The Gains and Losses of Mercantilism

The administration's trade policies could reap economic gains but sacrifice ethical opportunities.
Pete MentoMarch 22, 2017

These are interesting times for those of us who make our living advising clients on matters of international trade. With the new presidential administration, there is a new attitude toward the utility of sweeping, multilateral free-trade agreements like the Trans Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (T-TIP). There’s also a renewed interest in protecting American jobs and what many fear is a political and economic policy of protectionism.

What seems to have been lost in all of the presidential zest for shutting down these massive free-trade agreements was that TPP and T-TIP were much more than just simple duty-reduction agreements. They promised opportunities to include protections for intellectual property rights and a focus on global workers’ protections, as well as addressing many environmental concerns.

Many academic feel the new administration may be taking pages from an old economic book, that of “mercantilism.” Mercantilism is the theory that trade generates national wealth and is stimulated by the accumulation of profitable balances, which a government should encourage by means of strategic protectionism.

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If this is the case, the more likely next steps will be bilateral agreements and not multilateral ones. And every indication leads us to believe that such policies are already in motion.

The U.S. would still gain the economic advantages, be able to negotiate with far more leverage, and be able to more quickly execute agreements when working one on one with another nation than doing it mulitilaterally.

The United States was already involved in trade agreements with most of the nations in the TPP. But the prize of the agreement was reduced tariff trade with Japan, a nation that is not only the world’s third largest economy but a strategic partner of American interests in Asia. Of course, Vietnam’s recent growth would have made it a welcome addition to the partnership as well.

Although we lose the political gains of agreements like TPP and T-TIP, we gain economically with the pursuit of bilateral agreements. That will be the case with what many believe will be a bilateral agreement between the U.S. and the United Kingdom. In a post-Brexit Europe, the British need to solidify confidence in their economy, and the United States is all but delighted to help them do so.

Expect the Trump administration to aggressively push for foreign trade agreements with Japan, Vietnam, Cambodia, and Brazil. Most importantly, look for them to quietly pursue moving India from the unilateral Generalized System of Preferences Trade Program to a much more beneficial agreement within the next two years. It has escaped no one’s attention in India that the president has a long-standing relationship with many important business leaders in that country.

If this were to happen, the economic gains may still be represented, but at what costs? Yes, the U.S. will make economic gains from these smaller agreements, but we will likely lose out on the ethical opportunities the larger ones were on the brink of providing.

Pete Mento is a principal in customs and foreign trade for Ryan, a tax advisory firm.