Who will win the war of neo-mercantilists?

The current era is defined by neo-mercantilism, where national security and economic prosperity are intertwined, a paradigm China is better suited to than the US and EU. China’s economic size, technological advancements, large labor force, and high savings rate, coupled with its dominance in key global supply chains, give it significant coercive power and reduce its vulnerability. However, China faces challenges like a declining growth rate and an underdeveloped domestic consumption sector, while the US and EU are increasingly adopting mercantilist policies in response.

• The world is experiencing a neo-mercantilist era where security and prosperity are equally important policy concerns.
• China is better positioned for mercantilism than the US and EU due to its economic size, technological frontier, large labor force, and high savings rate.
• China holds powerful monopolies in global supply chains for solar photovoltaics, lithium-ion batteries, rare earths, and shipbuilding, granting it coercive power.
• China’s economic policies, characterized by large and persistent trade surpluses, create deficits for other nations and drive protectionist pressures.
• Despite its strengths, China’s economic growth is declining, and its domestic demand has stalled, with a rebalancing towards consumption remaining unrealized.
• The US and EU are also increasingly adopting mercantilist strategies, though less coherently than China.
• A new metric, the ‘resilience account’, is proposed to measure geopolitical dependency alongside economic accounts.
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