Among the major constituents of maintaining a favorable worldwide marketplace is friendly trade between nations. Various partnerships are strong and make a win-win state for each concerned party. Although, there are several nations which cannot agree on the import to exports ratio between them. These differences can intensify in the imposed tariffs and the commencement of a trade war.
Trade war
A trade war takes place when countries impose tariffs on imports as well as foreign nations strike back in the same way. As this intensifies a trade war impasses international trade. A trade war can commence when a country attempts to shield domestic industry and create opportunities for jobs, and sometimes it can work for short-term. However long term, a trade war will lead to joblessness and deteriorates economic growth for people. It can as well cause inflation since tariffs raise the prices of imported goods.
In America, the last trade war after the 1930 Smoot-Hawley Tariff was imposed. It escalated 900 import tariffs from 40 % to 48 %. It was meant to promote farmers from the US whose land had been affected by the Dust Bowl, though it led to increased food prices for Americans who had already been influenced too much by the Great Depression. Their trade partners at that time retaliated with their tariffs and global trade reduced by 65 % and aggravated the depression and contributed to the commencing of the 2nd world war.
Tariff
This is a tax imported or exported goods, and money gathered by tariffs is called duty also known as customs duties. They can be used by governments to come up with revenue or to shield domestic industries from cheap goods manufactured by the competition. Unfortunately, taxes imposed on imports and exports make products from other countries more expensive for customers, which leads to a decreased in imports and a reduction in supplies and an increase in goods` process.
Nations in conflict
In July 2018, USA and China began attacking each other using tariffs. USA tariffs on Chinese goods worth $34billion were effected reforming the war of words between both countries into a trade war. China, on the other hand, implemented a vengeful tariff on the $34 billion lists of goods given on June 2018. The US President Donald Trump says he is ready to impose a $500 billion in Chinese goods if they retaliate.
The USA also threatened to apply a 20 % tariff on cars from Europe to America if the EU does not eliminate their trade barriers. The EU, on the other hand, has said it will impose $300 billion of USA exports if Donald Trump decides to apply the tariffs on car imports across the world.
Effects of a trade war
The significant effects of trade wars are inflation. Although the tariffs permit domestic producers of products to change their prices. Their costs would be lower compared to those who utilize imports to produce their goods.
Trade wars that last a long time deteriorate economic development and makeup layoffs when foreign nation retaliate. As short-term trade wars aid domestic industries, prolonged trade wars weaken the nation’s production, which leads to a decline in the products quality and eliminates the manufacturer`s incentive to innovate and come up with new or improved products.
Final word
While trade wars have long-term consequences, the objective is in the end to maintain fair trade among nations. Trade is a significant element in economic stability, and they affect the economy`s health.
