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Mercantilism: China and Beyond April 24, 2026
The self-liquidating nature of the mercantilist model cannot be reversed, it can only be managed as stagnation.
Everyone is an expert now on China. Which to say, everyone has an opinion about China, and the majority of those opinions fall into simplistic Bull or Bear camps. As someone who has been a student of China for over 50 years, my sense is every claim of expertise has its limits. The more substantial the expertise, the greater the willingness of the expert to confirm the limits of their expertise. The more you know, the sharper your awareness of what you don't know. Being embedded in a culture makes it difficult to be objective. As an American, I don't claim to be an expert on America; we only learn about being American by going elsewhere and observing, listening and learning from those raised in other cultures. So rather than discuss China per se, let's discuss the dynamics of mercantilism that play out not just in China but beyond, as they play out in every nation with mercantilist policies. Mercantilism is rooted in a basic question facing every society: what is the primary source of our prosperity? For nations rich in natural resources, the answer is extracting and exporting these resources to those who lack them. For nations with fertile land, it's growing and exporting grains and other foodstuffs. For nations poor in natural resources, value-adding manufacturing/crafts are an answer. Every nation manages the balance between investing and consuming the surplus generated by the economy. Every dollar of surplus that's funneled into investing in expanding production of exports is a dollar that isn't spent in the domestic economy. It's a tradeoff: we accept being poor now in order to become rich as exports expand. Mercantilism is the political-economic-social policy that seeks to increase prosperity by focusing on optimizing profitable exports at the expense of domestic consumption. Rather than consume the surplus, the surplus is invested to increase exports. Wages are kept low to subsidize capital investment. Mercantilism relies on manipulation of market forces. Mercantilist policy recognizes that the way to reap the biggest gains is to corner the market for whatever is being exported. The ideal way to accomplish this is to sell your exported goods at a loss, making them so cheap that the importer's domestic producers cannot compete on price, so they close down. Once the domestic producers have been wiped out or marginalized, the mercantilist nation's producers can jack up prices because the importing nation is now dependent on the mercantilist nation's exports. At the same time, the mercantilist nation establishes trade barriers to imports, making them so expensive that they cannot compete with domestic producers. Mercantilism rigs trade on both sides of the coin to benefit the mercantilist nation at the expense of other nations. The mercantilist nation protects its domestic producers from overseas competition while flooding the targeted importing nations markets with cheap goods, driving their domestic production out of business. Japan demonstrated how to optimize mercantilist policies in the period 1949 to 1989. Domestic consumption was limited as the necessary tradeoff to invest heavily in production of exports. This required tight coordination of the government and private industry, who worked hand in hand to finance and favor export production. Currency, labor costs and state subsidies are all core to optimizing exports. The weak yen and initially lower labor costs meant that Japanese goods were cheap in the US. So mercantilism favors weak currencies, ample government subsidies of favored export industries and policies that cap or suppress labor costs. The problem with mercantilist optimization is the targeted importing nations eventually wake up to the dire consequences of their dependence on mercantilist exporters. The downstream costs of losing domestic production and jobs become apparent, and the power that was transferred to the mercantilist nation without anyone noticing is now a visible threat. This threat becomes even more apparent when the mercantilist nation deploys its vast trade surpluses to buy up companies, farmland and other assets in the importing nations. Alarm bells go off as the importing nation awakens to their future as a dependent peasantry working for industries owned by the mercantilist nations. In other words, mercantilism is self-liquidating, because it's fundamentally a one-sided manipulation of markets that impoverishes the importing nations. Self-preservation forces the importing nations to finally push back against the mercantilist manipulations by protecting what's left of domestic production, limiting imports and demanding equal trade access to the mercantilist's domestic market. The unrecognized problem is the very success of the mercantilist model leads to the mercantilist nation becoming dependent on that model, which is inherently centralized and tightly controlled--the opposite of a free market. Since decentralized, open-market forces have been limited to low-level consumption, the mercantilist economy has lost the capacity to adapt as an emergent system, i.e. self-organizing based on a churn of low-level, localized experiments and enterprises. The limits of the centralized, tightly controlled mercantilist model only become apparent when it starts failing, at which point the model becomes a trap. Since the state-corporate partnership limits localized, uncontrolled open-market forces, this capacity is too constrained to replace mercantilism. In the the mercantilist model, the "solution" is always centralized: increase subsidies for export industries, strip-mining the economy and society to benefit whatever export industries the leadership has chosen to favor. Since domestic consumption has been limited to boost investment in export capacity, the domestic economy cannot replace faltering export growth. What the mercantilist model optimized was investment, and as centralized control has throttled adaptive forces, the investments in more export capacity are now mal-investments, as the world has changed. Dumping the economy's surplus into expanding export capacity is no longer a golden road to wealth, it's a catastrophic mis-use of capital. The grand irony in becoming dependent on the mercantilist model is that there is no way out of its self-liquidating limits. The centralized planners--so accustomed to the successes of manipulating trade and currency markets to their exclusive advantage--have no adaptive means left, as that would require dismantling the centralized control that is the heart of the mercantilist model. So they do more of what's failing: weakening their currency, over-investing in export capacity, and maintaining a tight grip on the levers of control, as if doing more of what cannot possibly work like it did in the past will magically work because it was so successful in the past. The story of China is the leadership has chosen export industries to conquer the world, but the world has changed. Importers have awakened to the consequence of becoming dependent on mercantilist nation's exports: national impoverishment and the loss of control of the nation's future. Japan has managed a controlled stagnation of the mercantilist model in these ways: 1. Japan adapted the mercantilist model by moving auto production to the importing nation's domestic economy. Profits still flow back to Japan but the jobs and parts now benefit the importing nations' domestic economies. 2. Japan bought up enormous quantities of overseas assets in the go-go bubble decade of the 1980s, assets that generate income denominated in other currencies, enabling currency arbitrage, a.k.a. the yen carry trade. 3. Japan benefited from the deflationary boom generated by China: Japan moved a substantial portion of its production to China, along with other developed nations. 4. Japan has managed the debts left by the collapse of its gigantic asset bubbles in 1990 by keeping the non-performing loans on the books. Rather than writing off all the bad debt, Japan has chosen to bleed it off over decades of stagnation. 5. Japan's cultural unity and stability enabled the continuation of the mechanisms of the mercantilist model even as the model generated stagnation. The workforce continues to accept long work hours and other sacrifices jettisoned by other developed nations, centralized planning from the 1960s that forces needless domestic consumption, and the general stagnation of the purchasing power of wages evident in many nations: the number of young people who cannot afford to buy a home or start a family is now a consequential demographic factor. To summarize: the self-liquidating nature of the mercantilist model cannot be reversed, it can only be managed as stagnation---and only if specific conditions apply. Absent those conditions, stagnation is not stable, it generates instability. What's playing out in China is mercantilism with Chinese characteristics, just as mercantilism with Japanese characteristics has been playing out in Japan over the past 36 years. If the income generated by overseas assets replaces the stagnating income from exports, the decay of living standards can be masked by the continuation of a stable social order: the trains still run on time, everyone can get by on their salaries, etc. But to say this is the same as the go-go euphoria of mercantilism's glory days--no. The self-liquidation can be slowed, not reversed, for the world has changed. This is not isolated to any one nation, it's inherent to mercantilism. 
My book Investing In Revolution is available at a 10% discount ($18 for the paperback, $24 for the hardcover and $8.95 for the ebook edition). Introduction (free) Check out my updated Books and Films. Become a $3/month patron of my work via patreon.com Subscribe to my Substack for free My recent books: Disclosure: As an Amazon Associate I earn from qualifying purchases originated via links to Amazon products on this site. THE REVOLUTION TRILOGY: Investing In Revolution Ultra-Processed Life The Mythology of Progress Systemic Problems/Solutions Investing In Revolution (2025) Introduction (free) The Mythology of Progress (2024) Introduction (free) Global Crisis, National Renewal (2021) Introduction (free) Money and Work Unchained (2017) Introduction (free) A Radically Beneficial World (2015) Introduction (free) What You Can Do Yourself Ultra-Processed Life (2025) Introduction (free) Self-Reliance in the 21st Century (2022) Introduction (free) When You Can't Go On: Burnout, Reckoning and Renewal (2022) Introduction (free) Get a Job, Build a Real Career and Defy a Bewildering Economy (2014) Intro (free) Novels The Adventures of the Consulting Philosopher Intro (free) The Secret Life of an Asian Heroine First chapters (free) Become a $3/month patron of my work via patreon.com. Subscribe to my Substack for free Investing In Revolution print $18, (Kindle $8.95, Hardcover $24 (145 pages, 2025) 
Only now do we see that we've been investing in revolution for decades--not the revolutions we thought we were investing in, revolutions in technology and finance, but in the social revolution made inevitable by the extremes that we've reached in our single-minded pursuit of private gains.
The pendulum that we've pushed to an extreme will swing to the opposite extreme, and the artifices that have propped up a facade a stability for decades will accelerate the disorder rather than reverse it. We now stand at the point of decision, and this book offers a path to a reformation and renewal that serves the shared interests of us all, not just the few. Introduction (free) Ultra-Processed Life print $16, (Kindle $7.95, audiobook, Hardcover $20 (129 pages, 2025) 
Ultra-Processed Life: the substitution of a synthetic, commoditized, very profitable facsimile for what was once authentic.
Ultra-Processed Life is my term for everything that is analogous to ultra-processed snacks: attractively marketed, instantly alluring, easy to consume, addictive by design, tasty in the moment but harmful over time, its origins a black box of unknown processes, the brightly colored product bearing no resemblance to the real-world ingredients, an idealized form of what is inherently imperfect, untethered from the natural world. As with many others, the catalyst for my exploration was a life-threatening medical crisis that did not have a specific cause. This led me to wonder if our entire way of life is like an ultra-processed snack: tasty but not healthy, edible but stripped of the nutrients we need to be healthy, addictive by design. Introduction (free) The Mythology of Progress, Anti-Progress and a Mythology for the 21st Century print $20, (Kindle $9.95, Hardcover $24 (215 pages, 2024) audiobook, Read the Introduction and first chapter for free (PDF) 
What if the policies to accelerate growth are no longer working because our fix for every problem--growth at any cost--is failing? We're told Progress is inevitable as a result of technology, but everyday life is getting harder, not easier--the opposite of Progress, what I call Anti-Progress.
What if the real source of the unraveling is far deeper than economics or politics? What if the problem is what we see as the inevitable destiny of humanity--Progress--is actually a modern mythology, disconnected from the real-world consequences of growth for growth's sake? We indignantly reject that Progress is a mythology, but our need for mythology hasn't gone away because we've mastered technology; we've created a modern mythology of technology that is heedless of its own consequences. To truly progress, we need a new mythology aligned to 21st century realities. Read the Introduction and first chapter for free
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(Napoleon Bonaparte) "The way of the Tao is reversal" Or "Reversal is the movement of Tao." (Lao Tzu) "Chance favours the prepared mind." (Louis Pasteur) "Success consists of going from failure to failure without loss of enthusiasm." (Winston Churchill) "Where there is ruin, there is hope for treasures." (Rumi) "The realm of gratitude is boundless." (CHS, 11/25/15) "History doesn't have a reverse gear." (CHS, 12/22/15) Smith's Law of Conservation of Risk: Every sustained action has more than one consequence. Some consequences will appear positive for a time before revealing their destructive nature. Some consequences will be intended, some will not. Some will be foreseeable, some will not. Some will be controllable, some will not. Those that are unforeseen and uncontrollable will trigger waves of other unforeseen and uncontrollable consequences. (July 8, 2014)(thanks to Lew G. for retitling the idea.) Smith's Neofeudalism Principle #1: If the citizenry cannot replace a kleptocratic authoritarian government and/or limit the power of the financial Aristocracy at the ballot box, the nation is a democracy in name only. The Smith Corollary to Metcalfe's Law (The Network Effect): the value of the network is created not just by the number of connected devices/users but by the value of the information and knowledge shared by users in sub-networks and in the entire network. (CHS, 4/6/16) My Credo of Liberation: I no longer care if the power centers of our society--the distant, fortified castles of our financial feudal system--are changed by my actions, for I am liberated by the act of resistance. I am no longer complicit in perpetuating fraudulent feudalism and the pathology of concentrated power. I no longer covet signifiers of membership in the Upper Caste that serves the plutocracy. I am liberated from self-destructive consumerist-State financialization and the delusion that debt servitude and obedience to sociopathological Elites serve my self-interests. (Thank you, Klaus-Peter L., for reminding me) "We've become a culture of excuses rather than solutions: solutions always require sustained effort and discipline." (CHS 4/9/16) "Fraud as a way of life caters an extravagant banquet of consequences." (CHS 4/14/16) "Creativity = problem solving = value creation." (CHS 6/4/16) "Truth is powerful because it is the core dynamic of solving problems." (CHS 7/21/17) "We live in a system of human emotions that masquerades as a science (economics)." (CHS 1/1/18) "Always remember, your focus determines your reality." (George Lucas) "Diversity is for poor people. Sameness is for the successful." (GFB) "When power dissipates suddenly, it dissipates completely." (CHS 7/14/19) "Disobedience is the true foundation of liberty. The obedient must be slaves." (Henry David Thoreau) "Markets cannot price in the value of non-monetized natural assets such as diverse ecosystems." (CHS 7/14/19) "Magical thinking isn't optimism, it is folly." CHS 1/3/22) "Tune in (to self-reliance), drop out (of hyper-consumerism and debt-serfdom) and turn on (to relocalizing capital and agency)." (CHS 1/5/22) "The path to everything you desire starts here: like yourself as you are right now." (CHS 11/20/22) "There are only two signals: how many essentials you produce and share and if you're consuming less with better results. Everything else is noise." (CHS 12/17/22) "Liberation is no longer needing any confirmation or feedback from others or the world for one's sense of self. Wealth, fame, recognition, admiration, praise, prestige, approval, sainthood, martyrdom, success: none are needed, none are desired." (CHS 12/26/22) "When fame, wealth, prestige, status and glory are out of reach, you're free to pursue other more valuable things." (CHS 2/6/22) "It is the sacred duty of every activist who seeks to better their community to grow and share as much life-giving food as is humanly possible." (CHS 6/15/23) "Being anonymous, gray and unknown is the ideal state of freedom." (CHS 3/15/24) "We seem to have entered a world of anti-leisure and anti-productivity in which the unpaid shadow work demanded to keep all the complicated digital bits in motion obliterate our leisure and productivity." CHS (5/22/24) "It is axiomatic that failing systems work the best just before they fail catastrophically." Ray W. "Looking younger is mere technique; thinking younger demands creativity." CHS (10/16/24) "Tell me what's taboo and I'll tell you the truths that threaten the status quo." CHS (12/15/24) "This is the core of the Attention Economy: the ultimate addiction is the addiction to ourselves." CHS (1/28/25) "If You Seek the Truth, Look for What's Taboo." CHS (7/18/25) "My definition of self-reliance: the less you need, the easier it is to get what you need." CHS (7/26/25) "Mastery requires reading and doing." CHS (7/28/25) "The replacement of authentic value, quality, agency, choice, trust, legitimacy and experience with self-serving facsimiles is the key dynamic of Ultra-Processed Life, my term for the present-day human condition." CHS (8/12/25) "Ultra-Processed Life replaces an authentic experience with a synthetic, simulated, commoditized, highly profitable version that's superficially attractive but destructive over the long term." CHS (8/12/25) "What we see everywhere is the replacement of authentic things--including democracy--with synthetic facsimiles designed to maintain the illusion of choice and value." CHS (8/12/25) "Sometimes certainty is the enemy we don't even see and uncertainty is our most faithful ally." CHS (9/20/25) "Sanitized, homogenized, synthesized Ultra-Processed Life isn't more fun; it's just more profitable." CHS (4/6/26) "AI is ultra-processed cognition." CHS (4/6/26) |
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