Markets or mercantilism?: How China secures its energy supplies

Abstract

Since oil began fueling the global economy, governments have employed policies of "energy mercantilism" to secure access to this key input. Critics of these policies claim they are unnecessary because oil can be acquired on global markets. Countries such as China that engage in energy mercantilism are thus neither enhancing their energy security nor threatening others' access to oil. These critics, however, misunderstand the logic of energy mercantilism, which is rooted in the economics and business literatures on supply chain management. Firms and states are correct to worry about access to critical supplies under four conditions: imperfect contracting, supplier collusion, geographic concentration, and high risk of conflict. All of these conditions plague the oil industry. Likewise, the energy mercantilist policies that critics deride are analogous to the strategies that firms adopt to protect their supply chains. China's steps to ensure access to oil have enhanced its energy security and reduced U.S. coercive options toward Beijing. More broadly, the unfolding competition over energy access highlights the lingering power of mercantilism, even in this age of economic globalization and the apparent triumph of market liberalism.