International trade is the exchange of capital, goods, and services across international borders or territories. international trade has existed throughout history (for example Uttarapatha, Silk Road, Amber Road, salt roads), its economic, social, and political importance has been on the rise in recent centuries. To understand the pattern in international trade, Different trade theories are postulated. Some famous trade theories are: Mercantilism Absolute Advantage Theory Comparative Advantage Theory Hecksher-Ohlin Factor endowment theory Product Life Cycle Theory New Trade Theory Porter’s Diamond Theory for competitive advantage Restrictions on imports – tariff barriers, quotas or non-tariff barriers. Accumulation of foreign currency reserves and  gold and silver reserves. (known also as bullionism) Granting of state monopolies to particular firms especially those associated with trade and shipping. Subsidies of export industries to give competitive advantage in global markets. Government investment in research and development to maximize efficiency and capacity of domestic industry. Allowing copyright / intellectual theft from foreign companies. Limiting wages and consumption of the working classes to enable greater profits to stay with the merchant class. Control of colonies, e.g. making colonies buy from Empire country and taking control of colonies wealth. England Navigation Act of 1651 prohibited foreign vessels engaging in coastal trade. All colonial exports to Europe had to pass through English first and be re-exported to Europe. Under British Empire, India restricted in buying from domestic industries and were forced to import salt from the UK. Protests against this salt tax, led to ‘Salt tax’ revolt led by Gandhi. In seventeenth Century France, the state promoted a controlled economy, with strict regulations about the economy and labour markets In the modern world, mercantilism is sometimes associated with policies, such as. Undervaluation of currency e.g. government buying foreign currency assets to keep the  exchange rate undervalued and make exports more competitive. Government subsidy of industry for unfair advantage. China has been accused of offering too much subsidised investment for industry, leading to over supply of industries such as steel – meaning other countries struggle to compete. Surge of protectionist sentiment, e.g. tariffs on imports. Copyright theft

1. MERCANTILISM
INTERNATIONAL
TRADE
THEORY

2. INTENATIONAL TRADE
International trade is the exchange of capital,
goods, and services across international
borders or territories.
international trade has existed throughout
history (for example Uttarapatha, Silk Road,
Amber Road, salt roads), its economic, social,
and political importance has been on the rise
in recent centuries.
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3. INTERNATIONAL TRADE
THEORIES
To understand the pattern in international trade, Different
trade theories are postulated. Some famous trade theories
are:
1. Mercantilism
2. Absolute Advantage Theory
3. Comparative Advantage Theory
4. Hecksher-Ohlin Factor endowment theory
5. Product Life Cycle Theory
6. New Trade Theory
7. Porter’s Diamond Theory for competitive advantage10/2/2016 M V S SAI HEMANT 3

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5. MERCANTILISM
Mercantilism recommends
that a country’s best interest
is to maintain a trade surplus
Mercantilism advocates
government intervention to
achieve a surplus in the
balance of trade
Mercantilism observes
trade as a zero-sum game -
in which a gain by one
country results in a loss by
another
Mercantilism stands in
contrast to the theory of free
trade.10/2/2016 M V S SAI HEMANT 5

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7. MERCANTILISM INVOLVES
Restrictions on imports – tariff barriers,
quotas or non-tariff barriers.
Accumulation of foreign currency reserves
and gold and silver reserves. (known also as
bullionism)
Granting of state monopolies to particular
firms especially those associated with trade
and shipping.
Subsidies of export industries to give
competitive advantage in global markets.
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8. MERCANTILISM INVOLVES
Government investment in research and
development to maximize efficiency and
capacity of domestic industry.
Allowing copyright / intellectual theft from
foreign companies.
Limiting wages and consumption of the
working classes to enable greater profits to
stay with the merchant class.
Control of colonies, e.g. making colonies buy
from Empire country and taking control of
colonies wealth.10/2/2016 M V S SAI HEMANT 8

9. HOW MERCANTILISM
WORKS??
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10. EXAMPLES OF
MERCANTILISM
England Navigation Act of 1651 prohibited foreign vessels
engaging in coastal trade.
All colonial exports to Europe had to pass through English first
and be re-exported to Europe.
Under British Empire, India restricted in buying from domestic
industries and were forced to import salt from the UK. Protests
against this salt tax, led to ‘Salt tax’ revolt led by Gandhi.
In seventeenth Century France, the state promoted a controlled
economy, with strict regulations about the economy and labour
markets10/2/2016 M V S SAI HEMANT 10

11. EXAMPLES OF
MERCANTILISM
Rise of protectionist policies following the great depression.
With countries seeking to reduce imports and also reduce value
of currency by leaving gold standard.
Some have accused China of mercantilism due to industrial
policies which have led to increase in investment and capacity,
rise in FDI in China – combined with policy of undervaluation of
currency. However, the extent of mercantilist policies are
disputed
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15. MODERN MERCANTILISM
In the modern world, mercantilism is sometimes
associated with policies, such as.
1. Undervaluation of currency e.g. government
buying foreign currency assets to keep
the exchange rate undervalued and make
exports more competitive.
2. Government subsidy of industry for unfair
advantage. China has been accused of offering
too much subsidised investment for industry,
leading to over supply of industries such as steel
– meaning other countries struggle to compete.
3. Surge of protectionist sentiment, e.g. tariffs on
imports.
4. Copyright theft10/2/2016 M V S SAI HEMANT 15

16. MERCANTILISM : CRITICISMS
Mercantilism is a philosophy of a zero sum game
Mercantilism which stresses government regulation
and monopoly tends to lead to inefficiency and corruption.
Mercantilism justified Empire building and the poverty of
colonies to enrich the Empire country.
Mercantilism leads to tit for tat policies – high tariffs on
imports leads to retaliation.
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17. NEO MERCANTILISM
Neo-mercantilism is a policy regime that
encourages exports, discourages
imports, controls capital movement, and
centralizes currency decisions in the
hands of a central government.
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18. JUSTIFICATION FOR NEO
MERCANTILISM
Tariffs in response to domestic subsidies. e.g. Supporters
argue that since China’s steel is effectively subsidized leading to a
glut in supply, it is necessary and fair to impose tariffs on imports
of Chinese steel to protect domestic producers from unfair
competition. US tariffs on imports of steel from China 266%. In
Europe, tariffs are 13%.
Protection against dumping. If some countries have excess
supply of goods, they can sell at a very low price to get rid of the
surplus. But, this can make domestic firms unprofitable.
Protectionism can be justified to protect against this dumping.
Examples, include EEC dumping excess agricultural production
on world agricultural markets and China’s dumping of steel.
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19. JUSTIFICATION FOR NEO
MERCANTILISM
Infant industry argument. For countries seeking
to diversify their economy, tariffs may be justified
to try and develop new industries. When the
industries have developed and benefit from
economies of scale, then the tariffs and
protectionism can be dropped.
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20. M V S SAI HEMANT
BBA FOREIGN TRADE
SEMESTER-5, IIIRD YEAR
UPES, DEHRADUN
UTTARAKHAND. INDIA
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