Protectionism’s Long History of Incoherence

After decades of progress toward more-liberal trade — albeit in fits and starts — the pendulum in the United States has now swung in a distinctly opposite direction. Enthusiasm for protectionism, which began under President Trump with his slew of new tariffs and scuttling of the Trans-Pacific Partnership, has continued and expanded under President Biden, who has doubled down on “buy America” requirements and embraced a muscular industrial policy. Voices of opposition within Congress have been scant. A renewed skepticism of free trade and interest in trade barriers is an unfortunate area of bipartisanship.

Eric Helleiner’s 2021 book The Neomercantilists therefore comes at an opportune time. As the author shows, enthusiasm for the alleged ability of protectionist measures to achieve prosperity — as well as ill-defined goals such as national strength — is nothing new. Such theories have been peddled for centuries. But that doesn’t make them any good.

After Adam Smith demonstrated the superiority of free trade over mercantilism, adherents of the discredited philosophy were left to lick their wounds and ponder the Scottish economist’s incisive critiques. This spawned neomercantilism, which Helleiner describes as a “belief in the need for strategic trade protectionism and other forms of government economic activism to promote state wealth and power in the post-Smithian age.” Neomercantilism, in other words, is an attempt to reconcile the case for trade protectionism with its many downsides that were first elucidated by Smith and subsequently confirmed in both theory and practice.

For anyone in search of a global history of those who have tried their hand at this type of economic alchemy, The Neomercantilists is a handy resource. While spending considerable time describing the ideas and influence of neomercantilism’s more familiar figures — namely Friedrich List, arguably its foremost evangelist, and Henry Carey — the book also covers an international cast of lesser-known neomercantilists such as Fukuzawa Yukichi of Japan, China’s Liang Qichao, and Russian statesman Nikolay Mordvinov. Indeed, the globe-spanning nature of neomercantilism is one of the book’s main themes. The indigenous nature of much neomercantilist thinking is another. The author persuasively shows that, far from being disciples of List, many neomercantilists in Asia and elsewhere arrived at their conclusions without exposure to his ideas.

Revealing the diverse nature of neomercantilist thought in terms of both its geography and its intellectual influences is perhaps the book’s central contribution. The work is not, however, a defense of neomercantilism. Helleiner explicitly states that he has no “particular affinity for this ideology” and stresses that a number of the neomercantilists he profiles “expressed views with which I strongly disagree.” (The reason for this throat-clearing becomes more apparent when we encounter the problematic stances taken by some of his subjects on issues such as fascism and serfdom, as well as List’s enthusiasm for Western imperialism.) Those hoping to find a full-throated advocacy of protectionism — and a solid intellectual foundation for today’s American economic nationalism — will have to look elsewhere.

In fact, the book ably serves as an unintended exposé of neomercantilism’s intellectual hollowness — an incoherent mishmash of ideas rather than a carefully reasoned, well-supported ideology.

Get a bunch of free-traders together and you will find an impressive level of consensus on key economic and foreign-policy topics. There will be near-unanimous agreement, for example, that globalization has benefited the vast majority of humans in developed and developing countries alike, that tariffs are little more than inefficient taxes (with their attendant distortions and downsides), and that efforts at industrial planning — government attempts to will particular industries into existence — end more often in tears than in triumph. Where disagreement exists, it is likely to be found on the margins, over questions such as whether government should directly support locals exposed to new foreign competition or what is the most effective means of reining in international-trade scofflaws such as China.

No such level of consensus existed among the neomercantilists profiled by Helleiner. Indeed, their lack of agreement on fundamental matters, including the conditions under which protectionist policies should be implemented, is readily apparent.

List, for example, argued that industrial protectionism should be embraced only by a relatively narrow set of countries with temperate climates, advanced agriculture, and a “high degree of civilization and political development” whose path to industrialization had been blocked by foreign competitors. Among those List deemed ineligible: Spain, Portugal, Turkey, Egypt, and “all barbarous and half-civilized or hot countries.” (List thought countries with warmer climates were “unfitted by nature” for large-scale manufacturing because of the allegedly less industrious disposition of their inhabitants. The modern-day industrial prowess of countries such as Indonesia, Mexico, and Vietnam exposes such pronouncements as little more than armchair theorizing and economic phrenology — at best.)

This thinking was no doubt dimly viewed by other neomercantilists, such as Egyptian ruler Muhammad Ali, and was explicitly rejected by Romanian economist Mihail Manoilescu, who advocated the embrace of protectionist policies by even very poor countries.

Important differences could be found even among neomercantilists from the same country. Helleiner writes that, while neomercantilists in Japan “had some common aspects to their thought,” they also “disagreed with each other in various ways,” and there were “many varieties of neomercantilist thought even within the context” of the country’s Meiji era. Their thinking was sufficiently diverse, the author adds, that “there was no single Japanese intellectual model for neomercantilists abroad to follow.”

Such disagreements are unsurprising given the dearth of first principles from which neomercantilist policies flow. Indeed, one is struck by the slapdash, lazy, and haphazard nature of the policy recommendations proffered by leading neomercantilists.

Friedrich List offers a case in point.

While List’s demonstrated willingness to consider Smithian critiques of mercantilism is commendable, it’s unclear that it got him closer to a workable economic philosophy of his own. He criticized old-school mercantilism for its embrace of “prohibitory” tariffs but failed to delineate how they were to be distinguished from the “moderate” ones he favored. List cautioned that protectionist policies should only be temporarily applied, but he ignored the obvious political difficulty of removing tariffs once granted. Tariffs should be specially targeted, he argued, but provided no explanation of how sectors deserving of such protectionism were to be identified.

These are no small flaws.

As Helleiner points out, this lack of intellectual rigor was apparent even to List’s fellow travelers. Writing in the early 1930s, Manoilescu observed that protectionism seemed “bereft of any theoretical basis,” with tariffs being introduced “in an arbitrary manner.” Attempting to formulate a more scientific basis for protectionism’s application, Manoilescu wrote that any sector whose “productivity surpasses the average productivity of the country” should be a candidate for protectionist measures. Yet this “system” ignores that a country’s most productive sectors not only frequently change but are also the sectors best positioned to succeed without protectionism.

That numerous thinkers independently arrived at a case for neomercantilism — albeit with significant differences regarding its proper implementation — is thoroughly unsurprising. After all, as free-traders have long explained, the case for tariffs and similar measures is simple and intuitive: Block the arrival of imports and a local industry will — however inefficiently — meet consumer demand. The resulting production and associated jobs can then serve as “proof” that protectionism works.

In contrast, the case for free trade demands a more sophisticated understanding of economics and a recognition of what typically escapes the naked eye: jobs, output, and sales lost owing to higher input costs; extra dollars spent on protected items and thus diverted from more productive endeavors; protectionism’s enervating effect on efficiency and innovation; and, not least, the resources consumed by special-interest groups that lobby to adopt and maintain protectionist measures. While the logic of protectionism reflects long-standing human biases that can be grasped even by children, it required the great intellects of Adam Smith and David Ricardo to illuminate mercantilism’s oft-unseen costs and the subtler benefits of free trade.

Coming from a professional free-trader, such talk perhaps smacks of being self-serving. But that doesn’t mean it’s not true. It’s no coincidence that countries that have generally spurned protectionism also tend to be among the world’s wealthiest, or that the decades of post-war trade liberalization correlated with dramatic reductions in global poverty. Even China — the justification du jour for much of today’s neomercantilism — dramatically lowered tariff rates and other trade barriers during its strongest growth periods.

Unfortunately, these and other lessons are being ignored by the country’s political class, who have opted for a profusion of protectionist policies that have yet to bear fruit outside of some enriched special interests. Helleiner attempts to connect the neomercantilists of yore to today’s renewed enthusiasm for protectionism — most notably on the part of President Trump — but the evidence presented is thin. Trump’s long-standing embrace of tariffs appears to be born more out of instinct than from a consultation of neomercantilist writings, while President Biden’s current fondness for protectionism appears more rooted in politics than in ideological conviction, given his past votes for free-trade agreements supported by fellow Democrat Bill Clinton.

The Neomercantilists is a well-written and useful reminder that people around the world have had misguided ideas about trade and economics for generations. Protectionism’s seductively intuitive nature ensures that new strains and adherents of mercantilism will continue to emerge despite its theoretical flaws and demonstrated failures. The battle for free trade — outside, perhaps, the field of professional economics — is never permanently won.