The Bizarro World of Mercantilism

by Don Boudreaux on February 15, 2017

in Myths and Fallacies, Trade

Here’s a letter to the Wall Street Journal:

Regarding your report on the Trump administration’s new scheme to stop alleged “currency manipulation” by the Chinese (“U.S. Eyes New Tactic to Press China,” Feb. 14): how crazily bizarre!  To the extent that currency manipulation is real and works as advertised, it makes the exports of countries that practice it artificially inexpensive for foreigners to buy.  That is, currency manipulation transfers wealth from the citizens of countries that practice it to the citizens of countries fortunate enough to buy the manipulators’ subsidized exports.

And yet it is the governments whose citizens are on the receiving end of these transfers who fussily try to prevent these transfers, while the governments whose citizens are taxed to fund the transfers stubbornly carry on with them.  So with the Trump administration threatening to stop Beijing’s alleged currency manipulation, and Beijing resisting, it’s as if the Trump administration believes itself to be charged with the responsibility of protecting the welfare of the Chinese people at the expense of American citizens, while the government in Beijing plays the role of benefactor of the American people at the expense of Chinese citizens.

Mercantilist myths about trade truly do incite governments to do the darndest things!

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030


Nearly every tenet of mercantilism is backwards.  Those who fall for this sham mistake benefits for costs and costs for benefits; they interpret wealth destruction as wealth creation and wealth creation as wealth destruction.  If they were a school of mathematics, mercantilists would insist that 2 + 2 = -4, 100 x 20 = 5, and 2<1.


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