Challenger Civil Services Academy


The international financial crisis had impacted many countries economies harshly. China and the U.S. were also affected but their response to this crisis was different. With massive motivation, China quickly chased the double-digit growth rates. The United States, on the other hand, was delayed in slow growth for a decade. With rapid union on the big economies, China has emerged as a new world-power, naval power in the South China Sea and funded infrastructure projects throughout the developing world through its recent aggressive policies.

The new rising world-powers are changing the criteria of supremacy. Whether we talk in the world economy, geopolitics, internal affairs of the countries, we can see the old powers breakdown. The world is ruled by power and the power is obtained with the money. It seems that more the country is economically dominant, more the power it will have to dominate. Therefore, it shows the seeds of a trade war between the countries.

In this era of hyper-globalisation, all most all the countries are inter-linked through the means of trade. It is the trade of goods and services which flourishes the world economy and maintains smooth bilateral relations. But, the economy also decides the position in power equation.

The trade war is when two countries try to save domestic market or try to damage each other's trade with taxes, quotas and tariffs and resulting in extreme protectionism. This economic war can be turned into a political war as well. The trade war has both the economic as well as the geopolitical aspects. It depends on the countries that are indulging in this struggle.

Economically, the tariffs are imposed on the other country when there are unfair trade practices and when a country wants to reduce its import and save the domestic manufacturer. Recent U.S. China Tariff imposition, U.S. has punished Beijing for restricting US investment in China. The US also accused China of stealing American intellectual property, Chinese firms imitating US technologies and Chinese exports are stealing the manufacturing jobs in the U.S., which is against the WTO framework. India has also accused China of disrupting the international trading system through hidden subsidies, currency manipulation and, more recently, technology theft.Now, we analyze the geopolitical aspects of the trade war. Historically, we have two Opium wars of 19th century fought between the imperial powers (Britain and France) and China, as example of aggressive trade war to influence the geopolitics and to prove the hegemony. In both these wars, the imperial powers won and got the commercial privileges and territorial concessions in China. These wars show how a country had been ruined by the imperial powers  not just militarily, but economically and politically also. Therefore, trade wars are not only to disrupt the rival's economy but to weaken its hegemony also.

If we dig deeper, the U.S. and China trade war of 2018 has its seeds in the global financial crisis, which had reduced the economic gap between the U.S. and China because of the high convergence rate of China. China has now influenced the world with its Regional Comprehensive Economic Plan, One Belt One Road initiative, etc. U.S.withdrawals from Trans-Pacific Partnership and following the protectionist policies have given China an opportunity to gain a foot in Asia firmly. China's aggressive policies such as making its base in Djibouti, Sri Lanka, giving loans to poorer countries, naval presence in the Indian Ocean and the South China Sea etc. have troubled the U.S., Japan, India and other big economies and that is why the open Indo-Pacific region etc. are getting boost to counter the Chinese influence and to resolve the bilateral issues amicably.

But, who are the winners and losers? Who is there to bear the consequences? To find this, we try to remind history and analyse the consequences. The U.S. enacted the Smoot- Hawley Act in 1930, levying tariffs of 50% on imported goods and it extrapolated the Great Depression and contributed to World War II up to a certain extent. Because of the retaliation of tariffs, the global trade brought down by 65%, the stock market crashed and many people lost their jobs.

Ultimately, they are the consumers who are impacted the most because of this tit-for-tat tariffs. It can be understood that to compensate for the damage from trade wars, the prices of some commodities could be raised by the producers to compensate losses and that translates to higher prices for consumers. The trade war not only affects the consumers of two countries indulging in war it ripples around the whole globe. It disrupts the global supply chains, investment and stock markets around the world. Therefore, it shows that there are no winners in this territory war.

To curb these type of turf wars, The World Trade Organisation was established in 1995 based on open, market-oriented policies and rooted in the principles of non- discrimination, market access, reciprocity, fairness and transparency. However, WTO is seemed to be ineffective in the recent scenario and needed structural and functional reforms.

WTO is dominated by the big players and they influence the policies and negotiations of trade always. Their policies towards the WTO to control the trade and to keep the power button into their hands always weaken the functioning of WTO. If the WTO weakens, small exporting nations such as the South Asian countries will be exploited by the larger ones.

We have seen in the essay that trade war is not only an economic issue but it is a conflict and tug of war for tilting the power equation and dominating the globe militarily, economically and politically. The sufferer is the poor consumers, workers, small economies. Therefore, it is essential that the world upholds the basic principles of multilateralism and free trade on the basis of rules promised by every country. We have witnessed the devastating effects of isolationist policies and severe effects of trade war based on hidden geopolitical motives. It is the fair trade which connects the people, country and culture and together makes a prosperous world. Therefore, the countries must promote a democratic and rules-based international order in which all nations, small and large, consider as equal and sovereign.