Jasper Becker: China's Self-Defeating Mercantilism - WSJ.com

Mercantilism, whether it is practiced by China today, Japan in the 1980's or the direction that the American Democrats want to take the USA, it will not work and has caused economic dislocation and in some cases, war. Mercantilism is a form of economic nationalism and is preferred by those in positions of economic power to reduce competition. Mercantilists and mercantilism assume that wealth and monetary assets are identical and that one can effectively protect markets through legislation and border interdiction. Mercantilism suggests that the ruling government should advance these goals by playing a protectionist role in the economy by encouraging exports and discouraging imports, notably through the use of subsidies and tariffs respectively. The theory dominated Western European economic policies from the 16th to the late-18th century.

As explained here....

The Austrian lawyer and scholar Philipp Wilhelm von Hornick, in his Austria Over All, If She Only Will of 1684, detailed a nine-point program of what he deemed effective national economy, which sums up the tenets of mercantilism comprehensively:

* That every inch of a country's soil be utilized for agriculture, mining or manufacturing.
* That all raw materials found in a country be used in domestic manufacture, since finished goods have a higher value than raw materials.
* That a large, working population be encouraged.
* That all export of gold and silver be prohibited and all domestic money be kept in circulation.
* That all imports of foreign goods be discouraged as much as possible.
* That where certain imports are indispensable they be obtained at first hand, in exchange for other domestic goods instead of gold and silver.
* That as much as possible, imports be confined to raw materials that can be finished [in the home country].
* That opportunities be constantly sought for selling a country's surplus manufactures to foreigners, so far as necessary, for gold and silver.
* That no importation be allowed if such goods are sufficiently and suitably supplied at home.

Mercantilism, as we see from above is a nationalist and protectionist regime.

The biggest problem with mercantilism, as Adam Smith, David Hume and John Locke may have argued, is that it mis-allocates resources, keeps technological advances out, drives innovation offshore and creates a sclerotic business environment within the targeted product groups. And importantly, it forgets the monteary effects of supply and denmand as government interferrence creates excess supply of some goods or monetary supplies and shortages of other goods. These shortages and excesses change prices, value and changes in the businesses and other industries not targeted arguably creating little net national wealth effect. Wealth is only shifted from one party to another over the short term but can even lower aggregate wealth over a longer time frame.

China has been involved in continuous mercantilism interdictions since European explorers showed up on their shores around 500 years ago.....

The fabled land of Cathay was once the only source for the most desirable luxury goods in the history of world trade—silk, tea and porcelain. So it's curious that the Mongolian national dress is made from brightly colored silk, while the Chinese traditionally wore coarse blue cotton. Likewise, many people around the world say they drink "English" tea and not Chinese tea. And the finest "china" is made in European cities like Meissen, Germany, rather than Jingdezhen.

China's rulers sought to monopolize the production and trade in all these products. When they restricted trade, Central Asian nations like the Huns or the Mongols who controlled the trade routes turned to war. The "barbarian" tribes forced the Chinese to pay tribute in the form of rolls of silk. Or worse, some decided to overrun China and set up their own dynasties.

Additionally,

Jasper Becker: China's Self-Defeating Mercantilism - WSJ.com