Mercantilism is a bankrupt theory that has no place in the modern world.  Is this an accurate statement?

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Tamara K. H. eNotes educator| Certified Educator

In 1776, Adam Smith proposed mercantilism as a means of growing a domestic economy by limiting imports and increasing exports. The goal was to bring more wealth into the country through exports while also preserving the domestic labor market (Library of Economics and Liberty, The Concise Encyclopedia of Economics, Laura LaHaye, "Mercantilism"). However, most economists do indeed find that mercantilism doesn't achieve its goals.

In a report the Cato Institute issued to the U.S. International Trade Commission titled "The Economic Effects of Significant U.S. Import Restraints," researchers presented data from a study conducted in 2000 showing that import barriers enforced on lumber imports through the U.S.-Canadian Softwood Lumber Agreement actually raised the U.S. prices of lumber by "$50 and $80 per board," which in turn raised the cost of housing and hurt the real estate market. Higher costs of production also led to a decrease in employment in the lumber industry.

Economists agree that import barriers create high prices for certain producers, which can be profitable for the producers, but consumers suffer from the higher prices, which in turn hurts profits. Hence, mercantilism can indeed be called a bankrupt theory.

pohnpei397 eNotes educator| Certified Educator

This is an accurate statement in that economists today do not believe in mercantilism at all.  Mainstream economists are unanimous on the idea that trade helps all countries.  Countries produce things in which they have a comparative advantage and trade for things in which they do not.  This allows world production to be higher than it otherwise would be.

However, there are countries that follow at least some aspects of mercantilism.  Any protectionist policies can be seen as mercantilism.  Therefore, when countries like China erect trade barriers and emphasize exports they are acting in ways that are influenced by mercantilism.  Therefore, it may not be a completely “bankrupt” idea.