[TOPIC: TRADE WAR] Introduction to Trade War

Context

Accusing China of reaping financial benefits from unfair economic policies such as intellectual property theft and the excessive government subsidies, the Trump administration has taken a hard line against Beijing. Last April, President Donald Trump started a trade war against China, saying that such a policy would solve trade deficits with China and generate more jobs for the American people. So far, the US has imposed three rounds of tariffs on Chinese goods, totaling more than $250 billion while China has responded with tariffs on $110 billion worth of American goods. In a meeting took place in December 2018, China and the United States have agreed to a 90-day tariff truce to reach an agreement but the conflict seems far from over. Just a few days ago, the US filed charges against Huawei, China’s largest technology company, alleging it stole trade secrets from an American firm and committed bank fraud by violating sanctions against doing business with Iran. As more events related to the trade war will continue to unfold in the near future, we encourage prospective delegates to the WTO committee to take notes of the latest updates on the issue.  

Key terms

Tariff

Tariff is a tax on a product made abroad. In theory, the price of taxing items coming into the country means people are less likely to buy them as they become more expensive. The intention is that they buy cheaper local products instead - boosting your country's economy, thereby protecting certain national industries and jobs. Tariffs can also be used as an extension of foreign policy: imposing tariffs on a trading partner's main exports is a way to exert economic leverage. Besides tariff, countries can restrict trade using non-tariff barriers, such as but not limited to quotas, embargoes, sanctions, levies.

Tariffs can have unintended side-effects, such as making domestic industries less efficient by reducing competition, hurting domestic consumers with high prices since a lack of competition tends to push up prices, and creating tensions by favoring certain industries over others. Finally, the act of pressuring a rival country by raising imported taxes can descend into an unproductive cycle of tariff retaliation, known as a trade war.

Trade War

A trade war is a side effect of protectionism that occurs when one country (Country A) raises tariffs on another country’s (Country B) imports in retaliation for Country B raising tariffs on Country A's imports. Trade wars can commence if one country perceives another country's trading practices to be unfair or when domestic trade unions pressure politicians to make imported goods less attractive to consumers.

Free Trade and Protectionism

Free trade is a policy to eliminate discrimination against imports and exports. Buyers and sellers from different economies may voluntarily trade without a government applying tariffs, quotas, and subsidies or prohibitions on goods and services. Free trade is the opposite of trade protectionism, which is shielding a country's domestic industries by raising tariffs on imports from foreign countries. As mentioned above, such an act can sour relations among countries and potentially leads to a trade conflict.