Essay about Mercantilist: International Trade and Basic Free Trade

2905 Words Feb 7th, 2011 12 Pages
1. Read the Country Focus (on page 164 in hill’s textbook) on “Is China a Neo-Mercantilist Nation?” a) Are the claims that China is following a neo-mercantilist policy valid?” why or why not?
Yes, the claims that China is following a neo-mercantilist policy are valid because China has been trying to maintain a trade surplus (which is the definition of neo mercantilist); placing high import tariffs on certain goods (refer to qtn 3). Besides, the cheap currency encourages domestic investments, discouraging imports and also leads to cheap capital exports.
What I found from the internet:
China's commercial engagement with the rest of the world is largely scripted from mercantile theory: export boosting policies that are meant to
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Eg. * TARIFFS: tax levied on imports to protect domestic producers from foreign competition by raising the price of imported goods -> restrict imports and promote domestic production and domestic demand of domestically produced goods * SUBSIDIES: govt payment to a domestic producer to lower production costs so that domestic producers can compete against foreign imports and gain export markets * IMPORT QUOTA: a direct restriction on the quantity of some good that may be imported into a country * TARIFF RATE QUOTA: a common hybrid of a quota and a tariff; a lower tariff rate is applied to imports within the quota than those over the quota

* Are these policies at variance with the basic free trade philosophy?
YES because government intervention is creating the basis for comparative advantage.
FREE TRADE: Refers to a situation in which a govt does not attempt to restrict what its citizens can buy from or sell to another country.
However, govt policies/govt intervention that draws upon the New Trade Theory to build national competitive advantage in biotechnology would influence what citizens can buy or sell. Hence, these policies are at variance with the basic free trade philosophy.
On the other hand, the consequences of such policies are the same as that of basic free trade philosophy, which are economic gains (higher level of domestic consumption and more efficient utilization of resources which lead to the creation of wealth) and

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