Sunday, November 7, 2010

Mercantilist in Chief

As most everyone knows, President Obama was in India over the weekend to discuss trade and foreign policy matters with the Indian government.  As part of his visit, the President published an op-ed with the New York Times laying out his trade and economic priorities with India and the rest of Asia, including other stops on his current Asian tour - Indonesia and Korea. Be sure to read the whole thing, but here's the big finish:
The great challenge of our time is to make sure that America is ready to compete for the jobs and industries of the future. It can be tempting, in times of economic difficulty, to turn inward, away from trade and commerce with other nations. But in our interconnected world, that is not a path to growth, and that is not a path to jobs. We cannot be shut out of these markets. Our government, together with American businesses and workers, must take steps to promote and sell our goods and services abroad — particularly in Asia. That’s how we’ll create jobs, prosperity and an economy that’s built on a stronger foundation.
Sigh.  As nice as it is to hear the President advocate trade and global economic integration (including passage of the long-stalled US-Korea FTA), it is utterly impossible for anyone who supports free markets and/or understands basic economics to be happy with the President's strategy - one that can unfortunately be summarized in a single word: mercantilism.

I've often discussed the myriad faults of an American economic growth strategy based on mercantilism - an approach that's been repeatedly debunked since the days of Adam Smith.  But hey, don't take my word for it; instead, here's the always-great Don Boudreaux dismantling the President's new op-ed:
I applaud Pres. Obama’s endeavor to further liberalize trade between America and Asia, but his explanation of his efforts reveals that he doesn’t know what he’s doing economically (if not politically) (“Exporting Our Way to Stability,” Nov. 6). Most worrying is this sentence: “We want to expand our trade relationships in the region, including through the Trans-Pacific Partnership, to make sure that we’re not ceding markets, exports and the jobs they support to other nations.”

When international trade expands, some home markets and jobs are necessarily “ceded” to “other nations.” It is in the very nature of expanding trade that foreign producers specialize in supplying to the home market some goods and services that previously were supplied by domestic producers, and vice-versa.

The mercantilist tone of Mr. Obama’s essay – its bear-like embrace of the fallacy that trade’s success is measured by how much the home country exports rather than by how much it imports – suggests that any trade agreements that he reaches with other governments will do far less to increase the prosperity of ordinary Americans than to enhance the monopolistic privileges and profits of politically influential U.S. corporations and unions.
Ouch.  Boudreaux's commentary makes clear that, when it comes to trade, the President either doesn't know what he's talking about, or simply refuses to pursue (or admit he's pursuing) truly open markets and free trade.  And unfortunately, neither of these options should provide us with much hope that the future of US trade policy is in good hands.

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