A trade war simply explained

George Herraghty, Lothlorien, Lhanbryde, Moray SIR, – All media outlets are talking about a trade war, stating that it will be bad for world economies.

As far as I’m aware nobody has tried to explain to Joe Public exactly what a trade war is. My understanding of this is the following: country A (America) sells its goods to country B (China) and B sells to A, seems straightforward enough. How much A sells to B depends on how attractive A’s goods are to B and vice versa. If A buys more of B’s than B buys of A we are left with what is called a trade imbalance. To counter this balance A will make B pay a tax on what it sells therefore making it dearer to buy in the hope that A won’t buy as many of B’s products therefore addressing the trade imbalance.

Now B was quite happy selling more to A and to keep the same trade imbalance they put a tax on A’s goods, you get the idea. Sounds simple but here’s the problem – B is able to manufacture goods considerably cheaper than A and can keep the tax increases tit for tat longer than A. So A is left with no alternative but to ban B’s products from coming into A. That’s the bad bit.

All countries would like a positive surplus in trade dealings. Only a few achieve this. Germany for one, certainly not the UK which has a negative goods trade balance with all the countries that make up the EU. That is why they are desperate to keep us in.

Now I’m sure there are some economists out there who could explain it better but they have the habit of talking to other economists which to most sane people would be gobbledygook.