Incessant Global Trade Wars and their impact on the Global Economy (Part 2)
Trade war is when a nation imposes tariffs (a tax or duty to be paid on a particular class of imports or exports) or quotas (a limited quantity of a particular product which are under official controls) on imports, leading to foreign countries retaliating with similar measures. Over time, an escalated trade war would lead to the reduction in global trade.
A trade war may improve a nation’s trade deficit in the short run but it could cost warring nations their economic growth in the long term. President Trump’s attempts at trade protectionism have already hurt the U.S. economy. They raised the prices of automobiles, computer chips, soda and beer, and heavy equipment. Companies have cut jobs because the cost of production with local materials is prohibitive. U.S. exporters of certain products are also suffering as foreign markets disappear under retaliatory tariffs.
Over time, trade wars weaken the protected domestic industry. Without foreign competition, companies within the industry don't need to innovate. Eventually, the local product would decline in quality compared to foreign-made goods.
As a counter measure to trade wars, most countries explore other lucrative markets for much needed trade. A case in point is the EU, Mexico, and Canada, which are currently affected by trade wars with the United States, signing new trade agreements. In April 2018, the EU upgraded its agreement with Mexico, removing almost all tariffs. In July 2018, the EU signed an agreement with Japan that reduces or ends tariffs on almost all goods.
It is envisaged that, over time all parties engaged in these trade hostilities would find some common ground and thus meet each other half way. Diplomacy and compromise is crucial, as against ‘’hotheadedness’’, to resolving these differences and averting prolonged trade wars.