Global Tariff War: Economic, Political and Social Implications

Trade war among the nations dates back mainly to the nineteenth century. Some of the trade wars may be cited as (i) The First and Second Opium War Empire between 1839 and 1842; (ii) The Smoot-Hawley Tariff Act, 1930 signed by US President Herbert Hoover; (iii) Chicken wars in the early 1960s; (iv) The US–Japan automobile trade war in the 1980s; (v) 1985 Pasta War between America under the Regan Administration of United States and Europe; (vi) The Banana wars. However, trade becomes more intense in the present century with the increase of the economic trade instruments. Under the Obama Administration, currency war and tariff war both became strong between the United States and China with intense effect over the globe. After the Obama regime, came Donald John Trump with a number of controversial (aggressive) trade protectionism plans saying thereby “China’s accession to the World Trade Organization has enabled the greatest jobs theft in history” and “Trillions of our dollars and millions of our jobs flowed overseas as a result.” Even during the COVID-19 period in the 2020s, threats and counter-threats have been on the ascend. It is in this backdrop the present chapter mainly traces the history of trade wars in the twenty-first century, touching upon the nineteenth and twentieth century trade battles.

The fight between two nations on each other’s exportable on the basis of tariff is known as tariff war. Although an economic policy, very ­often ­motivated by nationalism and politics, a nation imposes tariff on the ­exports of another nation which, in retaliation, again imposes tariff on the exports of its trading partner. The prime cause of such war is certainly to enhance employment opportunities in the home nation. But politics and nationalism provoke the opposite nation to follow the same policy. Effects of such tariff war, whether beneficial or harmful, are yet to be seen. In this context, we have adopted a general equilibrium model to illustrate the probable effect of the above-stated trade war in a structure consisting both H–O nugget and export sector dualism. The effect of imposition of tariff on multinational corporation (MNC) that has its own origin nation and production activities in other nation as well where it faces the war of tariff is considered. But it gets relief in the form of tax reduction in its origin nation. Under such a scenario, the study has shown the effect of tariff in the presence of full employment in the economy as well as in the presence of unemployment. It is seen that the MNC will continue its production procedure in both nations and enjoy profit, under some conditions. Further, in the presence of unemployment it is seen that if rate of tax on the MNC rises, unemployment may fall and welfare can increase under certain conditions.

The chapter attempts to develop a micro-theoretic model to explain the genesis of trade war in light of the behavioral interdependence of two countries connected through international trade and, thereof, it analyses its welfare implication with respect to the countries at feud. In this regard, it is important to mention that the evolution of trade war herein has been articulated in terms of the retaliation of one country as reaction to the one time-tariff imposition by the other. The fundamental takeaways are twofold. First, how evolution of tariff war can be articulated in light two-stage game governments are coming to decide on tariff policy a priori, followed by second-stage featuring firms being decisive on the production level and then the games repeats where governments again come up to introspects if the a priori tariff rates are compatible with welfare optimization to be followed up by firms. Second, the nature of the ultimate fallout of the tariff retaliation will depend crucially on how welfare function of each country is paced with the country’s tariff policy.

Taking global economic integration into consideration, this study investigates the effects of the imposition of the tariff. For every tariff increase, a percentage of the trade volume is reduced. This means, there is a tradeoff between globalization and restricted trade. This chapter presents empirical evidence from the European Union and the Sub-Saharan Africa region using annual times series for the period, 1980–2019. Result indicates that with coefficient of 4.31 percent, the tradeoff in European Union is higher than Sub-Saharan Africa region with coefficient of 2.66 percent. Implied is that developing countries are more likely to suffer more from the negative effect of globalization due to trade restrictions than the developed countries of the world. This is an indication that whether in developed or developing countries, a tradeoff exists between globalization and restricted trade. Hence, the imposition of tariffs and counter-tariffs is capable of shutting down globalization.

The USA–China trade confrontation has become a major concern for all the nations involved in international trade. The retaliatory trade policies taken by both of these major trading nations have generated widespread impact among the trading nations especially on the developing and emerging nations. In this chapter, the macro-theoretic model is developed to show how a trade war can potentially arise in the wake of economic downturn led by some demand contracting force in one of the countries having trade ties and in turn can cause the recession to leap into global turmoil. This may prompt the countries to be more protective and averse to international exchange, thereby paving way to more intense trade frictions among the nations and stoking international macroeconomic propagation. Thus, the present introspection hints at tariff war among the nations engaged in restricted trade with each other being a plausible consequence of macroeconomic fault having cross-country repercussion implication and that in turn becomes more pronounced in the present tariff war leading to more fierce trade frictions among the countries.

The open objective of liberalization or globalization for the developed nations is the expansion of market or the creation of opportunities to produce and sale more and more goods and/or services beyond the domestic market which ultimately lead the nation in the right path of development. On the other hand, this economic environment is a challenge for the developing or less developed or small nations with respect to share of world trade to compete with the developed or large nations with respect to the quality of the product, technology, skill of human resources, etc. There arise tariff impositions to protect the domestic economies to defend against the challenges. Under these circumstances, this chapter tries to investigate the impact of such tariff war measured by trade as a percentage of GDP on the per capita GDP of the nations. It finds that all the variables are cointegrated. The effect depends on how we measure world tariff, for example, the effect of tariff on trade is positive and significant when we measure the world tariff as simple mean of all products but the effect of tariff on trade is negative and statistically significant when we take tariff as weighted mean of all products. Similarly, the effect of tariff on per capita income is positive if tariff is measured with simple average of all products but this effect is negative and significant when it is measured with weighted mean of all products. In this case, imposition of world tariff (weighted mean of all products) declines world per capita income especially in short run.

The chapter empirically investigates the effects of tariff imposition on manufacturing trade comparatively in the north and south economies across the globe during the last three decades. Traditionally north and south represent the developed and developing world, respectively. Along with the volume and balance of trade, the study accounts for both export and import separately to observe their dynamisms under the tariff regime and makes comparisons between developing and developed groups of countries. Using World Development Indicators (2019) and World Integrated Trade Solutions (2019) databases on 77 developing and 48 developed nations for 1991–2018, the robust difference panel generalized method of moments estimates imply that impositions of domestic tariffs significantly reduce manufacturing trade in both groups of countries; however, developing countries experience this effect in a greater extent.

Of late, the ongoing trade war between the two most powerful economies of the world – United States and China – has placed both the countries on a horrid front, breaking the world’s most important bilateral relationship of the twenty-first century. Their failure to reach a concrete agreement on mutual benefit on matters related to growing hefty amount of China’s current account surplus of balance of payments (BoP) and endangering United States to create jobs on its side, China’s use of illegal and unfair methods to acquire rights on intellectual property and US technology at an effectively discounted price; and also the concern that China by hook or by crook seeks to weaken the US economy has made matters worse. It is in this context the chapter analyzes the trade tensions between them and the context under which it came to the fore and with what outcomes. The analysis recommends interventions of the global leaders to mitigate the issues for the betterment of the world economy.

The US–China conflicts surrounding the imposition of tariffs have caused a stir in the global markets. Various attempts have been made to understand the rationale and causes as well as its impact on the various ­aspects of the international market. There are many unanswered questions pertaining to China’s emergence as a global superpower and the ­possible threats that it poses to the Western dominated market. Based on this background, the chapter is an attempt to investigate the impacts of the Economic Policy Uncertainty (EPU) of the United States and China on three most important global markets, namely, crude oil, credit market, and commodity ­market. To attain the objectives of the chapter, the study has utilized Vector Auto Regressive model and has analyzed the results. The study concludes that China’s EPU has lesser impact on the global market as compared to the US EPU. On the basis of the results obtained, few policy implications have been proposed.

Of late, the issue which has attracted the highest attention in the global scenario is the US–China trade relation, in particular the tariff war. The biggest nations in the world are in war with each other in matters related to trade since 2018. In the first quarter, the United States imposed a tariff which affected many countries like Canada, the EU, Mexico, the Russian Federation, Turkey, and, in developing Asia, India and the People’s Republic of China. This has resulted in a significant dampening of global output growth and growth in emerging nations of Asia. The present chapter seeks to investigate into the historical evidences of trade wars between the United States and China, major reasons responsible for this conflict and tries to figure out the impact of this conflict on fundamental macro variables using secondary time-series data primarily on selected Asian economies including India. The author uses the multiple regression technique to find to what extent changes in the independent variables are responsible in explaining the changes in the dependent variable for both China and the United States. The empirical results clearly show that in the case of China and the United States, an increase in weighted tariff rates (WTR) will lead to a significant decrease in the trade GDP ratio (TGR), whereas in the case of both these countries, Purchasing Power Parity GNI (PPPGNI) is positively and significantly associated in determining TGR. In the case of India, a decrease in WTR is expected to lead to a rise in TGR and it is significant. In case of Vietnam, PPPGNI is significant, but not WTR. In the case of Singapore, neither of the two independent variables is significant.

The present study deals with the growth performance of export (X), ­import (M), and economic growth (Y) in India over the period 1970–1971 to 2016–2017 as well as tariff (TR) for the period 1990–2017 by employing the methodology of one-time endogenous structural break suggested by Zivot and Andrews (1992). Also, an attempt has been taken to examine the direction of causality between the above-mentioned trade-related variables and economic growth using Granger Causality Test. Results of estimation reveal that all the variables converge toward a stationarity process having constant variability overtime. There exists structural break in the year 1996, 2006, 2008, and 2010, respectively, for economic growth, tariff, imports, and exports. Bidirectional causality is found running from economic growth to tariff and from tariff to economic growth. But there is unidirectional causality from imports to tariff, imports to exports and from exports to tariff.

This study intends to explore the impact of World Trade Organization (WTO) which came into existence from January 1, 1995, on the export share of developing counties in the world exports of all goods together in US$, that is, in global merchandise trade. This study endogenously determines the structural break in changing export share of developing countries and how are they related to the major changes in the multilateral trading systems of international trade, in particular, the introduction of the WTO by following a multiple breakpoint analysis due to Bai–­Perron. In this context, it would be worthwhile to note that the shift toward more export-oriented strategies by a large number of developing countries has accelerated the growth of LDC exports. This study also compares the changing share of merchandise exports and trade in commercial ­services for developing countries and the LDCs in the Post-WTO regime. The ­authors follow a univariate time-series exploratory analysis to understand the trend in world export shares of all goods and commercial services for different regions of the developing world and demonstrate the potential of these regions in the expansion of trade. The study, while evaluating the impact of WTO in changing export share in terms of structural change analysis, enables us to understand the role tariff cut in the developed countries on the imports from developing countries. This study also observes increasing inequality in terms of export share among different regions of the developing world.

The aim of the study is to evaluate role of trade war between the United States and China on oil price. For this purpose, global oil price and US trade balance with China are selected as variables. In addition to this issue, monthly data of these variables for the periods between 1990 and 2019 are taken into consideration. In the evaluation process, both Engle–Granger cointegration and Toda–Yamamoto causality analysis are considered. The results of Engle–Granger cointegration analysis indicates that there is a ­relationship between trade war and oil prices. Nevertheless, according to the results of Toda–Yamamoto causality analysis, it is identified that trade war does not cause oil prices. While looking at these results, it is determined that trade war between the United States and China has an influence on the oil price changes. However, it is also understood that it is not the main factor of this volatility. Thus, it is recommended that in order to identify the main indicator of the oil price volatility, some different factors should also be taken into consideration.

Total factor productivity growth (TFPG) is not only the technological progress. It is a boarder concept. It may be the increase in the productivity of inputs, economies of scale, capacity utilization, technological progress, etc. In this study, we have tried to estimate TFPG and its components for the manufacturing industries of West Bengal and overall India, for the period 1980–1981 to 2016–2017, using stochastic frontier approach. The main data source of this study is the Annual Survey of Industries (ASI), which is published by the Central Statistical Organization, Government of India. The entire period has been sub-divided into two phases; pre-World Trade Organization (WTO) regime (1980–1981 to 1995–1996) and post-WTO regime (1995–1996 to 2016–2017). This study also tries to make a comparative analysis between the TFPG of manufacturing sector of West Bengal and all India level for the time period mentioned above. For West Bengal, TFPG has decreased for the post-WTO regime and it has increased in post-WTO regime for overall.

In this study, we would like to examine the export prospect of India in the era of neo-protectionism. This particular era is characterized by increased used of trade barriers mainly by the large economies and a very sluggish growth in world export as a whole. Our study shows that both tariff and non-tariff barriers as well as world income affect India’s exports significantly. And, India as of 2017–2018, exports nearly 40% of its exportable to the developed world. So, the present era is not very encouraging for India. As a strategic response, it may try to re-orient its exports from more restrictive developed countries like European Union to countries like Japan, which are much less restrictive, as complete re-orientation from developed to developing world is not possible.

India is one of the largest tea producers and consumers in the world. Around 70% of Indian tea is consumed by domestic consumers. The world famous Darjeeling and Assam tea are India’s pride. Once India was the top exporter of tea in the global market, currently, it is lagging behind China, Kenya, and Sri Lanka. In the global arena, Indian tea is facing stiff competition from China, Kenya, and Sri Lanka. With this backdrop, the present study aims to investigate twin objectives. First, the changing growth pattern of India’s tea export is investigated. Along with this, the impacts of trade openness on India’s tea export are also scrutinized. The entire study is conducted based on the secondary data, compiled from the various issues of Handbook of Statistics on Indian Economy published by Reserve Bank of India. The data are compiled for the period 1987–1988 to 2018–2019. The investigation of the first objective is facilitated by the Poirer’s Spline function approach. On the contrary, for the exploration of the second objective, we have calculated the “trade openness index.” The study concludes that initially with trade openness Indian tea industry was benefitting but the growth rate of tea export gets reduced over time. It is surprising that in the post-EXIM-2002–2007 phase the rate of growth of India’s tea exports has declined sharply. The study ends with suitable policy prescriptions.

In macroeconomics, the term recession is defined as a significant decadence in ordinary economic activity in a designated region. There are so many economic theories attempted to explain why and how the economy might fall off of its long-term growth trend and in to a period of short-term recession. Economists say there have been 33 recession in the United States since 1854 through 2018 in total. Since 1980, there have been four such periods of negative economic growth that were considered recession in the wake of the 2008 financial crisis and the Great Depression of the 1930s. Production and flows of goods are directly influenced by the tariff; uses input–output analysis to estimate indirect effects on gross domestic product, exports and employment; and allows redirection of trade toward other producers. The ongoing trade war with similar trade conflicts in history, we reveal three major causes, with varying degrees of importance from both economic and political perspectives.

Political economy of trade policies and tariffs can affect welfare distribution and resources allocation as well as sustainable development. Political economy of trade between two countries can be affected by trade between other countries. Global trade can be affected by the bilateral trades of the countries. Impact of their bilateral trades on the global economy and global trade can be increased in case these two particular countries have big share in and influence on the global economy. Based on an in-depth literature review, this chapter aims to investigate political economy of the trade tariff and trade policies with particular focus on China’s economy, US, and China trade policies as well as their roles and impacts on global policy. Furthermore, recommendations for future trade policies and trade tariff strategies have been provided for enhancing global wealth and sustainable development. This chapter emphasizes the importance of sustainability in trade and trade policies’ roles in efficient resource allocation, welfare increase, and sustainable delvelopment. Furthermore, trade policies, taxes, and tariffs are recommended to be balanced based on the mutual trust, and common goals among trading countries. This chapter further emphasizes that trade policies need to promote ­sustainable supply globally.

The chapter examines the current trade war between the United States and China and its impact on the two countries’ military industrial complex in relation to economic growth and development. The trade war has both positive and negative impacts on the country’s economic growth and development. Both countries depend heavily on each other for trade and account for an incredibly significant portion of the global trade. The trade war also impacts on the military industrial complex with respect to the defense budgetary allocation and trade in arms. One of the rationales for the trade war by the Trump Administration is to boost up the domestic economy, which would benefit the military industrial complex. Likewise, the retaliatory tariffs by China are designed to protect the domestic economy and showcase its ability to withstand and challenge the United States. The military industrial complex is important to both the countries. The chapter applied a quantitative design with canonical correlation method to multiple regression, where there are multiple intercorrelated outcome variables relative to military industrial complex and the processes of economic growth and development. It shows that trade wars in the form of increased imposed tariffs on each other by the United States and China has had no significant adverse effect on the Military Industrial Complexes of the two biggest economies of the world.

The pattern of US–China relations can be analyzed through the two opposite experiences – chilling bitterness and friendly accommodations. For a long time, China was neglected by the United States and treated as an enemy due to ideological considerations. The nature of bilateral relations between Washington and Beijing is a very complex one. The US–China economic relationship has reached a critical juncture. Over the few years, the United States has imposed tariffs of $250 billion worth on Chinese imports, and in return, China also raised high tariffs on US exports. The basic objectives of this research are to investigate the causes and potentiality of China–US bilateral trade. It has used the content analysis method and observation method in this study. The result of the study will be manifested based on recent trade restrictions and economic sanctions to each other. The impact of the recent Sino-American trade war resulted in a negative impact on not only both countries’ economies but also on the world economy.

Economic integration is an agreement among countries in a geographical region or unification of economic policies between different states aiming to reduce and ultimately remove tariff and non-tariff barriers on trade. The fruit of globalization is the tremendous rise of economic integration as globalization loosens barriers among the nations through reduction in cross-border duties and eases trade policies. Trumponomics is defined as the economic policies of US President Donald Trump that prefers high import tariff to bring “America First.” There is a debate among the researchers about the choice between free trade and protection or imposition of tariff. Some of them prefer free trade because during the start of the great depression, the world economy experienced a huge shift toward protectionism. Choice between no-tariff and tariff represents a prisoner’s dilemma situation whereby each player’s best response is to employ tariffs. This results in a sub-optimal outcome for all where the total volume of world trade falls, which is a Nash solution. The present chapter deals with theoretical discussions on trade war and throws light on the developing country’s choice between non-protectionism supported by globalization and Trump’s protectionism.

The aim of this study is to examine the effect of trade wars between countries on social factors. For this purpose, six different criteria are selected based on the comprehensive literature review. Additionally, fuzzy DEMATEL approach is considered to weight these criteria. The findings indicate that working life is the most significant criterion. However, free time and leisure and family are at the bottom of the list. Additionally, it is also defined that working life is the most influencing criterion. These results demonstrate that trade wars have the highest impact on the working life of the people. In other sayings, people’s fear of losing their jobs goes up in case of the trade wars. To solve this problem, companies should make official statements to their employees about the situation caused by the trade wars. By making clear explanations, uncertainties in this process can be minimized.

As the world economies have become more integrated and with the global economy subsequently growing, there is increasing concern regarding how such trends will affect the developing and developed nations’ trade, trade in services, gross domestic product (GDP) growth, and climate change. In fact, the relationship between globalization and the environment has become quite contentious in policy circles. In part in response to these controversies, a burgeoning amount of academic attention has emerged that examines the globalization linkage between trade and economic growth as an after effect (positive and negative). Although there have been advances in the thinking about these relationships, significant challenges still persist. In light of the above, this chapter talks about the evolution of globalization, prevailing benefits and also caters to the views of some famous economists like Stiglitz, Simon Kuznets. The crucial aspects include the review of globalization on the basis of certain parameters like Trade (as % of GDP), Trade in services (as % of GDP), per capita CO₂ emissions and per capita GDP that have impacted the trends of both developed and developing nations. It arrives at the position that many current and proposed national and multilateral environmental policies are in a possible conflict with current and proposed trade and investment rules. When climate policy and global trade rules are combined, the nature of their linkage is often a function of both domestic and international politics. This also implies that, despite the worldwide awareness of climate change, the address of climate change in trade will become increasingly significant for reducing carbon footprints.

Sustainability performance of the global trade as well as of the traded products are affected by the trade policies and trade tariffs. Trade tariffs and policies can either encourage or discourage trade among the countries affecting feasibility of trade. In other words, the scope and amount of these trade tariffs have impact on the trade globally. Based on an in-depth literature review, this chapter aims to examine impacts of the trade policies and trade tariffs on the environmental footprint of the global trade. With this aim, recent trade policies and trade tariffs as well as roles of the trade policies, trade tariffs in reducing environmental footprint of the global trade are examined. It arrives at the conclusion that trade tariffs can affect environmental footprint of the global trade as well as of the traded products. They can have impact on the feasibility of the trading activities influencing their profit margins and costs. Based on these findings, recommendations for trade policies and trade tariffs are thereby provided to enhance sustainability performance of the global trade.

In the post-WTO era, the volume of international trade has grown in a good amount in India. At the same time, the continuous lowering and removing of the trade barriers of different forms create several impacts on poverty and inequality. In this chapter, we tried to capture the issues of inequality, specially the gender inequality, which has worsened a lot in the last two decades. In one side, trade openness enhanced the growth, but at the cost of increasing inequality. Theil index and Atkinson index both show an increasing trend of inequality. The Gender Inequality Index (GII) and the Inequality-adjusted Human Development or Gender Development Indices are also showing increasing inequality. The state-wise analysis of such inequality indices is varying a lot over the study period. This chapter throws some insight into these issues and concludes that in the post-WTO era income inequality has increased a lot with a very few exceptions. In some states (like Maharashtra, Gujarat, Karnataka, and Punjab) only export have increased the employment in the unorganized sectors. The study concludes that exports have generated additional employment and incomes in the economy, but these gains have not trickled down to the poor. The study is confined to Indian cases only and covers the time period 2000–2001 to 2018–2019.