However, some nations are hurt by the trade and their local industry and labor need protection against foreign goods in order to grow and develop. These industries need protection as they cannot compete with foreign goods or products.
Trade theories in economics predict that when a larger nation imposes a tariff on imports, its terms of trade improve at the cost of reduced imports. However, if another nation retaliates and also imposes tariffs on the imports of larger nation, then both nations lose and no one gets benefits. Everyone is at a disadvantage as a result of a trade war.
The US has adopted a policy of mercantile who used to say that a nation grows only at the expense of other nations. They were staunch advocates of national interests and believed in economic nationalism. This is what the US doing right now to put forward its national interest and levy heavy tariffs against Chinese products.
Protectionist policy will not benefit in the long run as economics and history have revealed. It has deteriorated the terms of trade and slowed down the growth.
The main reason behind the recent trade war is the protectionist policy adopted by the US against Chinese imitated products that have flooded the US markets.
Moreover, this trade war will have a spillover effect on other economies and industries will be relocated. The workers will be laid off and the production cost will increase in other countries as well.
Recessions are periodic in nature and economic boom and bust cycles are part of economic activity and the business cycle.
Economic news is full of US-China trade wars, BREXIT, and the recession. This recession in news further lowers the confidence of consumers and investors.
US-China trade war has lowered business confidence and consumer confidence. This lower 'animal spirit' has slowed down economic performance. Everyone is in limbo about the economic recession.
Recent trade war and Brexit has deepened the speculations about the economic recession. Consumers have tightened their budget plans and delayed their spending plans.
Although the economic indicators are positive as Sahm unemployment indicator suggests that the probability of the recession is only 10%. on the other hand, the economic picture is not so much gloomy as wages are high and unemployment is at the 60-year lowest in the US. China is also performing well.
The United States is considered the most competitive economy. The US economy relies heavily on its high-tech innovations and products. China, on the other hand, imitates those products and produce them with cheap labor. These cheap products then compete with American products that have a higher cost.
To remain competitive, The US has to provide protectionism to its industry by levying high tariffs against Chinese products.
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