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Tuesday, June 2, 2009

A Short Explanation of Mercantilism

Anyone who's read my writing for any length of time knows that I have certain favorite topics; as Sherlock said of Mycroft:
(He) has his rails and he runs on them.
One of my betes noire is "free trade," which, again, is not at all the same as "free markets," though I'm sure many will think that is what I am talking about.

The latest blogger to be added to my blogroll wrote an excellent short explanation of one of the classic alternatives to "free trade," mercantilism. There is much good and interesting material here, but this paragraph is representative and should intrigue you. Emphasis is mine:
A final, excellent example of this is Russia. From 1991 through 1999 there was not a single new automobile assembly plant built in Russia but used cars and cheaply built foreign productions were flooding the country. In 1999, then President Putin, got a 33% tariff passed on all imports. The pundents of Anglo economics were all screaming like one unholy chorus that this spelled the end of the Russian auto market. Instead, what this spelled was the opening of 7 new large automobile plants through out Russia. Russia, through low internal taxes and a pro-business environment, became one of the few profitable markets for the American Chevrolet and GM, even though they were now competing in Russia not only with Russian cars but with BMW, Ford, Mercedes, Hynda, Renault and Toyota. Ford even tripled the size of its main plant, while opening two other smaller plants. Thus Russian workers built the cars Russian workers drove, money stayed in Russia and was spent in Russia, driving the economy forward.
Does this situation sound at all familiar to you? It should (though of course there's more at work than the simple presence or absence of tariffs). Personally, I favor the Fair Tax. However, failing that, I would at least like to see some of our tariffs go up and our punitive income taxes go down. Please read Mr. Rodina's explanation as to why.

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