Today, in the battleground Rust Belt state of Pennsylvania, Donald Trump spoke against free trade agreements and the globalized economy; today, Donald Trump took a firm stand against capitalism.
Capitalism, the most prosperous economic system ever devised, one which brings wealth and rights to nations across the globe, requires the free movement of goods in order to function. By attacking trade, Trump is attacking a fundamental axiom of capitalism: comparative advantage.
A state has a comparative advantage when it can produce a good at a cheaper cost than all competitors. All nations have a comparative advantage regardless of their economic, political, or social development. Trade allows states to import cheap goods while simultaneously exporting the good or service in which they have a comparative advantage. Products remain cheap, jobs are created throughout the world, and economies stress efficiency and innovation to maintain comparative advantages. That leads to higher standards of living domestically and abroad as new goods are exported.
Thus all nations benefit from trade.
But Trump ignores 300 years of economic teaching and instead embraces an old and failed philosophy — mercantilism. His many claims to bring American manufacturing back to our shores demonstrate his economic illiteracy and proclivity to lie to American voters.
First, it is impossible to bring back manufacturing jobs. The ones that have returned to our shores are capital — not labor — intensive. This means that even when factories come back to the states, they employ few individuals. Automation will ensure that trend continues. Unless we decide that the time and cost saving benefits of robots and other mechanized processes ought to be destroyed (they absolutely should not be), they heyday of American manufacturing is gone, a fond memory resigned to our collective pasts.
That isn’t a bad thing. It’s how a capitalist economy works — growth through destruction. Old industries move offshore or die as new technologies supplant them. The death of American manufacturing frees human capital to explore more efficient and better paying labor opportunities.
Voters should rail against failed fiscal policy that refuses to help those displaced by technological advancement. We should be funding vocational training and other continuing educational studies so those hurt by creative destruction can quickly rejoin the labor market and thrive.
Voters should call for reform within the system, not it’s total destruction and a regression back to the 17th Century.
Second, Donald Trump is lying about his ability to bring back manufacturing. Assume he does pull out of all free trade agreements; assume he does erect destructive tariffs that isolate us from the world. Prices for all goods — especially manufactured goods — would skyrocket because we would not tap into comparative advantage. Rather than importing goods from those able to create them most cheaply, we would be buying them domestically from incredibly expensive producers.
When price increase dramatically, consumers cease to spend. When consumers cease to spend, businesses must layoff workers to prevent bankruptcy. When businesses layoff workers to prevent bankruptcy, fewer individuals have disposable income with which to buy goods.
We would get caught in a vicious cycle that encourages high prices and high unemployment.
We would be in a depression.
Mercantilism, the philosophy of an isolated and protectionist domestic economy, failed. It encouraged the destruction of environments, continual oversea military conquests to establish colonies then plundered for resources, and animosity between states. Mercantilism’s assumption of finite global wealth inherently means that the standard of living cannot rise — one nation’s benefit comes directly at the expense of another.
Capitalism believes in infinite wealth, that a rising tide lifts all ships.
Mercantilism believes in tariffs, whose burden is passed onto the consumer.
Capitalism believes in free trade that allows all to thrive and pursue fulfilling, productive, prosperous work.
Mercantilism believes in colonial conquest and bellicose attitudes between states.
Capitalism believes in international cooperation and peace.
Mercantilism believes in a statist economy maintained only through an authoritarian government that restricts the natural rights of its citizens.
Capitalism accompanies democracy and embraces the fundamental rights of all.
Mercantilism comes with joblessness and depression.
Capitalism comes with prosperity.
Donald Trump believes in mercantilism. You should not believe in him.