MERCANTILISM

 History of Mercantilism: A trade system that existed from the 16 th to the 18th century and
was predicted on the notion that commerce, exports, and import restrictions were the
greatest ways to increase a country’s wealth and power.

 The mercantilists’s view on trade:

 To grow rich and powerful, a nation had to export more than it imported: The
government had to do everything in its power to promote the nation’s exports and
discourage and restrict imports (particularly the import of luxury consumers
products)
 The more gold and silver a nation had, the richer and more powerful it was: They
believed a nation's wealth was directly tied to the amount of precious metals,
particularly gold and silver (bullion), it possessed.
 Zero-Sum Game: International trade was seen as a competition with other
countries. One nation's gain was another's loss. They believed there was a fixed
amount of wealth in the world, and for one country to gain, another had to lose.

This mercantilist view heavily influenced trade policies:

 High Tariffs: Governments imposed high tariffs on imported goods, making them
expensive and discouraging people from buying them.
 Export Subsidies: Conversely, governments might subsidize exports, making
them cheaper to sell abroad and attracting foreign buyers.
 Colonies as Resources: Colonies were seen as a source of raw materials for
production and a guaranteed market for finished goods from the colonizing
nation.

Advantages Disadvantages

It promotes the complete development of all It creates high levels of resentment.

natural resources:  when a dominant mercantilist power
 Many economies now generate a lot imposes unfair trade practices or
of waste because there is a focus on exploitative policies on weaker nations.
exploiting foreign commerce to cover This can lead to resentment among the
product of service deficiencies. countries subject to these practices, as
Mercantilist nations would establish they may feel exploited or
colonies to extract raw materials and disadvantaged in trade relationships.
resources, ensuring the utilization of For instance, imposing high tariffs or
all available natural assets to quotas on imports from other countries
strengthen the home country's can provoke resentment and retaliation,
 economy. potentially leading to trade disputes or
even conflicts.

It encourages trade deficits for foreign The system is ultimately quite inefficient.
nations.  One example of the inefficiency of
 The goal of mercantilism is to build mercantilism is the misallocation of
wealth, which means/ any opportunity resources due to protectionist policies.
to do so is encouraged. When a By artificially favoring domestic
mercantilist country imposes tariffs or industries through tariffs, subsidies,
other trade barriers on imports from and other trade barriers, mercantilist
other countries. This can lead to a governments can distort market signals
situation where the mercantilist and hinder the efficient allocation of
country exports more goods than it resources. This can lead to the
imports, creating a trade surplus for overproduction of certain goods that
itself but a trade deficit for its trading receive government support, even if
partners. they are not the most economically
 Raw materials were a popular viable or competitive products.
commodity for mercanlist states Additionally, the emphasis on
because they could be refined into accumulating precious metals like gold
manufactured items and marketed to and silver can divert resources away
foreign nations at a premium price. from more productive investments,
It’s an excellent illustration of what it further contributing to inefficiency in
means to buy low and sell high. the economy.

It naturally reduces unemployment rates There is always a risk of local raw materials
 By imposing tariffs on imported and resources running out.
goods, mercantilist governments can  An example of the risk of local raw
protect domestic industries, leading to materials and resources running out
increased production and employment under mercantilism is the depletion of
opportunities within the country. This natural resources due to intensive
protectionist approach can help exploitation. Mercantilist policies often
decrease unemployment by providing prioritize the extraction and utilization
jobs to workers in sectors that might of local resources to fuel economic
otherwise be outsourced or undercut growth and meet the demands of
by foreign competition. domestic industries. However, this can
 Because there is a strong emphasis on lead to overexploitation and depletion
developing local resources, jobs are of these resources over time, posing
developed to support this effort. long-term sustainability challenges and
People are required at every stage of potentially threatening the economy's
the process, from resource discovery stability. For instance, excessive
to the development of inventive new deforestation or mining without
products and the sale of these items in adequate conservation measures can
 new markets. Of course, many of the result in the exhaustion of local forests,
jobs are located in the mother minerals, or other natural resources.
country, but new chances are created
in each colony as well

Cultural exchanges are encouraged to It established a desire for the mother nation
increase trade. to always come first.
 Under mercantilism, cultural  One example of how mercantilism
exchanges are promoted to enhance fosters a propensity for the mother
trade by establishing diplomatic country to always come first is through
embassies and trading posts in foreign policies that prioritize domestic
countries. Mercantilist nations send industries over foreign competition.
diplomatis and traders, resulting in a For instance, mercantilist governments
desire for the mother nation to always might enact protectionist measures
come first. One example of how such as tariffs, subsidies, or quotas to
mercantilism fosters a tendency for ensure that domestic producers have a
the mother country to always come competitive advantage in the market.
first is through laws that promote This preference for domestic industries
domestic industry above international can lead to a bias towards products
competitors. Mercantilist countries made within the mother nation,
may send protectionist explorers to discouraging consumers from
other regions to promote cultural purchasing imported goods even if they
understanding, build networks, and may be of higher quality or lower cost.
negotiate trade deals. These
exchanges could lead to the sharing of
knowledge, technology, and
resources, ultimately facilitating trade
between different nations and regions.

 Mercantilism Today:
 Today, mercantilism is considered archaic. The disaster of WW II demonstrated
the potential dangers of nationalistic policy. It also encourage global trade and
connections as a means of combating them.
 However, it’s difficult to avoid mercantilism. For example, following the war,
trade barriers were still utilized to safeguard locally established businesses. The
US pursued a protectionist trade strategy toward Japan and negotiated volunteer
export limitations with the Japanese government, limiting Japanese exports to the
US.
Mercantilism is no longer the dominant economic doctrine today, but some aspects of it still exist
and influence the trade policies of many countries.
Here are some examples:
Industry Protection: Some countries impose high tariffs on imported goods to defend native
industry from foreign competition. To preserve its indigenous industries, the United States has
put tariffs on imported steel and aluminum.
Export subsidies: Some countries provide subsidies to exporting companies to help them
compete in international markets. For example, China provides subsidies to exporting companies
to help them reduce production costs.
Monetary policy: Some countries try to devalue their currencies to make their exports cheaper
for foreign buyers. For example, Japan has intervened in the foreign exchange market to make
the yen weaker.
Benefit:
Protecting domestic industries: Tariffs and subsidies can help protect domestic industries from
foreign competition, helping to preserve jobs and promote economic growth.
Export promotion: Export support can help companies compete in international markets, helping
to increase exports and create jobs.
Strengthening national security: Some people argue that protecting critical industries, such as
defense manufacturing, is necessary for national security.
Limitation:
Reduced efficiency: Tariffs can increase prices for consumers and reduce competition, leading to
reduced economic efficiency.
Trade war: Protectionist policies can lead to trade wars between countries, harming the global
economy.
Inequality: Mercantile policies can increase inequality, because they tend to help large industries
and wealthy companies more than small households and small firms.