Finance

World War III: An Economy Annihilator

We all know about World War 1 and World War 2, the destruction that it has caused to life, property and mother nature is something that, no one has forgotten. The effects of the war is still seen. Today we are again on brink of war, a war of money rather than weapons, “Trade War”.

According to Wikipedia, “A trade war refers to two or more states raising or creating tariffs or other trade barriers on each other in retaliation for other trade barriers. Increased protection causes both nations’ output compositions to move towards their autarky position”. Autarky is the quality of being self-sufficient. Autarky exists whenever an entity can survive or continue its activities without external assistance or international trade.

The world is on the brink of trade war, President Donald Trump announced on Thursday that he would impose tariffs on $50 billion worth of Chinese exports to the United States. Beijing quickly outlined new import taxes of its own on US products worth $3 billion.

The increasingly aggressive statement from both ends suggest that further escalation is possible: Trump described his actions targeting China as “the first of many,” while Beijing said “it is impolite not to reciprocate” and promised a “fight to the end.”

Some of the world’s top economists and business leaders were in Beijing for the annual China Development Forum, and one topic overshadowed the entire gathering: The looming threat of a trade war between the U.S. and China.

Nobel-prize winning economists Robert Shiller and Joseph Stiglitz were also at the annual meeting, and they predicted pain ahead for the U.S. economy if Beijing and Washington ramp up tit-for-tat trade penalties.

U.S. companies, Shiller warned, are not prepared to have China cut out of their supply chains or business models.

“The immediate thing will be an economic crisis because these enterprises are built on long-term planning, they’ve developed a skilled workforce and ways of doing things. We have to rediscover these things in whatever country after the imports are cut off,” Shiller told CNBC. “It’s just chaos: It will slow down development in the future if people think that this kind of thing is likely.”

Stiglitz, for his part, warned that China’s leaders are likely prepared to initiate tariffs based on “a very good economic map with which they will target certain places in the United States where the pain will be maximized.”

An escalating trade war, the Nobel laureate said, could have political ramifications for Trump — especially if trade partners’ retaliations hit the president’s base.

“If there is a broad range increase in tariffs, it would affect their cost of living, the inflation would lead the Fed to raise interest rates at a higher rate, it would certainly impose a risk to the return to the U.S. to robust economic growth,” Stiglitz said.

trade-war-

The beginning of the war has already started to have effects on world economy, China’s Shanghai Composite, Hong Kong’s Hang Seng, Japan’s Nikkei and Korea’s Kospi all plunged sharply up to 3 per cent. Indian indices declined over 1 per cent after China threatened to raise tariffs on about $3 billion of US imports. The Dow DJIA, -1.77%  dropped more than 700 points on Thursday and declined by more than 400 points on Friday, leaving the blue-chip gauge with a weekly drop of 5.7%. The S&P 500 SPX, -2.10%  dropped nearly 6% on the week – marking the biggest one-day percentage drop for both since early February.

Both the sides are not intending to stop, forcing other countries especially emerging country like India to choose side whereby taking the trade war to another level. Thus, all in all, Trade War is a condition which always happens around the world, the only problem is its extreme form, every country wants to promote its product and taxing import is not a bad thing, the only problem is the extent and fairness of taxing and not considering the situation and product on which taxes are enforced, thus unbalancing the dedicated thread of trust between the leaders and thereby deteriorating the economic condition.

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