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Trade war
Encyclopedia
A trade war refers to two or more state
s raising or creating tariff
s or other trade barrier
s on each other in retaliation for other trade barriers. Increased protection causes both nations' output compositions to move towards their autarky
position.
Some economists would agree that certain economic protections are more costly than others, because they may be more likely to trigger a trade war. For example, if a country were to raise tariffs, then a second country in retaliation may similarly raise tariffs. But an increase in, for example, subsidies
, may be difficult to retaliate against by a foreign country. Many poor countries do not have the ability to raise subsidies. In addition, poor countries are more vulnerable than rich countries in trade wars; in raising protections against dumping
of cheap products, a government risks making the product too expensive for its people to afford.
Sovereign state
A sovereign state, or simply, state, is a state with a defined territory on which it exercises internal and external sovereignty, a permanent population, a government, and the capacity to enter into relations with other sovereign states. It is also normally understood to be a state which is neither...
s raising or creating tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
s or other trade barrier
Trade barrier
Trade barriers are government-induced restrictions on international trade. The barriers can take many forms, including the following:* Tariffs* Non-tariff barriers to trade** Import licenses** Export licenses** Import quotas** Subsidies...
s on each other in retaliation for other trade barriers. Increased protection causes both nations' output compositions to move towards their autarky
Autarky
Autarky is the quality of being self-sufficient. Usually the term is applied to political states or their economic policies. Autarky exists whenever an entity can survive or continue its activities without external assistance. Autarky is not necessarily economic. For example, a military autarky...
position.
Some economists would agree that certain economic protections are more costly than others, because they may be more likely to trigger a trade war. For example, if a country were to raise tariffs, then a second country in retaliation may similarly raise tariffs. But an increase in, for example, subsidies
Subsidy
A subsidy is an assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry or an increase in the prices of its products or simply to encourage it to hire more labor A subsidy (also...
, may be difficult to retaliate against by a foreign country. Many poor countries do not have the ability to raise subsidies. In addition, poor countries are more vulnerable than rich countries in trade wars; in raising protections against dumping
Dumping (pricing policy)
In economics, "dumping" is any kind of predatory pricing, especially in the context of international trade. It occurs when manufacturers export a product to another country at a price either below the price charged in its home market, or in quantities that cannot be explained through normal market...
of cheap products, a government risks making the product too expensive for its people to afford.
See also
- Trade sanctions
- Economic sanction
- Trade war over genetically modified food
- Currency warCurrency warCurrency war, also known as competitive devaluation, is a condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their own currency. As the price to buy a particular currency falls, so to does the real price of exports from the...
- Banana War