What is mercantilism and why governments want to apply?

Mercantilism is an economic theory that was popular in Europe between 1500 and 1800 AD, that advocates government directions of international economics in order to generate income and enhance national power. Mercantilism is a concept that contributes to the create surplus and reduce the trade-deficit by working together with government and individual merchandise. Indeed, Mercantilism is often referred to as the political economy of state-building (Dennis R. Appleyard, Alfred J. Field, 2014).

Governments attempted to control international trade with specific policies to maximize the likelihood of a positive trade balance and the resulting inflow of species (Dennis R. Appleyard, Alfred J. Field, 2014). As per this theory, the government assists the individual owner of the business considering these are the main sources of trade and business. Basically, the government supports them in terms of production factors such as natural resources, labor, entrepreneurship, and capital. This is the concept that is focusing on the development of national business anyways and not supporting the foreign business in the nation. For example, the Government may restrictions of imports by increasing the tariff and applying the quotas. Or, granting of the state monopolies to the firm particularly those which are associated with the trade or shipping. It forbids the international skilled labor, investment, and capital, which is intended the way that could not help alien industries. In summary, Mercantilism stands in contrast to the theory of free trade – which argues countries economic well-being can be best improved through the reduction of tariffs and fair free trade (Pettinger, 2019)

However, mercantilism is no longer considering a satisfactory economic theory. The policy which favors exports and penalizes imports has two main implications. One of them is it promotes traders who are engaged in the export business, there may not have sufficient manufacturers who are capable to compete with foreign competitors. But, at the same time, the state bureaucracy or imposing power may be increased by the regulation of mercantilism.


Dennis R. Appleyard, Alfred J. Field. (2014). Global Economic (8th ed.). New York: McGraw Hill.

Pettinger, T. (2019, March 31). Mercantilism theory and examples. Retrieved from Economics Help: https://www.economicshelp.org/blog/17553/trade/mercantilism-theory-and-examples/

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