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Mercantilism Weakens the Economies of Countries Whose Governments Practice It

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Here’s a letter to the New York Post:

In his column on the dangers that China poses for America, Rich Lowry accepts a premise that is economically unacceptable (“America still needs a serious China policy [2],” May 22) – namely, that Beijing’s mercantilist policies strengthen the Chinese economy. Like countless other pundits, Mr. Lowry assumes that mercantilism is to a nation’s economic strength what militarism is to a nation’s military strength. This assumption is mistaken.

When a government diverts more resources to its armies, navies, and air forces, that government does indeed strengthen its military, both absolutely and relative to the strength of other governments’ militaries. In contrast, when a government diverts more resources to export industries and other select firms, that government weakens its economy, both absolutely and relative to the strength of other economies. It does so by starving efficient firms under its jurisdiction of resources while feeding these resources to inefficient firms. Inefficient firms grow at the expense of efficient firms.

If, therefore, Mr. Trump’s goal is a weaker China and a stronger America, he should encourage Beijing to continue to distort its economy with tariffs and subsidies. And in the U.S. Mr. Trump should work to eliminate all tariffs and subsidies.

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

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