International Trade and Mercantilism

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Mercantilism was the prevailing thought, in terms of international trade theory, during the Pre-industrial Revolution period. Mercantilism is an economic theory that holds that the prosperity of a nation is dependent upon its supply of capital, and that the global volume of international trade is “unchangeable.” Economic assets or capital, are represented by bullion (gold, silver and trade value) held by the state, which is best increased through a positive balance of trade with other nations (exports minus imports). Mercantilism suggests that the ruling government should advance these goals by playing a protectionist role in the economy; by encouraging exports and discouraging imports, notably through the use of tariffs and subsides. ( Mercantilism)Mercantilism allowed the development of the notion that the principal source of wealth was global trade, thus shifting European political power from feudal lords and the church to national sovereigns. Mercantilism, as a national economic policy, collapsed because nations cannot export without another nation’s willingness to import. (Satterlee, 2009) Summary

In the article Solutions to Slow Growth: Develop Domestics Petroleum and Address Chinese Mercantilism, the Commerce Department reported the May deficit on international trade in goods and services increased to $50.2 billion, up from $43.6 billion when the economy recovery began. The trade deficit, along with the credit and housing bubbles, were the principles causes of the Great Recession. A rising trade deficit again threatens to sink the recovery and push unemployment above 10 percent. Most fundamentally, U.S. economic growth and jobs creation has slowed, because the demand for U.S. made goods and services is expanding too slowly. Supplying what Americans and global consumers buy is not the issue, but rather U.S. and export customers do not want enough of what Americans make. America needs to play its strength in abundant domestic energy and confront Chinese mercantilism that arbitrarily overprices U.S. goods at home and abroad. When imports substantially exceed exports, Americans must consume much more than the incomes they earn producing goods and services, or the demand for what they make is inadequate to clear the shelves, inventories pile up, layoffs result, and the economy goes into recession. Similarly the failure to develop U.S. oil and gas resources and speed the deployment of natural gas use and more fuel efficient vehicles and home heating purposes ends abroad dollars that do not return to purchase U.S. exports. Greater domestic production and conservation might not much lower the price of gasoline or heating oil, but it would keep more of the dollars spent on energy in the United States, creating jobs. Excessive environmental regulation does not reduce risks to the oceans and atmosphere, lower U.S. production results in more imports and not less domestic consumption; it merely shifts production to developing countries where the risks can be managed less effectively. U.S. petroleum production could be easily raised by four million barrels a day, and a better use of internal combustion engines, urban natural gas fleets, and substitution of domestic natural gas for heating oil could easily save another one or two million barrels a day. In combination that would cut U.S. oil imports in half. Cutting the trade deficit in half over three years would increase U.S. GDP by about $500 billion dollars and create up to 5 million additional jobs. This would increase growth to 3.6 percent from the expected 2.5 percent, and lower the unemployment rate by three percentage points. China views its exchange rate policy as a tool of domestic development strategy but its policy has broad, aggressive and negative international consequences; it is choking growth and imposing high unemployment on the United States and other western countries. Diplomacy has failed, and...
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