Global Trade Wars: The Economic Consequences of Protectionism

International trade is indeed a significant contributor toward the growth and prosperity of any economy, given the increasing interconnectedness of the world. Its consequences, however, in the face of rising trade wars, lately added new sources of friction between large economies, leaving some with unintended side effects. Protectionism is that kind of policy—against foreign competition through the use of tariffs, quotas, and other trade barriers—to protect homegrown industries. Whatever may help in the short term, such policies can have devastating economic implications in the long term.

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The Costs of Protectionism

Country engagements in trade wars with impositions of tariffs and retaliatory measures often create shockwaves across the world economy. Some of the quickest impacts of protectionism are the increased costs accrued in consumer prices due to their passing down from higher costs imposed on tariffed imported goods by businesses. Electronics, clothes, and food items exemplify the everyday needs whose costs are liable to increase, bringing diminished purchasing power among consumers.

Another impact is the disruption of global supply chains. Global supply chains are complex and cross-border. Once tariffs are imposed, companies face financial losses in sourcing input materials, which further delays production and increases operational costs. This results in stymied economic growth and innovation.

Impact on International Relations

Trade wars also cause pressure on diplomatic relations between states. Prolonged trade disputes tend to escalate to mutual retaliations with each side imposing progressively harsh tariffs and barriers. Such a tit-for-tat spiral can snowball tensions, making it challenging for the nations to cooperate over other pressing issues facing the world today, such as climate change, security, and public health.

Harm to Domestic Economies

Ironically, protectionism hurts the very industries it aspires to protect. A measure of protectionism often pushes away innovation and efficiency, often stagnating it. More so, retaliatory tariffs brought against such nations make exporting goods even more challenging for local industries, thereby shrinking the markets and reducing growth options.

Conclusion

Although protectionism may provide short-run relief to specific industries, it is the worst worst-case economic scenario in the long term. Consumer prices will soar, supply chains will collapse, international relations will be under pressure, and innovation is bound to be suppressed since the dangers of a trade war will be laid bare. Free trade and global cooperation will therefore remain the best approaches to promoting long-term economic prosperity in the 21st century.

Author - Samita Nayak

Samita Nayak is a content writer working at Anteriad. She writes about business, technology, HR, marketing, cryptocurrency, and sales. When not writing, she can usually be found reading a book, watching movies, or spending far too much time with her Golden Retriever.