Eric: Before we get into sort of a definition here, let's get an idea of what we're talking about when we talk about mercantilism. Mercantilism dominated European thinking on international economic policy in the 17th and 18th centuries. The underlying belief of mercantilism was that international economic policy is primarily a tool of state power, since power, unlike prosperity, is relative. Mercantilists think of international economic engagement as zero sum. You win, I lose.

Martin Wolf: That was Martin Wolf in the Financial Times earlier this year. Eric, is this an accurate representation of mercantilism?

Eric: It is, I would add, maybe two things. One is that Mercantilists have a belief that power and wealth are deeply interconnected. So if you're trying to promote the power of your state, you're also trying to promote its wealth, and there's a reciprocal relationship there. And the other thing I would add is that, you know, you could be someone who believes in promoting the power and wealth of your state, but be a free trader. But in the case of mercantilism, the policy prescription that they have is not free trade. It's protectionist policies, but strategic protectionist policies. So these are not people who believe in autarky, self-sufficiency, but rather using protectionism and strategic ways to achieve objectives. While your state remains in a relatively open world economy.

Eric: And if I can just add one additional thing, it's not just at the border that they're interested in state activism or state interventionism. It's also within the economy. So subsidies and state owned enterprises and all kinds of things like that.

Drew: When we think of mercantilism, I think a lot of people think about maximizing export, minimizing imports. You mentioned a few other traits there, but what about tariffs or colonisation when we when we talk about mercantilism.

Eric: Yeah. So certainly historically many mercantilists were imperialists as well. But it's not true of all of them. So there's a huge variety in mercantilist camp. So I mean, one way to think about the mercantilist camp is it's like an intellectual tradition, like economic liberalism. So Adam Smith has many followers. There's a similar line of thinkers in the mercantilist tradition, and some of them were imperialists, but others were anti-imperialists. So there's no consistency on that on that issue.

Drew: Drew, when we look around the world, we hear of countries making trade deals based on tariffs, becoming more self-reliant. In your view, is this a kind of global political economic shift happening right now?

Eric: There is a shift going on. And from the perspective of the Trump administration, the period of free trade, which really was part and parcel of the rules based system after the Second World War, what becomes the World Trade Organization was applying Adam Smith, in the sense of trade, raised all boats and and as Eric was saying, or you were saying, mercantilism is really zero sum. So you've got a whole series of countries around the world as the World Trade Organization becomes less and less powerful, that are applying the principles of neo mercantilism. If you like, you can see Donald Trump exports and imports and his concern about trade balances. This is a reflection of that. Also subsidies national champions and governments thinking about their country for themselves. And that puts us a classic free trader at an even greater disadvantage, up again against the much bigger United States, considering that that's where the Trump administration appears to be going.

Drew: All right, before we get to Canada, I want to talk about the two biggest economies. We already talked about the US, but let's talk about China. Eric, China has been at at the centre of this neo mercantilism idea. Can you give us some evidence to sort of support this. What have we seen.

Eric: Yeah. So China is an interesting case because it has a long tradition of mercantilist or neo mercantilist thought. In fact, Chinese thinkers in the 19th century who were promoting this idea, you know, would would reach back into the third century BC to the book of Lord Shang, who had ideas about power and wealth being interconnected. So this is a deep tradition in Chinese thought. Xi Jinping and the current era current leader of China is very informed by mercantilist thought figures like Sun Yat-sen from earlier in the 20th century, and the Chinese version of neo mercantilism is a much more interventionist version than, say, the history of American neo mercantilist thought, which also has deep roots in the in the 19th century. It's just in a less activist, less interventionist manner. It's also historically been much more export oriented. That's a key feature of the kind of Chinese history of neo mercantilism. So it's got its distinctive features. But certainly since Deng Xiaoping came to power in 1978, China has been pursuing neo mercantilist policies.

Drew: True, we talked about the US here. Trump's tariffs shifts towards protectionism. Does this signal a full move to mercantilism, or is there a mix here when it comes to the US?

Eric: We don't know really. I mean, it's hard to project predict how far he's going to go down this road. But as of now he's certainly not pulling back. If anything, he's doubling down. If we think about the relationship with China, for example, the concern he has about the size of the Chinese trade balance, trade surplus, much of that in the form of consumer goods coming to the United States. You know, there's been a long tradition that's changing now in which essentially everybody was a consumer and everybody benefited from low prices. And now we've got a situation in which and Trump was ahead of this a decade ago, in which much stronger concern about the domestic economy, about workers, about things like manufacturing that have been stripped out to a sizable extent of the US economy, and the balance between being a consumer and being a worker for the economy. Wide changes. And he can continues to emphasize that to some extent it depends. The success depends on what sectors he's looking at helping. Right now. It's hard to see manufacturing really taking off in the United States, given the size of wages or for something cool, for example, you know.

Drew: Let's talk Canada, Canada, China, strike a deal for reduction in tariffs on canola seafood products in exchange for a set number of EVs. Would this fall into a category of mercantilism?

Eric: I, in part and in part the special conditions which Canada has in relation to the United States. The government's desire to diversify trade. And what we're seeing in the last few days is the US desire. And this is dangerous for Canada to limit the ability of Canada to diversify trade. To begin with, 75% of our trade exports to the United States, China is more like 5%, you know, so you've got a challenge in terms of diversification. We've tried it many times and haven't been successful. What we may be seeing now is a new offensive mercantilist, I guess you could say, in which the United States, as I was saying, tries to put pressure on Canada by limiting or choosing between the big US market and other markets, in particular China.

Drew: Eric, in your view, is Canada acting within a neo mercantilist system?

Eric: I mean, in a general sense, anytime you're putting restrictions on imports, you can classify that as as a numeric policy. If the goal is to maximise power and wealth of your state. I think in the Canadian case, you know, we have a long history of responding to the United States going against free trade. So we used to have a free trade deal in the mid 19th century that got abandoned. And we turned eventually to the national policy in the late 1870s, which was a neo mercantilist strategy of trying to diversify trade, trying to build up a domestic market. And it's a response, though it's a reactive response to us turning against O-Train. We did the same in the Great Depression when the US introduced the Smoot-Hawley Tariff Act. You know, we turned very quickly to British markets trying to find an alternative. When the Nixon shock happened in 1971, you know, once again, we tried to diversify. We tried to build up national markets. So it's in the Canadian case, it's generally been a reactive strategy in response to America itself turning away from free trade.

Drew: Help us understand a little bit what makes the trade deals of today different from the trade deals that were happening sort of under the banner of free trade.

Eric: So in the in the era, which you can call kind of the high point of free trade in the 1890s when the World Trade Organization is created, you know, that's a multilateral set of trade negotiations where it's kind of one size fits all. And many of the countries of the world are involved in that process. We're in right now is much more of a set of bilateral relationships. And I think the United States in particular, would like a set of kind of bilateral hub and spoke relationships at which they are the centre, and that maximises their power. I think China wants the same thing. You know, it's a it's a kind of tributary model that they had historically, where China would make bilateral deals with states around the world and, and, and maximise its power through those bilateral relationships. So it's the difference between that kind of hub and spoke relationship and a more multilateral order in which all are governed by the same rules.

Drew: Propaganda.

Eric: Yeah. So the hub and spoke relationship is a good, good example in the North American economy and the structure of NAFTA, which became CUSMA the existing free trade agreement in the early 1990s, the United States wanted to negotiate a free trade agreement only with Mexico, we insisted, and this is after the bilateral agreement of being part of a trilateral agreement. Now, the United States, one of the things they floated with regard to the continuation of the USMCA is dual bilateral, which would get at the same concern with regard to hub and spoke. It's part and parcel, I think, of us putting greater pressure on Canada to serve them first, but in circumstances where they're not making it easy, they want us to serve them first, but in circumstances because of their power to take advantage is simply put, you know, I want to make a point. Eric was exactly right. With Canadian history, we think of free trade as having been part and parcel of, you know, the last 40 years and the reorientation towards the United States. There was less of a reorientation than, you know, in terms of the statistics. But the idea of a national policy, tariff wall build manufacturing at home. For us, that was always a second choice. The United States essentially offered us a binary choice. You can have free trade. And this goes back to the 19th century if you become part of the country, if you don't want to become part of the country, you're not going to have free trade. I'm simplifying hugely, but there's a lot of truth to it. And that balance, especially, as Eric said in the context of the United States itself, changing with regard to free trade globally was always tricky for us to find.

Eric: I was just going to add, it's a really interesting point that drew was making. And just to highlight that we've been through this before. So one of Trump's heroes is McKinley, the president from the late late 19th century. And McKinley is well known for something called the McKinley tariff in 1890, which did have the objective of pressuring Canada. And McKinley himself did not say this, but there were people at the time around McKinley who were trying to pressure United States, pressure Canada into annexation. And so this is a long history, and we have to react to it in the ways that we have in the past.

Drew: Where does Canada fit in all of this, then?

Eric: It's really challenging because there's a few distinct aspects of Canada as a Western middle power. We are trade dependent. We are trade dependent on a country that was always, you know, they can be challenging our best friend and they're not. And it's changed suddenly. So we have come after free trade and the election of 1988 to be comfortable with this environment. And now the environment globally has changed. It's a little bit of a subset of the Prime Minister's speech in Davos. And part of our challenge is we, you know, are trade dependent like many Western countries. The United States, by the way, isn't because its domestic market is so big. They trade within themselves a lot more than any other Western country. We're on the higher side. But of course that dependence is on one country. And what the Prime Minister now is trying to do is shake this off a little bit and go around the world and do deals, the most controversial being China. And we have tried this before, and right now we are making some progress, but it's not a substitute for the US market that's turning its back on us.

Drew: All right, Eric, is this the end of sort of, you know, free markets, minimal government, you know, intervention. Is this the end of neoliberalism?

Eric: So at the moment I would say yes, but but it's hard to know where we're going. I mean, the reason, I think to argue that that is the situation we're in is that the US is returning to a policy that was very common for them, you know, before 1945, which was I mean, people even referred to neo mercantilism in the 19th century as the American system of political economy. So this is a deep rooted tradition. Drew made reference to Kearney's important speech in Davos, the speech that was made at the same meeting by Jameson Greer, the US Trade Representative, invoked this history and said, you know, this is the American history to be protectionist. And so to the extent that that that kind of worldview that the US is returning to something that for them is historically normal, is a massive shock to the global system, because the US, since 1945, has been the leader of promoting a more open world economy. So yeah, in that sense. But I think the more interesting question in terms of looking forward is does that last? So will there be a backlash within the United States to some of the Trump protectionism? Because the kinds of kinds of protectionism he's done have been much more extreme than were even done in the kind of 19th century era that Trump often invokes. And just to give you one example, to finish up here, you know, the McKinley tariff that I mentioned earlier of 1890 produced a reaction in the United States and some of the 1892 elections. You know, there was a push back towards free trade. And so this isn't this isn't set in stone, but it's certainly a massive shock in the way that drew, I think, is accurately depicting.

Drew: So that period of 1890 to 1892, incidentally, is what we might call Piikani accession, at least until now. There were significant there was significant voter support, not majority by any means in border areas for annexation. And in the later part of the decade, as the West grew, Canada grew more confident in itself. Economically. That disappeared to come up now, many years later, with very little support in Canada, in part because, you know, it's being offered by Donald Trump in all the circumstances that we're talking about. It's a really interesting moment. Let me give an example of maybe the limits that Eric was talking about with regard to mercantilism. Let's say that Trump forced Apple to come home. There's a good book in the last year, Apple in China. Right. Great book on you know, their strategy there. How much would an iPhone cost if it was made in the United States. And what's the consumer reaction if that phone doubles or even triples? And what's the reaction of the government in terms of subsidising American consumers with regard to that? You're not going to bother with subsidising Canadian consumers. You know, just as one significant product.

Eric: In the past as you as you mentioned, mercantilism has led to a more fractured world and conflicts. Where are we headed this time? I'll start with Eric and then we'll finish with yeah, yeah.

Eric: Quickly. Neo mercantilism does not necessarily need to be a conflictual world. So some of the most famous Neo thinkers, Friedrich List or Henry Carey, those people believed in international cooperation. So the question is, is Trump doing what he's trying to do as a temporary strategy to then reach some kind of new international agreement? And so some of the people around him talk about a new Bretton Woods or Jameson Greer has been talking about a new international economic system. Or is Trump in a mode of kind of endless deal making where there's never any final outcome? And if it's the second one, we're in a much more conflictual world. If it's the first one, we're in a kind of a temporary phase where there's an attempt to establish a new equilibrium which needs to be negotiated.

Drew: Drew very quickly.

Eric: I fear. Exactly right. I fear it's the second it's hard to think about the president. He's got smart people around him. Jameson Greer being one of them, thinking medium term, thinking long term. But of course, it's this administration with all sorts of problems. And we see that with regard to Canada, you know, we've got 40 million people in Canada who buy as much stuff from the United States as 340 million Americans buy from us. How are we taking advantage of them? I mean, if you can't get along with Canada, you know, you can't really get along with anybody, which is what I fear right now from the administration. But we'll see.

Drew: Gentlemen, we are going to have to leave it there. Eric, Drew, really appreciate your time. Really appreciate your insights. Thank you.

Eric: Pleasure. Thank you.