The Neomercantilist Moment

REVIEW ESSAY
The Neomercantilists: A Global Intellectual History
by Eric Helleiner
Cornell University Press, 2021, 414 pages

Until recently, the claims that the market is infallible and that free trade benefits everyone were considered unimpeachable. They formed the basis of the neoliberal order. By political order, I refer, per Gary Gerstle, to “a constellation of ideologies, policies, and con­stituencies that shape American politics in ways that endure beyond the two-, four-, and six-year election cycles.”¹ The worldview of this now defunct order—“of which Reagan was the ideological architect and Clinton the key facilitator”²—is best summarized by the dogmatic slogans of its (former) proponents. “Globalization is a fact, not a policy option,” declared Democratic congressman Xavier Becerra (today Biden’s Health and Human Services secretary),³ while economist Paul Krugman—in a moment of extreme intellectual arrogance—stated, “A country serves its own in­terests by pursuing free trade regardless of what other countries may do.”⁴ For Reagan Republicans and for Clinton Democrats, liberalism and free trade constituted the only path to pros­perity; it ceased to be a matter of debate, but became almost a question of religious belief. Those who contested it—such as Patrick J. Buchanan, Clyde Prestowitz, and Robert Lighthizer—were treated as heretics and their ideas regarded as outlandish creations of dangerous minds.

Today, the neoliberal dogmas about globalization and free trade are no longer taken for granted. Reality has exposed the illusions of the prevailing order: millions of Americans have not moved to better-paid, high-end jobs, but as a result of the “China shock” have found themselves unemployed, sinking into addiction and deaths of despair. Instead of embarking on a new pathway to growth, America experienced a temporary blip in the 1990s before further descending into stagnation. During this time, the United States lost much of its capacity to build in the world of atoms; it struggles to develop new, safe airplanes or to manufacture state-of-the-art chips.⁵ As China has never been an ally, but rather an opportunistic geopolitical rival, the belief of eighteenth-cen­tury philosophers that trade brings peace and harmony, embodied in neoliberalism, has once again turned out to be a vain hope.

The neoliberal order had been unraveling since the 2008 crisis, but its loss of ideological hegemony was only fully revealed by the election of Donald Trump. His 2016 victory broke the economic consensus, and his defeat in the 2020 election only confirmed the shift away from neoliberal policy. As Robert Lighthizer pointed out, “Joe Biden abandoned his past support for comprehensive trade deals like TPP. Both [candidates] emphasized the need to bring back jobs that were outsourced overseas and to reduce dependence on China.”⁶

Yet the breakdown of the neoliberal order does not mean that a new one has emerged to take its place. As the dogmas of free trade and marketization slowly become a thing of the past, Eric Helleiner’s book, The Neomercantilists: A Global Intellectual History, seems timely. It describes a col­lection of ideas—marginalized during the Cold War—that constitute a third current of thought, distinct from both socialism and liberalism, and tells their story without a partisan thumb on the scale. Helleiner offers a genealogy of approaches that share “a belief in the need for strategic trade protectionism and other forms of government economic activism to promote state wealth and power in the post-Smithian age.”⁷ In navigating our post-neoliberal era, exploring this intellectual tradition may prove useful in bringing forth new models.

Historian Pierre Deyon argues that mercantilism never crystallized into a rigid doctrine, “with its own Bible, its Church and its prophets.”⁸ This remark also holds true for neomercantilism, which binds together a variety of currents and displays many shades. By contrast, sociologist Emmanuel Todd, in his introduction to the republished French edition of one of Friedrich List’s works, has observed that the proponents of globalization resemble children in their binary way of thinking: they cannot imagine any intermediate approaches between total openness and autar­kic entrenchment.⁹ But this is not the case with neomercantilism, and Helleiner shows the nuanced attitude of its thinkers toward tariffs, industrial policy, capital controls, and international institutions. In doing so, he notes that various neomercantilist concepts were not born out of a “supply-side push,” or aggressive ideological propaganda, but rather through a “demand-side pull,”¹⁰ by which pragmatic judgment en­couraged thinkers and policymakers to tap into these ideas. Each time they responded to the needs emanating from the political-economic context, rather than to the abstract impera­tives of economic ideologies.

Myths Surrounding Neomercantilism

President Reagan’s Council of Economic Advisers concluded in its 1985 Annual Economic Report that historical experience is unequivocal: “Countries that have followed the least restrictive economic policies both at home and abroad have experienced the most rapid economic growth and have enabled the greatest proportions of their populations to rise above subsistence living standards.” This neoliberal view was expressed even more emphatically by Undersecretary of State W. Allan Wallis: “Prosperity and protection are inconsistent. . . . Prosperity is our goal; but . . . protection is its enemy.”

Does history really show that protectionism always hinders develop­ment and is irreconcilable with prosperity, or are such claims ideological myths? Friedrich List, one of the first neomercantilists, argued—in the same vein as Alexander Hamilton—that a fledgling industry needs tariff barriers to protect it against foreign competition in order to fully develop. But the intellectual hegemony of neoliberalism has caused List and the issue of infant-industry protection to be nearly forgotten; when it is mentioned, it is cast as a typical example of state intervention that will always fail and can only distort market mechanisms.

Yet in List’s time as well as our own, such state economic activism can have positive and persistent effects. Researcher Reka Juhasz has shown that the regions of France shielded from free trade by Napoleon’s blockade developed a comparative advantage relative to regions that remained exposed to trade, and the former “had higher value added per capita in industry up to the second half of the nineteenth century.”¹¹ List maintained that the British themselves used protectionism to develop their industries behind trade barriers, and when they were strong enough to overtake foreign rivals, they removed them. The German economist criticized the hypocrisy of the British, who condemned in others the same protectionism through which they built their own power, thus “kicking away the ladder” that led them to the top.

The myth that protectionism is inherently harmful to growth has been further debunked by economic historian Paul Bairoch. He points out that the liberal period in European trade relations in the nineteenth century lasted from 1860 to 1892, reaching its peak in 1866–77. In the midst of the heyday of free trade, a great depression occurred in Europe, which “ended around 1892–4, just as the return to protectionism in Continental Europe had become really effective.”¹² Moreover, the in­crease in protectionism was accompanied by an increase in trade, and the most protectionist countries experienced the greatest expansion. “Even if this cannot be taken as proof that protectionism generates international trade, it does indicate that protectionism does not always necessarily hinder it,” concludes Bairoch.¹³ Moreover, America’s rapid economic growth in the nineteenth century cannot be attributed to free trade. The latter constitutes a relatively new tendency in the history of the United States. Bairoch directly refers to America as “the mother country and bastion of modern protectionism.”¹⁴

The Economic Identity of the United States

It was in America that List developed his neomercantilist theory. The author of The National System of Political Economy came to the United States in 1825. He became involved in protectionist circles and assiduously studied Alexander Hamilton’s writings. Exposure to the ideas of Hamilton, whom Helleiner calls “the first prominent thinker to chal­lenge Adam Smith’s ideas on trade policy from a sophisticated neomercantilist perspective,” shaped his views profoundly.¹⁵ Some historians of economic thought have even perceived List as an American thinker, describing him as a successor to the author of the Report on the Subject of Manufactures.¹⁶

After the Napoleonic Wars, ending in 1815, American industry faced increasing European competition. Over the following years, the fight to protect American industry was led in Congress by Henry Clay, hailing protec­tionism as the “genuine American System.” List’s theories in­formed American neomercantilism, but it also evolved in new directions. Stephen Colwell, a contemporary of List (he sponsored the first transla­tion of his work), diverged from him on the question of which parts of the economy should be protected. While List believed that agriculture and raw materials were sectors for which tariff barriers were useless, Colwell disagreed, arguing pragmatically that “It should, in regard to every and each commodity, be a subject of special and sound discretion what should be done for the interests of labor and national independence.”¹⁷ Colwell also accused List of failing to consider the social aspects of free trade policies. He insisted that America’s dependence on foreign markets not only weakened domestic industry, but worsened the position of workers, increased inequality, and undermined Christian principles.

Colwell was much closer in this respect to Henry C. Carey, the greatest and perhaps most forgotten of all American neomercantilists, whose influence remains underappreciated. Carey drew on List’s work, but he created an original perspective, not only pushing America toward more stringent protectionism after 1860, but also building support for a neomercantilist turn in Germany, where his theories played an even greater role than List’s own ideas.¹⁸ His work also served as a key inspiration for the Japanese reformers of the Meiji era¹⁹ and for the debates that led to the introduction of the neomercantilist National Policy in Canada.²⁰

Carey offered the first full formulation of social neomercantilism. In protectionism, he saw not only a temporary measure to nurture sectors that would otherwise be crushed by foreign competition, but also a soli­daristic policy, harmonizing the interests of manufacturing, agriculture, and trade. Protectionism, in his view, should benefit the average Ameri­can.²¹ Carey opposed socialism and communism because he valued individual responsibility. At the same time, he opposed radical liberal ideologies because he put the nation above the egoistic individual. Tariffs were a method of looking after the interests of workers without compromising American values, allowing the country to maintain social cohesion and an internal free market.²²

While List admired Britain, Carey advocated that the United States should go its own way. He rejected the British model because of the cost English workers were paying for it: social mobility was declining, edu­cational and professional opportunities were diminishing, only available to increasingly smaller numbers of people. According to Carey, a system built on a foundation of free trade leads to “barbarization,” destroying the diverse ties that bind communities together. The proponents of free trade were blind to these, regarding man in just one light, as “an animal that will procreate, that must be fed, and that can be made to work—an instrument to be used by trade.”²³ He believed that the reign of free trade meant, in fact, the hegemony of one class over the country’s wealth. The “trading class,” Carey warned, was building a fortune at the expense the rest of the nation, which became dependent on global markets.²⁴

Social neomercantilism attained ideological hegemony in America in the second half of the nineteenth century.²⁵ It is worth recalling that when Europe was gripped by the Long Depression of 1870–96—which took place during its most liberal era in terms of trade—it was “in those years [that] the United States, which, as we have seen, was increasing its protectionism, went through a phase of very rapid growth.” There­fore, notes Bai­roch, “the best 20 years of American economic growth took place in a period when its trade policy was protectionist while that of the United States’ major competitors was liberal.”²⁶

Protectionism remained not only the core of American economic identity, but also of the Republican Party’s. Carey’s social neomercantilism was influential inside the GOP: he advised both Lincoln and the author of the 1861 tariff reforms, Justin Smith Morill.²⁷ Those views did not belong exclusively to Republicans, however, and prevailed widely until the beginning of the New Deal.

In 1934, Cordell Hull, secretary of state under Roosevelt, introduced a reform which Anthony E. Eckes Jr. describes as a turning point in global economic relations comparable only to the abolition of the Corn Laws in 1846.²⁸ Hull’s worldview differed significantly from the vision that had been prevalent in American ruling circles until then. He pro­tested against tariffs, as they were understood solely through the prism of national interest, without any consideration given to their consequences for the world.²⁹ All subsequent presidents from Roosevelt to Clinton would adopt as their own the principles of import liberalization articulated by Hull. His ideas, according to Kenneth Dam of the Brookings Institution, “came to be central concepts in the second half of the Twentieth Century in the GATT system.”³⁰

After World War II, trade became a tool of foreign policy, and the imperatives of the Cold War caused America to neglect its own interest. The United States opened its markets to its allies without demanding reci­procity. “In doing so,” notes Eckes, “it redefined the national inter­est to include the health of the cosmopolitical economic system.” Ronald Reagan saw the direction of history in “expanding global net­works of investment, production and communication, not mercantilist national economics shrinking behind tariff barriers.”³¹

After the Cold War, free trade achieved total ideological hegemony. Its triumph was sealed by Bill Clinton, who signed nafta, gave China permanent most favored nation status, and admitted it to the WTO. That “we can no sooner stop globalization than we can stop winter’s giving way to spring”³² became an unquestioned belief.

Chinese Mercantilism-Leninism

The complacency that followed the triumph of neoliberalism prevented its proponents from seeing that, to paraphrase Branko Milanović, their system was not alone. In Asia, models arose based on other principles. China’s “mercantilism-Leninism,” a term coined by Aron L. Fried­berg, presents a unique manifestation of East Asian neomercantilism. It has a long genealogy independent of Western influence and still provides theoretical inspiration for Xi Jinping’s regime.

Chinese neomercantilism was born in reaction to the national humiliation suffered after the Opium Wars. One thinker who sought an economic solution to this national crisis was Wei Yuan. Although he was a Confucian, the decline of his country led him to speak out against the principles on which Confucianism was based, above all against its strict commitment to the virtues of frugal simplicity. To extricate itself from dependence on colonial powers, China had to embrace new values and prioritize “a goal that was morally suspect from the standpoint of Chinese conservatives: the promotion of China’s fuqiang, or wealth and power.”³³ Unlike other Chinese intellectuals of the period, he saw trade as an opportunity to accumulate state power and recommended learning from the West. Wei believed that China could rise from its decay through state-led commercial expansion. But his ideas—along with those of another mercantilist of the period, Xu Jiyu—did not find much traction among the complacent class of Chinese intellectuals during the 1840s and 1850s.

Li Hongzhang was responsible for the first neomercantilist policies implemented in China. Influential in the 1880s and 1890s, Li introduced “self-strengthening economic reforms.” He focused on building state-backed enterprises in strategic sectors such as mining, shipping, and tele­graphy. These companies operated under the principle of “government-supervision and merchant-operation (guandu shangban),”³⁴ beginning a tradition whose echoes can be found in Deng’s reforms and in contemporary, reconceptualized models, as in the “local government as venture capital” approach developed in Hefei.³⁵

No thinker mentioned above, however, achieved influence comparable to that of Sun Yat-sen. His ambitious neomercantilist ideas, developed before World War II, garnered the support of Mao Zedong and the Chinese Communist Party.³⁶ More significantly, however, Helleiner shows that they were an important contribution to the theoretical underpinnings of China’s post‑1978 development. Deng’s strategy was not so much inspired by Friedrich List’s theories, as some scholars maintain, but drew on Sun’s work.³⁷ Although Sun assumed that China’s path to growth and power would have a democratic dimen­sion, his economic views, as Helleiner argues convincingly, are very close to those that guided Deng’s reforms and the subsequent evolution of Chinese mercantilism-Leninism. In 2016, on the sesquicentennial of Sun’s birth, “Xi emphasized the need ‘to carry on the pursuit for a rejuvenated China that he [Sun] had dreamed of’ and argued that the CCP had been a faithful upholder of his vision.”³⁸

Sun was convinced that the main reason for China’s decline was its economic weakness. This led the country to succumb to foreign “eco­nomic oppression” even worse than the political kind. The disappearance of the nationalist spirit brought about the atrophy of wealth-producing forces, and the first task of a revived nationalism should be to rebuild them. Sun considered great investments in infrastructure as crucial, referring to them as “the weapons for the promotion of indus­try,” while regarding protectionism as a necessary measure designed to deter foreign economic pressure. He did not, however, recommend premature autarky; in the domain of technology, his argument went, China was lagging and should try its best to use Western capital and machines for its own development, all the while prudently controlling their influence.³⁹

Today, the industrial policy of China exceeds the expecta­tions of Sun or List. Measured as a share of GDP, China spends about twice as much on industrial policy as South Korea (the second highest-spending country in this domain) and much more than the United States.⁴⁰ The magnitude and persistence of China’s industrial policy sets it apart from the history of East Asian neomercantilism, “as Beijing is sustaining or increasing vertical industrial policy at a level of development when other economies have dialed back.”⁴¹ The Asian Tigers allocated capital to industrial policy mostly in the catch-up phase, after which their fi­nancing ceased to be so intensive. China’s ambitions, by contrast, only continue to grow. This new neomercantilism was conceived in the aftermath of 2008, when the Chinese leadership concluded that neo­liberalism was the main culprit responsible for the crisis. Immediately after 2008, China launched a major program to support innovation, announcing a series of state-funded megaprojects and rolling out the Strategic Emerging Industries program. This reaction to the failure of neoliberalism marks the beginning of China’s current industrial strategy. The Fourteenth Five-Year Plan suggests that the goal of Chinese neo­mercantilists is Listian: the most important thing is not wealth, but the forces capable of producing it. The Plan doesn’t set a GDP target anymore, as growth is no longer the top priority; rather it prioritizes self‑reliance in technology and raw materials. “Today’s China,” ob­serves Dani Rodrik, “is the leading bearer of the mercantilist torch, though Chinese leaders would never admit it.”⁴² Under the slogan of globalization as “win-win” economic cooperation, Xi conceals a posi­tion of “openness for thee but not for me,” according to Aaron L. Friedberg.

The consequences of Chinese neomercantilism are far-reaching. Its policies have led to stagnation in some areas of Western technology. A case in point is telecommunications, where Beijing’s neomercantilist policies have allowed Chinese firms to take market share away from Western companies. “We estimate, contends one study, that if Ericsson and Nokia took all of Huawei and ZTE sales, there would be 20 percent more global telecom equipment R&D and 75 percent more essential 5G patents.”⁴³

Chinese neomercantilism has had other perverse effects on U.S. political economy as well. As Julius Krein argues, the U.S. economic model is focused on maximizing asset values and returns on capital in the private sector, while the Chinese approach is centered on increasing economic growth and self-sufficiency.⁴⁴ As Alice H. Amsden wrote in Asia’s Next Giant, “although profit maximization and growth maximization are not, in theory, antithetical, neither are they necessarily synonymous.”

Moreover, U.S. financialization would not have been possible with­out the trade surplus that China continues to accumulate. Concurrently with the 2000s trade shock, China, with the highest savings rate in the world, was buying up U.S. Treasury bonds and Wall Street financial products, allowing U.S. consumers to borrow more so that they could afford to buy more Chinese imports. As American manufacturing was supplanted by imports, debt replaced waning incomes, creating an illusion of prosperity. The result, as Michael Lind points out, was “the growing indebtedness of American consumers to American lenders [that] ballooned the income and political power of the U.S. financial industry.”⁴⁵

New Order

Helleiner associates neomercantilism with “developmentalism.”⁴⁶ The notion of the “developmental state” first gained currency when the United States had to confront a new economic rival, Japan, in the 1980s and ’90s.⁴⁷ At that time, however, neoclassical theories held ideological hegemony and insisted that countries such as South Korea, Taiwan, and Japan rose not through neomercantilist developmentalism, but by rely­ing on market forces. Today, these claims have lost their explanatory power, and seem like artifacts of a passing zeitgeist.

The East Asian experience holds many useful lessons and offers examples of relations between the state and the economy that defy categorization as either “interventionist socialism” or the free reign of the invisible hand. These industrial policies, Robert Wade notes, were not about “picking winners”; East Asian governments “have not so much picked winners as made them. They have made them by creating a larger environment conducive to the viability of new industries.”⁴⁸ Perhaps unleashing the productive forces of the United States will also depend on rebuilding the nation’s institutions to create new growth-enhancing partnerships between government and the private sector.

Neomercantilism, Helleiner emphasizes, arises when elites become aware that the power and wealth of their nation is diminishing relative to its rivals. Today, he argues, we find ourselves again in a “neo­mercantilist moment.” American and Western elites, however, seldom think in terms of economic statecraft. Russell Long, son of the populist Huey Long, said to Henry Kissinger in 1976 that “if we trade away American jobs and farmers’ incomes for some vague concept of a ‘new international order,’ the American people will demand from their elected representatives a new order of their own, which puts their jobs, their security, and their incomes above the priorities of those who dealt them a bad deal.” In 2016, with the election of Donald Trump, the American people finally demanded a new order. The next decades will test whether America has the capability to develop this new policy paradigm and to answer the neomercantilist challenge presented by China. The neomercantilist moment has arrived, but the New American System⁴⁹ still must be built.

This article originally appeared in American Affairs Volume VII, Number 1 (Spring 2023): 78–89.

Notes