The term trade war has been gaining a lot of attention in the past few days and due to it financial markets all over the world are jittery, trade war in simple words refers to a war between two countries and in this war weapons are not tanks or fighter jets but weapons are import tariffs and restrictions which are imposed by both countries on goods of rival countries so as to hurt their imports into the country. In order to understand more about this concept, one should look at the advantages and disadvantages of the trade war –
Advantages of Trade War
Helps Domestic Business
The first and foremost advantage of trade war is that it helps the local or domestic companies because when government imposes tariffs than imports become expensive while price domestic products remain same which in turn leads to consumers buying domestic products more as compared to imported products which ensure that domestic companies grow and become big players in the domestic market.
Diplomatic Move
Another benefit of this war is that if one country starts the war by imposing tariffs and restrictions on goods coming from other country and other does not retaliate than diplomatically it will be a weak move as internationally the reputation of that country will be of a weak nation who does not retaliate. In simple words, just like in soccer match if one team is attacking and other is defending rather than attacking for 90 minutes than that team will be considered as weak in the same way nations also have to save their international reputation by retaliating if another country has started a trade war.
Checks Wrong Trade Practices
In the case of international trade not all countries do trade in an honest manner and some countries tend to dump their inferior products to other countries which in turn poses risk for the consumers of nations which is importing goods from such countries and when trade war happens then it in a way ensures that such wrong trade practices are curbed.
Disadvantages of Trade War
Increases Inflation
The biggest disadvantage of trade war is that it increases inflation because when countries impose restrictions and tariffs it leads to artificial shortage of goods and when there is shortage of goods its leads to increase in the price of goods causing inflation which in turn lowers the living standard of the people of both the countries who have indulged in trade war.
Creates Undue Tensions between Countries
When two nations are on reasonable talking terms and if they indulge in this war than it creates undue tension between countries which not only affects economic relations but also diplomatic and cultural relations between the nations which in the long term can hurt both nations badly as in this modern age of aggression peace is perhaps the most expensive thing and trade war will ensure that countries remain far away from peace.
Increases Domestic Monopoly
In the long term if this war continues than domestic companies will eventually become big and act like a monopoly because of lack of competition from international brands and due to domestic companies turning into monopoly it is the customers of the country who suffer due to the charging of higher price by the domestic companies. In simple words, due to the presence of multinational companies, domestic companies are always at their toes which ensure that customers get good quality products at competitive rates.
As one can see from the above pros and cons of trade war that it is not good financially as well as diplomatically as over a long period of time it impacts relationships of countries adversely and that is the reason why countries should ensure that they do not indulge in this war as eventually, it can turn into currency war or even worse full-blown war.