David Ricardo (born 18 April 1772) was one of those rare economists who achieved both tremendous success and lasting fame.
At the age of 27, after reading Adam Smith’s the Wealth of Nations, he was a believer in the quantity theory of money, or what is known today as monetarism. Ricardo notably opposed the Corn laws, which he saw as barriers to economic growth and his model is based on the assumption that the relative ratios of labour at which the production of one good can be traded off for another, differ between countries.
The theory promotes long-term economic growth through specialisation and trade, suggesting that countries should look beyond immediate trade balances to the overall benefits of open markets. Older Mercantilism theories are often associated with recent Donald Trump imposition of reciprocal tariffs.
The mercantilism economic theory emphasises the accumulation of national wealth, primarily through a favourable balance of trade. The idea is that a country should export more than it imports to build up reserves of gold and silver. This often advocates (not much different from Trump deluge of tariffs on most trading countries) for protectionist measures, such as tariffs and quotas, to shield domestic industries from foreign competition. It is intended to promote local production in the USA and reduce reliance on imports.
The recent decision by President Trump to impose sweeping tariffs on imports marks a significant escalation in the ongoing trade war. This aggressive move, announced on 2 April, is part of Trump’s broader strategy to reshape the global economic order, reassert US dominance, and address long-standing trade imbalances. This article examines the underlying motives, potential consequences, and the reactions of global stakeholders to Trump’s new tariffs. Trump’s administration implemented tariffs on various imports, arguing that they protect American jobs and help attract new international industries to open in the USA. This is in direct opposition to Ricardo’s advocacy for free trade, which suggests that tariffs can lead to inefficiencies and higher prices for consumers.
The mercantilism style favoured by Trump supports significant government intervention in the economy to regulate trade and protect national interests. This includes negotiating trade deals that favour domestic industries. Trump’s mercantilist approach can lead to trade tensions and retaliatory measures from other countries, potentially disrupting global trade flows.
In contrast, Ricardo’s theory supports the idea that reducing barriers fosters international cooperation and economic interdependence. When comparing mercantilism with later economic theories advocated by Ricardo and Malthus, one meets with the theory of free trade as operated using comparative advantage analysis. The adjective “Malthusian” is used today to describe a pessimistic prediction of the lock-step demise of a humanity doomed to starvation via overpopulation.
Equally, Ricardo argues that countries should specialise in producing goods for which they have a lower opportunity cost, leading to mutual benefits from trade. This perspective emphasises that trade can be beneficial even if one country is less efficient in producing all goods. This contrasts with original Trumpian whims of restricting trade with countries that do not invest in America to reduce the massive foreign trade imbalance.
Naturally, on a global level, Trump’s isolationist trade policies conflict with Ricardo’s theories, which promote free trade and limited government intervention, based on the belief that open markets drive efficiency, innovation, and overall economic growth.
The Trumpian’s focus is often on short-term gains and immediate impacts on domestic industries, with less emphasis on long-term economic relationships. Trump’s approach to trade is characterised by a transactional mindset, focusing on negotiating favourable deals that prioritise American interests.
He often views trade relationships through the lens of immediate gains and losses rather than long-term benefits. The slogan “America First” policy does reflect a mercantilist approach, where the primary goal is to enhance the economic position of the United States at the expense of other countries. This often translates into protectionist measures, such as tariffs on imports from countries like China, among others. Trump’s administration frequently emphasised reducing trade deficits, viewing them as a sign of economic weakness. This contrasts with Ricardo’s view, which suggests that trade deficits are not inherently negative and can be part of a healthy economic relationship. Trade is viewed as a zero-sum game where one country’s gain is another’s loss.
The focus should extend beyond merely protecting domestic industries and securing trade deals that favour the US. International trade is viewed as a positive-sum game, where both parties can benefit. The emphasis is on cooperation and mutual gains through specialisation. While Trump emphasises protectionism, national wealth accumulation and short-term gains, Ricardo advocates for open markets, specialisation and the long-term benefits of trade. These differing perspectives have significant implications for international trade policy and economic relationships between countries.
Trump’s approach has led to renegotiations of trade agreements (for example, USMCA replacing NAFTA) with a focus on securing better terms for the US. This contrasts with the idea of multilateral agreements that promote free trade among many countries. In summary, addressing the overvaluation of the dollar is a longstanding issue so readers brace yourselves for a bumpy ride this year.
George M. Mangion is senior partner at PKF Malta
