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Right now, the world is focused on the currency war between a myriad of different states, including the U.S., China, Japan, Brazil, and Poland.Each country is trying to devalue their currency in an effort to protect exports. By reducing the value of your currency, you make the price of your goods cheaper abroad. For countries like China and Japan that export their way to wealth, this is absolutely vital lest they lose competitive ground over their neighbours.
But devaluing your country’s currency is only the first step.
If you can’t get competitive advantage by changing the value of your currency, a country may result to tariffs that block the import of competitive goods onto their own market. This would preserve sales for domestic companies, and prevent further hemorrhaging of jobs.
But what this also means is losses for everyone.
When a country puts up a tariff on goods, the country impacted by the tariff is likely to respond in kind.
For example, if the U.S. says it may put tariffs on China for not revaluing their currency, China may put a tariff on the import of poultry from the U.S.. That hurts U.S. farmers while it may be protecting U.S. manufacturers.
Overall, protective tariffs might reduce the flow of shipping globally, as countries consume more of what they produce domestically, rather than importing supply. It isn’t very efficient, and doesn’t really help anyone, but that doesn’t mean it won’t happen.
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