In the year 1689, British monarch William of Orange put steep tariffs on French wine. He wanted to encourage the British to drink their own booze - make and drink. It was not a great idea because without wine, Britain turned to the hard stuff - gin. So, for the next 50 years, England was in the grip of the so-called gin craze. And newspapers wrote about the surge in crime and death and unemployment.
In the 18th century, Britain put trade restrictions and taxes on tea being shipped to the colonies. This eventually led to the Boston Tea Party, an iconic event in the American war for independence.
In the 1800s, the Brits were importing a lot of tea from China, and they didn't like the trade deficit, so they started to export opium to China, which caused an opium epidemic in China. China put a tariff on opium and then banned it altogether. This led to the very bloody Sino-British Opium Wars. The Qing lost the war. This defeat is popularly believed to be the first step in the direction of establishing modern day China.
Restrictions on the trade of cotton textile, indigo, salt etc. by the British empire on India inspired many key events in India's war of independence.
Soon after its unification in 1871, Italy turned to protectionism to foster its “infant” industries. It terminated its trade agreement with France in 1886; raised tariffs as high as 60 percent to protect its industries from French competition. The French government responded by passing the highly protectionist Méline Tariff of 1892, which famously signaled the death knell of the country’s flirtation with free trade. This eventually pushed Italy closer to Germany and Austria-Hungary in the years leading up to the First World War.
A famous example of protectionism gone awry is 1930’s Smoot-Hawley Tariff Act—which along with similar protectionist measures enacted around the globe—helped torpedo world trade, killing two third of the global trade, and exacerbate the Great Depression leading to WWII.
In the post WWII era, US trade restrictions on Cuba, Iran, Iraq, Russia, North Korea, Syria etc. have had a significant impact on global strategic balance.
Wider economic sanctions on India in the wake of 1998 nuclear tests, helped India develop indigenous technologies and evolve as a major power in space technology.
There is a strong view that America’s “trade war”, with Japan in the 1980s, was one of the best things that ever happened to American industry and consumers, because American businesspeople rose to the challenge of the time. The "quality movement" spread across the country. Businesspeople, previously outraged by the Japanese “stealing” trade secrets, decided to join the club and took to “benchmarking” on an industrial scale, often with Japanese companies as their targets. The benefits of all that attention to quality were large and durable for US businesses and consumers. In the end, the “war” did not prove to be destructive.
The short points are:
· Trade wars perhaps as old as the cross-border trade itself.
· Trade wars have often culminated in larger geopolitical conflicts and resulted in changes in the global maps.
· Trade wars have been mostly caused by (i) distress in the domestic economy of the aggressor, promising protection and assurance to the local businesses; and/or (ii) eroding credibility of the extant political leadership, resulting in such leadership raising the rhetoric of aggressive-nationalism and external threats to the national integrity to protect its position.
· There is evidence of trade wars causing structural shifts and paradigm changes in the global economy. However, there is little to suggest that but for trade wars, the world would have been a better place.
In my view, the latest specter of a wider trade war has been unleashed by the US administration to find a quick-fix solution to economic malaise, the US economy is suffering from nearly two decades of fiscal and monetary profligacies.
The US public debt has increased from US$3.41 trillion in the year 2000 (~35% of GDP) to US$29 trillion (~105% of GDP) currently. In this period, the fiscal deficit has risen from a US$236 billion surplus in the 2000 to a deficit of ~US$1.8 trillion currently. This is obviously not sustainable and needs to be corrected.
The moot point is “Whether trade war is a good solution for correcting historical mistakes?”
