The Rise of Mercantilism: A Clash Between the U.S. and China

Under the administration of President Donald Trump, the United States has embraced a mercantilist approach to trade, reminiscent of 17th-century economic doctrines. This philosophy posits that trade is a zero-sum game, where countries should prioritize self-sufficiency and export more than they import. The tariffs implemented on April 2, 2018, aimed to bolster American manufacturing and reduce reliance on foreign goods. Despite initial market concerns, these tariffs have remained largely intact, with rates even increasing for key trading partners like India and Brazil.

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China, however, has been practicing mercantilism for decades, positioning itself as a formidable competitor. Since its accession to the World Trade Organization (WTO) in 2001, China has adeptly navigated the global trade landscape, maintaining an artificially low currency and leveraging its manufacturing capabilities. While U.S. tariffs have impacted Chinese exports to the U.S., overall Chinese exports have reached record highs, demonstrating the country's ability to adapt and thrive despite protectionist measures.

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In response to U.S. tariffs, China has resorted to "dumping," a strategy where it exports products at prices that undercut competitors. This practice has allowed China to maintain its trade balance, which has surged to nearly $1.2 trillion since 2018. Despite facing a 57% tariff on exports to the U.S., China's overall export figures remain robust, indicating a strategic pivot to other markets. This shift has raised concerns about the potential for global deflation as China floods the market with low-cost goods.

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China's mercantilist strategy is not only reactive but also forward-looking. The country has established dominance in critical industries such as electric vehicles, solar energy, and battery production, accounting for over 70% of global electric vehicle production and 98% of solar wafers. This proactive approach contrasts sharply with the U.S. strategy, which has focused on reviving past manufacturing glory without adapting to emerging technologies.

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Critics argue that the U.S. approach under Trump, which dismisses green energy as a "scam," could lead to significant economic setbacks if the global shift towards renewable energy continues. Chris Watling of Longview Economics highlights that China's cost of electricity production is now less than half that of the U.S., giving it a competitive edge in the green energy sector.

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Opponents of the U.S. mercantilist policies contend that this strategy may ultimately backfire, as it fails to address the realities of modern global trade dynamics. Neil Shearing, chief economist at Capital Economics, emphasizes that the forces reshaping trade are increasingly driven by China's actions rather than U.S. policies.

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• “0 — artificially cheap currency and gaming the WTO Magnus of Oxford University argues that the US is making a belated response to the path that China has blazed since at least the mid-2000s.” — George Magnus, Oxford University

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• “As Watling says, China’s cost of producing electricity now stands to be less than half that of the US.” — Chris Watling, Longview Economics

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• “Neil Shearing, chief economist of Capital Economics in London, argues that the biggest forces reshaping trade today stem from Beijing, not Washington.” — Neil Shearing, Capital Economics

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In conclusion, as the U.S. continues to navigate its mercantilist policies, it faces a formidable challenge from China's established and evolving strategies, raising questions about the future of global trade and economic dominance.

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