The day has come

The trade war has come since 25% tariffs on $60bn Chinese imports were announced. Though China has been trying to influence the White House and political parties via lobbyists, it seems useless or at least insignificant so far. If two countries both make their decisions to enter this disastrous trade war (whose damage has been reflected by today’s stock performance partially), then there are multiple tools that the countries can use to actively improve their goods and services more competitive within and outside their domestic markets.

Firstly, monetary policies can be helpful to depreciating currencies. When a country has a relatively cheap currency, its goods and services are relatively cheap in the global market, so they are competitive in terms of prices. Secondly, monetary policies also need to control the domestic inflation. When the domestic inflation rate is low, the domestic products and services are cheap, especially compared with the goods and services from the countries where have higher inflation rates. This might be contradicted by currency depreciation policies. Thirdly, fiscal policies can provide companies with subsidies to be more competitive. Fourthly, governments can create difficulties for foreign companies to cooperate within their countries. Fifthly, governments can even further create legal barriers to keep foreign companies out of their countries.

To conclude, countries have multiple tools to use in a trade war.