A trade war is a situation in which countries seek to harm each other’s economies, retaliate against each other by imposing import restrictions and other methods. The imposition of a tariff on imported products makes exports unprofitable for the second country-party to the conflict. Also, it increases the competitiveness of goods produced domestically, as it makes them cheaper. In general, the primary motive for unleashing a trade war for a particular country is the desire to protect its market from a large number of imported goods (which implies the introduction of protectionist measures) for the development of its own industries and the domestic market itself. At the same time, the use of the above-described tools usually forces the other side to take retaliatory measures, that is, for the sake of “revenge” and the desire to restore justice, the “tit for tat” tactic is used. As a rule, after a series of mutual exchanges of such measures, the greatest likelihood of a trade war appears. If countries cannot compromise in such a situation, a trade dispute can escalate into a full-fledged trade war.
International trade theory suggests that when a major power like the United States imposes import duties, it forces foreign suppliers to cut prices. However, in most US economy sectors, duties fell entirely on the shoulders of American firms and consumers (Amiti et al.). Companies had to spend money on adapting to the new reality and transferring production from China to other countries. Contrary to Trump’s expectations, the main destination was not America, but Vietnam and other Southeast Asia countries. Economists found that the 10 percent tariff reduced imports by 10 percent in the first three months and gradually doubled in the following months. So the effect of the duties introduced in October 2018 is just starting to show in full (Amiti et al.). Now the American and global economies are facing a slowdown, and the WTO no longer regulates trade disputes. Geopolitics and the struggle for technological leadership have returned to the world economy, leading to its de-globalization.
The traditional trading theory says that it is trading that forms the mix of jobs (Miller 10). This, in turn, leads to an uneven distribution of the labor force, and those who do not receive any support from the state suffer first. Besides, free trade means that vulnerable economies no longer suffer from their own governments’ unwise policies but financial globalization. A prosperous market economy is not a pure market free from government interference, but a particular combination of smart government interventions and a free market. The paradox of globalization is that it is impossible to support economic globalization, democracy, and national self-determination simultaneously.
A world with a globalized economy and democracy will require the abandonment of some of the economic sovereignty – the widespread alignment of quality standards, regulatory procedures, industrial policy measures, labor laws, the same rules for bailing out corporate bankruptcies, and other measures. At the same time, trade restrictions must apply to environmentally destructive productions, as they also contribute to deepening inequality in international global trade. Such industries are more often transferred to third-world countries.
Miller proposes a progressive policy that primarily serves the interests of people, workers around the world (13). Free trade is seen as undesirable from the point of view of the need to ensure sustained full employment and limit transnational corporations’ ability to move workers from one country to another. The latter plays a vital role in developing global economic inequality, which concerns primarily countries with unstable economies and specific groups of workers in precarious sectors of national economies. This is precisely the situation that can be observed today in the United States. According to Miller, for most people to prosper economically, government interventions provide workers with funded retraining programs, health insurance, and pensions (15). The above measures will lead to a win-win for everyone.
Works Cited
Amiti, Mary, et al. “The 2018 Trade War: Consumers Are Paying a High Price”. LSE Business Reviews, 2019. Web.
Miller, John. “Beyond Trump’s Tariffs and Trade War.” Dollars & Sense, 2018. Web.