Who will win the new war of mercantilists?

China’s high degree of self-suff i ciency reduces its vul ner ab il ity to coer cion by oth ers

Financial Times Europe22 Jul 2026Mar tin Wolf mar tin.wolf@ft.com

We are liv ing in a mer cant il ist era. By this I mean one in which the con cerns of poli -cy makers are as much those of secur ity as of prosper ity. This, as I argued in “Thedan ger ous tri umph of neo-mer cant il ism”, threatens both the sta bil ity of the worldeco nomy and rela tions among great powers. China is also bet ter suited to mer cant -il ism than the US and EU.

Mer cant il ists seek power and secur ity or, in other words, the abil ity to bully oth ersand res ist being bul lied by them, in turn. How might one meas ure these cap ab il it -ies? The obvi ous approach is to assess eco nomic size, self-suffi  ciency and mono polypower. Yet, as the late Henry Kis singer wisely argued, “no nation can achieve abso -lute secur ity. Abso lute secur ity for one nation means abso lute insec ur ity for allnations.” The more fright en ing you become, the more oth ers will unite against you.

Con sider China. Its eco nomy is roughly the same size as that of the US. It is now ator close to the fron tier in the most import ant tech no lo gies, includ ing, it increas inglyappears, arti fi cial intel li gence. Its pro gress in this regard is stun ning. The US ismore self-suffi  cient in energy. But China has a far lar ger labour force, and vastlyhigher investable sav ings: in 2025, its gross national sav ings were 43 per cent ofGDP, against a mere 17 per cent in the US. China also has a far big ger man u fac tur -ing sec tor: in 2024, China’s man u fac tur ing value added was nearly as big as those ofthe US and the Euro zone together. Its prowess in renew able energy and elec tricvehicles has become remark able.As Bridge wa ter Asso ciates, the wellknown hedge fund, noted in Octo ber 2025, theUS is energy self-suffi  cient as a res ult of its abund ant sup ply of domestic oil and gasbut faces con straints on its abil ity to expand its sup ply of elec tri city. China is self-suffi  cient in elec tri city because of its coal and renew ables. But it has vul ner ab il it iesin the sup ply of oil and gas. The war with Iran has high lighted this weak ness.

Yet China has achieved power ful mono pol ies in global sup ply chains. Among theseare those in solar photo vol ta ics, lith ium-ion bat ter ies, rare earths and mag nets, gal -lium and ger manium, and ship build ing. Some of the above cre ate effect ive choke -points, as China demon strated so effect ively in its tar iff war with the US.

The abil ity to sup ply so many things that oth ers can not is a source of coer civepower. China’s high degree of self-suffi  ciency also reduces its vul ner ab il ity to coer -cion by oth ers, while its size makes it an import ant mar ket for many coun tries. Inall, China’s abil ity to exer cise eco nomic power is huge.

As Brad Set ser of the Coun cil on For eign Rela tions noted in a recent dis cus sion withPrin ceton’s Markus Brun ner meier, people now talk of a “second China shock”. Hereare some of the main points, bey ond those noted above.

First, China’s mac roe co nom ics are very dif fer ent from those that obtained beforethe global fin an cial crisis and, even more so, before the end of its prop erty boom.Exports are sur ging, but domestic demand has stalled. Second, its export sur plus inman u fac tur ing is now around 2 per cent of world GDP, which is “roughly twice thelargest sur plus Japan ever ran”. Third and most import ant, China shows an unex -plained neg at ive net income of around $125bn on its net for eign invest ments. But itshould, on reas on able assump tions about the income it earns on its $4tn in net for -eign assets, have a sur plus of some $100bn. As a res ult, Set ser argues, the ren minbiis by now some 30 per cent under val ued.

In other words, China con tin ues to dis play a stand ard fea ture of mer cant il ism: last -ing trade and cur rent account sur pluses. (See charts.)

As a res ult, China’s policies look unavoid ably threat en ing to much of the world. If amajor trad ing part ner runs huge and per sist ent trade and cur rent account sur -pluses, every one else has to run off set ting defi cits. This leads to the shrink age ofsec tors spe cial ising in pro du cing trade able goods and ser vices, as well as hugedomestic fin an cial defi cits. These, in turn, cre ate pro tec tion ist pres sures of the kindwe have been see ing in the US and increas ingly the EU. Yet high-income coun triesare not the only vic tims of China’s push for dom in ance in man u fac tur ing. Amongthem, argue Shou mitro Chat ter jee and Arvind Sub ramanian, are also the poorcoun tries whose devel op ment it blocks.A strik ing fea ture of Chinese devel op ment has been the decline in its rate of eco -nomic growth from over 10 per cent two dec ades ago to a low of 4.3 per cent in theyear to the second quarter of 2026. Even the lat ter almost cer tainly exag ger atesgrowth of mar ket-led sup ply. After the burst ing of the prop erty bubble, the eco -nomy is not gen er at ing a sup ply of invest ment oppor tun it ies large enough toabsorb its colossal sav ings. But, as the long stand ing China watcher Stephen Roachnotes, the long-needed rebal an cing towards con sump tion remains still born. UnderXi Jin ping, the pri or ity of higher con sump tion will, it seems, never be recog nised.

Yet China is an effect ive mer cant il ist power, though even it can not avoid the short -com ings of this approach. The US, too, is now mer cant il ist, though in a far lesscoher ent man ner. The EU is also being forced in a sim ilar dir ec tion.

Brun ner meier argues that in this world one needs to cal cu late a “resi li enceaccount” along side the cur rent account, which “would net out our geo pol it icaldepend ency: how eas ily the goods in the cur rent account can be sourced from other sources." Who then wins?