In the course of global trade, a country will impose various tariffs, restrictions and or incentives for certain sectors of its economy, with the intention of benefiting that country. Usually, this does not result in any trouble, the equilibrium adjusts and the country that put the measures into place may benefit.

However, from time to time, such a country’s trading partner(s) may see such manoeuvres as “unfair trading practices”. Then, if the tension is allowed to reach a tipping point, the two (or more) economies will enter into a tit-for-tat style display of each one trying to one-up the other in terms of trade policies, usually protectionist in nature. Trade wars can involve more than 2 participants and can even involve 2 or more countries vying for access into a particular market or region.

When a trade war occurs between 2 or more major economic powers, such as the ongoing one between the USA and China, the entire world economy can be affected. Some countries benefit while many others are usually negatively affected.

Their Inevitability

At first glance, trade wars may appear to be simply governments jostling for power. However, a deeper study will show that trade wars arise out of the complex dynamics of global trade that are often unseen and unspoken.

Economic inequality in countries with trade surpluses, combined with rising unemployment and debt in countries with trade deficits, may have more to do with trade wars than anything else. This, along with capital flows and other unseen macro-economic factors may also contribute.

Regardless of which explanation one might be inclined to accept, trade wars are logically inevitable too. As trade relationships improve, each country will try to get the maximum out of the relationship. This leads to souring relations and national leaders playing politics will often use strained trade relations as a bogeyman to drum up support.

Why Tensions Must Be Diffused

To an extent, trade wars are not particularly dangerous and some may even benefit from them. However, they must not be allowed to escalate because, as we have seen before, during the late 19th century and subsequent to the great depression, they can lead to all out war, which results in a net loss to the global community.