Mercantilists slogan was "export more, import less." During the 16th and 17th centuries, states were the main players of global economies and they encouraged exports over imports to finance their huge armies. Similar to realists, mercantilists argued that economic policies should advance state power.
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They believed accumulation of metals (gold and silver) was more important than trade as it increased the national wealth. So national economies that time were measured on how much gold one country had not how much trade they had. Spain's conquest of Latin American countries: Panama, West Indies, Venezuela and Peru, provided abundance of gold mines and Spaniards became extensively rich. Spain also put restriction on the colonial trades. colonies couldn't trade with other countries. Mercantilism thrived in Europe from the exploitation of colonies. Soon other European countries joined the loot of colonies in Africa, Asia and elsewhere.
Mercantilists as with realists argue that economic policy of a state shouldn't be judged on absolute wealth but 'relative wealth'. If a country has more wealth than others, than it is relatively rich than others. They argue that even infant industries should be protected through tariffs and trade restrictions, although it meant higher prices for consumers. Even America's first secretary of Treasury, Alexander Hamilton, supported the mercantilist policy.
What are the mercantilist tools?
1. Tariff: Put tariff on imports to protect the national industries and to finance the defense expenditure.
2. Government Monopolies: European monarchs often interfered in their economies and decided the economic policies. They nationalized the industries and even the colonial businesses were carried out on the name of royal families.
3. Imperial Expansion: European countries colonized Africa, America and Asia to get the raw materials and market for their products.
4. Population Growth: Mercantilist supported population growth to get laborers and armies for conquest. The European monarchs rewarded the large families.
5. Monopoly over Colonial Trade: As almost 95% global trade was conducted through sea route, it became the major source of income for European countries. For instance, England's 1651 Navigation Act required goods imported from British colonies to use only English vessels with English crews. Later, the Act was amended that required colonial exports to first reach English ports before re-exporting elsewhere.
How England then became champion of free trade?
Neomercantilism
Impact of Mercantilism/Neomercantilism
- Inefficient industries may benefit from neomercantilism policies but competitive industries wouldn't benefit from it.
- Products may become costlier for consumers.
- Interest in innovation can take sideline.
- The global trade agreements would also suffer. For example, the US president Donald Trump withdrew from Trans-Pacific Partnership.
- If more and more countries adopt these policies, trade war can ensue as the case with US-China Trade war.
