In recent years, trade wars have increasingly occupied the world agenda. Rising trade tensions between the US, China, Europe and many other countries could have a major impact on the world economy. In this article, the effects of trade wars on the economy will be examined.

What are Trade Wars?

Trade wars are situations where tensions between countries resulting from trade imbalances, distribution of economic resources, exchange rates, international trade agreements, intellectual property rights, and many other factors result in trade sanctions or tariffs.

These sanctions can be applied to restrict a country’s imports or exports. For example, if one country does not enter into a trade agreement with another country or does not fulfill the terms of the agreement, the other country may impose sanctions in response. These sanctions may be imposed as additional taxes or tariffs on imported goods or services.

Sanctions imposed by one country on another may turn into a cycle in which the other country will respond in the same way and this situation may escalate. This may lead to a contraction in global trade as a result of two or more countries imposing sanctions on each other. Trade wars can negatively affect the global economy and hinder the liberalization of international trade and growth in the world economy.

Trade wars can also be used as a tool to protect one country’s economy or weaken another country. However, it should not be forgotten that in this case, both countries will be damaged and other countries may also be affected. Because economic tensions in one country can affect all countries in the global economy.

Effects of Trade Wars on the Economy

Trade wars create many economic effects as they restrict trade activities between countries. These include:

Decline in Imports and Exports

Trade wars are situations where trade tensions between countries result in sanctions or tariffs. This is achieved by restricting imports and exports. As a result of trade wars, it is inevitable that imports and exports will decrease.

Decreased imports prevent a country from purchasing goods and services from foreign countries. This is a major problem for importers, as it makes it difficult for the country to obtain the goods and services it needs. In addition, the decrease in imports negatively affects the competition between countries. The economic weakening of the importing countries also reduces the sales of the exporting countries and adversely affects the growth of these countries.

A decrease in exports prevents a country from selling its goods and services to foreign countries. This is a major problem for exporters, because exporters generate economic growth by selling their products to foreign countries. The decrease in exports reduces the sales of exporters, which has a negative impact on the country’s economy. The decrease in exports also negatively affects the competition between countries. Exporting countries do not contribute to the exports of other countries by reducing their sales, which causes the global economy to shrink.

Trade wars negatively affect trade between countries by restricting both imports and exports. This may hinder the economic growth of countries and cause the global economy to contract. In addition, trade wars negatively affect the competition between countries, reducing the exports of other countries. Therefore, it is important to adopt approaches based on dialogue and understanding and to find solutions in international trade in order to prevent trade wars.

Price Increases

Trade wars are not only limited to the decrease in imports and exports, but also have a negative impact on product prices. By restricting imports through trade wars, economic sanctions or tariffs, it reduces the supply of products, which in turn causes prices to rise.

Restricting imports increases the price of many products. This makes it difficult for imported products to compete in the local market. The increase in the price of imported products may cause local producers to raise their prices as well. Therefore, it can negatively affect economic growth by reducing the purchasing power of consumers.

Trade wars can also cause price increases in consumer goods and industrial products. For example, if a country imposes additional duties on imported steel products, the price of these products rises and so does the cost of other products in the industry. This may cause manufacturers to raise their prices and consumers to buy more expensive products.

Price increases often reduce the purchasing power of consumers and negatively affect economic growth. When consumers’ purchasing power decreases, sales also decrease, which reduces the profit margins of businesses. In addition, price increases reduce the competitiveness of products in the international market. Therefore, trade wars and the use of economic sanctions can negatively affect economic growth and limit international trade by reducing the purchasing power of consumers.

Profitability of Businesses

Trade wars can also have indirect effects on the profitability of businesses. Economic tension between countries may cause a decrease or cessation of export and import activities. Decreased sales of exporters may cause a decrease in the revenues of the enterprises and thus a decrease in profitability. Importers, on the other hand, may have to pay higher prices due to restricted imports. This means increased costs and reduced profit margins for businesses.

Trade wars can also limit businesses’ access to international markets. The sale or purchase of products may be difficult due to trade sanctions or tariffs. This can affect the profitability of businesses by limiting their growth potential.

Small businesses in particular may suffer more from trade wars. Because these businesses usually have limited financial resources and their access to international markets is also limited. Businesses operating in industries affected by trade wars may have to reduce their costs to maintain their operations. This, in turn, may result in layoffs, reduction or cessation of production activities.

Unemployment Increase

Trade wars can negatively affect economic growth and increase unemployment rates. Decreased sales of exporters may cause businesses to reduce their production and reduce their employees. This may lead to an increase in unemployment rates.

Also, as importers have to pay higher prices, they can reduce their businesses’ output to lower their costs. In this case, businesses may also need to reduce their employees.

High unemployment rates negatively affect economic growth and can lead to social and economic problems in society. A protracted trade war, in particular, can have negative effects, such as rising unemployment rates and fewer opportunities for unemployed people to cope with economic hardship.

instability

Trade wars are an important factor that can cause instability in the world economy. Tensions between countries can reduce investor confidence and negatively affect global markets. This can cause economic crises such as financial fluctuations and stock market crashes.

During trade wars, many countries impose economic sanctions and are subject to counter-sanctions. These sanctions restrict exports and imports and negatively affect the economic growth of countries. This situation may also cause instability in the domestic markets of the countries. Manufacturers may reduce their production due to the restrictions they face in export markets and may cause businesses to go bankrupt.

Also, exchange rates can be affected during trade wars. If a country’s currency depreciates, imports become more expensive and can negatively affect countries’ economic growth. In addition, fluctuations in exchange rates may cause uncertainties in global markets and complicate the decision-making process of investors.

Sectoral Impacts

Trade wars can be more effective in some sectors. In particular, sectors such as agriculture, technology and automotive are frequently affected by trade wars. While the agricultural sector reduces its exports due to the restriction of imports, the technology sector may be adversely affected by technological trade restrictions between countries. The automotive industry, on the other hand, may face difficulties due to high customs duties or other trade restrictions. This may adversely affect the profitability, employment and growth of businesses in these sectors. It can also affect businesses in other industries, including businesses in these industries, suppliers and subcontractors in the supply chain.

Global Supply

Chain Trade wars can cause changes in global supply chains. Restricting imports and exports can affect production processes and cause changes in global supply chains. This may create difficulties for manufacturers who depend on exports from some countries.

In addition, trade wars affect the raw materials and intermediate materials used in the production of some products, which can increase production costs and cause delays in the production process. This can affect customer satisfaction by preventing manufacturers from making on-time deliveries. Trade wars can also compromise security in the global supply chain and expose vulnerabilities in situations such as cyber attacks, natural disasters and other unexpected events. Therefore, trade wars can have a huge impact on global supply chains and negatively impact global economic growth.

Foreign Policy Effects

Trade wars can have many effects, not only in terms of economic consequences, but also in terms of foreign policy. In particular, the foreign policy strategies of many countries are directly related to their trade policies. Therefore, trade wars can also affect diplomatic relations between countries.

For example, the trade wars between the USA and China brought along political tensions between the two countries. Increasing tensions between the two countries, US sanctions against China and China’s retaliatory measures have led to an increase in tensions in the international community. This situation led to the deterioration of diplomatic relations between the two countries, as well as international trade relations.

Similarly, trade wars can affect alliances and relations between countries. For example, US import duties to the European Union can weaken alliances between the two sides and affect diplomatic relations. This situation can increase the feeling of insecurity between countries and cause instability in international relations.

Trade wars also have an impact on international institutions and agreements. For example, international trade organizations such as the World Trade Organization (WTO) cannot function adequately due to trade wars, which can affect the stability of international trade relations. At the same time, international trade agreements can be nullified by trade wars, which can weaken the international trading system.

Competition Effects

Trade wars can affect competition in different ways. Restricting imports may increase the market share of domestic producers and cause them to face less competition. However, domestic producers may need to invest to meet increased demand, which may increase costs.

In addition, trade wars can affect industry competition. In some sectors, especially agriculture and automotive sectors, domestic producers may face less competition due to import restrictions or customs duties. However, this may be to the detriment of manufacturers from other countries and create injustice in international trade.

Trade wars can also affect the competitiveness of companies. Due to import bans or customs duties, companies may need to make changes to their supply chains. This can increase costs and reduce their competitiveness.

Trade wars can negatively affect the world economy. The decrease in imports and exports may bring many effects such as price increases, profitability and employment of enterprises, global instability, sectoral effects, changes in the global supply chain, foreign policy and competition. Therefore, reducing trade tensions between countries and resolving them through cooperation is important for the world economy.