Assessing the Economic Consequences of Trade Wars: A Detailed Review

This essay examines the economic consequences of the trade war between the USA and China, drawing on an article from the Financial Times and additional academic sources. The analysis highlights concerns raised by the IMF regarding slowing global economic growth and the potential for increased consumer prices and job losses. While the current impact of tariffs may seem insignificant, the essay emphasizes the risk of a tit-for-tat approach that could widen the scope of trade wars, leading to currency instability in emerging markets. The author agrees with the article's assessment, arguing that trade barriers negate the benefits of comparative advantage and can have disastrous effects on the global economy. The essay also references the impact of steel tariffs as a specific example, noting how they increase costs for US consumers due to the competitive advantage held by manufacturers in China. Ultimately, the essay underscores the importance of adhering to the principle of comparative advantage to realize trade-related gains and avoid the adverse consequences of escalating trade conflicts.

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A. Introduction
Name of Article: What are the economic consequences of Donald Trump’s trade wars?
Link to Article: https://www.ft.com/content/ec8f616e-9fd9-11e8-85da-eeb7a9ce36e4
B. Bullet Points
1. The IMF has raised concerns about slowing global economic growth in the medium
term in the wake of trade war between US and China.
2. Till now, punitive tariffs have been exchanged between US and China along with US
and Mexico, Canada and EU with differing intensity.
3. The effect of these tariffs on economic growth till now has been insignificant as the
tariffs in place account for a small portion of the global economy and trade.
4. With regards to future impact, there is difference of opinion.
5. However, data from US manufacturing surveys already shows signs of weakness with
the moderation of export orders and this is also extending to other countries.
6. Economists indicate that trade wars besides resulting in job loss, higher consumer
price would lead to economic slackening.
7. A tit for tat approach going forward can widen the scope of the trade wars and can
have a significant impact both directly and indirectly.
8. The effect of this trade war would not be limited to US and the countries directly
involved but would extend to emerging markets particularly in the form of currency
instability fuelled by a strengthening US dollar.
C. Summary of Article
With regards to the current trade war between USA and China, the IMF had already warned
about the adverse effects on global economic growth in the medium term. But the signs of
economic growth slowing down have already started to appear. It is noteworthy that till the
extent of tariffs that have been applied are only a small proportion of the global economy as
these are being applied in phased manner. Also, in certain cases such as USA and EU, fruitful
discussions are de-escalating the trade tensions. While some experts indicate that the future
tariffs would not have any significant impact, others opine differently (Strauss, 2018).
In this regards, there seems to be a slowdown in manufacturing witnessed in US and
Germany where the foreign orders are on the decline owing to tariffs overhang. Going

forward as more tariffs kick in, the economists expect that the economy would slow sown and
unemployment increase while the consumers would have to pay a higher prices for goods.
The key factor that needs to be closely watched is whether these exchanges assume a
retaliatory approach with multilateral scope. This would be disastrous and would have
adverse effects on global economy both directly and indirectly. The early signs of the trade
war is visible in emerging countries where investors are selling the debt funds as the US
dollar strengthens backed by hardening interest rate leading to instability in the emerging
markets currencies (Strauss, 2018).
I completely agree with the likely adverse impact of trade war on the global growth. This is
because by creating carriers to trade, all the countries would be worse off owing to the
positive gains that trade brings for both importers and exporters (Mankiw, 2016). Consider
for example steel one of the main commodity at the centrestage of these tariffs. More than
half of the world’s steel is manufactured in China which has a competitive advantage in steel
manufacturing. With the imposition of import tariffs on steel, the consumers of steel in US
have to pay higher prices owing to the inability of the US domestic manufacturers to
successfully compete with China (Elliot & Partington, 2018).
Thus, going forward, it is essential that trade must be carried on the principle of comparative
advantage as advocated by Ricardo. However, the imposition of tariffs tends to inhibit this
process and thereby negate the realisation of the trade related gains (Krugman & Wells,
2015). Hence, I tend to agree with the article that if the scope and intensity of the trade war
increases, the effect of this can be disastrous and no country would be spared from the scope
of these.

References
Elliot, L. & Partington, R. (2018) Trade war? What you need to know about US steel tariffs,
Retrieved from https://www.theguardian.com/business/2018/may/31/trade-war-what-
you-need-to-know-about-us-steel-tariffs
Krugman, P. & Wells, R. (2015). Macroeconomics (3rd ed.). London: Worth Publishers.
Mankiw, G. (2016). Principles of Macroeconomics (6th ed.). London: Cengage Learning
Strauss, D. (2018) What are the economic consequences of Donald Trump’s trade wars?,
Retrieved from https://www.ft.com/content/ec8f616e-9fd9-11e8-85da-eeb7a9ce36e4