Adverse Effects of Neo-Mercantilism
Neo-mercantilism aims to support local industries against foreign entities that have lower-priced goods. However, despite the noble efforts involved in this exercise, countries lose when they employ neo-mercantile policies. The majority of economists and the World Trade Organization (WTO) claim that mercantilism does not work (International Business, 2022). However, countries such as the USA continually use this practice to protect local companies in the affected areas. It is crucial to assess this issue based on a wider population, showcasing the devastating nature of neo-mercantilism in an economy. Raising export prices through tariffs leads to subsequent high prices or products in their downstream industries (International Business, 2022). For example, high sugar prices lead to high candy costs. Cheap exports would promote lower costs to make products that rely on these materials. Protecting a particular industry while harming others is not prudent and leads to worse economic conditions.
Countries with neo-mercantile tariffs imposed on foreign products also incur tariffs in these nations. The USA’s ban on Chinese cars and light truck tires resulted in anti-dumping duties imposed on US chicken parts, leading to a $1 billion loss (International Business, 2022). In this instance, while the government sought to protect local manufacturers, taxpayers incurred the cost of this mercantile nature. Imposing tariffs on foreign products does not solve a problem but exacerbates it as the cost of saving jobs outweighs the benefits. A country would gain from allowing free markets to operate normally and subsidize its producers to reduce the risk they incur from developing certain products. It is also prudent to assess the potential losses associated with any industry that faces major competition. They would discern the feasibility of protecting them via tariffs versus aiding local manufacturers to transition into other industries, avoiding the ripple effect of neo-mercantilism.
International Business. (2022).