Trump's Tariff Wall (Mercantalism & Protectionism)

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Episode Description

Justin Hayden Miller, a global trade lawyer, explores Donald Trump’s tariff policies from their historical roots in mercantilism and protectionism, their modern implications, and how these relate to Trump’s trade agenda.

Key Topics Discussed

• Tariffs Explained and Trump’s Tariff Plans: Taxes on imported goods that affect prices and economies. Trump's intended tariff policy.
• Mercantilism History:
  • Spain: Bullionism 
  • France: The Great Colbert. Tariff protections for industries and boosted manufacturing.
  • England: Splendid Isolation and trade independence.
  • Germany: Friedrich List’s tariff approach for emerging industries.
• Mercantilism vs. Protectionism:
  • The differences between the two.
• Trump’s Strategy: Mercantilism (trade surpluses), Protectionism (US industry support) and Colbert-like industrialization efforts.
• Historical Impact: British mercantilism, the Boston Tea Party and American independence.

Call to Action

• Subscribe: Listen to Episode 4 on Free Trade and Trump’s tariffs.
• Rate: Help others find the podcast with a quick rating.

Legal Disclaimer

This podcast is for informational purposes only and does not constitute legal or financial advice. Views are those of Justin Hayden Miller and not that of any law firm or third party.

About the Host

Justin Hayden Miller, a French advocate and partner at a top European law firm, specializes in global trade, customs, and VAT with over 25 years of experience.

Tune in for Episode 4 to explore the free trade angle.

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Chapters

• 0:00 Introduction to Trump's US Trade Tariffs and importance of history
• 3:09 What Are Tariffs, their Impact and Politics
• 5:45 Historical Roots of Mercantilism
• 9:37 Spanish Mercantilism and Bullionism
• 13:08 French Mercantilism and Colbert
• 22:13 British Splendid Isolation Policy
• 27:45 German and US Protectionist Influences
• 32:54 Mercantilism, Protectionism and American Independence

Transcript

Justin Hayden Miller: 0:00

Welcome to Privileged Discussions, offering fresh perspectives on current affairs shaping global trade. I'm Justin Hayden-Miller, global trade lawyer and partner at a leading European law firm, decoding the latest global trends. Today we will begin discussing increased US trade tariffs. There are often preconceived views and ideas starting with a blank page from its historical root. Because I don't believe that you can properly understand Trump's trade policies without understanding the history and historical concepts. The present needs to be put into an historical perspective. And I propose to start with the concept of mercantilism, which is broadly considered to have applied in the 16th century. It popularised the idea that countries should export as much as they can and discourage imports as much as possible, if necessary by trade tariffs. The idea was that countries got richer by selling or exporting more than they bought, purchased and imported, allowing other But firstly, let's go even further back in time and discuss the birth of the nation state. In the beginning, there were countries, which were geographical territories, and then there were nation-states, countries acting as a political unit with a centralised political organisation ruled often with a population with a common identity. Why is this important? Because from that moment on, and during the time of the Renaissance, these nation-states particularly began to use not just a physical force to defend and advance their country's but began to use intellectual economic concepts, and one of these concepts used were tariffs and mercantilism. Historically, mercantilism has meant an economic theory whereby the trade and wealth of a country is thought to be generated by profitable trade balances, basically meaning that a country should export more than it imports, and certainly in terms of value. It's also generally considered that mercantilism entails countries encouraging the position that they export more than they import, by way of protectionism and tariffs if necessary. Mercantilism may be seen as arising out of the nation-state, and it is for this reason that they can often be associated with nationalism, which in a simple way can be described as putting one's country first. The Does this remind you of anything? Now, let's then look at mercantilism in more detail. There were, of course, different schools of mercantilism, each with their different styles and nuances. And as we will see, in many cases, each school or type of mercantilism is often associated with a particular country. Starting at the beginning, firstly, let's begin with Spain and how the Spanish viewed mercantilism. In the 16th century Spain was suffering a deep economic recession and the Spanish were looking for ways to boost the Spanish economy to take it out of its misfortunes. They looked to successful countries to see what they were doing, which is far from a stupid strategy and something that perhaps we should do more of today. The Spanish identified England as a country with a successful economy and realised that it had accumulated enormous reserves of gold and silver. One explanation is that they supposed therefore that if a country has lots of reserves of gold and silver, such as England at the time, then it was a successful economy which gave trade surpluses. They broadly supposed a causal link between the two rather than actually necessarily proving it. So in order to create a successful economy, they sought to accumulate as much gold and silver as possible and use their South American colonies to extract such precious metals in as high volumes as possible. And this methodology of accumulating and hoarding gold and silver bullion is known as bullionism and is in fact one of the earliest forms of mercantilism. Hold on. because this is probably the most complicated part of what we'll be discussing in this and following episodes. And I want you guys to hang on here because I hear some of you saying to me, wait a minute, Justin, mercantilism and bullionism, they're opposites, aren't they? You said that mercantilism encourages exports, but at the same time, you're saying bullionism discourages exports of gold They want to hoard it. So they're opposite concepts. Well, I can answer that. Essentially, in very simple terms, bullionism may be seen as the belief that by hoarding gold and not exporting it, it allows the wealth of a country's economy to increase, therefore eventually allowing the country to export more than it imports for its economy as a whole. Hoard gold, hoard silver. This will allow Now let's move on to France and the French concept of mercantilism. Like Spain, France created a number of restrictions on the export of bullion, but France introduces decrees which ban imports of certain goods, notably woollen goods from Spain. And there we have it, probably the true birth of mercantilism, hoarding certain goods, precious metals, and and discouraging importations by legislative measures. In the 17th century, the preeminent French minister of finance, Colbert, called the Great Colbert, developed these policies much further. Colbert was the celebrated minister of King Louis XIV, the guy who was principally responsible for transforming Versailles into the splendid palace that it is today. He's also a very important important French political figure who we should know of and who is well known and studied by economists even today. Colbert aimed to increase the wealth of France by means of commerce and he believed that the influence and grandeur of a country was proportional to its resources, notably its ownership of precious metals. And precious metals is a big issue today. We'll be coming on to this. He considered that the objective for a state was therefore to accumulate these resources by protectionism and tariffs. And what is protectionism really? Listen to me. It is state intervention of the economy. A person or head of state that advocates very important tariffs, especially across the board, to influence the economy is a defender of state intervention in this respect. We'll come on to this later. Now, Colbert's method was to enrich France by importing cheap raw materials to manufacture and transform them into very high quality products, which could be exported at very much higher prices with a large profit. He promoted the exportation of French goods by having quality and quantity of each article fixed by law, with severe punishments if not adhered to. This certainly helped to improve the quality of French goods, which helped the French compete better internationally. But most importantly, in 1664, the French Great Colbert put in place the first modern tariff classification system, with a listing of each type of good with corresponding tariffs due when they were imported into France. It was called the Tarif Colbert, upon which nearly all modern tariff systems are based. He also imposed high tariffs on foreign goods to protect French industries. So some of you may be saying to yourselves, this is great history, Justin, but can you please get to the point? Because I don't really necessarily see the link with Trump on this 1500. So let me explain that. As I have said, Colbert's objective was to industrialise France by way of tariffs and other mechanisms. To industrialise France with the use of tariffs, using tariffs as a tool for that industrialisation. Remember this because I believe this is precisely Donald Trump's objective. Colbert's plan was for France to become and to begin producing and manufacturing goods in France, not elsewhere, to make France great again in a certain respect, to ensure that French producers produced and manufactured in France, applying high levels of the highest quality. Does this remind you of anything? Recent threats to apply tariffs should a US manufacturer relocate to South America. In November 2024, Trump and announced that he intended to nominate Howard Lutnick as the US Secretary of Commerce, essentially in charge of US and international trade. Also in November 2024, the BBC World Service Report reported Howard Lutnick as having said at a New York rally, When was America great? At the turn of the century, our economy was rocking. We hadn't no income tax and all we had was tariffs. And in fact, at the time, neither the US nor France had income tax. In 1900, the United States still had the gold standard. Remember bullionism? And like France in the 1600s, France valued its economy on the basis of its gold bullion reserves. Another similarity, therefore. And in the 19th century in the US and in in the 1600s, both France and the United States heavily operated very important trade tariffs. McCantalist's thinking also saw a large population as a form of wealth that made possible the development of bigger markets and armies. Population growth and consideration of the birth rate were also of importance, and with birth rates rates falling now below 2.1 births per woman, considered to be the minimum rate per woman to keep the population levels constant. Various people, including Elon Musk, consider that the present population decline to be an existential threat to the economy or even to our species itself. There are therefore many similarities, I say, concerning the key points between Mr. Lutnick, his at a New York rally, and at best they stem from historical elements, I say, that we are discussing in this podcast, or else they at least mirror certain historical elements that this podcast is addressing. The modern federal income tax system was only established with the ratification of the 16th Amendment in 1913, which gave Congress the authority to levy an income tax, and France only introduced income tax The economic philosophy of mercantilists at the time was that the economy was a zero-sum game. This is a phrase banded about quite frequently and derives from game theory where the gain of one player is exactly equal to the loss by another. In a game where there are two players, if player A wins $10, then player B must win $10. lose ten dollars if one player wins the other player must lose an equal amount supposing there are two players a zero sum game because the net result of the global games of all the players is always zero because the size of the pie as it were never increases or for that matter decreases in the same way mercantilists generally considered that wealth among nations was a concept If one country became richer, it meant by definition that it simply took a piece of the pie of an equal size from another country or countries. The amount of world wealth, the size of the world pie as it were, was considered as fixed. Meccantalism is portrayed in movies, but predominantly implicitly or indirectly, whereby we can perceive its indirect consequences. The movie The Mission in 1986 comes to mind, starring Robert De Niro in the lead role and also Jeremy Irons. The movie is set in the 18th century, the 1700s. The film highlights the motivations behind expansion and the impact of policies on the local populations. It won an Oscar for Best Cinematography and quite honestly it's worth watching just to listen to the music written by Ennio Morricone. Nice tune. Anyway. Incidentally, not long after the film was released I went on a school trip to watch a performance of Shakespeare's A Midsummer Night's Dream at the Royal Exchange in Manchester in England and by coincidence Robert De Niro sat directly in front of me about the same time as the film came out I reckon. I can remember that he had an enormous backpack ponytail that I felt like pulling at times occasionally. Anyway, as for England, the government introduced trade barriers and regulations seeking to protect its merchants to the detriment of foreign ones. It subsidised its home industries and even gave bounties for exports of grain, for example. And certain modern academics such as Friedan and Lake consider that England's policies at the time had a positive impact on the economy. But I see another potential comparison between Britain and the US. Britain's doctrine in the 1800s of splendid isolation. Because in the 19th century, Britain applied a policy of refusing alliances in times of peace to avoid getting involved in wars that their allies were concerned by, not getting involved in conflicts of other countries and defending freedom to trade, and particularly as regards freedom of commercial vessels to sail. Like Britain at the time, Trump also has a stated aim of not getting involved in wars of other countries that do not concern US interests, and I also get the feeling that by the US not systematically supporting allies at any cost, it seeks to maintain its political and economic independence. England at the time made full use of its very impressive navy to protect its trade And there are some comparisons with the US's apparent intention to ensure free commercial shipping in the South China Sea. The former British Prime Minister Canning, applying a policy of splendid isolation, said, for treaty rights, but caution in extending them. And Lord Derby explained the splendid isolation policy in the following terms. It is the duty of the government of this country, placed as it is with regard to geographical position, to keep itself upon terms of goodwill with all surrounding nations, but not to entangle itself with any single or monopolising alliance with with any of them. Britain did not need a wall, certainly not in the 19th century. It had its seas and its navy to protect its borders. But understand me when I say that Britain's splendid isolation policy has been considered as ultimately a successful part of UK history and marked a moment when the UK, with its empire, was by far the leading world superpower as the and protecting its economy, Britain aimed to But Britain used tariffs and mercantilism not as a means to ensure its purchase of Greenland, but certainly to create a system of imperial power preferences, giving preferential treatment to goods from its own British colonies and dominions. History does repeat itself. It certainly seems to me, therefore, that Donald Trump could be seeking to use similar policies which in such a case helps to explain his economic outlook and even his apparent attachment to tariffs. Because tariffs represent a wall, not a physical wall or a border, but rather an economic wall, one that you have to pay a certain sum in order to get over. And these sums are called customs duties. Indeed, it seems to me that Donald Trump's rhetoric on borders and tariffs somewhat mirrors a splendid isolationist period. And who is to criticise a policy that represented one of the most successful periods of British history? And what would a French person's advice be in the face of all this? Well, Coco Chanel famously said, don't spend time beating on a wall hoping to transform it into a door. So, the show must must go on. We've talked about notions of mercantilism in Spain, France and Great Britain. Now let's finish off with Germany and the US. Germany's association with mercantilism and protectionism can be associated with the 19th century German businessman, economist and diplomat Friedrich List, whose theories may be seen as having been developed in the United States, perhaps in part due to the fact that he emigrated there. Such influences can cannot be completely ignored when considering the roots of US economic thinking even today. And as an aside, Donald Trump's grandfather, Friedrich Trump, was Bavarian, now part of Germany. He emigrated to the States, and I understand had begun acquiring Trump real estate in Queens. List thought that the downsides of imposing tariffs could be seen as an acceptable cost, even an investment of sorts. to promote the country's future productivity, almost like a short-term cost for a long-term benefit. An example of this would be non-definitive tariffs to protect new industries that were important to the country's growth. What I find absolutely fascinating about List's thinking, and perhaps why his theories were considered to influence the states in the way they did, is the reasonableness of them to an extent, based on what seems to me to be a compromise, a sensible compromise that Neither absolutely applying tariffs on all goods, nor applying free trade absolutely either. He said, can only be promoted by interfering social power. So what he's saying is that the right course of action is to an extent somewhere in the middle. And if you permit me to say this is where I think Trump may well be coming from and where he is heading. Let's face it, no country that I can think of applies free trade in an absolute manner, nor applies impossible tariffs on everything. It's a balancing exercise. The question is simply to what extent and where to draw the line. So what's the difference between mercantilism and protectionism? Is mercantilism just a fancy name for protectionism you may be thinking? To make it seem a more complicated word and to make someone sound more intelligent than they really are? Not quite. Both are using tariffs as a tool. They are similar but their objectives are different. Mercantilism Fundamentalism focuses on accumulating wealth through trade by minimising imports with tariffs and maximising exports. Protectionism, however, focuses on protecting domestic industries from foreign competition, which again it can often do by using tariffs as well. A key catastrophic consequence of protectionism, however, was the US's smooth transition holy tariff act. Another Republican president, President Herbert Hoover, promised in his 1928 presidential campaign to increase tariffs not on Chinese, Canadian, Mexican goods across the board, but broadly speaking on agricultural goods to protect the U.S. farming industry. It's therefore more so protectionist rather than mercantilist, because the tariffs sought to protect an industry, the U.S. agricultural industry, rather than any attempt to maximize exports. And it's a good thing that it didn't aim to maximise US exports because it had the opposite effect. Because the US Smoot-Hawley Tariff Act imposed so many tariffs, it triggered other countries to impose tariffs against the US that choked US exports and which is thought to have amplified and prolonged the Great Depression. As you may know, if Trump actioned all the tariffs that he has either said he will implement or is threatened to implement, then US tariffs could be potentially equal since I was high since 1934 levels, not since the Great Depression. Could this put the US and even the world on thin ice? I would say, therefore, that Trump's tariff policies appear to be two-pronged, with elements of both mercantilism and protectionism. Mercantilism because they seem to have originally been aimed to address the US trade balance and trade deficits, and more recently also aiming to support geopolitical objectives. But let's head back to the 1770s, because I want to make one last point when finishing this episode. And this is that one of the most infamous events in history ever might be considered as having derived from mercantilism, and that is America. independence itself, because one of the key accelerators is seen as being the Boston Tea Party of 1773, which can be seen as having occurred as a consequence of mercantilist policies. Indeed, it is a fact that may please our American listeners. With the Tea Act of May 1773, the British government allowed the British East India Company to sell tea from China directly to the American colonies, broadly without having to pay most standard taxes, which undercut US prices. It's necessary to consider that the price of tea at the time was exceptionally high, which explains why the expression for all the tea in China means something extremely expensive or priceless. For all the tea in China is one of my favourite expressions. attempted to impose mercantilist control over American citizens, and especially on tea, this understandably greatly angered my American cousins and angered the local American population as being entirely unjust. American citizens refused to be comfortably numb, faced against such injustices. They boarded British merchant ships in Boston and dumped hundreds of expensive chests of very expensive tea into Boston Harbor. It is thought of having ultimately triggered the American Revolution, which gave rise to American independence. Let us therefore end this episode with the thought that had it not been for English protectionism and mercantilism with its origins and impositions of customs tariffs, then American independence may not have occurred in the Rather, it may well have occurred in other circumstances, in a different year and era, and perhaps by different people. In other words, the American Constitution might possibly not be what it is today had it been drafted by others in different circumstances. So, a positive consequence of mercantilist and protectionist policies in this sense may therefore be seen as having helped catalyse, if not caused, the creation of the United States' contribution, if not the United States itself. Until the next episode, when we will consider Trump's policies in greater detail and from the perspective of the other side of the coin, i.e. free trade, stay tuned. Thank you very much. you require advice, then you should engage an appropriately qualified person to provide you specific advisory services in the field. The views, thoughts and opinions expressed in this podcast are my own and do not necessarily represent the views, thoughts or opinions of any law firm, nor that of any third party, other person, company or organisation. Stay tuned for the next episode.

Unknown: 29:38

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