The world is now seen as a global village, with the trade of nations affecting the entire relationship between nations. Trade is the most important source of income to every country in the world, trade effects arise from the concept of barter and the demand for the satisfaction of inexhaustible human desires. No country can live alone without trade, regardless of how self-sustaining a country may seem, there is a service or product that cannot be readily available in that country unless the country trades. For example, there is a huge demand for pineapples in the UK, however, pineapples cannot be grown in the UK.
With the increase in trade, competition between countries around the world has increased, and this has led to the infamous concept of trade wars. This article offers all the insight to know about trade wars around the world.
What are trade wars?
As the name suggests, trade wars are deliberate restrictions on another country’s trade. The permanent combination of a greater international trading power with another country for the sole purpose of weakening the trading powers of the latter country. Trade wars often occur when one country notices that another country has very unfair trade policies. Also, often, local manufacturers in a country can pressure the government to ban imports from another country, in order to promote production in the latter country.
Often a country can adopt various tactics to slow down the trade power of another country. Trade wars are often considered retaliatory or protectionist in nature because they act as a government response to a country’s hegemony.
How do trade wars work?
Trade wars act in a sense of protection against a dominant trading nation. The concept of trade wars grows out of the concept of protectionism, where nations claim that their sovereignty is threatened by a foreign power dominating a particular sector. This protectionist concept then proceeds to adopt various tactics to reduce such commercial dominance.
Trade wars have existed as far back as the beginning of trade between nations, although, as various tactics of trade wars have changed over time, the goal has always been to constantly try to reduce the trading capacity of nations. For example, Britain blocked ships importing sugar from Brazil to Europe in 1810 over a trade dispute with its Brazilian counterpart.
Sanctions, however, should not be mistaken for a trade war. Sanctions have similar results to what trade wars seek to achieve in that they both aim to reduce the trading power of countries on the receiving end, but their intent is different. While trade wars aim to reduce a country’s trading options because trade is dominated by that country, sanctions act as a punitive measure against a country for wrongdoing.
Tactics adopted in trade wars
Trade wars today employ different tactics, the strategy adopted depends on the impact of the previous country’s trade. Some of the most notable initiatives adopted by countries today are listed below.
1. Increase in import duty
Presenting imported goods from the recipient country is a high import duty accepted by many nations. This strategy makes imported goods more expensive in the country when compared to their domestically produced counterparts. Increasing import duties is the most adopted tactic of most countries in a trade war.
However, not every increase in import duties by a country amounts to a trade war, determining whether or not an increase in import duties amounts to a trade war depends on the manner in which the increase was made. For example, if a country increases the import duty for a product imported from a particular country than if the import duty is increased for all countries.
2. Nationalization
Nationalizing companies owned by foreigners from a particular country is also a tactic in a trade war. Although an unpopular and discouraged tactic in international trade, it is still adopted in today’s trade wars. Nationalization can be done by pleasure or by force, for example, Tectonic America had to nationalize into a wholly American-owned company after allegations by the Trump administration that the platform was used by China to spy on the United States.
Benefits of trade wars
- Protects local companies from competition: Perhaps the most important benefit of trade wars is the constant repetition of the concept of protecting a nation’s economy and productive power. When nations run high deficits in their exports relative to imports, this deficit can affect a nation’s overall economy, hence, the move to engage in trade wars.
- Protects local jobs: A permanent dominance of another country in a trade market can cause thousands of jobs lost in the former country. Post-trade dominance is likely to threaten people’s domestic jobs in the country and may have a significant impact on the country’s economy.
Disadvantages of trade wars
- Affects relationships: Diplomatic relations between the two countries will be greatly affected by the effects of trade wars. Most countries break all diplomatic ties after such incidents and may even lead to conflict or war.
- Inflation can lead to: Inflation is the resulting increase in goods and services in a country. Trade wars gradually allow the exploitation of people by local producers who are cheaper on foreign products. For example, the United States and China is a common example of this disadvantage, China produces goods that are cheaper than those produced in the United States.
The result
Trade wars have been around for a long time and cannot be traced back to their creation by experts. Recently, the trade wars between the United States of America and China have offered nations and the international community an opportunity to observe the tactics deployed in trade wars and their resulting effects. In China, Google, Facebook and most US tech companies are out of business. In retaliation, TikTok, Huawei and other Chinese companies are facing problems in the US.
Do trade wars affect domestic goods? Trade wars are likely to affect domestic production when such a manufacturing company is dependent on certain imports from other countries.