Trade Wars And How To Navigate Through Them

Why's everyone talking about trade wars? What is a trade war?

Everyone's looking at the U.S. of A and how they've been trading for years. Anything and
everything that the U.S. does seems to affect the rest of the globe. When America decided to
have a trade war with China, it resulted in almost all the nations bearing the brunt of their
conflict. When a country imposes tariffs or quotas on imports and foreign countries retaliate with
similar forms of trade protectionism, a trade war breaks. As trade protectionism escalates, a trade
war reduces international trade.
How do I know when a trade war happens?
A trade war is likely to occur when a nation attempts to protect its domestic industries and create
jobs.
Why should I care about a trade war?
The decision by the Trump administration to impose tariffs on U.S. imports of steel and
aluminium had unsettled politicians, commentators, investors and financial markets. The
consequence; a full-blown trade war. One of the essential qualities of recent years has been
globalisation: the increasingly free movement across borders of capital, labour, services, and
goods. It is a crucial catalyst of great prosperity globally.
Companies can better source labour, outsource production, locate suppliers and service
customers across borders. Thanks to globalisation, companies worldwide can outsource
production, service customers across borders, locate suppliers, and source labour. Your
employment, as well as mine, relies on globalisation and the market trends of the U.S.
Trade war threatens our jobs, but it also throws the entire process of globalisation off balance. It
undoes the hard-won gains in efficiency that globalisation has facilitated. Do we want to face the
consequences of a trade war? The simple answer; no! Costs and prices of everyday products will
skyrocket. Prosperity, profits, and productivity will go for a toss. The impact a trade war has on
the financial market will be catastrophic. No one wants that.
China ascended to the World Trade Organization in 2001. The nation's economy grew second to
the United States in purchasing power parity norms in the years since. With time, China took
over the U.S. as a major supplier to Asia, Africa, Europe, and South America. America
welcomed China's growth with open arms as long as it functioned as a cheap factory. The ties
between the U.S. of A and the 'people's republic' became competitive in the mid-2010s when
China's covert military expansion into the South China Sea and its expansive Belt and Road
Initiative came to fruition. It outlined the plan to move up the value chain in 2015.
Trump's election in 2016 raised concerns. Displeased with the trade imbalance, Trump kicked off
a trade war in 2018. He imposed tariffs to encapsulate around $400bn worth of goods shipped
between China and the U.S. in two waves. The aggressive back and forth led to a universal
change in the commercial landscape, disrupting supply chains and the tech sector.
Perhaps the most significant consequence of this is the potential longer-term decoupling of China
and the U.S., and the emergence of two rival and separate spheres of influence, in both trade and
tech. The conflict between the U.S. and China is not only economical — it has cultural, political,
and military dimensions. It is predictable at a strategic level and unpredictable at a tactical level -
the disputes might take different forms. It is unlikely to dissipate any time soon.
This is further complicated because the U.S. and China have a mutually dependent relationship.
After all, China is the biggest holder of U.S. Treasury securities. As of January 2021, the Asian
nation owns $1.095 trillion, or about 4%, of the $28 trillion U.S. national debt. China ascended
to the World Trade Organization in 2001. In the years since, the nation's economy grew second to
the United States in purchasing power parity norms. With time, China took over the U.S. as a
major supplier to Asia, Africa, Europe, and South America. America welcomed China's growth
with open arms as long as it functioned as a cheap factory. The ties between the U.S. of A and
the 'people's republic' became competitive in the mid-2010s when China's covert military
expansion into the South China Sea and its expansive Belt and Road Initiative came to fruition. It
outlined the plan to move up the value chain in 2015.
Trump's election in 2016 raised concerns. Displeased with the trade imbalance, Trump kicked off
a trade war in 2018. He imposed tariffs to encapsulate around $400bn worth of goods shipped
between China and the U.S in two waves.The aggressive back and forth led to a universal change
in the commercial landscape, disrupting supply chains and the tech sector.
Perhaps the most significant consequence of this is the potential longer-term decoupling of China
and the U.S., and the emergence of two rival and separate spheres of influence, in both trade and
tech. The conflict between the U.S. and China is not only economical — it has cultural, political,
and military dimensions. For these reasons, it is predictable at a strategic level and unpredictable
at a tactical level - the disputes might take different forms. It is unlikely to dissipate any time
soon.
This is further complicated because the U.S. and China have a mutually dependent relationship.
After all, China is the biggest holder of U.S. Treasury securities. As of January 2021, the Asian
nation owns $1.095 trillion, or about 4%, of the $28 trillion U.S. national debt. Trade wars
weaken the protected domestic industry. Without foreign competition, companies within the
industry don't need to innovate. Eventually, the local product would decline in quality compared
to foreign-made goods.
As time progresses, trade wars weaken domestic industries. A lack of foreign competition results
in companies not needing to innovate. Due course of time, the quality of local products
compared to foreign goods would decline.
What should I do about it?
1. Communicate with your customers as you raise the prices of your products.
Every product made of steel or aluminium results in a price hike. Let your customers
know about the situation, and gradually increase your prices. Just as you don't like
surprises, your customers do not want them either. Do whatever you can to help them
cope with the increase in prices as much as possible.
2. Financing creatively.
Farmers need equipment regardless of revenues. Businesses will have spending plans.
You should develop partnerships with banks and companies that lease Financial Services.
Provide extended financial terms if you can afford them. Get in touch with banks that
provide loans to small businesses. The interest rates are relatively low, so the
opportunities to work with your customers to help them with their cash flow becomes
easier while a trade war occurs.
 3. Cut Capital Costs.

Ensuring that profits are maintained during these times is essential. Have an idea of your
company's administrational, operational, and general expenses. Your company should
function as though you're in a recession. Look for ways to cut down on capital expenses.

4. Delve Into Unexplored Markets.

Diversifying business never hurt anybody. Try finding what other industries that are not
affected by the trade war can use that you're providing. Look for other export markets
that might be available where you can sell your products and avoid paying unnecessary
tariffs.

We're all hoping that there will be better opportunities in the future when the war is over or
pacified. Till that time comes, the steps as mentioned earlier are a few ways you can navigate
your company through the current challenges. Trade Wars And How To Navigate Through Them

Bibliography:
Carnegie For International Peace
Financial Times
BNP Paribas
The Balance
Inc.
UNCTAD
Inbound Logistics
Barrons
Inestopedia