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Trade and Economic Wars in the 21st Century

By: Dr. Alejandro Díaz-Bautista, Economist and Researcher (PhD).

Trade wars have been a significant phenomenon in the 21st century, impacting economies and global trade relations. The China-United States trade war is the greatest economic conflict of modern history and has important implications for geopolitics and the global economy. It underscores the growing strategic competition between both countries for economic dominance, technological leadership, and global influence.

Launched by then-President Donald Trump almost five years ago, the trade war aimed to pressure Beijing to change its unfair trade practices and reduce U.S. dependency on the Chinese economy. The high tariffs have had mixed effects. U.S. imports from China initially declined but have gradually recovered. Tariffs on Chinese products caused drops, while non-tariffed consumer goods remained relatively isolated. Industries highly integrated with the Chinese market faced the greatest costs.

The trade war also sparked speculation about relocating production from China to minimize geopolitical and economic risks. The conflict has global repercussions and affects supply chains, investment decisions, and market dynamics. Multinational corporations weigh their vulnerability to geopolitical tensions and consider diversifying production locations. The outcome of this trade war will shape the global economic landscape and influence the policies of other nations.

The possible implications of trade tensions or a large-scale trade war have been studied. It focuses on significant trade relations subject to disruptions, such as the U.S.-China, USMCA, and Europe. The situation remains fluid and unpredictable, given the complexity of the current global economy and integrated supply chains. The historical lessons of the Smoot-Hawley Tariff Act of 1930 highlight that trade wars are not easy to win, and their effects can be lasting.

The Trump administration’s tariff policies have already prompted threats of retaliation from major trading partners. Trade wars are a key factor in the changing conditions of globalization observed in the second decade of the 21st century. These wars manifest in the tactical behavior of major powers, in redefining priorities, and in changes in the balance between geopolitical and economic interests.

Findings suggest that trade wars can harm emerging countries and damage the global trading system without generating benefits for the United States. Historical evidence shows that trade wars are difficult to reverse and their effects can be severe. In summary, trade wars have significant implications for economies, industries, and global relations. While protectionist measures may benefit specific groups, they often come at the expense of broader welfare and economic stability. Understanding the historical context and complexities of today’s interconnected world at the global level is crucial for navigating trade tensions.

Dr. Alejandro Díaz Bautista is an International Economist and Research Professor in International Economics at El Colef. He is a Visiting Fellow and Guest Scholar at the Center for U.S.-Mexican Studies based at UC San Diego’s School of Global Policy and Strategy (GPS).

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