Deficit aversion: Mercantilist ideas and individual trade preferences

Abstract

What factors affect trade preferences? This article focuses on current-account balances, which despite being de-emphasized by mainstream economic theory, play an outsized role in political rhetoric regarding the costs and benefits of free trade. This article shows that individual preferences over trade openness reflect the mercantilist belief that when a country is running a current-account deficit, trade reduces that country's aggregate employment prospects and diminishes its status on the world stage. This article shows that current-account balances are an important driver of individual trade preferences. The theory's predictions are borne out by hierarchical analysis of cross-national observational survey data, and further supported by the results of an original survey priming experiment in the United States. These results contribute to a growing literature emphasizing the effect of macroeconomic factors on preferences.