Mercantilist Logic Flounders at Sea

The good news from the listing cargo ship near Alaska’s Aleutian Islands is that all 23 crew members were plucked safely from the ship by helicopter last night. (See news story.) The bad news is that the 5,000 cars aboard the ship bound from Japan to Canada may not survive the mishap.

Come to think of it, would it be such bad news if those 5,000 cars sank to the bottom of the ocean? According to the mercantilist mindset that seems to dominate Washington’s discussion of trade policy, the loss of merchandise in transit from one country to another may be the best of all possible worlds.

Mercantilism is a centuries-old approach to trade that believes that exports are the big payoff from trade and imports a burden. By definition, then, a trade surplus signals success for trade policy and a trade deficit failure.

From a mercantilist point of view, then, the loss of those 5,000 cars at sea should be a blessing to the global economy. The people of Japan would have occupied themselves producing those 5,000 cars for export, while the people of Canada would not have shoulder the “burden” of accepting them as imports. Japan can add to its trade surplus without Canada being forced to suffer a deficit.

The great French economist Frederic Bastiat exposed this fallacy more than 150 years ago in an essay, “The Balance of Trade” (Chapter 6 of his Economic Sophisms). If the mercantilists are right, we should all be praying for bad weather in the sea lanes carrying all those cars, shoes, shirts, and laptop computers to our showrooms and store shelves.