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IPE favourable balance of trade


									IPE 201       3 February 2011

Theories in IPE usually do three things: describe, explain, and prescribe.
Most theories have a “classical” version and a more “modern” version.

 Mercantilism is economic nationalism for the purpose of building a wealthy and
powerful state.

Classical mercantilist assumptions are rooted in Realism, a major IR theory:
   1) The nation-state is the primary international actor (Nation state is king)
   2) Power—from resources, geography, and the military—is the ultimate arbiter
       of conflict (Power wins)
   3) State competition is a zero-sum game
   4) The economy is an instrument to accomplish foreign policy objectives
   5) Reliance on external resources is bad; autarky is good

Mercantilist arguments in the 16th-18th Centuries:
   1) Accumulate gold and silver bullion and colonize to generate trade surpluses
      (favorable balance of trade) to enhance wealth and power
   2) Pursue colonies for precious metals which were good measures of national
      wealth, for they could pay for war, and to provide captive markets for
      manufactured goods and sources of raw material
   3) Restrict foreign trade (through tariffs) so the country exports more than it
   4) Award monopolies, patents and subsidies to loyal subjects of the crown
   5) A large population is desirable

Codification by Alexander Hamilton and Friedrich List:
   1. Protect infant industries, subsidize exports, create strong central government
   2. The state should promote education, technology and industrialization—invest
       in public infrastructure
   3. Short-term sacrifice will lead to long-term gains
   4. Get women and children into manufacturing
   5. Plunder the environment for raw materials

Balaam and Veseth define neomercantilism as “essentially mercantilist-defensive—
oriented policies adopted by individual nations in an insecure international economic

Neomercantilist arguments:
   1. Industrial power parallels military power
   2. Economic dependence leads to security vulnerability
   3. Importance of relative gains

Neomercantilist policies:
   1. Limit dependence on imported minerals and raw materials
       For example, use strategic stockpiles, synthetic alternatives, and diversified
       suppliers. President Bush’s emphasis that America is “addicted to oil” is a
       typical neo-mercantilist p.o.v.

   2. Subsidize exports and restrict imports
       Examples: EU Airbus, tariffs, non-tariff barriers (NTBs) and voluntary export
       restraints (VERs)

   3. Use development programs and loans to help industries
       Examples: Build dams and roads, expand irrigation infrastructure

   4. Use strategic trade policies to shift your comparative advantage in an
      industry where you don’t “naturally” have an advantage

   5. Use industrial espionage (spy on your competitors)

   6. Impose economic sanctions on other countries

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