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International political economies: the difference between mercantilism and liberalism

Guest post by Alan Cunningham

The international political economy (IPE) is an incredibly sensitive system. It defines how international trade and commerce are conducted and significantly helps the long-term development of nation-states while also assisting in the growth of free trade.

Encyclopedia Britannica defines International Political Economy as the study of “problems that arise from or are affected by the interaction of international politics, international economics, and different social systems (e.g., capitalism and socialism) and societal groups (e.g., farmers at the local level, different ethnic groups in a country, immigrants in a region such as the European Union, and the poor who exist transnationally in all countries)”.

The academic encyclopedia further writes that IPE “[explores] a set of related questions (“problematique”) that arise from issues such as international trade, international finance, relations between wealthier and poorer countries, the role of multinational corporations, and the problems of hegemony (the dominance, either physical or cultural, of one country over part or all of the world), along with the consequences of economic globalization”.

In the discussion of IPE, there are three main perspectives on the field, these being Mercantilism, Liberalism, and Structuralism.


Mercantilism is defined in Baylis, Smith, and Owens’ book The Globalization of World Politics: An Introduction to International Relations as being one of three traditionalist approaches to the IPE. More specifically, it is the idea that “the world economy is an arena of competition of states seeking to maximize international relative strength and power”. This is done through selective investments, and self-sufficiency within large industries, markets, and commodities within a state’s domestic economy. Along with this, some states have more power and manoeuvrability than others and this is limited most often by alliances with foreign nations, hegemony, and various other factors.


Liberalism is another traditionalist approach to IPE. The liberal tradition is built upon the assumption that “free trade and free movement of capital will ensure that investment flows to where it is most profitable to invest”; more simply stated, “each country can exploit its own natural advantages, resources, and endowments, and gain from specialization” with “the optimal role of governments and institutions [being] to ensure the smooth and relatively unfettered operation of markets”.

The difference between mercantilism and liberalism

One of the biggest differences between the mercantilist and liberalist approach to the IPE is the fact that liberalism seems to desire a more free aspect of the economic system, allowing countries and states to have access to various forms of economic capital gleaned from their own domestic strengths and foreign trade deals while also changing the way policies made in the domestic and foreign markets whereas mercantilism is based upon competition with other states and the overall domination of the state over other countries.

The greater goal of mercantilism is to have states solidify their own power base and economic streams of revenue while seeing the world in a do-or-die, competitive worldview.

This is really the fundamental difference between them both as one sees the global economic market as a method to cooperate with other states while mercantilism sees the international economy as a purely competitive foundation. Both mercantilism and liberalism are very pragmatic about the world’s systems, with these being about the examination of states and how they utilize, gain, and maintain power in their own spheres of influence and try to diversify around the world. I find this very interesting in how they can seemingly relate back to the previous thought processes of international relations like realism, liberalism, and constructivism.

In discussing which option, mercantilism or liberalism, is better, it fully comes down to the line of thought being utilized by global and nation-state leaders.

If the overall goal of a state leader is to increase the power of the state and ensure that it is financially secure and able to improve, then mercantilism would be the option more heavily considered. If the overall goal, however, is to try and create a global economy where states function with one another and can play to their strengths in terms of domestic materials and try to diversify their economy, then the leader would most likely consider liberalism to be a better international political economy.

It is certainly arguable, however, that an international political economy made in a liberalist sense would fare better than in a mercantilist sense. In the current, rather divided global political system, in which many countries are drifting further and further apart based on political ideologies, uniting the world in a liberalist sense seems to be a better option in reinvigorating trade and investment throughout.

While the global economy is competitive and ensuring that the domestic market is taken care of is a necessity, it should not be one where the state resorts to economic nationalism to preserve their economies.


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