Dani Rodrick — The New Mercantilist Challenge

The history of economics is largely a struggle between two opposing schools of thought, “liberalism” and “mercantilism.” Economic liberalism, with its emphasis on private entrepreneurship and free markets, is today’s dominant doctrine. But its intellectual victory has blinded us to the great appeal – and frequent success – of mercantilist practices. In fact, mercantilism remains alive and well, and its continuing conflict with liberalism is likely to be a major force shaping the future of the global economy.....

Mercantilist theorists such as Thomas Mun were in fact strong proponents of capitalism; they just propounded a different model than liberalism.
The liberal model views the state as necessarily predatory and the private sector as inherently rent-seeking. So it advocates a strict separation between the state and private business. Mercantilism, by contrast, offers a corporatist vision in which the state and private business are allies and cooperate in pursuit of common objectives, such as domestic economic growth or national power.....

A second difference between the two models lies in whether consumer or producer interests are privileged. For liberals, consumers are king. The ultimate objective of economic policy is to increase households’ consumption potential, which requires giving them unhindered access to the cheapest-possible goods and services.
Mercantilists, by contrast, emphasize the productive side of the economy. For them, a sound economy requires a sound production structure. And consumption needs to be underpinned by high employment at adequate wages....

These different models have predictable implications for international economic policies. The logic of the liberal approach is that the economic benefits of trade arise from imports: the cheaper the imports, the better, even if the result is a trade deficit. Mercantilists, however, view trade as a means of supporting domestic production and employment, and prefer to spur exports rather than imports....

What Rodrik doesn't mention is that this was reflected in US economic history in the preference for the American system of managed trade championed by Henry C. Carey, for instance, over the British system of "free trade" while the US was still emerging. Recently, China has been emulating this model.

The upshot:

As a result, the new economic environment will produce more tension than accommodation between countries pursuing liberal and mercantilist paths. It may also reignite long-dormant debates about the type of capitalism that produces the greatest prosperity.

What's at stake is neoliberal globalization under the current American model, which the US considers a matter of national security since it's project of permanent military, political and economic hegemony depends on it.

Project Syndicate
The New Mercantilist Challenge
Dani Rodrik |Professor of Social Science at the Institute for Advanced Study, Princeton, New Jersey