Is mercantilism really a thing of the past?

So far while completing A level Economics, although I have learnt a relatively large amount that relates to mercantilism (monopolistic market structures and profit maximising firms), I have only come across the term through further reading. 

Put simply, mercantilism is the belief in the benefits of profitable trading. It involves maximising net inflow of foreign exchange (traditionally in the forms of gold and silver) by restraining imports and encouraging exports. It serves the interests of producers whose actions are protected and encouraged by the national government. Core to the support of of mercantilism is another new term - Bullionism. Bullionism is an economic theory that defines wealth by the amount of precious metals owned.

Mercantilism was most popular in the 16th to 18th centuries (know as the mercantile era). Mercantile firms would be protected against foreign and domestic competition through policies set by national government. Such policies included the provision of capital, the establishment of monopolies and the implement of tariffs and/or quotas to competing imported goods.


An example of extremity of mercantilism policy can be seen the Hudson's Bay Company, who traded beaver fur. In 1670 King Charles II granted the company a charter which gave Hudson's Bay Company a monopoly status in England and sole trade of the Hudson Straight territory. The charter also made the three founders of the company "the true and absolute lords and proprietors" of the Hudson's Bay area- an area which roughly took up 40% of Canada. The firm were the unofficial government of the area and had the power to pass laws, fight wars and issued its own currency. It has territorial control of the area for 200 years before being sold to the Dominion of Canada. The power given to the trading monopolies during the mercantile era, in my opinion, makes the power of modern day large MNCs seem slightly less threatening.

The end of the mercantile era is seen to be at around the time of the publishing of Adam Smith's The Wealth of Nations, which is considered to be at the base of the modern economic theory. The book argued that such a relationship between government and markets was a harm to the general population. Instead, Smith promoted policy based around free markets and the liberalisation of trade. He argued that mercantilism reduces competition and so acts as a drag on economic development.  By the middle of the 19th century, this opinion had caught on a Britain had embraced the idea of free trade.

More recently, mercantilism is seen as nothing more than a part of economic history. However, arguments for the mercantilism continuing to take place exist, particularly when looking at the case of China.

After China opened its doors to free trade in 2001, Chinese economic policy focused on encouraging FDI by MNCs through the promise of cheap labour a special export zones which contained lower tax rates. However, in 2006 China chose to move attraction of investment from foreign firms to investment into Chinese firms. It is the methods that China has taken to achieve this that are now being considered to be neo mercantilism. Policies have included actions to spur exports while reduce imports such as currency manipulation, high tariffs and tax incentives for exports. There are also arguments that China is now discriminating against foreign firms through policies such as land grants and tax incentives to Chinese firms, cash subsidies and controls on foreign purchases designed to force technology transfer into China.

The question is, is this really a new era of mercantilism in China or is the country simply showing justified levels of support to its growing domestic firms?


Suggested further reading: Enough is Enough: Confronting Chinese Innovation Mercantilism