Undoubtedly, we are living in perilous times when countries are on the verge of a trade war that is similar to the 1930's and economic crisis that led to depression in most parts of the globe. Although current wars’ potential severity may not resemble that classic trade war, it is facing similar challenges and possesses similar threats to consumers as well. One of the most feared implications of the trade wars is retaliation from affected countries and international economic bodies. In the recent past, United States has engaged in various trade wars with China and now Europe. These trade wars are attributed to various factors such as terms and balance of trade between the United States and China. To this end, this analysis seeks to address trade wars and their economic implications at national and international levels.
Notably, trade wars are irrational, and any economist would advise a country to consider embracing free trade rather than wars (Coffee 2). However, trade wars are still rampant despite them being largely irrationality. These wars can be traced back to medieval times when Britain and France engaged in trade wars for centuries. Britain imposed stringent tariffs to France’s steel as France retaliated by imposing equal restrictions on British’ woolen products. Therefore, it is evident that the most affected individual is the consumer. In some instances, these implications are severe to a country yet these patterns are persistent especially among developed nations.
Although some people may argue that there is no looming trade war from the ongoing economic wrangles among the world’s largest economies, it is unquestionable that there are clear signs of the war. The United States is largely blamed for starting this economic battle. The executive has adopted new ideologies whereby it has started holding skeptical principles on trade with other countries. Even though these principles cannot sufficiently warranty trade wars, they are mostly undertaken as an attempt to obtain or justify a demand for both political and economic objectives. Besides, consumers can only side with the government’s demand if they substantiate their claims on a war based on economic reasons.
Furthermore, it is noteworthy that the achievement of trade war goals is also faced with the risk of retaliation. Normally, the objectives of those retaliating are disguised and not considered as an economic war. Their actions are seldom associated with economic objectives but rather a usual reaction to the war. Brexit and Trump’s ‘America First’ principle form the most fertile ground for trade wars with other countries. Although most people do not concur with this assertion, it is unquestionable that the implications and counter-retaliations are already looming with most economists warning that the effects of this war might be severe (Coffee 3).
Economists argue that trade wars only work in the short run as nobody emerges as a winner at the end of the battle. This assumption is based on the fact tariffs are supposed to create a competitive advantage to national and domestic product producers but not to hurt other parties in business. In other words, tariffs on imported products or any international trade engagement are supposed to help domestic producers enjoy more business benefits, and so, promote the growth of their businesses. Furthermore, these tariffs are important for a short period as long-term tariffs increase the risk of depression and slow economic growth for all countries involved. Long-term tariffs that are focused on encouraging internal growth discourage domestic producers from developing as they tend to enjoy business protection from their home legislation. Trade wars are also blamed for triggering inflation and war between two countries.
Trade Wars in the 21st Century
One of the most recent trade wars involves the United States, Europe, and China. In January 2018, President Donald Trump introduced stringent tariffs to curb imports from China. Some of the most affected products were solar panels and washing machines produced in China. Since the United States is one of China's major consumer of solar panels, it was evident that this decision would adversely affect China's exports (Cao). Economists and other stakeholders argue that trade wars do not add any value to a country’s economy.
Previous experiences suggest that trade wars affect a country’s economy and consumer as evidenced by the 1930’s trade wars that led to the deterioration of America's economy. For instance, there is convincing evidence that trade wars affect a country’s supply chain, accelerate inflation and ripple global stock markets. The current trade wars among the largest economies are expected to cause worse implications than those experienced in the medieval period. This expectation has elicited diverse feelings and views from different individuals from both political and economic environments. For instance, Hillary Clinton continues to warn that trade wars are not good for the country as they could cause devastating implications especially in the long run (Burchard, and Hanke). She adds that the country should not go through the effects of trade wars as witnessed in 1930s.
Trade wars can be used to achieve different goals other than political and economic goals. For instance, various explanations are used to justify the newly imposed tariffs by the American government. According to President Donald Trump, these tariffs are meant to close the wide gap in trade in by reducing trade deficits between the United States and China. However, other arguments suggest that these moves are used to punish China for their legally unfair technology exported in the form of electronics by China. This conflict of interest indicates that trade wars are also used to achieve other goals and objectives. Besides, China contributes a small portion of America's total trade (Elliott, and Partington). The United States transacts over twenty million dollars every year. Subsequently, this indicates that China does not have a significant contribution, and so, trade wars are unessential.
Lastly, although the implications of trade wars are not perceived as vital by individual market players such as consumers, it is important to note that there is more than meets the eye in trade wars. Notably, it is often assumed that American households composes of a small number of individuals consuming similar products that might be affected by trade wars. The government is also affected by trade wars in various ways. For instance, it is forced to forego certain benefits such as taxes from imported products. Therefore, even though experts argue that trade wars could be used to achieve the required level of trade among countries, it is faced with more challenges than benefits. For instance, it significantly affects the relationship between countries. Usually, trade is commonly associated with integration and exchange of cultures. Therefore, their relationships are significantly affected once there is a trade war between the two countries.
Works Cited
Burchard, Hans, and Jakob Hanke. "Facing Trade War With Trump, Europe Rediscovers Its Swagger". POLITICO, 2017, https://www.politico.eu/article/facing-a-trade-war-europe-rediscovers-its-swagger/. Accessed 2 Dec 2018.
Cao, Rachel. "Policy Analysts Say, Despite Trump's Tough Talk, Trade War With Europe Would Hurt US Economy". CNBC, 2017, https://www.cnbc.com/2017/07/07/trade-war-with-europe-would-damage-the-us-economy-policy-analysts-say.html. Accessed 2 Dec 2018.
Coffee, John C. "How Should the EU Respond to Brexit and Trump?: The Lessons from Trade Wars." (2017).
Elliott, Larry, and Richard Partington. "Trade War? What You Need To Know About US Steel Tariffs". The Guardian, 2018, https://www.theguardian.com/business/2018/may/31/trade-war-what-you-need-to-know-about-us-steel-tariffs. Accessed 2 Dec 2018.
Fontagné, Lionel, Julien Gourdon, and Sebastien Jean. "Transatlantic trade: whither partnership, which economic consequences?." CEPII Policy Brief 1 (2013): 10.
