Mercantilism

The first form of international trade theory was the concept of Mercantilism. This theory began around 1500 AD and lasted through the colonial era. The theory behind Mercantilism was that measurement of a country’s wealth was based on the amount of gold it was holding. Therefore, it was important to export more than the country imported in order to gain gold from other countries. This gold was then used to fund armies and solidify a central government. Under this theory, countries would restrict their imports and heavily subsidize domestic industries in order to increase exports.

Mercantilism also encouraged countries to use their colonies in order to support their trade objectives. The colonies would supply raw materials and low value goods to the colonizing country. Colonies were also forced to import the high value goods from the mother country. Mercantilism weakened around 1800 AD as other trade theories were established and governments stopped limiting the development of industry within their colonies. Today, the term Neomercantilism is used to indicate that a country is trying to run a favorable trade balance in order to achieve some political objective.

Written by Carl Phelps, Research Associate for GLOBAL ID LLC.
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