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.
- John Crowley, The Privileges of Independence: Neomercantilism and the American Revolution (Johns Hopkins University Press, 1993);
- 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);
- Paolo Guerrieri and Pier Carlo Padoan, “Neomercantilism and International Economic Stability,” International Organization (v.40/1, 1986);
- Gerard M. Koot, English Historical Economics, 1870–1926: The Rise of Economic History and Neomercantilism (Cambridge University Press, 2008);
- John McLaren, “Size, Sunk Costs, and Judge Bowker’s Objection to Free Trade,” American Economic Review (v.87/3, 1997);
- 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);
- Eul-Soo Pang, “AFTA and MERCOSUR at the Crossroads: Security, Managed Trade, and Globalization,” Contemporary Southeast Asia (v.25/1, 2003);
- John Williamson, ed., Latin American Adjustment: How Much Has Happened? (Institute for International Economics, 1990).
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