The mercantilism theory dates back to the 16th and 17th centuries with Antoine de Montchrestien, Jean Bodin, and the policies of Jean-Baptiste Colbert, for example. It is based on the need for trade surpluses, protectionism, and exports promotion, as well as the belief that the economy is a zero-sum game: what one country gains, another loses.
Trade surpluses are seen as essential for a country’s enrichment. In the 16th century, they helped increase the stock of gold. To achieve trade surpluses, protectionism is used to reduce imports and support exports through subsidies and targeted industrial policies.
The idea that productive specialization, such as exploiting countries’ comparative advantages, can create wealth is completely absent from mercantilist theory. However, in recent times, while the European Union remains largely free-trade oriented, with agreements like the Mercosur or India, the United States and China are increasingly leaning towards a mercantilist view of the world.
Tariffs and Investment Injunction
One of the most blatant manifestations of this strategy is the use of tariffs by the United States. The average tariff on all imports increased from just over 2% in early 2025 to 17.5% in early 2026 before dropping to 9.1% after a Supreme Court decision. The aim of this policy is to reduce their external deficit, with the US trade deficit for goods and services dropping from $125 billion per month at the beginning of 2025 to $50 billion per month by the end of the year.
The bilateral trade deficit amount with other countries initially served as the basis for calculating tariffs, highlighting the mercantilist foundation of the recent US protectionism. Additionally, the US is exerting significant pressure on other countries to increase their investments and purchases in American territory, particularly in energy, military equipment, and aircraft.
In China, there has been a significant depreciation of the RMB (Renminbi, the official name of the Chinese currency), falling from 6.32 RMB per dollar at the beginning of 2022 to 6.88 RMB per dollar in early 2026, resulting in a substantial currency undervaluation.
$1.2 Trillion Trade Surplus
Beijing is also looking to boost its exports, which increased by 16% in volume in one year by the end of 2025, thanks to massive investments in strategic sectors like the pharmaceutical industry, the automotive industry, semiconductors, and electric batteries. This comes as domestic demand remains weak, with less than 3% growth year-on-year and retail sales increasing by only 0.9% in December 2025.
China’s trade surplus reached $1.2 trillion in 2025, a sum used to significantly expand investments in strategic sectors worldwide.
So why have these countries chosen mercantilism? In the US, the gains from trade development were likely perceived as less significant than the associated losses, with the number of jobs in manufacturing declining from 17.2 million in 2000 to 12.7 million by the end of 2025, and manufacturing production falling by 8.4% between 2008 and the end of 2025. Deindustrialization has exacerbated poverty and diminished the skills of the workforce.
All Mercantilists, No Free-Traders?
In China, the decision appears more linked to demographic aging. With a fertility rate of 1 in 2025, the population size is halved each generation. This results in low domestic demand due to demographic decline, high precautionary savings, high real estate prices, with export expansion being the only available source of growth.
For Europe, the mercantilist strategies of the US and China may weaken growth through reduced exports and investment shifts towards these two countries. History shows that if many countries adopt a mercantilist strategy, others cannot remain free traders.
