalism and economic armaments
The nation, the collective, the group, come before the interests and value of the individual, indeed, virtually any other value. The Swiss classical-liberal economist and co-founder of the Graduate Institute of International Studies in Geneva, William E. Rappard, emphasized this in his penetrating essay on “Economic Nationalism” (Authority and the Individual, 1937):
Nationalism, then, is the doctrine which places the nation at the top of the scale of political values, that is above the rival values of the individual, regional units, and of the international community…. Between economic nationalism on the one hand and political and economic liberalism on the other, there is an obvious antithesis….
If we wished to define economic nationalism by its underlying purpose, we should say that it was a doctrine destined to serve the nation by making it not richer, but freer, by promoting not it material welfare, but its independence of foreign influences. Economic nationalism is the policy of national self-sufficiency….
First, economic nationalism seeks to limit the nation’s consumption to those goods which are the fruit of its own soil and labor…. Secondly, economic nationalism seeks to promote the domestic production of all those commodities for which the national needs are imperative…. Thirdly, when these efforts also prove in vain, as has heretofore been the case for certain mineral and vegetable raw materials, economic nationalism is apt to raise the cry for more space, that is for annexations of neighboring or colonial territories.
A year earlier, in May 1936, William Rappard had been invited to deliver the annual Richard Cobden Lecture in London, England, and spoke on “The Common Menace of Economic and Military Armaments.” He explained that in pursuit of nationalist goals and purposes, governments needed to employ various economic policy tools to bolster and advance their aims on the international stage in self-proclaimed competition with other nation-states:
By economic armaments we mean all those legislative and administrative devices intended to restrict imports and to develop domestic production with a view of reducing international interdependence. Economic armaments are the tools of economic nationalism…. In spite of all their efforts, all States must continue to import and as none can live on the charity of their neighbors, they must all continue to export in order to secure the foreign exchange necessary for the purchase abroad of what they lack at home. Economic nationalism, therefore, everywhere recommends both the promotion of exports and the restriction of imports.
Looked at from the point of view of a single nation, economic armaments are therefore both offensive and defensive. Considered from that of the world community, economic nationalism is obviously a self-contradictory policy…. As for military armaments, they consist in the weapons by which a nation hopes to impose its will on its neighbors or to resist aggression from without. They are therefore also nationally defensive and offensive and internationally self-neutralizing….
The demand for armaments diverts capital and labor from more productive activities and the taxation to which it gives rise correspondingly reduces the national demand for other commodities. As that taxation moreover inevitably is levied to a large extent on imports, it directly tends to interfere with foreign trade. That is one of the reasons why friends of free trade have always been among the advocates of disarmament.
Trump’s neomercantilism
Let us turn now to trying to understand the ideas and ideology implicitly behind much of Donald Trump’s economic policies. The president’s rhetoric has jolted many people because he has very explicitly said that America is in a global competition with other countries that have and want to “take advantage of” the United States. That is, they want to gain industries and markets at the expense of the United States through economic policies meant to weaken America, to make it no longer “great.”
The United States, in other words, is in a vicious rivalry with many other countries and their governments around the world in a competition that results in some losing and others gaining. It is a zero-sum game that does not include the possibility of mutual gains from trade. Either you “rig” the rules of trade so you remain or become “great” or some other country will and reduce America into a poor, vulnerable, weakened state.
An indication of this, Trump constantly refers to the balance of trade deficits that the United States has with so many other countries around the world. America buys more from those countries than it sells back to them. The monetary sum of imports purchased over exports sold, according to Trump, is a measure of the extent to which America has been taken advantage of by the rest of the world. In the days of the older mercantilism, the measurement was the quantity of gold earned from exports compared to gold paid for imports. A winner nation was one that had net increases in gold supplies by selling more to other countries than was bought from them.
Imports are the benefits from trade
That this entire way of understanding international trade is fundamentally flawed can never be explained too often. The purpose of producing and selling to others is precisely to be able to buy things from them that we cannot produce ourselves or not as cheaply as can be bought from others. Imports are the benefit from trade, the exports are the costs to be able to obtain them. We trade when we view the value of the imports greater than the value of the exports we give to get it.
If the foreign seller does not want to purchase a dollar equivalent of our finished goods with the dollars they have earned from selling to us, the dollars just come back to America in the form of direct or indirect investment. That is, the foreign earner of those dollars either starts up or joins into a partnership with a company in America, or they leave those dollars on deposit with an American financial institution that uses that savings and those of all their other depositors to extend loans to interested borrowers in the United States. Either way, it assists in capital investment in the United States and thus facilities economic growth in America looking to the future.
Just as the older mercantilists wanted to foster domestic industry and “jobs” in the home country, Trump speaks of it in the same terms today. When he says he wants to dramatically raise tariffs on the importation of steel or automobiles, to protect the domestic producers from their foreign rivals and to induce Americans who have production units in other countries to reinvest their production activities back into America, his purpose is to manipulate the what and the where of what gets produced in the United States.
Donald Trump as neomercantilist central planner
In other words, Donald Trump is a mercantilist central planner. He knows what should be produced in the United States, where it should be produced in one part of the country rather than some other, along with how it should be produced in terms of capital inputs and the types of employments that should be created to facilitate this government directed manufacturing.
Artificially using tariffs and other trade-restricting policy tools to direct resources and labor into productions they otherwise would not have been used for, if not for the manipulation of prices and profits through the tax system, is an indication of just how misdirected the market has become. If a foreign version of a product could have been purchased for, say, $100, and an import tax of 25 percent now results in that product’s price now be closer to $125, American consumers will be that much worse off due to the higher price they now have to pay to the domestic producer to get what they used to be able to purchase for much less. It also means that resources and labor will now be drawn into employment in this domestic sector of the economy and away from uses that clearly were more productive and cost-efficient in terms of producing what consumers wanted under more unrestricted trade. Americans are that much worse off as consumers in term of their economic well-being due to labor and resources being drawn into more costly lines of production with the tariff wall in place.
Trump’s neomercantilist imperialism
Another element in Trump’s mercantilist mindset is his drive for resources and raw materials outside of the territory of the United States. He has couched a good part of his argument for American annexation of Greenland on the basis of mineral resources underneath the frozen wastelands of that large island. Under its current political control by Denmark, Americans can invest in Greenland. They are subject to a variety of regulatory rules and restrictions, but none are discriminatory toward Americans. Such regulations may be excessive or counterproductive or simply undesirable in a far more free-market environment, but, alas, there are few places in the world today where governments do not regulate and restrict land and resource extraction. But Americans who might want to invest there are at no greater disadvantage in doing so compared to any other private investors.
But it is the mercantilist fear of some other country gaining control in the competition for global greatness that drives Trump to want to make that island “America’s.” That is, the politically collective “we” have to own it. Which means that Donald Trump wants to determine and enforce under American regulatory law who can invest there and for what resources and raw materials beneath the frozen surface. This is far from the theory and practice of free trade.
This is also the reason that Trump wants to make Canada the 51st state in the United States. But it also highlights the absurdity of his mercantilist mindset. He repeats that if only Canada became part of the United States, there would be no trade barriers, no restrictions on component parts of automobiles being manufactured and crossing the border back and forth before the car is completed and ready for sale.
But what changes if the line on the map distinguishing the United States from Canada is no longer there? Would not manufacturers and installers of the various materials and component parts going into the production of the automobile still have to be paid? Wouldn’t it be possible that sales revenues in the new great state of Canada might still exceed sales revenues earned in Michigan or New York from the back-and-forth buying and selling? If balance of trade surpluses and deficits don’t matter between Illinois and Indiana, why should it matter between the United States and the still independent country of Canada?
Furthermore, once economic relationships and transactions are politicized in the way Trump sees the world, economic conflicts lead to potential political and therefore military confrontations. Thus, the need for larger and larger defense budgets given the concern of having the military capacity to intervene, if necessary, anywhere in the world where America’s mercantilist interests may seem to be at stake in the eyes of the president of the United States. The drive for military armaments feeds into the drive for economic armaments in the way suggested by William Rappard.
Free trade the answer to trade barriers
Finally, we might emphasize that the best economic policy in the face of trade barriers and tariff walls imposed by other countries is not retaliation and reciprocity but free trade. The older classical-liberal free traders understood this very clearly and reasoned for it. One of them was Harold Cox (1859–1936), a well-known journalist, author, and liberal member of the British Parliament in the years before the First World War. In 1903, he made the case for The Policy of Free Imports:
Suppose, for example, that we decide to retaliate against America for the injury done to Bradford manufacturers by the American tariff on woolen goods, how should we begin? We clearly cannot hit the authors of the tariff, namely, the American woolen manufacturers. We must, therefore, hit some other American industry. This can be done by putting a duty on American wheat. But that will not hurt the American woolen manufacturers in whose interest our goods are shut down. It will hurt first the American farmer, and secondly the British consumer, including the very operatives employed in that Bradford industry which we want to help….
[But] instead of abolishing the duties on [British] woolens [in the face of the British retaliation] they may proceed to clap extra duties on all the British goods that now enter the United States. In that case our last state would be considerably worse than the first. We should either have to beat a hasty retreat or else submit to a far greater obstacle to our trade than the one from which we had tried to escape.
Harold Cox, therefore, concluded that the best policy to follow is what he called “free imports,” that is, complete freedom of trade regardless of what other countries may or may not do.
Donald Trump’s neomercantilism fundamentally conflicts with the freedom of each and every individual to decide for himself with whom to peacefully and voluntarily associate for whatever desired purpose. It makes the free choices of every American subject to the approval or disapproval of Donald Trump and his advisors. Your freedom to choose with whom to associate and exchange becomes subject to the president’s arbitrary and erratic decisions on such matters as trade and tariffs, which are enforced with the coercive power of government behind the president’s changing whims and wishes.
Freedom and a free society cannot long last in such an environment of the rule of one man based on executive orders not much different from the presumptive powers of absolute monarchs in the past and autocrats in various places around the world today.
This article was originally published in the June 2025 issue of Future of Freedom.
