Theories of International Political Economy: Comparing Neo-Mercantilist and the Liberal Theories

Introduction

In 2005 a heated trade dispute ensued between European Union and China which saw the Europeans begin to block imports of certain forms of Chinese clothing. It was after the European domestic industries were greatly undermined as a result of the influx of much cheaper Chinese products (Haynes et al. 1). This event provides a useful foundation upon which one can understand the interplay between politics and economics particularly by considering two theories of the international economy which are neo-mercantilist (economic nationalist) and the liberal perspective. Neo-mercantilist is a traditional approach to an international political economy where a state focuses on self-interests (Jessop 71). A state maximizes its benefits and interests. For example, a neo-mercantilist state ensures price stability, supply stability, higher prices for exports and a reduction in imports. The main aim is to control the capital movement by deterring imports (Jessop 71). On the contrary, economic liberalism theory emerged during the industrialization era as an enlightenment branch of the wider philosophical and political movement that wiped through Northern America and Europe. It was mainly characterized by the view that people are naturally inclined to cooperate with one another without government interference. Liberalists would expect the state to act liberally by allowing full human freedom and equality wit explicit fairness for everyone (Hodgson 54). Liberal perspective can thus be said to be an absolute contrary to the neo-mercantilist theory since whereas the former emphasizes free trade, human and state cooperation and peaceful coexistence of nations, the latter proposes involvement of government in international trade, self-sufficiency and a competitive approach to trade.

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Globalization can be thought of as a confluence of economic phenomena where people, ideas, goods, and money flow across the state borders (Beck 34). Drawing from this definition, globalization can be attributed to the technological advancement which has facilitated the ease of movement of people, goods, and ideas across the globe in a matter of minutes or hours. The impact of the increased flow of people, goods, and ideas across state borders has had both positive and negative effects on different countries. On the positive side, globalization has led to global markets, cross-cultural management, foreign trade, foreign investment, improvement of human rights among others. On the negative side, globalization has led to jobs insecurity, fluctuation in prices and stiff competition for local industries (Meyer 234).

Neo-mercantilists and the economic nationalists deal with the above causes and effects of globalization in contrasting ways. First, neo-mercantilists do not accept globalization as a positive proceed, rather a negative interference to price stability and balance of trade (Haynes et al. 4). Mercantilists believe that they should control capital movement and so they should export more while keeping imports at its least volumes. However, globalization does not respect such a position as it thrives on free trade. To counter negative effects of globalization such as price instability and the influx of imports, neo mercantilists engage in protectionism, involve government in international trade as well as approaching international economics from a competitive angle (Haynes et al. 4). Mercantilists formulate a variety of protectionist economic policies to insulate their domestic industries from foreign competitors. These policies take the form of tariffs, quotas, export subsidies and red tapes (Haynes et al. 7). For example, the United States government under the leadership of President Trump is currently implementing protectionist economic policies (tariffs, quotas and red tapes) against Chinese products to protect the local industries (Stiglitz 3).

Moreover, neo-mercantilists allow government involvement in international trade so that it can protect the state and citizens interests. Neo-mercantilists subscribe to the Realism conservative logic whereby the world is seen as anarchic and states are inward self-serving entities (Haynes et al. 7). Holding on to this mindset, neo-mercantilists do not trust other states to fulfill their part of comparative advantage as they believe by doing so they would take an advantage to plunder their resources. Neo-mercantilist mind considers state's economic resources as a vital source of its power and should be guarded against the vagaries of international marketplace (Haynes et al. 7). A state government should be involved in securing as many resources as possible and protect them. Thus, neo-mercantilists advocate for limitation of imports (reducing the flow of goods into a country) to only those products that a state cannot produce and is in dire need for.

Finally, neo-mercantilists advocate for a fiercely competitive (not cooperative) arena where there are losers and winners. Thus, governments should ensure there are not parts of the losers, rather fight to ensure that weak states are weakened further by locking out their cheaper goods. Weaker states are denied a chance to compete with the "big boys" who do everything possible to remain as the winners (Haynes et al. 7). For example, the European nations perceived themselves as big boys and they wanted to ensure that a weaker China continues to weaken by not allowing their cheaper imports into their economies.

Economic nationalists, on the other hand, approach the effects of globalization from a completely contrasting perspective to that of neo-mercantilists. Economic nationalists believe in a core liberal that people are naturally inclined to cooperate and the governments should trust the people to control their own destinies. As such, liberalists believe in free trade, the invisible hand, and cooperative advantage. Unlike in neo-mercantilist approach where protectionist economic policies are considered necessary in the regulation of imports, liberals advocate for minimization of government involvement in international trade affairs (allowing globalization to take its course) so that businesses can export their goods or import as they wish. Liberals subscribe to the philosophy of free trade whereby it is believed to be a good thing that is advantageous to all (Coase 309).

In free trade, it is reasoned that markets that operate without government interference are not chaotic at all and likely to attain the mutually beneficial cooperation through the efficient and effective division of labor. There is also the concept of invisible hand advocated by the economic nationalists. Adam Smith proposed the metaphor "invisible hand" to mean what is today considered as "market forces," which means the manner trade and business operate in absence of state interference (Dubbink 453). Contrary to the neo-mercantilist fears that unregulated economy drives to anarchy and exploitation as ravenous individuals enrich themselves and inflict suffering on the others, liberals believe that invisible hand makes a society better off by omitting the government in trade so that people can work together, exchange goods and make money.

Economic nationalists hold that cautious government that restricts imports for fear of exposing their domestic industries to competition serve to limit the volume of international trade, and as a consequence, the citizens will be left to pay more for goods that would have been cheaper (Haynes et al. 9). Thus, liberals believe that the effects of globalization such as competition are good for the citizens as they avail affordable products. Moreover, unlike neo-mercantilists who advocate for a fiercely competitive international economics, economic nationalists believe in the existence of comparative advantage. According to Smith some countries have an advantage over others in the production of particular goods or growth of particular crops due to climate, terrain, and abundance of natural resources (34). This advantage can benefit all if the government allows trade to take its course without interference so that the goods are distributed to other areas that do not produce.

Nonetheless, both neo-mercantilists and economic nationalists see globalization as inevitable. Although neo-mercantilists hold a negative view of globalization, they admit that there are some products they do not have and need to import. They also understand that they produce an excess of some products and need to export them to spur their economic growth (Wang et al. 235). To attain this, there has to be a movement of people, goods, and ideas across state borders which is basically globalization. However, neo-mercantilists believe that globalization is a negative development for the domestic industries which will experience competition from cheaper imports from countries where wages are lower than theirs.

Similarly, economic nationalists believe in free trade and economic advantage. Specifically, liberals see globalization as inevitable because it is the process through which goods and services will be distributed equally among the advantage and disadvantaged regions of the world. Attempts to try and block globalization will result in negative consequences for the citizens such as higher prices for goods that would otherwise be cheaper. Economic nationalists view globalization as a positive development for the benefit of the citizen who will acquire products that are not produced in his or her country and at cheaper prices than would be charged by local producers.

Whereas neo-mercantilists treat the role of the state as serving to protect its citizens, liberals believe that a state should opt out of international trade. Neo-mercantilists think that government should play an active role in regulating trade to protect citizens from greedy individuals who may exploit their resources and inflict suffering, but economic nationalists think that states should not interfere with harmonious market forces. Neo-mercantilists also differ with liberals regarding their perspectives on the nature of international economic relations. Neo-mercantilists views international economics as a world of non-harmony characterized by tough competition. A state should only enter in international trade to maximize profits (Cesaratto 242). On the contrary, liberals hold to the beliefs of harmonic virtues of international laissez-faire. Liberals believe in equality and fairness which should be the guiding principles in the international economic relationships among states. Each state should act fairly by not restricting imports (Cesaratto 242).

Conclusion

Economic nationalist theory advocates for free trade, cooperative nature in international trade and non-state involvement in matters relating to international trade. The theory lays the foundation for globalization as it holds to the beliefs that globalization benefits all as it provides a means for equal distribution of goods and services. On the contrary, neo-mercantilist theory perceives globalization as a negative development to the domestic industries and as such the government should be actively involved in protectionist economic policies to control the flow of goods and services across state borders. Neo-mercantilists believe in competitive, rather than cooperative nature of international trade where stronger players should benefit and the weaker nations to lose. Nonetheless, both theories see globalization as inevitable because in either way people, goods, services, and ideas have to be moved across the borders to stimulate economic growth.

Works Cited

Beck, Ulrich. What is globalization?. John Wiley & Sons, 2018.

Cesaratto, Sergio. "Harmonic and conflict views in international economic relations: A Sraffian view." Sraffa and the Reconstruction of Economic Theory:...