Published on September 9, 2003
© 2003- The Baltimore Sun
MERCANTILISM IS a word that most Americans thought died with their memories of high school world history class. It was one of those ninth-grade words whose definition had to be memorized but whose meaning was never fully understood.
Mercantilism is a word rarely used anymore in relation to economic or foreign policy. Yet look closely at current international U.S. economic policy and the definition of mercantilism resonates: a policy system seeking to ensure a nation's political and economic supremacy in its rivalry with other states. Under mercantilism, which lasted from about the beginning of the 17th century to the beginning of the 19th century, money was regarded as a store of wealth. The goal of the state was to accumulate wealth in the form of precious metals - gold and silver - by exporting the largest possible quantities of products and importing as little as possible.
Well, mercantilism is back.
Not as a system of a nation hoarding precious metals, for surely we have learned that does not work in a modern economy. But mercantilism is back as a way of trying to ensure that one boat - America's boat - stays economically afloat. Modern mercantilism is the economic yin to the unilateralist yang. It is a rejection and fear of globalism.
By encouraging the dollar to fall against the euro and other hard currencies during the past year, the Bush administration has fired the main salvo in its arsenal as the new mercantilist. The subsequent fall in the dollar beyond its market value has signaled again the Bush administration's belief that for the United States to be secure, its interests must be protected above all others.
In the 1920s and '30s, it was common practice for governments to try to solve their economic problems by foisting them off onto other countries. At that time, the main instrument for such problem solving was higher tariffs.
In facilitating a weaker dollar, the Bush administration has duplicitously achieved the same goal. By effectually diminishing the sales opportunities of foreign-made products (a weaker dollar makes foreign products more expensive in the United States), the Bush administration is, in effect, exporting America's unemployment to the nations that manufacture these products.
The cheaper dollar also politically camouflages the job creation shortfalls of the famous Bush tax cuts. In the race to lower America's unemployment before the next election, there is no question that a lower dollar will create more jobs in a shorter period than the tax cuts. But since a nation's currency policy is difficult to explain in simple political sentences, any job growth created by the dollar can easily be attributed to the tax cuts.
It's easy to believe that in its philosophically dogmatic but politically attuned approach to the American voter, the Bush administration never considered the impact of the lower dollar on our traditional trading partners in "old Europe." Germany, for example, now has its highest rate of unemployment in recent history. Regardless of how one feels about Germany's lack of support for the Iraq war, a vital question must be asked: Knowing Germany's history in the 20th century, is it a positive policy to increase German unemployment?
The administration's shortsighted approach to America's trading partners also fails to take into account the possibility of European economic retribution toward U.S. industry. Whether out of ignorance, ideology or parochialism, the Bush administration appears not to want to recognize how interlinked the U.S. economy is to the European Union. It is as if the U.S. government is not aware that most large U.S. companies are now partially regulated by the EU in Brussels.
Whether it is product content rules for Kellogg cereals, merger approval for a General Electric acquisition or data privacy concerns that affect all multinationals, if U.S. industry wants to play in the world's second-largest consumer market, its products and policies must comply with tough EU regulations. The EU acts almost as a minority shareholder in the U.S. economy through these regulations. Yet the Bush administration, combining the dogmas of the new mercantilism with its unilateralist foreign policy, tries to pretend the EU has no rights at all.
History has taught that, whether it is the high tariffs of the 1930s or today's new mercantilism, the short-term appeal, if any, of tariff-based job creation is quickly nullified by the spreading disease of protectionism and nationalism. It is a disease that globalization, with all its difficulties and shortcomings, had begun to conquer.
Edward Goldberg, who has written extensively about U.S.-European relations, recently represented the State Department at a conference about globalization in St. Petersburg, Russia. He is president of a global trading company.