ANKUR'21

COLD-WAR to TRADE WAR!?
The word war itself give chills to everyone. We are all aware of the impact “war” has in the
world. From the destructive World Wars to the not so ‘hot’ Cold War, mankind was bought
into light as well as was made to encounter it. Since the disintegration of Soviet Union to
recent times, world did not face some serious imprecations. Regional wars and conflicts were
still present, but it was not that huge of bringing a global bloodshed as far as I am aware.
However global economic-political community believe that something like “Thucydides
Trap", the idea of a rising power challenging the dominance of an established power, has
emerged., referring to the “Trade War” between USA and China.
Trade war is an economic war between countries. It is notion in which nations impose trade
restriction policies (trade barriers) on another. The country over which these barriers, in the
form of licensing, tariff, import quotas, domestic subsidies, currency devaluation etc., are
imposed retaliate with another policy. This creates a warring scenario.
U.S. politicians have long threatened a trade war with America's largest trading partner in
goods. Half of all Chinese imports are goods used by U.S. manufacturers to make other
products. They send raw materials to China for low-cost assembly. China is the world's No.1
exporter. Its comparative advantage is that it can produce consumer goods for lower costs
than other countries can. China has a lower standard of living, which allows its companies to
pay lower wages. American companies can't compete with China's low costs, so it loses U.S.
manufacturing jobs. Americans, of course, want these goods for the lowest prices. Most are
not willing to pay more for "Made in America." These may be considered as the causes for
America to impose trade restrictions.
In early 2018, the then US President Donald Trump quoted that “Trade wars are good and
easy to win” and imposed three tariffs, a global tariff on steel, a tariff on European autos, and
tariffs on Chinese imports. The trade barriers and other restrictions were set on China to force
the country to change its trading practices which according to US was “unfair trade practices
and intellectual property theft.”
The effects of trade wars on the economy can be broken down into the short term and the
long term. In the short term, imposing trade barriers will generally achieve the goal of
protecting domestic businesses. Economists generally agree that in the long term, trade wars
weaken the protected domestic industry. Without foreign competition, companies within the
industry don't need to innovate. Eventually, the local product would decline in quality
compared to foreign-made goods, domestic economy slows down.
In the case of trade war between USA- China or trade war started by USA, its impact on us is
that it raised the prices of consumer goods that use steel and aluminum. Costs have increased
on imported clothes hangers, heavy-equipment materials, and computer chip and tool makers.
Foreign tariffs on U.S. exports make them more expensive. U.S. exporters may have to cut
costs and lay off workers to remain competitively priced. If they fail, they may cut costs
further or even go out of business.
According to the World Bank's Global Economic Prospect, the global economy has slowed to
its lowest pace because international trade and investment have been weaker than expected.
International trade has been severely affected by the trade war between the US and China.
Widening trade gap with China could have reduced, India could have become China’s
software industry partner, could have explore opportunities to export the demands of goods
by the US. Along with these there was an opportunity for India to increase its exports in
textile, garments and gems and jewellery to US if Chinese exports to the US slow down.
Even then India wanted to remain cautious of; China's intention of dumping its
overproduction of steel and aluminium, the rising price of oil etc. When the case of India is
considered, it could have derived maximum benefit of the opportunities created by the trade
war between the US and China, however should have remained careful and prepare for the
challenges arising out of the trade war.
Game theory predicted that the trade war could potentially be more prolonged than expected.
According to game theory, it is generally difficult to regain lost trust and it is actually rational
for countries to engage in trade wars as it is in their personal interest to do so.
With Trump losing the Presidential election 2020, It’s now up to President Biden to decide
whether to keep up the trade war. In a recent interview, he said he wouldn’t remove the tariffs
immediately and would instead review the phase one deal. As of now, trade war between
China and USA has resulted in nothing but economic losses for both the countries.
REFERENCES
“Thucydides Trap" https://www.quora.com/What-is-Thucydides%E2%80%99s-Trap
What is trade war? Its causes and impacts.”
https://www.thebalance.com/trade-wars-definition-how-it-affects-you-4159973
https://corporatefinanceinstitute.com/resources/knowledge/economics/trade-wars/
https://www.drishtiias.com/to-the-points/paper3/trade-war-6
Game theory applied to trade war
https://blogs.cornell.edu/info2040/2018/11/24/game-theory-applied-to-the-trade-war/
#:~:text=Game%20theory%20predicts%20that%20the,the%20majority%20of%20the
%20world.&text=In%20retaliation%2C%20which%20also%20led,imposing%20tariffs
%20on%20Chinese%20imports.
Further developments
https://www.bloomberg.com/news/articles/2021-01-11/how-china-won-trump-s-good-and-
easy-to-win-trade-war
SAKTHI B
20/UECA/006

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COLD-WAR to TRADE WAR!?

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