The 16th and 18th centuries believed that a country's prosperity is determined by exporting more than it imported, with respect to the theory of mercantilism. In this article, we’ll explore the favorable balance of trade, its tools, and real-world examples.
Mercantilists believed that to become rich and powerful, a country had to boost exports and limit imports. They used tools like tariffs, quotas, subsidies, and taxes to achieve this. The goal was to accumulate precious metals, primarily gold and silver, which were seen as measures of wealth
Early mercantilists prohibited the export of precious metals like gold and silver. They believed it would deplete a nation's wealth. Later, some argued that exporting these metals could be good if they were used to buy raw materials for export.
We can illustrate this concept by England’s trade with India during the mercantilist era. England has an unfavorable balance of trade with India because it imports more than it exports. But England imports cheap cotton to produce textiles and export with their trading countries. Therefore, it helped to achieve a surplus considering all its trading relationships.
As a modern example, we can show the US and China trade relationship. The US has a trade deficit with China due to imports of consumer goods, electronics, and manufacturing materials. But overall, the US has a trade surplus due to exporting more products and services related to technology, finance, and entertainment. To protect and increase the trade surplus both countries use tariffs, trade regulations, and intellectual property rights.
Even though mercantilism is old, it teaches us valuable lessons about how countries used to plan their economies and trade policies. It shows us why it's crucial to know how nations carefully manage trade to become richer and more influential.
Written by Chanaka Jayasanka
References
What is mercantilism? examples and theory - Financial Falconet
Mercantilism theory and examples - Economics Help
Balance of trade | Definition, Impact & Examples | Britannica Money
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