According to Wikipedia and in my own understanding Mercantilism is an economic theory and practice where the government seeks to regulate the economy and trade in order to promote domestic industry, often at the expense of their countries. Mercantilism is associated with policies which restrict imports, increase stocks of gold and protects domestic industries. Mercantilism stands in contrast to the theory of free trade, which argues countries economic well-being can be best improved through the reduction of tariffs and fair free trade.
Mercantilism was develop in the 16th century and was one of the earliest efforts to develop an economic theory. This theory stated that a country’s wealth was determined by the amount of its gold and silver holdings. In its simplest sense, mercantilist believed that a country should increase its holdings of gold and silver by promoting exports and discouraging imports. In other words if people in other counties buy from you (exports) than they sell to you (imports), then they have to pay you the difference in gold and silver.
The objective of each country was to have a trade surplus, or a situation where the value of exports are greater than the value of imports, and to avoid a trade deficit, or a situation where the value of imports are greater than the value of exports. A closer look at world history from the 1500s to the late 1800s helps explain why mercantilism flourished. The 1500s marked the rise of new nation states, who rulers wanted to strengthen their nations by building large armies and national institutions. By increasing export and trade, these rulers were able to amass more gold and wealth for their countries. One way that many of these new nations promoted exports was to impose restriction on imports. This strategy is called protectionism and still used today. Nations expanded their wealth by using their colonies around the world in an effort to control more trade and amass more riches. The British colonial empire was one of the more successful examples; it sought to increase its wealth by using raw materials from places ranging from what are now the Americans and Indians, France, The Netherlands, Portugal and Spain were also successful in building large colonial empires that generated extensive wealth for their governing nations.