May 04, 2004

The persistence of the U.S. trade deficit has led economists and politicians alike to revise some old mercantilist propositions. For example, the new updated version of the beggar-thy-neighbor policies is that fixed exchange rate countries are unfair. The fixed exchange rates are tantamount to enacting protectionist policies. On this later point it is only fair to mention that the mercantilist view is bipartisan, both Senator Kerry and at least Treasury Secretary Snow share that view. Other related issues that concern the mercantilist is the dependency on foreign financing and whether some time in the future foreign debt holders could blackmail U.S. policy makers.

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