Question

Which theory is the forerunner to modern-day protectionism? a. Free trade b. Mercantilism c. Absolute advantage d. Comparative advantage

Answer 1

The Mercantilism as an economic policy emerged during 17^th and 18^th century in Europe. In mercantilist view the key objective of international trade should be a policy to promote a favourable balance of payment. A country can maintain a favourable balance of payment if the value of goods exported by the country exceeds the value of goods it imported from foreign country. The mercantilist believed that a nation’s wealth and prosperity is its stock of precious metals like Gold and Silver. During the mercantilist period gold and silver were the world accepted currency for trade between nations. They believed that export is the best way of getting gold and silver. A country would be more rich and powerful if it has more stock of the precious metals. A country could attain more gold and silver when it export maximum and import minimum. As import cause outflow of wealth and export cause inflow of wealth, they pleaded for government intervention to maximize export and minimize import. Thus the mercantilist theory is the forerunner of advocating protectionist policy in international trade.   

Answer: b. Mercantilism.