Tag Archives: mercantilism

Mercantilism, Relative Gains, and the U.S.-China Relationship

Should Americans be more concerned about maintaining economic superiority over China than enjoying economic growth themselves?

In a recent blog post, professor and foreign affairs analyst Daniel Drezner cites some interesting results from a recent poll investigating Americans’ attitudes toward national security and foreign policy.  One revealing question touches on issues of mercantilism and relative gains, important concepts in the field of international relations (and the subfields of International Security and International Political Economy, or IPE).  From Drezner’s post:

“[Question 57] asked respondents whether they preferred a high growth world in which ‘the average American’s income doubles, but China grows faster than the United States and China’s economy becomes much larger than America’s’ or a low growth world, in which ‘the average American’s income increases by only 10 percent, but the U.S. economy remains much larger than China’s.’ A majority (50.7%) preferred the low growth world, thus supporting my long-standing argument that Americans are stone-cold mercantilists.”

An American who favored the first option in this question (high American gains even though China gains more and grows relatively stronger) would prefer absolute gains.  In contrast, Americans who favor the second scenario (low American gains that nevertheless allow the U.S. to maintain relative superiority over China, our main “peer competitor”) are most concerned about relative gains.  Relative gains are associated with the realist approach to world politics and with mercantilism.  Absolute gains are associated with the idealist approach and with economic liberalism, or capitalism. 

While Drezner is overgeneralizing when he leaps from a mere 51% preference for scenario #2 to the conclusion that “Americans are stone-cold mercantilists,” he is correct in linking relative gains concerns with mercantilism.  Mercantilism was the dominant economic philosophy prior to the industrial revolution and the rise of capitalism.   Mercantilism views wealth as finite and economics as a zero-sum game, meaning that a gain for one country can only come at the expense of a loss for someone else.  Such a view naturally leads to a focus on maintaining or improving one’s relative position vis-a-vis other international actors, and it is no accident that this perspective was accompanied by imperialism and efforts to gain every trade advantage possible.  In contrast, economic liberalism believes that wealth can be created, so states need not fight over how a finite “pie” will be distributed–the pie can be enlarged and everyone can benefit.

What do you think?  Are 51% of Americans correct to focus on maintaining their position over China even if this means less absolute prosperity for themselves?  Are they wisely looking beyond mere economics to the broader implications of a much stronger China?  Or is this kind of thinking outdated and self-destructive?

Free Trade, Neo-Mercantilism, and the “Rules” of International Trade

President Obama shakes hands in the Oval Office with Xi Jinping, the current Vice President (and presumptive next President) of China.

President Obama welcomed Xi Jinping, China’s “president in waiting,” to the White House this week for a high profile visit.  Obama warned the visiting leader that China must play by the rules of international trade, a comment reflecting American concerns about Chinese currency manipulation, intellectual property transgressions, and other barriers to free trade.  But economic analyst Clyde Prestowitz questions the wisdom of Obama’s “lecture” in his latest blog post:

“It sounded right and fair and slightly tough as it was carefully crafted to do by top White House political advisers, and the president may even believe it. But he shouldn’t have said it.”

Why shouldn’t Obama have criticized China for not playing by the rules?  Prestowitz argues that there are no universally agreed upon rules for international trade; rather, there are (at least) two different games being played simultaneously, by different actors, with different sets of rules.  Some states embrace economic liberalism, or free-market capitalism, which emphasizes comparative advantage, free trade, and limited government intervention in economic affairs.  Others–particularly those who are not benefiting from the trend toward greater globalization and free trade–favor mercantilist policies, which emphasize national wealth and the protection of domestic industries from foreign competition through tariffs and other trade barriers.  Prestowitz spells out which parts of the world are playing each game: 

“The global economy is, in fact, sharply divided between those who are playing the free trade game and those who are playing some form of mercantilism. Of course, there is a spectrum of attitudes and policies, but roughly speaking the Anglo/American countries, North America, and parts of Europe are playing free trade. Most of Asia, much of South America, the Middle East, Germany and parts of Europe are playing neo-mercantilism. It’s like watching tennis players trying to play a game with football players. It doesn’t work, and insisting on playing by the rules doesn’t help, because both sets of teams are playing by the rules — of their game.”

What do you think?  Are America and Europe really playing by their own rules of free trade?  Is free trade or mercantilism (or some combination of the two) a better approach for achieving prosperity?  Does America have the right to tell China how to play the game of international trade?