Mercantilism is back and it is here to stay

25th Dec 2022

Mercantilism is the belief that European states held centuries ago that drove them to the several phases of colonialism, culminating in a significant portion of the world's population and land being held by the smallest continent.

Mercantilism is the belief that wealth is generated in an economy by favorable balances of trade. If Britain wanted to gain wealth, it would need to export more than it imported. One way that this happened was through the extraction of resources in colonies, where the balance of trade was almost entirely favorable to the European power.

Mercantilism is considered an old, out of touch idea. As Project Syndicate described, "… mercantilism is typically dismissed as an archaic and blatantly erroneous set of ideas about economic policy".[1] Despite this, policies that reflect mercantilism are gaining popularity as nationalism gains a stronghold in countless countries across the world, most notably in the United States, the United Kingdom, and Brazil.

Among the greatest examples of mercantilist policies in action in today's world are found in the trade situation between the United States and China. President Trump has engaged in one of the longest-lasting trade wars in American history with the aim of protecting American interests in exports.

President Trump argues that because American imports from China are greater than Chinese imports from America, money is leaving the American economy which can be hard to recover. While trade deficits do pose some negative impacts on American trade, it is increasingly hard to conclude that American-Chinese trade is bleeding America dry of US Dollars.

Trade was once the greatest source of wealth, investment, and opportunity in the world's economy. The European power that controlled trade at any particular moment in time — whether it be the Portuguese, English, or Dutch — held the symbolic throne over the world's economy.

During the time when the Dutch solidified control over the lucrative "East Indian" trade through the Vereenigde Oostindische Compagnie (commonly known in English as the VOC and Dutch East India Company), the Netherlands was the wealthiest country on an individual basis in the whole world. Before this time, it was practically a backwater.

Nowadays, however, global trade is actually becoming less of an influence in the markets, a trend which should continue for decades. Much of the new wealth in the world today is created entirely digitally. Some of the most valuable companies — Microsoft, Alphabet, Facebook, and more — create trillions of dollars of wealth with very little to no physical product, meaning no trade.

While many of the ideas of nationalism are beneficial to the world, such as its influence in helping to end colonialism, promoting peace in the 20th century, and creating a common bond between all people in a nation, other nationalist ideas foster division and a sense of "us versus them". Mercantilism as an economic policy creates a social framework for division between one nation and its potential allies and friends.

With the rise of new nationalist leaders in the world today, we can expect to see more mercantilist policies that could create division in the world economy in an economy that's more dependent on interconnectedness and the Internet for growth.