This presentation explains the views of international trade given by mercantilists and neo-mercantilists. it also presents a case study that shows mercantilism is still alive! Moreover, it also shows it's implication in US-CHINA Trade War.

1. MERCANTILISM:
INTERNATIONA
L TRADE
THEORY
By: Garima Gupta

2. Mercantilism:
■ Collection of the economic thought that came into existence in Europe during the period 1500-
1750.
■ It is also referred as the political economy of state building.
■ Three components of economic system : a manufacturing sector, a rural sector and the foreign
colonies.
■ They viewed merchants as the most successful group of economic system and labour as the most
basic factor of production.
■ They employed a labour theory of value i.e., commodities were valued relatively in terms of
their relative labour content.
■ Mercantilists pursued policies that kept wages low.

3. Mercantilist’s views on trade:
■ Mercantilism is an economic theory of international trade with a purpose of building a
wealthy nation.
■ Wealth of a nation = stock of precious metals accumulated
■ A nation can become rich and powerful when : EXPORTS > IMPORTS
■ Government intervention:
Maximise exports
Minimise imports
It enhances national output and employment.
■ One nation can gain only at the expense of other nations i.e., trade is a ZERO-SUM GAME.

4. Neo-Mercantilism:
■ It is a policy regime which is concerned with enriching and empowering the nation to the
maximum possible degree.
■ It involves ECONOMIC PROTECTIONISM i.e.,
protection of domestic producers by discouraging value-added imports through tariffs;
structural barriers to prevent entry of foreign companies into domestic market;
manipulation of currency value against foreign currencies to encourage exports.
■ OBJECTIVE: to increase the level of foreign reserves held by the government, allowing more
effective monetary policy and fiscal policy.

5. Mun’s Mercantilist views on trade:
■ Sir Thomas Mun : the director of the East India Company took a prominent role during the
economic depression of 1620.
■ He says in England's Treasure by Foreign Trade, we must "sell more to strangers yearly than we
consume of theirs in value."
■ To achieve the positive balance of trade, he laid out a list of criterion for England to follow:
-Imported goods that can be produced domestically should be banned.
-Reduce luxurious imported goods by making Englishmen have a taste for English goods.
-Reduce export duties on goods produced domestically for foreign markets.
-Charge more money for the exports if no alternatives are available to the neighbours.
-Cultivate wasteland for higher production and to reduce the amount of imports needed from abroad.

6. Mercantilism
is still alive!
Mercantilism laid the foundation for
today's nationalism and
protectionism.
Most nations restrict imports in order
to protect domestic employment from
foreign competition and to encourage
domestic high-tech industries.
This is evidenced by numerous trade
disputes among various countries that
have arisen over time.
For instance, disputes between the
United States and the European
Union and other developed and
developing countries.

7. Donald Trump’s trade policy: steel and aluminium
tariffs
■ Trump’s policies follow a form of neo-mercantilism and
focus on economic nationalism.
■ He is also concerned about the US trade deficit and has
focused first on restricting imports.
■ Trump’s administration has worked to seal the United
States off behind higher tariffs on goods such as
aluminum, steel, washing machines and Chinese
industrial products.
■ The White House announced import levies— 25% on
steel and 10% on aluminium— to all of America’s
trading partners, including close allies such as Canada
and the E.U.

8. Reasons behind Trump’s policy:
1. Trade Deficit : Value(imports) > Value(exports)
U.S. imported goods and services worth US$182.5 billion in 2017, while exporting
$121.2 billion, for a deficit of $61.2 billion.

10. 2. China mercantilism:
-China dumping: in which manufacturers export a product to another country at a price below
the normal price.
-China employs unfair trade practices related to intellectual property and technology
transfers.
-Its excess steel production on world markets and depressing prices leads to problems for
American steel producers and American steel workers.
-China has built a huge steel industry that now produces more than 10 times as much output
as the U.S. steel industry does.
-The White House imposed tariffs of 25% on more than a thousand Chinese goods, affecting
about $46.2 billion of U.S. imports.
-US imposed tariffs not only on China but also on Canada and European Union because it
was necessary to prevent China from shipping steel and aluminum to the United States via
third countries.
-Restricting imports was necessary to boost domestic production and bring operations at U.S.
steel mills up to 80% of their capacity, citing national security concerns.

11.  After the imposition of tariffs by Trump, China announced it would impose
retaliatory tariffs of a similar scale on U.S. goods exported to China, including
aircraft and autos. That Chinese move prompted another escalation from Trump,
who threatened to impose an additional 100 billion dollars’ worth of levies on
Chinese goods. In 2018, these mercantilist policies in the United States and China
launched a TRADE WAR.

12. Other policies of Trump’s administration for
national protectionism:
■ Immigration policies
-Trump imposed immigration policies followed mercantilism because it takes jobs away from
domestic workers. Trump's "America First" program seeks primarily to protect American workers
and industries. For example, he promised to build a wall on the border with Mexico.
■ Unilateral trade approach
-Trump’s unilateral trade moves are an effort to compel China and others to make concessions.
He believes that multilateral agreements benefit corporations at the expense of individual
countries.

13. References:
■ International Economics by Dominick Salvatore
■ International Economics by Dennis R. Appleyard and Alfred J. Field, JR.
■ https://en.wikipedia.org/wiki/Mercantilism
■ https://www.marketwatch.com/story/how-to-understand-trumps-trade-policy-its-about-
restricting-imports-2018-07-25
■ https://www.thebalance.com/mercantilism-definition-examples-significance-today-
4163347
■ http://www.adividedworld.com/economic-ideas/modern-day-mercantilism/
■ https://www.newyorker.com/news/our-columnists/what-is-donald-trumps-trade-policy-
nobody-knows

14. THANK YOU