European Union Desk: Memo

European Union Desk: Memo

TO: State Department at the European Union Desk

FROM: Policy Analyst

DATE:

SUBJECT: Difference Between Liberal And Mercantilist Economic Theories

Countries within the international political economy have to find a balance between national self- interest and maintaining worthwhile international trading relationships. Whether guided by liberal, mercantilist or any other theory governments are often guided in their approach to the internationalist political economy by pragmatic considerations. Decisions made on pragmatic basis can later be justified in the mane of liberal or mercantilist theory. The rise of international trading blocs has generally led to a liberalization of trade within those blocs most notably within the single market and single currency of the EU.

The cost of failure or the benefits of success of liberalization of trade within the international political economy are great. The General Agreement on Trade & Tariffs (GATT) has often been involved in complex trade deals and tariff reductions. Failure to agree can lead to the costly maintenance or extension of trade restrictions. Reductions in tariffs have been substantial. For instance the cuts agreed to at the Uruguay round of GATT amounted to a $744 billion reduction in tariffs across the international political economy. Such deals demonstrate the intentions of many governments to make the international political economy as liberal in nature as possible but without losing too much of their own position.

Arguably the liberal theory is the most apparent within the contemporary international political economy. However this has to be considered with remaining vestiges of mercantilist theory. Liberal theory received a revival from the 1970s onwards with the emergence of neo-liberalism. Neo-liberalism became most closely associated with Margaret Thatcher in Britain and Ronald Reagan in United States being referred to as Reaganomoics and Thatcherism. They wished to turn the clock back to unrestricted free trade internationally ...