Mitt Romney on Mercantilism
By David Henderson
But they [the Chinese] sell us this much stuff [holding his hands far apart.] We sell them this much stuff [holding his hands close together.] Tell me, who doesn’t want the trade war? They don’t want it real bad. And we’ve been listening for 10 years from people talking about how we can’t hold China to the rules of free and fair trade and if I’m president I will hold them to those rules. And we’ll respect each other but we are not going to let them just run all over us and steal our jobs.
This is what Mitt Romney said in the Republican presidential debate on Saturday night. He was saying that the Chinese want to avoid a trade war with the United States more than the U.S. wants to avoid one with China because they have more at stake. But that’s false. We benefit as exporters just as they do as exporters, and the measure of the benefit is the producer surplus: the difference between the price obtained and the supply price, the minimum price at which the producer would be willing to produce.
But we also benefit as importers, just as they do. The measure of the benefit is the consumer surplus: the difference between the demand price, which is the maximum price we would be willing to pay, and the price we actually pay.
I have no basis for saying, and neither does Romney, that our consumer surplus from buying Chinese goods plus our producer surplus from selling goods to China is less than their consumer surplus from buying goods from us plus their producer surplus from selling goods to us. In fact, given the tremendous subsidies that Romney alleges (I think, correctly) that the Chinese government gives its exporters, China’s producer surplus is probably fairly small.
Romney is preaching mercantilism. As Charles L. Hooper write in a recent Econlib article, “Mercantilism Lives.”