Rediscovering the mercantilism

Arvind Subramanian writes:

• A second lesson stems from one crucial difference between the two episodes of Chinese mercantilism. Back in the early 1800s, China was mercantilist and closed. The paradox is that today China is mercantilist but highly open. China’s surplus in the earlier episode was a consequence of unquenchable foreign demand for China’s tea combined with a closed-door policy that virtually extinguished Chinese demand for foreign products. Put simply, China exported a fair amount and imported very little. Today, China exports a lot, exports a lot more than it imports, but it also imports a lot. 

• Taking account of China’s size and the regularity that large countries tend to trade less than small countries, China is an exceptionally big importer and trader. My calculations suggest that the degree of China’s openness, measured in terms of trade outcomes, is far greater than anything achieved by the United States in the post-war period and resembles the levels of openness achieved by the United Kingdom at the height of empire. 

• So, one reading, perhaps overly optimistic and naive, is that a China that moves away from mercantilism will be a China that is an exceptionally large and fair trader with strong stakes in maintaining an open trading and financial system. Post-World War II, the United States fashioned such a system out of enlightened self-interest. In contrast, China’s stake in openness might be less enlightened but more direct and important because its rise to prosperity, on which is predicated the legitimacy of its government, will depend upon an open system.