The Enduring Role of Mercantilism in International Political Economy

Outline

1. Foundations of International Political Economy (IPE)
2. Mercantilism: The Primacy of State Power in Economic Affairs
3. Critiques of Mercantilism
4. Mercantilism in Contemporary IPE Debates: A Persistent Resurgence
5. Comparative Analysis: Mercantilism vs. Other IPE Paradigms
6. Conclusion

International Political Economy (IPE) stands as a vibrant and indispensable field within the social sciences, dedicated to unraveling the intricate, often fraught, relationship between political power and economic activity in the global arena. It is a discipline born from the recognition that the traditional separation of economics (the study of markets, efficiency, and resource allocation) and political science (the study of power, governance, and conflict) is fundamentally artificial and misleading when analyzing global phenomena. IPE posits that economic forces are inherently political, and political forces inherently shape economic outcomes. The distribution of wealth profoundly influences the distribution of power, and vice versa. It is within this dynamic and contested terrain that various theoretical lenses emerge, each offering a distinct framework for understanding how global economic processes are structured, how benefits and costs are distributed, and whose interests are ultimately served.

Follow CPF WhatsApp Channel for Daily Exam Updates

Cssprepforum, led by Sir Syed Kazim Ali, supports 70,000+ monthly aspirants with premium CSS/PMS prep. Follow our WhatsApp Channel for daily CSS/PMS updates, solved past papers, expert articles, and free prep resources.

Follow Channel

Advertise with Us

These theoretical paradigms, primarily Mercantilism, Liberalism, and Marxism, act as crucial analytical tools, offering different assumptions about human nature, the role of the state, the nature of economic relations, and the fundamental drivers of international affairs. They guide our questions, shape our interpretations, and ultimately influence our policy prescriptions. While economic liberalism has often dominated mainstream academic discourse, and Marxism offers a radical critique of the global capitalist system, it is Mercantilism that provides perhaps the most enduring and intuitively compelling framework for understanding the relentless pursuit of national wealth and power in a competitive world. This article will embark on an exhaustive examination of Mercantilism, tracing its historical roots and evolution, dissecting its core tenets, exploring its diverse manifestations across different eras, critiquing its assumptions, and ultimately demonstrating its profound and often understated relevance in contemporary IPE debates. Far from being a relic of the past, Mercantilism, or its modern incarnations, continues to cast a long shadow over global trade, investment, and technological competition, making its comprehensive understanding crucial for any competitive analysis of the international political economy.

1. Foundations of International Political Economy (IPE)

Before delving into the specifics of Mercantilism, it is essential to establish the foundational contours of IPE as a field of study.

1.1: The Interdisciplinary Core of IPE

IPE emerged as a distinct subfield in the 1970s, primarily in response to the perceived inadequacy of existing disciplines to explain complex global phenomena like the Nixon shocks (ending dollar convertibility to gold), the OPEC oil crises, and the growing interdependence among states. Traditional economics, with its focus on rational actors, efficient markets, and quantitative models, often sidelined the role of power, institutions, and non-economic factors. Conversely, conventional political science, especially Realism, prioritized security and power politics, often treating economic issues as secondary or merely tools of statecraft.

IPE bridges this divide, asserting that economic and political forces are inextricably linked. It emphasizes:

• The Seamless Web: The idea that global economics and politics are not separate spheres but rather a single, integrated system where actions in one sphere inevitably affect the other.
• Power and Wealth: IPE recognizes that the pursuit of wealth is often intertwined with the pursuit of power, and vice versa. Economic strength can translate into political influence, and political power can be used to shape economic outcomes.
• The State-Market Debate: A central tension in IPE is the relationship between the state (representing political authority and collective interests) and the market (representing individual actors, efficiency, and profit maximization). How much should the state intervene in the market, and to what extent do markets operate independently of state control? Each IPE theory offers a different answer.
• Distributional Consequences: IPE is keenly interested in who benefits and who loses from global economic arrangements. It scrutinizes how wealth and power are distributed among states, between states and non-state actors (like multinational corporations), and among different social groups within states.

Alexander Hamilton, one of the founding fathers of the United States, was a strong proponent of mercantilism in the form of protectionist policies aimed at promoting domestic industry in the United States. 

Another eloquent spokesman for mercantilism was Friedrich List, a German economist. In the 1840s he developed a theory of ‘productive power’ which stressed that the ability to produce is more important than the result of producing. In other words, the prosperity of a state depends not primarily on its store of wealth, but on the extent to which it has developed its ‘powers of production.’

1.2: Key Questions and the "Second Debate"

IPE's emergence was partly fueled by the "Second Debate" in International Relations (IR), which saw behavioralism challenge traditional approaches. While the "Third Debate" pitted Realism/Liberalism against Critical Theory, IPE represents a distinct intellectual lineage that foregrounds the political economy dimension. Key questions that drive IPE research include:

• Who gets what, when, and how in the global economy?
• How are global economic rules and institutions created, maintained, and changed?
• What is the role of the state in the global economy?
• How do international economic policies affect domestic political stability and social welfare?
• Do economic interactions lead to cooperation or conflict among states?
• What is the relationship between capitalism and global power structures?

These questions highlight IPE's commitment to understanding both the systemic forces at play in the global economy and their profound implications for states, societies, and individuals.

2. Mercantilism – The Primacy of State Power in Economic Affairs

Mercantilism is arguably the oldest and most intuitively powerful paradigm in IPE, viewing international economic relations as a zero-sum game where states are in constant competition for wealth and power. Its core tenet is the subordination of economic policy to the overarching goals of national security and state power.

2.1: Historical Context and Origins – From Bullion to Statecraft

Mercantilism is not a single, unified theory but rather a collection of economic ideas and policies prevalent in Europe from roughly the 16th to the 18th centuries. It emerged during a period of profound geopolitical and economic transformation.

• Decline of Feudalism and Rise of Nation-States: As feudalism waned, centralized nation-states began to consolidate power under absolutist monarchs. These nascent states required significant financial resources to build standing armies, maintain complex bureaucracies, and engage in frequent warfare with rival powers. Mercantilist policies were designed to supply these resources.
• Age of Exploration and Colonial Expansion: The discovery of new lands in the Americas, Africa, and Asia opened up unprecedented opportunities for trade, resource extraction, and colonial settlement. This era fueled a desire for bullion (gold and silver), which was seen as the ultimate measure of national wealth and power. Colonies became vital sources of raw materials and captive markets, directly serving the economic interests of the mother country.
• Frequent Warfare and Geopolitical Competition: The 17th and 18th centuries were marked by incessant military conflicts (e.g., the Thirty Years' War, Anglo-Dutch Wars, Seven Years' War) between European powers vying for dominance. Economic strength was increasingly seen as a prerequisite for military might, making policies that prioritized national wealth accumulation a matter of national survival.
• Early Practitioners and Thinkers: While not codified as a formal "theory" by its proponents, mercantilist ideas were espoused by government officials, merchants, and pamphleteers.
• Jean-Baptiste Colbert (France, 17th Century): As Louis XIV's finance minister, Colbert epitomized classical mercantilism. He aggressively promoted French industries through state subsidies, protectionist tariffs, and strict quality controls. He also established state-controlled trading companies and expanded French colonial possessions to secure resources and markets. His policies aimed to make France economically self-sufficient and militarily powerful.
• Thomas Mun (England, 17th Century): A director of the East India Company, Mun's work, England's Treasure by Forraign Trade, advocated for policies that ensured a positive balance of trade, arguing that this was the primary means of accumulating national wealth (bullion). He emphasized the importance of re-exporting foreign goods and prioritizing finished goods over raw materials in exports.
• Navigation Acts (England, 17th-18th Centuries): These laws famously mandated that colonial trade be conducted exclusively on British ships, with specific goods (e.g., tobacco, sugar) shipped only to Britain or its colonies. This was a classic mercantilist policy designed to bolster the British merchant marine, exclude foreign competitors, and ensure that the economic benefits of colonial trade flowed directly to the mother country.

Want to Prepare for CSS/PMS 2027 English Essay & Precis Papers?

Learn to write persuasive and argumentative essays and master precis writing with Sir Syed Kazim Ali to qualify for CSS and PMS exams with high scores. Limited seats available; join now to enhance your writing and secure your success.

Join Course

Advertise with Us

Mercantilism thus emerged as a pragmatic response to the geopolitical realities of early modern Europe where economic might was directly translated into military power and state survival.

2.2: Core Tenets and Assumptions – The Zero-Sum Game

At its heart, mercantilism rests on several fundamental assumptions that distinguish it sharply from other IPE paradigms.

Nature of Wealth: Fixed Pie and Bullionism

• Fixed Amount: Mercantilists believed that the total amount of wealth in the world was finite and fixed. This implied that one nation's gain in wealth or trade could only come at the expense of another nation's loss. Economic relations were thus viewed as a zero-sum game, a constant struggle for a larger share of a limited pie. This starkly contrasts with liberal theories that emphasize mutual gains from trade and the expansion of global wealth.
• Bullion as Wealth: For early mercantilists, wealth was primarily equated with the accumulation of precious metals, gold and silver (bullion). The more gold and silver a nation possessed, the wealthier and more powerful it was considered. This bullionism drove policies aimed at maximizing exports (to earn foreign currency/gold) and minimizing imports (to prevent gold outflow).
• Transition to Productive Capacity: While early mercantilism focused on bullion, later interpretations recognized that true wealth lay not just in gold but in a nation's productive capacity, its industries, and its ability to produce high-value goods. However, even then, the purpose of this productive capacity was to serve national power, not necessarily consumer welfare.

Role of the State: Central, Interventionist, and Proactive

• Primacy of the State: The state (or sovereign) is the central actor in economic life. It is not merely a neutral arbiter or a night-watchman; it is an active, interventionist, and guiding force.
• Economic Planning: The state actively plans, regulates, and promotes economic activities to serve national interests, particularly power and security. It directs resources towards strategic industries, imposes trade barriers, grants monopolies, and controls currency flows.
• Protectionism: This is a cornerstone policy. States implement high tariffs on imported goods, impose quotas, and provide subsidies to domestic industries to protect them from foreign competition, particularly in nascent or strategic sectors. The goal is import substitution and fostering domestic production.
• National Interest: Economic policies are explicitly designed to maximize the wealth and power of the state, not necessarily the welfare of individual citizens (though national strength might eventually trickle down). The "national interest" is paramount and often defined in terms of relative gains against rival states.

Relationship between Economy and Politics: Primacy of Politics

• Politics Dictates Economics: Mercantilists firmly believe that political considerations should dictate economic policy. Economic activity is a means to an end, the enhancement of state power, military strength, and national security. The economy serves the state, not the other way around. This directly reverses the liberal emphasis on economic efficiency leading to political stability.
• Economic Nationalism: This implies a strong sense of national identity and a belief that economic strength is intrinsically linked to national sovereignty and geopolitical standing. Economic competition is seen as an extension of political competition.

Role of Trade: Export-Oriented and Trade Surpluses

• Positive Balance of Trade: The primary goal of foreign trade is to achieve a consistent surplus of exports over imports. This surplus ensures an inflow of bullion or foreign exchange, strengthening the national treasury.
• Promoting Exports: States actively promote exports through subsidies, tax breaks, and diplomatic efforts to secure foreign markets.
• Restricting Imports: Imports, especially of manufactured goods, are heavily restricted through tariffs, quotas, and non-tariff barriers to protect domestic industries and prevent the outflow of bullion. Imports of raw materials that are unavailable domestically, but essential for national industries, might be permitted.

Population Policy: Large and Productive

• Large Population: Mercantilists advocated for a large and growing population, viewing it as a source of labor for domestic industries and soldiers for the military. A large population provided both productive capacity and military might.
• Low Wages: To maintain competitiveness in export markets and ensure an ample labor supply, policies often aimed at keeping wages low, thus maximizing profits for national producers.

Colonialism and Imperialism

• Sources of Raw Materials: Colonies were seen as invaluable sources of cheap raw materials (minerals, agricultural products) that the mother country might lack, reducing reliance on foreign suppliers.
• Captive Markets: Colonies provided exclusive, captive markets for the mother country's manufactured goods, ensuring demand and profits.
• Strategic Advantage: Control over colonies provided strategic military bases and extended geopolitical reach.
• Strict Control: Trade with colonies was strictly regulated to ensure benefits flowed overwhelmingly to the metropole, preventing colonies from developing their own independent industries.

These core tenets reveal a worldview deeply rooted in competition, self-interest, and the relentless pursuit of national strength where economic tools are consciously deployed to achieve geopolitical objectives.

2.3: Forms and Manifestations of Mercantilism – A Historical Tapestry

Mercantilism has manifested in various forms throughout history, adapting its specific policies to changing economic realities while retaining its core philosophical underpinnings.

Classic Mercantilism (Bullionism and Trade Wars, 16th-18th Centuries)

• Primary Goal: Direct accumulation of gold and silver. This was seen as the immediate and most liquid form of national wealth, crucial for funding wars and maintaining court splendor.
• Key Policies:
• Extreme Protectionism: Imposition of high tariffs, outright bans on specific imports (especially luxury goods or manufactures from rivals).
• Export Subsidies: Direct government payments to producers of export goods.
• State-Granted Monopolies: Awarding exclusive trading rights to companies (e.g., East India Companies, Hudson's Bay Company) for specific regions or goods, designed to concentrate wealth and control trade flows for national benefit.
• Navigation Acts: Laws forcing trade onto national ships to enhance national shipping and naval power.
• Exploitative Colonialism: Strict control over colonies, forcing them to supply raw materials exclusively to the mother country and prohibiting them from developing rival industries.
• Historical Examples: French Colbertism, English Navigation Acts, Spanish bullionism (focused primarily on extracting gold/silver from its American colonies). This era was marked by frequent trade wars and competition for colonial territories, vividly demonstrating the zero-sum nature of mercantilist thought.

Join CPF Official FB Group – Pakistan’s Most Credible Hub

Join CPF Official Facebook Group – Pakistan’s #1 competitive exam community for CSS, PMS, and more. Get free solved past papers, essays, PDFs, expert guidance, and peer support to level up your preparation.

Join Group

Advertise with Us

Developmental Mercantilism (Economic Nationalism/Statism, 19th-20th Centuries)

• Shift in Focus: As the Industrial Revolution progressed, the focus shifted from mere bullion accumulation to building a nation's industrial capacity and productive strength. Wealth was increasingly understood as the ability to produce advanced goods, not just possess gold.
• Strategic Industrialization: The state actively promotes and protects specific industries deemed vital for national strength, often through "infant industry" protection (tariffs until new industries mature and become competitive).
• State-Led Development: Governments play a central role in directing investment, building infrastructure (railways, ports), supporting research and development, and creating national champions in key sectors.
• Friedrich List and German Unification (19th Century): List, a German economist, explicitly critiqued classical liberalism (especially British free trade) as only beneficial for the already dominant power. He advocated for a strong state actively promoting industrialization in developing nations through protectionism, infrastructure development (e.g., the Zollverein customs union), and education. His ideas were instrumental in Germany's rapid industrialization and unification.
• Meiji Restoration Japan (late 19th - early 20th Centuries): Japan, facing Western imperial pressure, consciously adopted a developmental mercantilist strategy. The state played a dominant role in establishing modern industries (textiles, shipbuilding, steel), importing technology, sending students abroad, and fostering powerful zaibatsu (conglomerates) to rapidly industrialize and avoid colonization.
• East Asian "Developmental States" (Post-WWII): South Korea, Taiwan, and later Singapore and to some extent Japan, famously employed "developmental state" models. These states used active industrial policies, selective protectionism, export promotion, state-directed credit, and close government-business coordination to foster rapid industrialization and export-led growth. This was not free-market capitalism, but a highly strategic form of state-led economic nationalism, often referred to as "soft mercantilism." The "Flying Geese" paradigm describes how Japan led this industrial upgrading, with other Asian economies following suit.

Defensive vs. Offensive Mercantilism

• Defensive Mercantilism: Focuses on protecting a nation's existing wealth, power, and industries from foreign competition or influence. Policies include maintaining trade surpluses, safeguarding domestic employment, and ensuring self-sufficiency in critical goods. This is often adopted by states feeling vulnerable or less powerful.
• Offensive Mercantilism: Actively seeks to expand a nation's wealth and power at the expense of rivals. Policies are more aggressive, including strategic trade policies aimed at dominating global markets in specific sectors, currency manipulation to gain export advantages, and aggressive pursuit of new markets or resources through economic and political means. This is typically pursued by rising or dominant powers.

Neo-Mercantilism (Modern Manifestations, late 20th - 21st Centuries)

• Context: While the term "mercantilism" fell out of favor after the rise of economic liberalism, its underlying philosophy never truly disappeared. In the late 20th and 21st centuries, especially after the 2008 financial crisis and the rise of geopolitical competition, a new form of mercantilism, often termed "neo-mercantilism" or "economic statecraft," has become prominent.
• Trade Protectionism (New Forms): Beyond traditional tariffs, neo-mercantilism employs a sophisticated array of non-tariff barriers (NTBs)
• Subsidies: Extensive government subsidies to domestic industries (e.g., agriculture, steel, renewable energy, technology) to lower production costs and provide a competitive edge.
• Import Quotas and Licensing: Direct limits on the quantity of imported goods.
• Technical Barriers to Trade (TBTs): Imposing stringent domestic standards (health, safety, environmental) that disproportionately affect foreign producers.
• Local Content Requirements: Mandating a certain percentage of inputs for goods sold domestically must be sourced locally.
• "Buy National" Policies: Government procurement favoring domestic firms.
• Currency Manipulation: Deliberately devaluing a national currency (or preventing its appreciation) to make exports cheaper and imports more expensive, thereby gaining a trade advantage (e.g., accusations against China in the past).
• Strategic Trade Policy and National Champions: Governments actively identify and promote "strategic" industries (e.g., semiconductors, Artificial Intelligence, biotechnology, aerospace) deemed vital for national security or future economic competitiveness. This involves massive R&D funding, export promotion, and fostering "national champion" firms through government contracts, protected markets, and state-backed investments.
• Resource Nationalism: States asserting greater control over their natural resources (oil, gas, rare earth minerals) through nationalization, increased taxation, or restrictions on foreign ownership. The goal is to secure resources for national industrial needs, increase state revenue, and exert geopolitical leverage.
• Geoeconomics and Economic Statecraft: The conscious use of economic tools (trade, investment, finance, sanctions, technology policy) to achieve geopolitical objectives.
• Economic Sanctions: Imposing financial or trade restrictions on other states or entities to compel a change in behavior, directly linking economic pain to political ends.
• Investment Screening: Governments scrutinizing or blocking foreign direct investment (FDI) in critical sectors (e.g., technology, infrastructure, defense) on national security grounds.
• Export Controls: Restricting the export of dual-use technologies (civilian and military applications) to rival states to hinder their technological advancement (e.g., US controls on semiconductor exports to China).
• Economic Coercion/Diplomacy: Using market access or economic aid as leverage in diplomatic negotiations.
• Supply Chain Resilience and Friend-shoring: Recent crises (COVID-19, geopolitical tensions) have led states to prioritize diversifying supply chains, bringing production back home (reshoring), or shifting production to politically allied nations ("friend-shoring") to reduce dependencies on rivals and enhance national security, even if it means higher economic costs.

Neo-mercantilism reflects an enduring belief in the competitive nature of international economic relations and the necessity of state intervention to safeguard national interests in an increasingly volatile global environment. It moves beyond simple bullionism to encompass a sophisticated range of policies aimed at achieving relative gains in technology, strategic industries, and geopolitical influence.

Ever since Adam Smith’s attack on mercantilism in The Wealth of Nations (1776), economists have rejected trade protection because of its high costs to an economy, and there are many empirical studies strongly criticizing trade barriers.6 For example, a study by Gary Clyde Hufbauer and Kimberly Ann Elliot, published in 1994, in the context of the bitter controversy over the ratification of the North American Free Trade Agreement (NAFTA), found that past protection of twenty-one American industries had actually saved few jobs and that the cost to consumers had been approximately $170,000 per job saved! The equivalent figure for Japan is $600,000. While one may quarrel with the precision of these figures, it is indisputable that trade protection constitutes a heavy burden on an economy. Trade protection also has a negative impact on income distribution. (Global Political Economy Understanding The International Economic Order by Robert Gilpin )

3. Critiques of Mercantilism – The Unseen Hand and Class Conflict

Despite its intuitive appeal and historical prevalence, mercantilism has faced profound critiques from other IPE paradigms, primarily economic liberalism and Marxism.

3.1: Liberal Critiques – The Efficiency and Mutuality of Markets

The most powerful and historically significant critique of mercantilism came from classical economic liberals, particularly Adam Smith, whose work laid the foundation for modern economics.

False Assumption of Fixed Wealth

• Mutual Gains from Trade: Adam Smith, in The Wealth of Nations (1776), directly challenged the zero-sum assumption. He argued that international trade is not a fixed pie but a positive-sum game, where all participating nations can benefit through specialization and exchange. By focusing on what each nation can produce most efficiently (absolute advantage), and later elaborated by David Ricardo with comparative advantage, global production and overall wealth expand, benefiting all.
• Trade as Wealth Creation: For liberals, trade is not just about accumulating gold but about increasing the availability of goods and services, stimulating innovation, and fostering economic growth, which benefits consumers and producers alike.

Inefficiency of State Intervention

• The Invisible Hand: Smith argued that individuals, pursuing their own self-interest in a free market, are guided by an "invisible hand" to promote the overall economic well-being of society more effectively than state intervention. Government attempts to direct economic activity through protectionism, subsidies, and monopolies distort markets, stifle innovation, lead to inefficiency, and reduce overall welfare.
• Rent-Seeking and Corruption: State intervention often creates opportunities for rent-seeking behavior, where special interest groups lobby the government for protection or subsidies, diverting resources from productive uses and fostering corruption.
• Reduced Competition: Protectionism reduces domestic competition, leading to higher prices, lower quality goods, and less innovation for consumers.

Comparative Advantage and Specialization

David Ricardo's theory of comparative advantage (early 19th century) provided a sophisticated counter-argument. He demonstrated that even if one nation has an absolute advantage in producing all goods, both nations can still benefit from trade by specializing in the goods they produce relatively more efficiently. This concept underscores the rationale for free trade and renders mercantilist protectionism economically suboptimal for overall welfare.

Consumer Welfare vs. Producer Interests

Liberals argue that mercantilist policies primarily benefit specific domestic producers and politically connected industries at the expense of domestic consumers (who pay higher prices for protected goods) and the overall efficiency of the economy. Liberalism prioritizes consumer welfare and economic efficiency.

Danger of Retaliation and Conflict

Mercantilist policies, being inherently competitive and beggar-thy-neighbor, invite retaliation from other states. High tariffs by one country often lead to reciprocal tariffs from others, resulting in trade wars that harm all participants. This can escalate economic competition into political and even military conflict, undermining international peace and cooperation.

In essence, liberal critiques assert that mercantilism is economically irrational, leading to suboptimal outcomes, inefficiency, and potential conflict while free markets, guided by rational self-interest and comparative advantage, lead to greater global prosperity and peace.

3.2: Marxist/Structuralist Critiques – Class, Exploitation, and Uneven Development

Marxist and structuralist theories offer a fundamentally different critique of mercantilism, seeing it not as an error in economic reasoning but as a historical phase or manifestation of capitalist development that serves specific class interests.

Focus on Class, Not Nation

• Marxists reject the mercantilist notion of a unified "national interest." They argue that society is fundamentally divided by class (bourgeoisie/capitalists vs. proletariat/workers). Mercantilist policies, despite their nationalist rhetoric, primarily serve the interests of the dominant capitalist class within the state (e.g., merchants, industrialists who benefit from protectionism and colonial exploitation), rather than the interests of the entire nation.
• The state, under mercantilism, is seen as an instrument of the ruling class to facilitate capital accumulation and suppress internal dissent, not a neutral arbiter of national welfare.

Mercantilism as a Phase of Primitive Accumulation

• Marxists view classical mercantilism as a crucial historical phase of "primitive accumulation" or "original accumulation" for capitalism. This involved the violent expropriation of land, the enclosure of common lands, the brutal exploitation of colonial resources and labor, and the accumulation of wealth (bullion) through state-backed trade monopolies and conquest. This phase was necessary to create the conditions for industrial capitalism by concentrating capital in the hands of a few.
• Colonialism, central to mercantilism, is seen as a means of extending capitalist exploitation globally, perpetuating unequal exchange and underdevelopment in the periphery.

Perpetuation of Exploitation and Uneven Development

• Mercantilist policies, particularly those related to colonialism and core-periphery trade relations, are seen as actively creating and perpetuating global inequalities. The wealth accumulated by mercantilist powers came directly from the exploitation of colonized peoples and their resources, leading to structural underdevelopment in the periphery.
• Modern neo-mercantilism, too, can be seen as contributing to uneven development by enabling powerful states to maintain their dominance in the global division of labor, protecting their advanced industries while hindering the genuine industrialization of less developed countries.

Inherent Conflict (Class vs. State)

• While mercantilists see conflict between states as inherent, Marxists see the fundamental conflict as residing in the class struggle within and across societies. International economic competition is merely a reflection of this deeper class conflict and the inherent contradictions of capitalism.
• In summary, Marxist critiques view mercantilism as a historical tool of capitalist expansion and class domination, cloaked in nationalist ideology, leading to exploitation and uneven development rather than genuine national prosperity for all.

3.3: Realist/Neorealist Nuances – Power but not (always) Optimal Economics

Realists and Neorealists, while sharing mercantilism's focus on state power, offer nuances rather than outright critiques of its economic rationality.

• Shared Emphasis on Power and Security: Realists agree with mercantilists that states are the primary actors in an anarchic international system, driven by the pursuit of power and national security. Economic strength is indeed a crucial component of overall state power and a necessary foundation for military capability.
• Relative Gains vs. Absolute Gains: Realists, like mercantilists, are primarily concerned with relative gains in economic interactions. A state will prefer a situation where its wealth or power increases more than a rival's, even if its absolute gains are smaller, because relative gains are what matter for security in an anarchic system. This contrasts sharply with liberal focus on absolute gains (everyone benefits, regardless of relative distribution).
• Economic Means to Political Ends: Realists readily accept that economic tools (trade, finance, technology) can and should be used as instruments of statecraft to achieve geopolitical objectives, echoing the mercantilist view of the primacy of politics.
• Critique of Specific Policies (Efficiency): While agreeing on the ends (power), Realists might critique the means (specific mercantilist policies) if they are economically inefficient or counterproductive in the long run. A state pursuing mercantilist policies might weaken its economic base if those policies stifle innovation, lead to corruption, or provoke costly trade wars, ultimately undermining its power over time. A rational state, from a realist perspective, would seek to maximize its economic strength efficiently to support its security needs.
• Security Dilemma in IPE: Mercantilist policies, if perceived as aggressive (e.g., export subsidies, currency manipulation, aggressive protectionism), can provoke retaliatory actions from other states, leading to a "security dilemma" in the economic sphere. One state's attempt to enhance its economic security might be perceived as a threat by others, prompting them to adopt similar protective measures, leading to a downward spiral of protectionism that harms all.

500 Free Essays for CSS & PMS by Officers

Read 500+ free, high-scoring essays written by officers and top scorers. A must-have resource for learning CSS and PMS essay writing techniques.

Explore Now

Advertise with Us

In essence, Realism provides a framework that explains why states are tempted by mercantilist thinking (the pursuit of power and security in anarchy) but cautions against specific mercantilist policies if they are economically irrational and ultimately detrimental to a state's long-term power.

4. Mercantilism in Contemporary IPE Debates – A Persistent Resurgence

Despite its historical origins, the core logic of mercantilism has never truly vanished and has experienced a notable resurgence in contemporary IPE debates, particularly in an era of heightened geopolitical competition and economic nationalism.

4.1: The US-China Trade and Technology Clash

The escalating economic rivalry between the United States and China represents a quintessential example of neo-mercantilist conflict. Both nations, driven by concerns about national security, technological dominance, and relative economic power, have employed policies deeply rooted in mercantilist logic.

• Trade Imbalance and Protectionism: The US has long expressed concerns about its large trade deficit with China, viewing it as evidence of unfair trade practices. This led to the imposition of tariffs on billions of dollars worth of Chinese goods under the Trump administration, explicitly aimed at reducing imports and protecting domestic industries. China retaliated with its own tariffs, demonstrating the tit-for-tat nature of mercantilist trade wars.
• Strategic Industries and "Made in China 2025": China's "Made in China 2025" plan, a state-led industrial policy, explicitly aims for self-sufficiency and global dominance in strategic high-tech sectors (e.g., AI, robotics, aerospace, electric vehicles, biotechnology). This involves massive state subsidies, forced technology transfers from foreign companies, intellectual property theft accusations, and preferential treatment for domestic firms. From a liberal perspective, this is state distortion of markets; from a neo-mercantilist perspective, it is a rational strategy for national technological sovereignty and future power.
• Technological Decoupling and Export Controls: The US response has been increasingly neo-mercantilist, particularly in the tech sector. It has imposed stringent export controls on critical technologies (e.g., advanced semiconductors, chip-making equipment) to China, aimed at hindering China's technological advancement and safeguarding US technological supremacy, especially in dual-use technologies with military applications. The blacklisting of Chinese tech giants like Huawei (on national security grounds) and restrictions on US investment in Chinese tech firms are further manifestations of this strategy to gain relative advantage.
• Supply Chain Competition: Both countries are actively seeking to reduce reliance on each other in critical supply chains (e.g., rare earth minerals for China, semiconductors for the US), aiming for greater national resilience and security, even if it means higher costs and less economic efficiency. This "de-risking" or "decoupling" is a direct response to vulnerabilities exposed during the pandemic and heightened geopolitical tensions.

This clash underscores the mercantilist belief that economic competition is inseparable from geopolitical rivalry, and that national security dictates economic policy.

4.2: Rise of Protectionism and Industrial Policy Post-2008 and COVID-19

The 2008 global financial crisis and the COVID-19 pandemic significantly disrupted the prevailing liberal consensus on free markets, leading to a widespread embrace of policies with clear mercantilist undertones.

• Financial Crisis and State Intervention: The 2008 crisis saw governments around the world intervening massively to bail out banks and industries, nationalize failing firms, and implement large stimulus packages. This demonstrated the state's ultimate role as the guarantor of economic stability, challenging the idea of self-regulating markets.
• COVID-19 and Supply Chain Vulnerabilities: The pandemic exposed critical vulnerabilities in globally optimized, "just-in-time" supply chains, particularly for essential goods like medical supplies, vaccines, and later, semiconductors. This led to:
• Reshoring and Nearshoring: Governments began promoting policies to bring production of critical goods back home (reshoring) or to geographically closer, more reliable allies (nearshoring/friend-shoring) to enhance national resilience and reduce dependence on potentially adversarial nations.
• National Stockpiles: Accumulation of national stockpiles of essential goods.
• Export Restrictions: Many countries temporarily restricted exports of medical equipment and vaccines to prioritize domestic needs, a classic mercantilist "beggar-thy-neighbor" response.
• Revival of Industrial Policy: Following the crisis and pandemic, Western nations, previously strong proponents of free markets, have explicitly revived robust industrial policies.
• US CHIPS Act & Inflation Reduction Act: The US CHIPS and Science Act (2022) provides billions in subsidies for domestic semiconductor manufacturing, explicitly aimed at reducing reliance on Asian producers and securing national technological leadership. The Inflation Reduction Act (2022) offers massive subsidies and tax credits for green technologies (EVs, batteries, renewable energy) manufactured in North America, aiming to build domestic clean energy industries and supply chains.
• EU Industrial Strategy: The EU has launched its own industrial strategy, focusing on digital and green transitions, and aiming to build strategic autonomy in critical sectors. These policies demonstrate a clear shift towards state-led strategic industrial development, national champions, and protectionism for "infant industries" or industries deemed critical for national security, echoing developmental mercantilist principles.

4.3: Resource Nationalism and Critical Minerals

Resource nationalism, a clear manifestation of mercantilist thinking, has gained renewed prominence amidst geopolitical tensions and the global energy transition.

• State Control over Resources: Governments are increasingly asserting greater control over their natural resources (oil, gas, rare earth minerals, lithium, cobalt) through nationalization, increased taxation, or restrictions on foreign ownership. The primary goal is to secure resources for national industrial needs, increase state revenue, and exert geopolitical leverage.
• Energy Security: The war in Ukraine highlighted the vulnerabilities of energy dependence, prompting many nations to prioritize energy security through diversifying suppliers, investing in domestic production (even fossil fuels), and accelerating renewable energy development to reduce reliance on external actors.
• Critical Minerals: The transition to green energy technologies (EVs, batteries, wind turbines) requires vast amounts of critical minerals (e.g., lithium, cobalt, nickel, rare earths). China dominates the processing and supply of many of these. Western nations are now actively pursuing strategies to secure their own supplies, diversify sourcing, and invest in domestic processing capabilities for these minerals, viewing it as a matter of national security and economic sovereignty, reminiscent of colonial resource extraction but now framed as national strategic autonomy.

4.4: Geoeconomics and Economic Statecraft

The conscious use of economic tools to achieve geopolitical objectives, often termed "geoeconomics" or "economic statecraft," is a defining feature of contemporary neo-mercantilism.

• Economic Sanctions: The increasing use of economic sanctions (financial, trade, technology) against rival or adversarial states (e.g., against Russia following its invasion of Ukraine, against Iran for its nuclear program) is a prime example. These sanctions are designed to inflict economic pain to compel a change in political behavior, directly linking economic policy to geopolitical ends.
• Investment Screening: Governments are rigorously scrutinizing and often blocking foreign direct investment (FDI) in critical sectors (e.g., defense, telecommunications, energy, advanced technology) on national security grounds. This is a mercantilist tool to prevent foreign (especially rival state) control over strategically vital assets.
• Export Controls: The strategic use of export controls on dual-use technologies (civilian and military applications), particularly in cutting-edge fields like semiconductors and AI, is a key tool to hinder the technological advancement of rival states.
• Economic Coercion/Diplomacy: Using market access, trade preferences, or economic aid as leverage in diplomatic negotiations (e.g., China's economic pressure on Australia over political disputes, or its Belt and Road Initiative as a tool of influence).
• Digital Sovereignty and Data Governance: States are increasingly asserting control over data flows and the digital economy within their borders. This involves laws mandating data localization (requiring data to be stored locally), scrutinizing foreign tech companies, and attempting to regulate global digital platforms. This is a modern form of mercantilism seeking to control information and economic value in the digital realm.

These examples highlight a global landscape where economic competition is increasingly viewed through a geopolitical lens, affirming the mercantilist axiom that economic power is a direct determinant of political influence and national security.

5. Comparative Analysis: Mercantilism vs. Other IPE Paradigms

Understanding Mercantilism's unique position within IPE requires a brief comparison with its major theoretical rivals: Economic Liberalism and Marxism.

5.1: Mercantilism vs. Economic Liberalism

These two paradigms represent opposite poles in IPE and clash on almost every fundamental assumption:

The core difference lies in their fundamental assumptions about the nature of international economic relations (zero-sum vs. positive-sum) and the proper relationship between the state and the market (state primacy vs. market autonomy). While liberals believe that free markets foster peace through interdependence, mercantilists contend that economic competition is a continuous struggle for power, often leading to conflict.

5.2: Mercantilism vs. Marxism/Structuralism

While seemingly distinct, Mercantilism and Marxism share some common ground, particularly regarding conflict and the role of the state, but diverge sharply on the ultimate actors and goals.

Both Mercantilism and Marxism emphasize conflict and the role of power in IPE, rejecting the harmonious vision of liberalism. However, mercantilists see conflict between nation-states, driven by national interests while Marxists see conflict rooted in class struggle and the inherent contradictions of capitalism, often transcending national borders. Mercantilism views the state as serving the national interest; Marxism views the state as serving the interests of the capitalist class. Furthermore, mercantilism focuses on wealth accumulation as an end for state power while Marxism views it as part of a historical process of capitalist exploitation and accumulation.

6. Conclusion: The Enduring Shadow of Mercantilism

Mercantilism, initially a set of pragmatic economic policies adopted by emerging nation-states in early modern Europe, has transcended its historical origins to become an enduring and highly relevant theoretical paradigm in International Political Economy. Its core tenets, the belief in finite wealth, the primacy of politics over economics, the central role of the state in directing economic activity, and the inherent competitiveness of international economic relations, continue to resonate powerfully in the 21st century.

While dismissed by economic liberals as economically irrational and by Marxists as merely a phase of capitalist exploitation, Mercantilism provides a compelling framework for understanding why states often prioritize national security, relative gains, and strategic industries over abstract notions of economic efficiency or global welfare. In an anarchic international system, where states ultimately rely on their own capabilities for survival, the pursuit of economic strength as a foundation for political and military power becomes an understandable, even rational, imperative.

Want to Prepare for CSS/PMS 2027 English Essay & Precis Papers?

Learn to write persuasive and argumentative essays and master precis writing with Sir Syed Kazim Ali to qualify for CSS and PMS exams with high scores. Limited seats available; join now to enhance your writing and secure your success.

Join Course

Advertise with Us

The contemporary resurgence of neo-mercantilist policies, evident in the US-China Tech and trade tensions, the widespread return of industrial policies, the scramble for critical minerals, and the sophisticated deployment of geoeconomic tools, emphatically demonstrates that the mercantilist logic is far from obsolete. In an era of heightened geopolitical competition, supply chain vulnerabilities, and rapid technological shifts, the imperative to secure national economic foundations and gain strategic advantage over rivals has pushed states back towards policies that echo their mercantilist forebears.

In essence, Mercantilism offers a sober, often pessimistic, but undeniably realistic perspective on the global economy. It reminds us that behind the rhetoric of free markets and mutual gains, states remain deeply concerned with their relative power, their security, and their ability to shape global outcomes to their national advantage. The dynamic interplay between market forces and state power, wealth and security, competition and cooperation, will continue to define the international political economy, with Mercantilism consistently offering a powerful lens through which to comprehend the enduring pursuit of national interest in a world of rival states. Its shadow, far from receding, continues to loom large over the future of global economic governance.