Chapter 5 Tariff War and Its Spillover Consequence: A Macrotheoretic Evaluation

The USA–China trade confrontation has become a major concern for all the nations involved in international trade. The retaliatory trade policies taken by both of these major trading nations have generated widespread impact among the trading nations especially on the developing and emerging nations. In this chapter, the macro-theoretic model is developed to show how a trade war can potentially arise in the wake of economic downturn led by some demand contracting force in one of the countries having trade ties and in turn can cause the recession to leap into global turmoil. This may prompt the countries to be more protective and averse to international exchange, thereby paving way to more intense trade frictions among the nations and stoking international macroeconomic propagation. Thus, the present introspection hints at tariff war among the nations engaged in restricted trade with each other being a plausible consequence of macroeconomic fault having cross-country repercussion implication and that in turn becomes more pronounced in the present tariff war leading to more fierce trade frictions among the countries.