Merchandised Trade

Merchandised Trade can also be referred to as the mercantilist approach. The theory of international trade emerged in England. In the first century trade practices were referred to as merchandised trade or mercantilism. In this period a country’s wealth was measured by the amount of gold or silver stocks the country had accumulated. This was because gold and silver were used in international trade settlements. When a country exported goods it receded payment in gold and silver and when it imported it paid for them using gold and silver. Mercantilists who engaged in the Merchandised Trade believed that it was in their country’s interest to maintain a trade surplus by exporting more than it imported. A trade surplus led to gold flowing out of the country.

Supportive Policies of the Merchandised Trade

The supportive policies of the Merchandised Trade explains that the mercantilists supported policies to limit import using tamits and quotas and encouraged export using subsidies. Under this system if a country had a surplus in the balance of payment, i.e. it exported more than it imported, the resulting inflow of gold and silver would the domestic money supply and lead to an increase in price or inflation. Similarly if the country had deficit in its balance of payment i.e. imports more than exports there would be a gold and silver outflow. There would be a rise in exports in market structure leading to a decline in price and inflation. This means that if one of the two countries. Prices in the deficit country would fall, leading to increased exports while prices in the surplus country would increase, leading to a fall in exports. This process of adjustment was expected to continue until the exports were equal to imports and there was a balance of trade in each country. This process was called self – adjustment.

Weakness of the Merchandised Trade

The weakness of the Merchandised Trade was that it viewed trade as a zero – sum game. In this kind of game, one person gained and the other lost. This means that a gain by the country result to a loss in a country. It was left to Adam Smith and Ricardo David to ensure that trade is a five zero sum game for a situation where all trading countries can benefit from the production and exchange of goods and service but mercantilist doctrine of gaining a surplus in trade. Jarl Kagelstan a director of the Finland Ministry of Finance in the Merchandised Trade observed that in most trade negotiation countries, both industrialized and developing countries have been to press for trade liberalization in areas where their own comparative advantages are strongest and to resist liberalization in areas where they are less competitive and fear that imports would replace domestic production. He attributes this strategy by negotiating countries to a mercantilist belief held by politicians of most countries. This belief equates political power to economic power with the balance of payment surplus so that trade strategy of most countries is designed to simultaneously boost exports while at the some time limiting imports.

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Conclusion on the Merchandised Trade

The Merchandised Trade has helped evolve the previous old age systems of trade to the more modernized systems of trade that we have today. This is possible due to the development of Merchandised Trade