Who wins a trade war?

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Trade wars are not won by anyone. Of course, the exporting country loses from a trade war, but so too does the importing one. The reason why there are no winners in a trade war is because it normally leads to the substitution of more expensive goods for cheaper ones. In effect, a trade war denies consumers the efficiency gains that have been realised through the expansion of global supply chains and one only has to go back as recently as 2002, the last time steel tariffs were enacted, to see the potential for damage. Following a spate of mill closures and surging imports, President Bush implemented tariffs on certain steel products. The net effect on employment in the steel industry was minimal, but the businesses that used steel products as inputs shed approximately 200,000 jobs (compared to the 180,000 employed in US steel production at the time).[1]. As a result of these tariffs, US manufacturing firms, in particular smaller companies, were subjected to higher input prices which eroded profitability. Unable to increase prices, once profitable companies were forced to cut production and with it their labour forces, so while the intention of tariffs and trade barriers is to repatriate jobs seen to have been lost overseas, the outcome is often higher prices and jobs losses at home.

Brendan Mulhern – Global Strategist. Newton, a BNY Mellon company

[1]Trade Partnership Worldwide study. The Unintended Consequences of U.S. Steel Import Tariffs: A Quantification of the Impact During 2002 07 February 2003.

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