Last time we spoke about how the US ambassador to the World Trade Organization accused China of being the world’s most protectionist and mercantilist economy.Today, we’ll address the mercantilist accusation and see whether it has any substance.

Mercantilism historically has been an economic policy which actively sought to maximize a country’s trade surplus by boosting exports and severely restricting imports. Unlike the multilateral trading system of today where the overall economic pie grows from nations trading with each other based on comparative advantage, the mercantilist mindset was that trade is a zero-sum game. For starters, economists agree that in today’s world, trade is not zero-sum, so the accusation that China is the most mercantilist doesn’t even make it past the starting point. Nonetheless, let’s run through a few numbers to see how this accusation doesn’t hold water either. 

First, if China is the most mercantilist economy in the world, surely its current account surplus as a percent of GDP would rank number one as it pushes aggressively to restrict imports and push exports. Yes, China did run a current account surplus in 2017, but as for GDP, it came in only at 1.37 percent. That puts China close to the 50th position on the global stage, far behind say Germany or Japan. And, China has said that it is willing to buy more goods from the United States, but because of export restrictions on certain products such as high-tech, America is unwillingly to sell what China wants to buy. This further aggravates the US trade deficit with China. I mean, let’s face it, there are only so many Boeing airplanes that China can purchase from the US

Second, in 2016 China’s imports as a percent of its GDP was 17.38 percent, greater than the 14.69 percent seen for the United States. In fact, from 2002 to 2017, US merchandise exports to China grew by nearly 500 percent. That’s much faster compared to the growth rates for US exports to any of America’s top 10 export destinations. US exports to China is also growing at a faster clip than US imports from China. There is no way a mercantilist economy would allow such a rise in its imports since its policy is to maximize its trade surplus.

Third, during the global financial crisis, the Chinese yuan remained relatively stable in nominal terms. A highly mercantilist economy would have weakened its currency to maximize its own gains from trade as the world was first plunged into the subprime crisis of the United States and subsequently into the sovereign debt crisis of Europe. Instead, China’s currency appreciated by 40 percent in real effective terms from the end of 2007 to June 2018. During the same period, the euro and the Japanese yen depreciated by 11 percent and 9 percent respectively. The Japanese yen actually weakened by nearly 30 percent in real effective terms from the end of 2007 to the first half of 2012 before regaining ground.

Again, it’s easy for one economy to call another the most protectionist or the most mercantilist. In the case of the US calling China the most mercantilist, once more, the numbers don’t add up.