Trade War and Global Economy

Trade War and Global Economy

Economy

The trade war which was started by US president Donald Trump in 2018 against China have severe repercussions beyond the containment of China. It is affecting the whole world economy and compelling the states to adopt nationalistic mindset. The very same mindset led to the great depression in 1930 because at that time due to the protectionist approaches tariffs got increased and which halted the trade between nations. That tactic ultimately led to the global economic crisis. After almost a century, the world is again facing a similar situation in which states are moving towards protectionist approach and still US is the one who has started this trend. However, the main source of contention is the effects of trade war on global economy and those effects include criticism on the credibility of WTO, US election results, difficulties for consumers, clashes of tech firms, supply chain relocations and endangerment of jobs etc.

In 2018, US president imposed 25% tariff on $50 billion of Chinese goods then after a while imposed 10% tariff on further $200 billion on Chinese goods. US president alleged that the trade between US and China is not fair and China is taking advantage of US. He further added that US has to bear a large trade deficit of billions of dollars. Basically, his reference was towards the report of Centre for strategic and international studies in which it was stated that US had been facing the loss of $225 billion – $600 billion annually due to the intellectual property thefts. In addition to this, China was stated as responsible for these intellectual property thefts. Although, China reacted by imposing 25% tariff on $16 billion worth of US trade goods. At that time, no one knew that this trade war escalation would further worsen with the passage of time. These above-mentioned tariffs followed the series of other tariffs which led to full scale trade war between two large world economies. This trade war is not limited to US and China only because US president has imposed tariffs on US key allies including European Union, South Korea, Japan and Turkey on aluminum imports and other goods. Due to this, US also has to face counter tariffs from its key allies. This will not only reduce the trust of US allies on US but will also hurt the world economy badly.
The main bad impact of trade war on world economy is the upbringing of nationalistic trend. This nationalistic trend will only counter the benefits of globalization and will only serve the interests of anti-globalization forces. This can lead the world towards another great depression of 21st century. Globalization has served very well during the last four decades and several countries have increased their GDP up to 3 times due to globalization. But this nationalistic approach in the wake of trade war will only save the interest of some particular individuals at the cost of billions of people. There are multiple aspects of this argument which will be discussed. First, the trade war and nationalistic approach will decrease the credibility of World Trade Organization (WTO). Because US itself played an important role in the formation of WTO in the wake of Uruguay round of multilateral trade negotiations and now US itself is breaking its rule of free trade or removal of trade barriers. When the developing and other small nations will see the behavior of US and its hypocrite approach towards the world institutions according to its own interests then they will also not take the WTO rules & regulations as seriously. This will ultimately lead to the decrease in the credibility of WTO and other nations will follow the suit of protectionism which lead to the decrease in trade activity and global GDP.

There is also speculation between different regions that the trade war is just a political tool which the US president Donald Trump is using to affect the results of US 2020 elections. The rhetoric of US president is that he is bringing jobs and industry back home. He also added that US is facing a loss of billions of dollars because of unfair trade deals. The first round of trade deal happened last year after which US announced to reduce the taxes of Chines products. But the finalization of second trade deal is still not final in which US is forcing China to buy more US agriculture products in order to reduce the US trade deficit. If this speculation of political usage of trade war become true then this mistake will cost the global economy trillions of dollars plus a big blow to globalization. According to the reports of the bank of Finland, trade war will decrease the global GDP by around 0.7%.

Thirdly, the main victims of the trade war are consumers because they have to purchase an expensive domestic product instead of cheap foreign goods. This will not only reduce the inflation rate in the country but will also deprive the local people of good quality foreign good at competitive price. This will reduce the purchasing power of the consumers and trades markets could face the long-term barriers. Fourthly, trade war is bringing the tech firms into controversy and clashes have started happening due to the problems of intellectual property rights theft. For example, Chinese leading tech giant Huawei is in the news regarding its 5G internet technology. US is blaming that this tech company stole the intellectual property rights and is also using the 5G internet technology as a tool to put forward its surveillance agendas in European Union and other countries. After this US is forcing its companies to relocate their center back in US. In addition to this, US is also forcing the European Union allies to follow its suit and to cancel the 5G contracts with China. This is another level of trade war and this could further give the blow to globalization. Besides this, this relocation of industries will endanger the jobs of millions of people across the world. Trade war is in the benefit of no one and world big economies needs to understand this. Lastly, free trade will not only serve the interests of common consumers but will intermingle the global economies which ultimately results in the creation of jobs and increase in global GDP and economy.

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