Editor’s Note: Joel Mokyr is among the world’s premier historians of the economic miracles of technology, which he has called “the lever of riches.” In today’s Making Sen$e column, Mokyr joins the debate over President Trump’s novel approach to international economics: going it alone.
— Paul Solman, Economics Correspondent
“America First” has become the declared trade policy of the current administration. It is based on the assumption that international economic relations are basically a zero-sum game: if another nation gains from trading with us, they do so at our expense. Yet economic international relations — like all international relations — are never zero sum.
When two nations engage in trade, both normally stand to gain, and both typically wind up better off. If nations coordinate on the right policies (think environmental policies, for instance, or fiscal harmony), it is a win-win. To be sure, trade — much like technological progress — does not make every single person better off. But the winners’ gains exceed the losers’ losses and wise government policies can cushion the losers’ pain.
On the other hand, when one nation invades and colonizes another, takes part in the slave trade, say, or even just imposes trade restrictions, it is almost always a negative sum game, in which the gains of the aggressor are smaller than the losses of the victims. In the 17th and 18th-century African slave trade, some traders and slave owners became immensely rich, but their gains were more than offset by the colossal damage inflicted on African societies, whose poverty can be linked to the slave trade even today. And there were losses to everyday Europeans as well, as their governments sustained the slave trade through costly military force and colonial administration.
Today, we see threats to free trade through “border adjustment taxes” (protective tariffs), “renegotiating” (that is, disrupting) trade agreements, or announcing that we are now engaged in a “trade war,” as Commerce Secretary Wilbur Ross seems to believe. Such economic nationalism is based on the hope of gaining an advantage, and indeed the U.S. might gain a bit for a while. But if so, other nations will lose much more.
What’s likely to happen, therefore, is that our trading partners would respond in kind, trying to put themselves first. As a result, the volume of global trade would decline and all sides would experience a drop in real income and quite possibly employment as well.
This would be stupid. In the 1930s, such “beggar thy neighbor” policies aggravated and lengthened the global Great Depression. “America First,” “Deutschland über alles” and their equivalent slogans in other countries reflected disastrous economic policies. But the slogans won out over enlightened self-interest.
In international trade, the notion that “it’s us against them” has a long and unhappy lineage. For centuries, European economic policies were dominated by a primitive form of economic nationalism known as mercantilism. In the name of “Spain First” or “England First” or “France First,” mercantilism placed its countries’ special interests above those of the rest of the citizens and absurdly encouraged exports while discouraging imports (all the while providing the politically influential special interests of the exporters with substantial benefits). Consumers paid higher prices; the special interests — mainly well-connected merchants — got richer. And richer.
Adam Smith, in his 1776 bible of economics, “The Wealth of Nations,” railed against this doctrine of what we would today call “crony capitalism,” pointing out its awful effects on trade and general prosperity. And thankfully, in the century that followed the book’s publication, many nations realized the truth of Smith’s critique and slowly moved toward freer trade. But sadly, in the late 19th century, when nationalism became increasingly prevalent, protectionist policies became the norm once again. World War I and its aftermath made things worse. Only after 1945 did free trade experience a revival, and its power to enrich us was felt by all. But in the marketplace for ideas, ignorance is a tenacious weed that keeps sprouting up.
It should be acknowledged that some moderate economic nationalism can be a force for growth and wealth. But this is chiefly true within the context of competition that freer trade encourages. Sovereign nations compete with one another on a variety of fronts, and such competition can be healthy if it spurs nations to stay “ahead of the competition” through research and invention that lead to higher productivity and better economic performance.
Indeed, Europe’s enormous economic successes in the 19th century were in part driven by what Adam Smith’s friend David Hume called “the jealousy of trade.” Nations did not want to fall behind their neighbors, and even if their motives may have been military and aggressive, they often ended up doing the smart thing for the wrong reasons. Thus, Russia’s czar Peter the Great traveled to the West to learn the most advanced technologies and methods (so as to have a better chance to fight his enemies) and in the process made a small start in Russia’s economic development. During the Industrial Revolution, Britain’s Parliament repeatedly denied petitions of wool manufacturers to block new and productive machinery, as otherwise such machinery would be left to its enemies (in this case, France). On the eve of World War I, German scientists (worried about their country being cut off economically in the event of war) developed a process to convert atmospheric nitrogen into ammonia, one of the greatest inventions of the 20th century. Nitrates were essential in the production of fertilizer and explosives, and Germany depended on imports from South America for its supply. The rivalry between the U.S. and the Soviet Union after the launching of the Sputnik in 1957 is another example: the “jealousy” driven by their national rivalry provided a huge stimulus to scientific research and education in the U.S. and put a man on the moon in 1969. Again, the great minds of the Enlightenment saw this reality. Writing a few years after Adam Smith, Edward Gibbon noted that the competition among Europe’s states “restrained the abuses of tyranny” and “the progress of knowledge and industry is accelerated by the emulation [competition] of so many active rivals.”
Ancient Jewish wisdom has it that “the jealousy of the learned shall increase wisdom” — the same can be said about the rivalry of nations. The U.S. and its trading partners should trade with one another in a competitive free system, in which all participants respect the rules. We should outdo one another through better science, better technology, higher productivity and superior quality rather than threatening trade. The benighted mercantilist policies reflected in slogans such as “America First” and “Take back control” will be disastrous. If “America First” were to mean anything economically useful, it would be a slogan promoting massive investment in cutting-edge research and STEM education to outcompete both our partners and our enemies. Instead, for political reasons, it seems, these budgets are in danger of being cut back. To the extent they are, America will inevitably be worse and worse off relative to the competition. And some day, we could end up “Last.”