Why Xi Jinping reneged on the trade deal with Trump



Some good libertarian or economics nerd will be able to explain this to me:

China seems to be pretty explicitly pushing a mercantilist economic policy, to the benefit of relatives of Communist Party leadership. Less valuable raw materials from other countries, finished goods manufacturing and management in China. All the moneys are belong to us!

But... way back when in the 1700s? Smith and Ricardo studied and published that this was a hugely mistaken way of how the world worked:
- The best way to make large numbers of nails is to have someone at the forge specialize in each step, instead of having seven people making nails all the way through..
- The best way to make Portugal and England wealthy is to trade Portuguese wine for English woolens, and let both countries specialize in an open market.

In summary, the only limit on wealth were arbitrarily imposed legal limits and lack of human ingenuity, and the most powerful way to create wealth was to invest in the specialization of labour, and that human freedom, ingenuity and choice would create the best local markets, which would create wealth. (Instead of "horde all the gold, and compel your colonies to buy poorly made, expensive local goods" which is what mercantilism turns into)

So... why is there so much fretting about what China will do and trying to compete with it? Isn't the right thing to do rely on a strong international free-market capital order, and tell China if it doesn't play ball, then it's out of the club?

Mercantilism's a command-economy idea. So was communism. What happened when communism competed with free-market capitalism?

Or... is there something I'm missing?