What is a trade deficit?
In layman’s terms a trade deficit occurs when a country’s imports exceed its exports . A trade deficit is also referred to as a negative balance of trade.
A trade deficit is an indicator that a nation consumes more than it produces and does not save enough domestically to fund its investment needs.
Put simply, a trade deficit occurs when a country buys more goods and services than it sells.
What is a trade war?
A trade war is an economic dispute between two countries. It can occur when one country retaliates against another’s perceived unfair trading practices with restrictions, such as tariffs, on imports.
Trade wars are a side effect of a country’s protectionist actions and are controversial at best.
A country will generally undertake protectionist actions to shield domestic businesses and jobs from foreign competition. Protectionism is also a method used to balance trade deficits.
In an era of global trade, a nation’s trade war against another has been demonstrated to be very damaging to the consumers and businesses of both nations (except for the case where the other nation has also different other markets available to sell to), and the contagion can grow to affect many aspects of both economies.
A trade war that begins in one economic sector can very rapidly grow to affect other economic sectors. Likewise, a trade war that begins between two countries can affect other countries not initially involved in the trade war, that could attract retaliatory measures from those countries., with several hard economic impacts.
Trade wars have always had historical detrimental effects on the trading relationship between two or several countries involved, because its goals are related specifically to stop or restrict free trade.
Common disadvantages of trade wars:
- Increases consumer costs and induces inflation
- Causes marketplace shortages, reduces consumers’ choice
- Discourages trade
- Slows economic growth
- Hurts diplomatic relations, business development/investment, cultural exchange
- Loss of international credibility, reputation, trust .