THE RISE OF INTERNATIONAL TRADE THEORY AND MERCANTILISM

During the mercantilist period, nation states were established instead of feudalism. The official economic doctrine of the newly established nation-states was mercantilism. According to mercantilism, the main objective of foreign trade policy is to increase the gold stock (Krugman, Obstfeld, Melitz, 2017, p. 26). It was the interventionist system that focused on export in order to increase the gold and silver reserves. They gave importance to increase export, thus foreign trade surplus. On the other hand, they prohibited the import of products. Imports of raw materials were free. Traders also attached great importance to the development of the trade fleet to increase gold inflow.

According to the mercantilist doctrine, countries should export more than they import. World wealth (gold or silver stock) is constant and cannot be increased. Therefore, there is always a contradiction among  the foreign trade countries. While one side of trade is profitable, the other party suffers equally. Mercantilists assumed trade was a zero-sum game that it could not be mutually beneficial to all parties. Mercantilism is an economic theory that holds that the prosperity of a nation is dependent upon its supply of capital, and that the global volume of international trade is “unchangeable”.