Trade war: Meaning, advantages, disadvantages and more
The world is now seen as a global village, with countries trading impacting the entire relationship between nations. Trade is the most significant source of income to every country in the globe, the impact of trade stems from the concept of barter and the demand for the satisfaction of human unending wants. No country can live alone without trade, no matter how self-sustaining a country may seem, there exists a service or product that cannot readily be available within that country unless the country trades. For instance, there exists a large demand for pineapples in the United Kingdom, nonetheless, pineapples cannot be grown in the UK.
With increased trade comes increased competition amongst nations around the globe, and this has led to the infamous concept of trade wars. This article offers all the insight there is to know on trade wars across the world.
What are trade wars?
As the name suggests, trade wars are intentional limitations to the trade of one country by another. The continuous encumbrance of a greater international trading power with another country for the sole purpose of weakening the trade powers of the latter country. Trade wars often occur when one country notices another country possesses very unfair trading policies. Also, most often, local manufacturers in a country may pressure the government to restrict imports from another country, to boost production in the latter country.
Most often a country can adopt varying tactics to slow the trading strength of another country. Trade wars are often regarded as retaliatory or protectionist in nature because they act as a response of the government against the domination of one country over the other.
How trade wars work
Trade wars work in a retaliatory sense of protection over a dominant trade country. The concept of trade wars thrives through the concept of protectionism, where nations claim their sovereignty is threatened by the dominance of a particular sector by a foreign power. This protectionist concept then advances to the adoption of varying tactics to reduce such trade dominance.
Trade wars have been in existence as far back as trade began between nations, although, the various tactics of trade wars adopted changed over time, the aim of constantly trying to reduce the trade capacity of nations was always the goal. For instance, Britain blocked ships importing sugar from Brazil to Europe in 1810 over a trade dispute with the Brazillian counterpart.
Sanctions must, however, not be mistaken as a trade war; sanctions hold similar consequences to what trade wars seeks to achieve in that they both aim to reduce the trading strength of the countries at the receiving end, but their intention differs. While trade wars aim to reduce the trading powers of a country because of dominance in trade by that country, sanctions act as a punitive measure to a country for a wrong done.
Tactics adopted in trade wars
Various tactics are adopted in trade wars today, the adoption of a tactic depends on the impact of the latter country’s trade to the former. Some of the most notable tactics adopted by countries today are listed below.
1. Import duty increase
Offering goods imported from the receiving country a higher import duty is a first tactic embraced by many nations. The tactic works to have the goods imported into the country become expensive when compared to their counterparts produced in the country. The import duty increase is the most adopted tactic by most nations in a trade war.
Nonetheless, not every increase in import duties by a country amounts to trade wars, an identification of whether an increase in import duties amounts to trade wars depends on the style the increase was done. For instance, if a country increases import duties for products imported from a particular country as compared to if the import duties were increased for all countries.
Nationalizing companies owned by foreigners from a particular country is also a tactic in the trade war. Although an unpopular and discouraged tactic in international trade, it is still adopted in today’s trade wars. Nationalization can be done willingly or through force, for instance, Tiktok America had to nationalize into a fully American-owned company following allegations by the Trump administration that the platform was used by China to spy on the United States.
Advantages of trade wars
- Secures local companies from competition: perhaps the most significant advantage of trade wars is the constant repetition of the concept of protectionism of a nation’s economy and production strength. Nations get worried when there are high deficits in their exports compared to imports, this shortfall can affect the overall economy of a nation, hence, the step to engage in trade wars.
- Protects local jobs: Constant dominance of another country over the trade market can cause thousands to lose their jobs in the former country. Trade domination is likely to endanger the domestic jobs of people in the latter country and can cause a significant effect on the country’s economy.
Disadvantages of trade wars
- Affects relationships: the diplomatic relationships between the two nations would be highly affected by the impacts caused by trade wars. Most often nations end up breaking all diplomatic ties after such occurrences and may even lead to conflicts or war.
- May lead to inflation: inflation is the resultant increase in goods and services in the country. Trade wars tend to gradually allow the exploitation of the people by local producers over a foreign product that is affordable. For instance, the United States and China is a typical examples of this disadvantage, with China producing affordable goods compared to the goods produced in the United States.
Trade wars have been in existence for quite some time and their creation cannot be traced by experts. Of recent, the United States and China trade wars have offered nations and the global community to witness firsthand the tactics deployed in trade wars and their resultant impacts. In China, Google, Facebook and most United States tech companies are not in operation; in retaliation, Tiktok, Huawei and other Chinese companies are having issues in America.
Frequently Asked Questions
Is Tiktok still operational in the United States?
Yes, nonetheless, 34 states in the US banned their government departments from having Tiktok accounts.
Do trade wars affect domestic goods?
Trade wars are likely to affect domestic production when such production company depends on certain imports from other countries.
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