TRADE WAR:
When countries try to affect each other's trade by imposing Taxes and Quotas and the same is followed by other country in retaliation is referred to Trade War.
US in October 2022 launched chips war by introducing Export restrictions preventing China from purchasing advanced chips from the US.
Impact of Trade War:
1.Trade restrictions is reciprocated by other nations affecting overall world Trade..
2.The record FDI and
investments in the country will be withdrawn leading to job losses .
Currency War:
“Currency War” occurs when a country devalue its currency by manipulating Monetary Policy with the objective of making its exports cheaper and gaining unfair competitive advantage in International Trade.
How Currency Wars Happens:
Devaluation of Currency
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Exports become cheaper
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Increase in Exports & Decrease in Imports
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Other countries resort to Devaluation of Currency
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Overall Negative Trade Ecosystem
- Currency wars became aggressive during 2009 on account of Global Crisis and major Economies were involved in this.
- Countries like China, Switzerland are involved in Currency war.
- Even ,Quantitative Easing adopted by U.S. and UK have been accused of being at least partly currency focused.
Beggar Thy Neighbour policy:
- Beggar thy neighbour policy refers to a policy that aims at increasing exports at the expense of other trading partners largely through competitive devaluation of their currencies by the central bank.
- Conventionally, countries often impose tariff barriers and restrict imports to protect their domestic industries.
- In modern times, Central banks devalue or encourage the depreciation of their own currencies to retain their competitive edge in exports which eventually results in currency wars .
- China is accused of engaged in this policy .
