From cold war to trade war

Prakash Patil
/ Categories: Trending, Markets

There was a time when politico-economic ideologies divided the world into two camps, namely, the communist and the capitalist. The ideological divide had triggered cold war between the communist and capitalist countries across the world, with countries not inclined towards either of these camps forming a third group and calling themselves as ‘non-aligned’. The collapse of communism in the late 80s and early 90s ended the ideological divide and the world became a unipolar world once again.

Today, a new type of divide threatens to split the world into two camps once again. The divide this time is not ideological, but economic. After Donald Trump took over the office of the President of United States, economic confrontation appears to have become the US policy. The protectionist policies being adopted by the Trump administration is ostensibly aimed at providing a level playing to the local industries and thus saving them from shutting their shops due to ‘unlawful practices’ of the foreign companies.

The problem, of course, is serious enough to cause concern within the administration of the world’s largest economy. The dumping of cheap goods by countries like China is causing economic havoc in most of the countries across the world, and not just in the US. Cheap imports not just drain the resources of the importing countries, but these also destroy the local industry and leads to large-scale unemployment. The deleterious social impact of unemployment and impoverishment need not overemphasised.

To avoid such a fall-out, governments across the world have two options to choose from: one, place a total ban on imports of goods from countries resorting to dumping, or two, impose tariffs on imports of specific goods to bring the prices of imported goods to the level of local prices of those goods. Most of the countries faced with the problem of dumping resort to imposing countervailing tariffs on imports. The Trump regime too has resorted to the same.

But this has resulted in retaliatory imposition of tariffs by the Chinese government on specific US goods. In effect, a trade war has been unleashed by the two largest economies in the world, the consequences of which will be unravelled only by the passage of time. In the meantime, the world can only wait and watch as the tit-for-tat war unfolds in all its ferocity.

The issue is fundamental to the economic development and well-being of all nations and, therefore,it needs to be addressed and resolved at global economic forums such as the World Trade Organisation.

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