Question

Case Analysis:

The New Mercantilism: China's Emerging Role in the Americas

According to the International Monetary Fund, China accounted for almost a fifth of world growth in 2010. Exports have been and continue to be critical to this success; China uses an undervalued currency as a tool to keep global demand for its exports high. China’s leaders, moreover, are not content to leave their procurement efforts to the vagaries of global markets. Rather, they seek long-term, guaranteed access to raw materials, in some cases even looking to control the means of production and in-country infrastructure such as ports and rail. Raw materials are then turned into value-added products and re-exported from China around the world.

China has aggressively and successfully promoted its own value-added production, in part by insisting on technology transfer and other capacity-building measures whenever Western companies look to gain access to the Chinese marketplace. It is a strategy that has paid off handsomely for the Chinese, who are starting to compete head to head with others on highly sophisticated products. This is a transparently mercantilist strategy,

1. What is Mercantilism?
2. Do you think China is adopting the mercantilist strategy now? Why or why not?
3. Can you think of any theory (Chapter 6) that can be explained the contemporary trade of a) China and b) in US?

Answer 1

Mercantilism: Mercantilism is a nations economic policy which aims at increasing its exports than imports and assumes world wealth is static and they want to maximise their exports in order to earn maximum wealth and in mercantilism exports are promoted and tariffs are imposed on imports to minimise the imports . Its aim is to increase nations monetary reserves and create positive balance of trade, to create current account surplus or decrease the current account deficit.

Yes China is adopting mercantilist strategy now, it is because its focus is to increase its exports by devaluating its currency/Yuan and simultaneously dumping goods and services in international market, China is fuelling its economy's growth through exports and its economy is highly export oriented and China's main strategy is to boost export for its economic growth and advance its economy through it and even they are doing it for the last many years and the best outcome is the trade war between US & China which is due to its mercantilist policy only.

New mercantilist theory/commercialism and protectionist policies of US are the best example of contemporary trade of China in US, China is dumping its exports into US with another measure of devaluation of its currency vis a vis USD and due to this its exports become competitive than domestic prices of substitute goods in US and due to this China is having huge trade surplus with US and US is having huge trade deficit with CHINA and as per new mercantilist theory China put condition on western nations companies to transfer technology in order to give access to their market and in turn use that technology to make finished goods and export to other nations/ in the world market and boost its exports. In turn US is also using mercantilist theory's protectionist policies by increasing tariff's on imports from China in order to decrease the trade surplus with China and simultaneously wants to increase its exports to China.