What is a trade dispute?

Trade wars are as old as trade itself, but they continue to shape international politics today.

The list of economic wars began with the expansion of liberalism in the 19th century, the most representative cases occurring in recent decades in the context of globalization.

It is increasingly common to read news announcing the adoption of new tariffs, tariffs and sanctions against individuals, companies and states. The usual targets are a very heterogeneous group: from Iran, China and Russia, on the one hand, to the EU, South Korea and Japan, on the other.

Over the past decades, a state's trade and economic position in a context of globalization has been the most important arm of its foreign policy. With the arrival of former U.S. President Donald Trump in the White House, the technological and commercial rivalry between Washington and Beijing has only increased, and there has been talk in the media of a trade war. But what is a trade war? What is its impact?

Trade war is a form of political warfare where two nations fight over a set of trade policies. Trade wars begin with a policy decision that one nation sees as hostile to trade relations, such as a change in tariffs and taxes, the creation of new subsidies, and other policies suggestive of economic protectionism. Such a move could range from raising tariffs to banning all imports of a product.

This decision is made to favor one's own industry and reduce imports, to turn around a state's trade balance. An example has been the implementation of tariffs on aluminum and steel imports from the EU by former U.S. President Donald Trump. This caused the EU to adapt countermeasures for $2.8 billion.

Trade wars originate when one country considers its competitor to have unfair trade practices. Trade unions or pressure groups (commonly called "lobbies") in the country's industry may pressure politicians to make imported products less attractive to consumers.

The imposition of tariffs is applied to a group of States or limited to one in particular. The main economic objective of the measure is to protect domestic industry. Other measures are also implemented which are the creation of non-tariff barriers, consisting of increasing the technical or quality requirements for the importation of products.

This trade war can be applied to a state or to a specific group. The initial steps of a trade war are accompanied by a response by the sanctioned party to neutralize or minimize the effects of the measures.

The ways in which the countries involved in these disputes act depend on the scope of the measures that generated the conflict. However, due to the economic interdependence between the different states, it is becoming increasingly difficult to determine who are the winners and who are the losers in a trade war.

The effect ends up impacting not only the parties involved, but also third parties on the international board, and above all, consumers who will have to pay more for the same product. In addition, it could lead to the disruption of trade and global supply chains, which could damage the profitability of companies and the competitiveness of a state.

In the short term, trade wars could serve to protect domestic industries. This can be especially useful in protecting small or growing infant industries, which may have the potential to be important to future domestic production.

However, such trade disputes could backfire in the long run, raising prices for consumers, directly impacting a state's business fabric and productivity.

Over time, trade wars could weaken domestic industry, since, without competition, companies in a given sector do not need to innovate, causing the quality of the local product to decline compared to that of its competitors. Despite its disadvantages, it is not surprising that protectionism can become a relevant issue, especially if elections are in sight.

Suggested readings:

1- Qué Es una guerra comercial, cuáles son sus armas y quiénes son sus Principales Víctimas (2018) BBC News Mundo. Available at: https://www.bbc.com/mundo/noticias-internacional-43309754