Table of Contents

Introduction...........................................................................................................................................3
Overview of Trade Wars and History..............................................................................................3
The Ripple Effects of Trade Wars:...................................................................................................4
Economic Impact:..............................................................................................................................4
Appendix 1: Impact of the US China trade war on Consumers and Producers.................................6
Potential strategies for promoting corporation in trade.....................................................................6
Conclusion..............................................................................................................................................7
References.............................................................................................................................................8
Introduction
Often times the image we have when we think of war is a battlefield, bombs and guns,

in recent times the new battleground is economic and not military. The global

economy has been exposed to a series of trade tensions and wars in recent years.

These conflicts between major economies such as the United States, China, and the

European Union are often driven by the imposition of tariffs and other trade barriers

and are mostly seen as tools to protect domestic industries and gain leverage in

international negotiations. While the primary motivation for starting a trade war may be

economic, the ripple effect goes far beyond trade, it also has some implications for the

political environment and international cooperation. This essay aims to provide a

comprehensive analysis of the impact of trade wars on the economic and political

environments, drawing insights from recent international conflicts to evaluate effective

resolution strategies.

Overview of Trade Wars and History

The Trade wars can be traced back to the colonial era in the 17th century, from the

opium wars (1839-1842) between Great Britain and China for example where Britain

forced China to accept the import of opium, leading to a shattering war and unequal

treaties, to the Smoot-Hawley Tariff Act of 1930 in the United States, which is

popularly believed to have contributed to the Great Depression (James Chen, 2022)

to the chicken wars of the 1960s between the United States and the European

Economic Community (EEC) over poultry exports to the Banana wars. Even in recent

times the 2018 trade war between the United States and China. They all have a

common denominator reminding us of the potential downsides of trade wars in today's

highly interconnected global economy.

Although the historical context is valuable, however, understanding the triggers of

trade wars is crucial. These economic conflicts are fought using trade barriers like
tariffs and quotas, used to shield domestic industries by hindering foreign competition.

This is achieved by choking off their exports, making their goods scarce, and driving

up domestic prices. Some key factors triggering trade tensions can range from

disputes over trade practices and protectionism to trade imbalances, geopolitical

tensions, currency manipulation, and even political rivalries, and considerations of

national security (CFI Team n.d).

The Ripple Effects of Trade Wars:

Economic Impact: Trade wars trigger a domino effect, disrupting global economic growth

and harming all participants. One major consequence is the fracturing of established supply

chains, leading to a decline in global output. This economic conflict creates uncertainty and

hinders international trade through trade barriers. These barriers inflate the cost of importing

raw materials, making it difficult for businesses to source materials and plan production. This,

in turn, drives up production costs and reduces operational efficiency (Trade Council, 2022).

The disruption ripples across various industries, impacting international trade and causing

inefficiencies. Ultimately, the increased costs incurred by businesses relying on imported

materials translate directly to the end consumers, who bear the brunt through higher prices for

goods and services. There is a decreased purchasing power as well as a decline in their

standard of living resulting in a reduced demand for both domestic and imported goods,

further aggravating the economic slowdown.

Industries that rely on international trade would be greatly impacted by trade wars

because trade barriers reduce international trade flows, hindering economic activity

and investment. Resulting in increased unemployment, and lower wages due to the

decreased levels of economic output and affecting the overall global economic

growth. In addition, trade wars can also hurt innovation and slow long-term economic

growth. The uncertainty and instability created by trade conflicts discourage

businesses from investing in research and development, hindering innovation and

technological advancement (Trade Council, 2022). This ultimately reduces the long-

term economic competitiveness of countries involved in trade wars.

Throughout history, countries have attempted protectionist policies to shield domestic

industries through tariffs and subsidies, however they have mostly backfired. The

Smoot-Hawley Tariff Act, that intended to safeguard American jobs during the Great

Depression, resulted in a massive decline both in exports and imports in the US,

which made the economic situation worse (Morrison, 2023). The 2018 trade war

between the United States and China further explains this economic impact perfectly

the US under the Trump Administration imposed tariffs on more than $550 billion of

Chinese products, citing concerns about unfair trade practices and intellectual

property theft. China retaliated with its tariffs, on more than $185 billion of U.S. goods.

(Hass & Denmark, 2020). This tit-for-tat has caused both countries some pain as

businesses in both economies have faced higher costs for imported goods, and

disrupted supply chains leading to uncertainty and hesitation in investing and slower

economic growth for both the US and China. The end consumers in both countries

were negatively impacted by the trade war. Tariffs imposed by the US led to higher

prices for American consumers, while Chinese consumers also experienced price

increases due to retaliatory tariffs. Although some producers, especially those outside

of the US and China, might have benefited from the disrupted competition. Many

producers in both countries suffered, especially those who relied on the targeted

goods or used them in manufacturing.

Appendix 1: Impact of the US China trade war on Consumers and Producers (Cerutti,

Gopinath, & Mohommad, 2019)

Potential strategies for promoting corporation in trade.

Given the negative effects of trade conflict, alternative strategies are necessary to foster

cooperation in trade and create a stable and prosperous global business environment. One

important strategy involves upholding existing international trade agreements, like the ones

established by the World Trade Organization (WTO). The purpose of the WTO is to settle

trade disputes through an unbiased panels before it becomes a full out war. A country who

feels bereaved by another country’s breach of trading rule can file an application with the

WTO. Countries must abide by WTO rulings even when they differ from them, for the

procedure to be successful as it provides a framework for resolving disputes in a peaceful

manner and contributes to the creation of a more predictable trading environment, and erases
uncertainty for government or businesses (Morrison, 2023). When it comes to both this

principle and the WTO rules themselves, countries involve should use discretion to protect

their own national interests. Also engaging in open dialogue and negotiation, all countries

involved would have to approach the negotiation table with the willingness to compromise and

find mutually beneficial solutions, this would help to de-escalate trade tensions and allow for

dispute to be solved peacefully and constructively.

Furthermore, advocating for free trade principles and strengthening multilateral institutions like

the WTO so as to create a framework for fair and open trade practices, discouraging countries

from resorting to unilateral actions like imposing tariffs and fostering a well-established global

trading environment that is beneficial all countries involved creating economic prosperity

through mutual benefits and collaboration. This would help in tackling not just the immediate

risks associated with trade conflicts but also creates a foundation for a continual economic

growth and prosperity through mutually beneficial trade relations.

Conclusion
In conclusion, although the initial idea behind trade wars might appear compelling as

a means of protecting domestic interests, the long-term consequences paint a

different picture. The ripple effects of trade wars goes beyond disrupting supply chains

and an increased production costs; it also impacts employment rate, diminished

innovation as well as cause a slow long-term economic growth. Moving forward, to

ensure global economic stability and prosperity through cooperation, countries should

engage in open dialogue, advocate for free trade principles. By prioritizing

collaboration and mutual benefits over unilateral actions and protectionism they can

avoid the destructive cycle of trade wars and pave way for a sustainable economic

growth and prosperity.

References

Cerutti, E., Gopinath, G., & Mohommad, A. (2019, May 23). The Impact of US-China Trade Tensions.
International Monetary Fund. https://www.imf.org/en/Blogs/Articles/2019/05/23/blog-the-
impact-of-us-china-trade-tensions#:~:text=As%20China%20imposed%20retaliatory
%20tariffs,since%20the%20trade%20tensions%20began.&text=Consumers%20in%20the
%20US%20and,the%20losers%20from%20trade%20tensions.
CFI Team. (n.d.). Trade Wars. Corporate Finance Institute.
https://corporatefinanceinstitute.com/resources/economics/trade-wars/
Chen, J. (2022, February 28). Trade Wars: History, Pros & Cons, and U.S.-China Example.
Investopedia. https://www.investopedia.com/terms/t/trade-war.asp
Hass, R., & Denmark, A. (2020, August 7). More pain than gain: How the US-China trade war hurt
America. Brookings Institution. https://www.brookings.edu/articles/more-pain-than-gain-how-
the-us-china-trade-war-hurt-america/#:~:text=Economic%20costs%20of%20the%20trade,t
%20hire%20as%20many%20people.
Long, H. (2020, January 15). Was Trump’s China trade war worth it? The Washington Post.
https://www.washingtonpost.com/business/2020/01/15/was-trumps-china-trade-war-worth-it/
Morrison, J. (2023). The Global Business Environment. Bloomsbury UK. https://conestoga-
bookshelf.vitalsource.com/books/9781350321762
Picchi, A. (2019, August 24). Trump boosting U.S. tariffs on $550 billion in Chinese imports. CBS
News. https://www.cbsnews.com/news/tariffs-china-trump-says-he-is-boosting-tariffs-chinese-
imports-in-retaliation-trade-war-2019-08-24/
Trade Council. (2022, December 26). Effects of Trade Wars on Global Economy and International
Trade. https://tradecouncil.org/effects-of-trade-wars-on-global-economy-and-international-
trade/#:~:text=Uncertainty%20and%20Investment%20Decisions,investment%20decisions
%20and%20business%20expansion