Causes & Consequences
In early 2018, US President Donald Trump stepped up his efforts, particularly against China, threatening a big fine over alleged intellectual property theft and significant tariffs on USD 500 billion worth of Chinese products such as steel and soy products. On the other hand the Chinese retaliated with a 25% tax on over 100 US products. From the year 2018, the two nations continued to threaten each other, releasing lists of proposed tariffs on various goods.
In global economy, a trade war affects negatively on the consumers as well as global trade.
A trade war is an economic conflict resulting from extreme protectionism in which states raise or create tariffs or impose other trade barriers against each other in response to trade barriers created by the other party. A trade war happens when one country retaliates against another by raising import tariffs or placing other restrictions on the opposing country’s imports.
History of Trade Wars
Trade wars are not an invention of modern society. Such battles have been conducted trades with one another. Colonial powers fought with each other over the rights to trade exclusively with overseas colonies in 17th century.
The British Empire has a long history of such trade war. An example can be seen in the opium wars of the 19th century with China. The British had been sending Indian produced opium into China for years when the Chinese emperor decreed it to be illegal. Various attempts to settle the conflict failed and the emperor eventually sent troops to confiscate the drugs. However, the might of the British Navy prevailed and China conceded additional entry of foreign trade into the nation.
The First Anglo-Dutch war caused by disputes over trade, the war began with English attacks on Dutch merchant shipping. The Second Anglo-Dutch war for controlling over the seas and trade routes. The Fourth Anglo-Dutch war over British and Dutch disagreements on the legality and conduct of Dutch trade with Britain’s enemies in the war. Some trade wars are mentioned below:
Trad Wars - Period
Anglo-Dutch - 1652-1784
Opium - 1839-1842 and
Banana - 1898-1934
Anglo-Irish - 1932-1938
China-US - 2018-present
Causes of Trade Wars
Trade wars can commence if one country perceives a competitor nation has unfair trading practices. Domestic trade unions or industrial lobbyists create pressure on politicians to make imported goods less attractive to consumers, pushing international policy towards a trade war. Also, trade wars are often a result of a misunderstanding of the widespread benefits of free trade.
A trade war that begins in one sector can affect other sectors. Likewise a trade war that begins between two countries can affect other countries not initially involved in the trade war.
Trade War of US & China
The world is witnessing a fierce trade conflict between the US and China. It all started in January 2018 when Us president Donald Trump ordered a ‘Section 301’ inquiry against China for intellectual property theft.
Under this section, the US President can take all appropriate action, including retaliation, to obtain the removal of any act, policy or practice of a foreign government that violates an international trade agreement or is unjustified, unreasonable or discriminatory and that burdens or restricts US commerce.
The US investigating committee concluded that, China’s acts, policies and practices related to technology transfer, intellectual property and innovation are unreasonable and discriminatory.
Consequently, in April 2018, the US authority came up with a list 1,333 Chinese goods, valued at USD 50 billion that would be subject to an additional 25 percent tariff. China hit back with reciprocal tariffs on a list of American goods of equal value, matching US threats on a dollar for dollar basis.
On 1 June 2019, China retaliated with a 25 percent tariff on USD 60 billion of US products and on 13 August 2019, Trump threatened a 10 percent tariff on Chinese electronics and clothing.
A trade war happens when one country raises tariffs on another country’s imports in response to increased tariffs from the first country.
Trade wars are a side effect of protectionist policies.
Trade wars are controversial.
Trade wars protect national interests and provide advantages to domestic business.
Critics of trade wars claim they ultimately hurt local companies, consumers and the economy.
History suggests, trade wars are not uncommon between US and China. There are number of precedence of such trade conflicts between these two countries.
During the last thirty years, USA launched five ‘Section 301’ investigations against China. In all those cases conflicts were resolved either by diplomatic ways or by the dispute settlement mechanism of WTO.
In 1991, when allegations were made against China for unfair trade barriers and not having adequate intellectual property protection; China immediately took measures to promote intellectual property protection and eliminating trade barriers unilaterally.
China faced two more ‘Section 301’ investigations in 1994 and 1996 for the same old reasons. This time it was not one-sided action taken by China only, rather efforts were made by both sides.
Another investigation was launched against China in 2010. This time the dispute was resolved by WTO dispute settlement process.
Mistrusts started to creep in. A good number of think tanks believe the ongoing trade war is an outcome of the prevailing distrusts between the two economic superpowers. History has time and again proved that, trade disputes are not necessarily driven by economic reason only, many times politics play critical role as well.
If the US-China trade war continues, IMF warned that, the FDP of the US and China will be reduced by 0.9 percent and o.6 percent respectively, which would cause a 0.4 percent fall in long-term world GDP.
Global Impacts of US-China Trade War
The global business is now being reconfigured by a decoupling between its two largest economies- the US and China after decades of interdependence. This will impact practically every country where global businesses are active.
The escalating trade war between the US and China is rippling through the global economy, hurting confidence among US small businesses, crimping trade among industrial giants in Asia and hitting export-oriented factories in Europe.
Trade wars are resulting in a world with greater risk, more volatility and slower economic growth.
Trade War & Bangladesh
China and the US have been stable trade partners to Bangladesh for decades. The volume and value of trade are very significant with both countries. However, the nature of trade with both countries is different. Bangladesh’s top import partner is China, with Bangladesh importing over USD 15 billion in Chinese goods as of 2017. Meanwhile, the US is the second largest destination for Bangladesh exports, taking in more than USD 5.8 billion in 2017.
The garment sector is expected to reap the most benefits as it accounts for 80 percent of Bangladesh’s total exports. As the trade war escalates, US retailers are placing more work orders in Bangladesh in an effort to offset increasing tariffs on goods manufactured in China.
According to the US Office of Textile and Apparel (OTEXA0, Bangladesh enjoyed about 6.5 percent growth in share in the US market during 2018.
As the Asian Development Bank’s chief Economist Yasuyuki Sawada argued, Bangladesh’s exports can be expected to increase by USD 400 million amid the trade war.
MD. ALAL UDDIN