Neomercantilism Essay

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Deriving its name  from  mercantilism,  the  political economic  philosophy characterized  by the desire of nations  to enrich  themselves through  the control  of trade, neomercantilism is a similar philosophy modified to fit the modern  world. Whereas  mercantilism generally refers to the 16th through  18th centuries, neomercantilism usually is considered  to  span  the 19th century through the present, especially the post– World  War II period. In that  long span of time, the precise character of what might be called neomercantilism has changed. One common thread, however, is that neomercantilism deals with an industrial  world as opposed to the pre–Industrial Revolution version of mercantilism.

Modern neomercantilism is diametrically opposed to  the  philosophy  of neoliberalism.  The neoliberal political economic philosophy is one of free markets, deregulation, and unfettered trade. The policies of the Washington  Consensus, as outlined by John Williamson, are a fairly comprehensive statement  of the basic neoliberal philosophy. Modern neomercantilism, like its intellectual predecessor, has at its core a belief that active direction  of international economic  relations yields superior outcomes relative to the more laissezfaire neoliberal approach.

Neomercantilism In American  History

In his study of the American Revolution, John Crowley places the early United  States in the context  of global trade. His thesis is that the early United States valued its trade relations with Britain that had been forged in the colonial era. He describes the colonists as neomercantilists, not yet ready to face the harsh environment of free trade. It should be pointed  out that Crowley’s view is not without controversy, as it overturns the conventional view that the early United States was born out of resistance to the trade practices of the British (e.g., the Navigation Acts) and a commitment to the classical liberal ideas of Adam Smith. Nonetheless, the fledgling American republic had reason  to be concerned  about  being cut loose from  the  relative protection of the  British Empire and its important trade connections.  Meanwhile, as the 19th century  began and the Industrial  Revolution got under way, the British enjoyed the benefits of their hegemony, which allowed them  more freedom to trade.

By the late 19th and early 20th century, the United States was getting set to surpass Britain at the top of the  economic  ladder.  In this  rapidly changing  economic environment,  the United States was quite successful at consolidating its power and hegemony both as an economic and military power. It did not accomplish this success solely through  unfettered  markets and commitment to neoliberal ideals, however. The trade  negotiations  with  and  foreign  investment  in the Kingdom of Hawaii are examples of what could be considered neomercantilist policy that helped the United  States obtain  economic  and  military  power and influence in the South Pacific.

U.S. Hegemony After World War Ii

After World War II, U.S. hegemony was assured, and the nation took the central role in the Bretton Woods system of fixed exchange rates. It was at this point that the U.S. dollar became the world’s reserve currency. Bretton Woods tied the world currency system to the dollar, and the United States took on the responsibility of maintaining that reserve currency and therefore ensuring the stability of the system as a whole.

Being the provider of the world’s reserve currency had certain  advantages. Like Britain before it, however, the United States found itself limited by its role as the world economic leader. It could not run persistent trade or budget deficits without  putting  serious strain on the dollar, and it was coming under pressure from neomercantilist policies in Europe  and  Japan. Ultimately, this pressure proved to be too much, and the  dollar peg had  to give way. As Bretton  Woods broke up, however, new economic powers were rising and were giving credit to neomercantilist policies for their success.

The Rise Of Asian Economies

Japan, Korea, and Singapore were among the Asian countries  with the  most  active industrial  policy. In their period of fast growth in the 1960s through  the 1980s,  government   and  business  worked  together to increase national welfare. A heavy dose of central planning was involved, but it was informed by market prices and executed in the context of global markets and participation in bilateral and regional trade agreements. In a world in which international institutions limit a country’s ability to use outright  trade protection, the use of subsidies, industrial policy, and managed trade characterize modern neomercantilism.

More  recently,  China,  with  its  evolving market economy and firmly controlled  central  government, has  been  cited  as  an  example  of  a  neomercantilist country.  China  is accumulating  reserve  currencies, attracting  foreign capital, and experiencing fast growth  in its export  sector. Currency  policy, rather than outright trade protection, becomes the dominant policy tool in this modern form of mercantilism.

Neomercantilism In Economic Literature

Although the term neomercantilism  is often used in international relations, it is seldom used in economic literature,  likely because of the negative connotation associated with the mercantilism of the 16th through 18th centuries.  Opposition  to neoliberalism  and the Washington  Consensus in economic literature shares some of the features of neomercantilism (e.g., advocating  national  industrial  policies, capital  controls, and managed trade) as described in the international relations literature without necessarily using the neomercantilist  term.  Advocacy of such policies in the economic  literature  tends  to be more  benign—that is, focused  on  bringing  stability  and  poverty  relief to  the  Third  World—rather than  focused  on  gaining international military might, as under traditional mercantilism.


  1. John Crowley, The Privileges of Independence:  Neomercantilism   and   the  American   Revolution (Johns  Hopkins  University  Press,  1993);
  2. Ceyhum Bora Durdu, Enrique G. Mendoza, and Marco Terrones, Precautionary Demand for Foreign Assets in Sudden Stop Economies: An  Assessment of the New Mercantilism  (National Bureau of Economic Research, 2007);
  3. Paolo Guerrieri and Pier Carlo Padoan, “Neomercantilism and International Economic Stability,”  International   Organization  (v.40/1, 1986);
  4. Gerard M. Koot, English Historical Economics, 1870–1926: The Rise of Economic History and Neomercantilism (Cambridge University Press, 2008);
  5. John McLaren, “Size, Sunk Costs, and Judge Bowker’s Objection to Free Trade,” American  Economic Review (v.87/3, 1997);
  6. Patrick  Karl O’Brien, “Intercontinental Trade and the Development  of the Third World Since the Industrial  Revolution,” Journal of World History (v.8/1, 1997);
  7. Eul-Soo Pang, “AFTA and MERCOSUR at the Crossroads: Security, Managed Trade, and Globalization,” Contemporary Southeast Asia (v.25/1, 2003);
  8. John Williamson, ed., Latin American Adjustment: How Much Has Happened? (Institute for International Economics, 1990).

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