EXPLAINED

Trade wars

  • 26 November 2019
  • 1 minute

A trade war arises when two or more nations impose ever-more-severe trade restrictions on the other party or parties involved; usually financial restrictions in the form of import tariffs. Often, such a situation arises because the government of one of the countries involved is trying to protect its economy. It is attempting to boost production in its own industries by increasing the cost of importing the same goods from abroad.

While there is some potential for domestic economic improvement in a country taking such an action, trade wars are generally viewed as being bad for the wider global economy; partly because they have the potential to be very negative for company profits. Several of the world’s major stock markets and economies are dominated by companies that rely on exporting their goods. If their products become more expensive for international buyers, they will lose custom.

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