Asim K. Karmakar and Sebak K. Jana
Trade war among the nations dates back mainly to the nineteenth century. Some of the trade wars may be cited as (i) The First and Second Opium War Empire between 1839 and 1842; (ii) The Smoot-Hawley Tariff Act, 1930 signed by US President Herbert Hoover; (iii) Chicken wars in the early 1960s; (iv) The US–Japan automobile trade war in the 1980s; (v) 1985 Pasta War between America under the Regan Administration of United States and Europe; (vi) The Banana wars. However, trade becomes more intense in the present century with the increase of the economic trade instruments. Under the Obama Administration, currency war and tariff war both became strong between the United States and China with intense effect over the globe. After the Obama regime, came Donald John Trump with a number of controversial (aggressive) trade protectionism plans saying thereby “China’s accession to the World Trade Organization has enabled the greatest jobs theft in history” and “Trillions of our dollars and millions of our jobs flowed overseas as a result.” Even during the COVID-19 period in the 2020s, threats and counter-threats have been on the ascend. It is in this backdrop the present chapter mainly traces the history of trade wars in the twenty-first century, touching upon the nineteenth and twentieth century trade battles.
Introduction
Trade war with severe conflicts among the nations, that embodies a queer blend of economic, political, and social dimensions, dates back prior to the twenty-first century. For example: (i) the Opium Wars were fought between the Qing dynasty (the last Chinese dynasty that was overthrown in 1911) and the British Empire between 1839 and 1842 over ban on trafficking of the opium by the British East India Company to China. Actually, the Opium Wars saw China’s government constrained by a series of treaties that demanded trade and territorial concessions to the western powers (Cook & Stevenson, 2018, p. 58). Britain along with France forced China to open all of China to foreign merchants and exempt foreign import duties; (ii) The Smoot-Hawley Tariff Act, 1930 signed by 31st US President Herbert Clark Hoover (1929–1933) to protect the falling stock market and domestic industry, and also to protect the US firm sector; (iii) Chicken tariff wars occurred in the early 1960s, when France and Germany imposed high tariffs on American chicken as demand for European chickens fell with people savoring cheaper American chickens. The United States retaliated with imposing higher tariffs on a bunch of commodities including French brandy and Volkswagen buses. It even threatened to cut NATO troops to Europe. However, France and Germany didn’t buckle under pressure even though consumers from both sides of Atlantic Ocean were the real losers; (iv) The United States has also engaged in trade wars with Japan and the EU over a spectrum of domains such as textiles, vehicles, color televisions, currencies, and steel. In the 1980s alone, the United States initiated 24 “Section 301 investigations” against Japan, as a result of trade conflict, car sales in both countries declined dramatically – Japanese car producers and American consumers suffering substantially from the trade conflict, Japan witnessing a sharp decrease in revenue, and the US consumers facing a sharp jump in automobile prices. More importantly, more than 60,000 jobs in the automobile industry were lost, and the unemployment rate peaked at the height of the trade war under the Reagan presidency. In addition, the 1985 Plaza Accord signed between Japan and the United States further interfered with Japan’s exchange rate policy – making Japan’s yen appreciated by more than 80% against the US dollar in the three years that followed and affected the progress of its economic development in the next few decades, for which, may be, Japan witnessed a “lost decade” from 1992 to 2002; (v) 1985 Pasta War between America under the Reagan administration (1981–1989) of United States and Europe raised tariffs on Pasta from Europe; The Regan administration of United States raised tariffs on Pasta from Europe in 1985 as its complains of discrimination against its Citrus products fell in deaf ears. Europe retaliated in kind with higher tariffs on American lemon and walnuts. In August 1986, both sides signed an agreement ending the citrus dispute and, in October 1987, ended the pasta dispute; and (vi) the 1993 Banana wars: To restrict import of Bananas to its colonies in Africa and Caribbean, European Union (EU) imposed heavy tariffs on import of Latin American bananas in 1993.
But the trade war has become more intense in the present century with the increase of the economic trade instruments. Under the Obama Administration (2009–2017), currency war and tariff war both became strong between the United States and the China with intense effect over the globe. The present chapter will essentially deal all of these with consequences.
To serve “American Economic Independence” Donald J. Trump, the United States’ 45th President on November 8, 2016, came with a number of controversial (aggressive) trade protectionism plans saying thereby “China’s accession to the World Trade Organization (WTO) has enabled the greatest jobs theft in history” and “Trillions of our dollars and millions of our jobs flowed overseas” as a result “of participating in globalization and trade liberalization.” Even during the post-COVID-19 period in the 2020s, threats and counter-threats have been on the ascend between the United States and China. The chapter will also deal with respect to worldwide impact of Trump’s tariff increase in terms of international trade patterns, GDP, terms-of-trade, etc.
Objectives of the Study
Trade war among the nations in the twenty-first century has assumed a significant aspect as opposed to the earlier trade wars where the bilateral, regional, and multilateral tug of trade wars were not as prominent as it is now. “The old order changed, yielding place to new.” But this newness has neither brought to any nation a well-directed sunlit path nor has it produced the desired result in the guise of neoliberal situations. Only “all day long the noise of (trade) battle rolls,” so that a healthy and smooth trade functioning among the trade-giant nations are invisible. It is in this backdrop the objective of this chapter is to highlight the history of trade war in the twenty-first century, touching upon and not with omitting some previous documents of the nineteenth and twentieth centuries trade battles as well enamored with some fact- and evidence-based stories. Finally, the last section concludes.
How Did Trade War Start After World Wars I and II? A Historical Atlas
After World War I
Thomas Woodrow Wilson (1856–1924), 28th President of the United States of America from 1913 to 1921 and other liberals pushed for an international order organized about a global collective security body in which sovereign states would act together. Open trade, national-trade determination, and a belief in progressive global change also undergirded the Wilsonian world view – a “one world” vision of nation–states that trade and other activities would interact in a multilateral system of laws creating an orderly international community. But in the end, this experiment in liberal order building failed and the world soon entered into an interwar period of closed economic systems and rival imperial blocs.
The Smoot-Hawley Tariff Act 1930 and Others
The Smoot-Hawley Tariff Act 1930 was a major US federal statute to establish protectionism in the twentieth century. It includes tariff schedules for over 20,000 products, proposing increasing in many cases. It led to beggar-thy-neighbor policies which led some economists claim that it was a major cause of the world wide depression in the 1930s. The Great Depression, protectionism, and the World War II together reduced trade considerably.
The Smoot-Hawley Tariff Act of 1930 increased the already high average US tariff rates by about 17% from 40.1% to 47.1%. However, the most duties were specific (as opposed to ad valorem) combined with the massive deflation of the period and served to magnify its effect, so that effective average tariffs increased by a total of 50% from 40.1% to 60%. Due to the increased effective protectionism and the contacting economy, import volumes fell dramatically in the United States. Half of the decline in the volume of imports can be attributed to the combined effects of Smoot-Hawley and deflation, while 7% was due to Smoot-Hawley alone (Irwin, 1998, p. 333).
The legislation provoked retaliation by trading partners of the United States. Spain implemented the Wais Tariff in reaction to US tariffs on cork, oranges, and grapes. Switzerland boycotted US exports to protest new tariffs on watches and shoes. Mexico, Cuba, Australia, and New Zealand also participated in the tariff wars. Simply put, following Tariff Act of 1930, the trading partners of United States retaliated by increasing their own import restrictions, and the volume of world trade decreased as the global economy fell into the Great Depression. By 1932, US trade with other nations had collapsed. Presidential challenger Franklin Roosevelt denounced the trade legislation as ruinous. Following Hoover’s defeat in the presidential election of 1932, the Democrats dismantled the Smoot-Hawley legislation. But they used caution, relying on reciprocal trade agreements instead of across-the-board tariff concessions by the United States. In this way, t...