International Political Economy has been shaping global relations. There is a strong connection between politics and economics.
Some political moves cause devastation, and sometimes economic discussions lead to havoc. However, this is how the International Political Economy has shaped the world.
The contemporary debate on tariffs helps us draw a parallel with the Smoot-Hawley Tariff Act of 1930, after the Great Depression in the United States. Although the agenda of these tariffs was economic in nature, they ultimately dragged the world toward World War II. Protectionism sparked events like Pearl Harbor and the nuclear bombings of Hiroshima and Nagasaki. In the 1930s, the USA faced an economic recession. Their domestic industry needed protection. In light of these circumstances, Senator Reed Smoot and Representative Willis Hawley sponsored a tariff bill. The entire world had witnessed huge losses in the aftermath of World War I. Countries’ economies had collapsed. Rebuilding was frustrating but necessary. Therefore, countries imposed tariffs on each other. Japan at that time exported silk to the USA and Europe. Protectionist policies shook the Japanese economy. In anger over the Smoot-Hawley tariffs, Japan decided to attack Pearl Harbor, a naval base of the USA. In response, the deadly bombs ‘Little Boy’ and ‘Fat Man’ were dropped—shots that were heard around the world. This event completely changed the dynamics of the world.
The International Political Economy is once again raising tensions.The current tariff war seems economic but also carries political agendas. The Singapore Premier Lawrence Wong warned the world about a full-blown global war and more than everyone is expecting. According to him, these tariff policies may end the era of rule-based globalization and free trade.
Similarly, China, also a global player, adopted a tit-for-tat policy in response to American tariffs. Such tariff wars have affected the markets and economies of the world. The technicalities of tariffs envisaged by Trump are delusional.
Currently, the USA imports more goods than it exports, overall and especially from countries such as China and Vietnam. President Trump is setting tariffs to try to balance trade with every country. The formula for imposing tariffs is:
(Trade Deficit with America ÷
Goods Export to America) ÷2
In other words, divide the trade deficit in goods with a country by their total goods exports to America, and then halve it to get a tariff.
Let us consider the example of the EU. America’s goods deficit with the EU was $236 billion in 2024. It is divided by the EU’s goods exports to the US, which is $606 billion, the result is 39%. The USA imposes reciprocal tariffs of this percentage, and after halved it becomes 20%. Imposition of such huge tariffs may affect the whole of Europe and may also be harmful for the USA because the trade deficit does not accurately reflect trade barriers. These measurements are not as simple as they appear.
Similarly, the USA imposed around 37% reciprocal tariffs on the small economy of Botswana. The USA buys diamonds from Botswana as it hardly produces any of its own. America does not sell as much as it buys from Botswana, and that is the only reason given to impose tariffs—which makes no sense. Tariffs do not depend only on selling and buying. The needs of a country also matter, and what it lacks, it must buy from others. Such actions also affect the USA in terms of higher inflation.
Currently, there are significant tariff disputes between the major economies of the USA and China. The relations between nation-states are constrained by this tariff war. Both the USA and China have imposed billions of dollars in tariffs on each other. This has had a ripple effect across the globe, shaking global supply chains.
Although the consequences seem economic, they may ignite regional imbalance and disrupt the balance of power. Tariffs are disrupting the global world order and could lead the world toward an unprecedented World War III.
It is time for international institutions to intervene and stop this trade war, because a slight miscommunication or miscalculation could deepen the rift between nations and ultimately lead to disaster.
The challenges of today’s world are very different than before. Climate change has already caused havoc across the globe. Pandemics and biological warfare are also challenges to maintaining peace and stability. Therefore, under these circumstances, nations around the world cannot afford another Pearl Harbor, Hiroshima, or Nagasaki.
Mentor Civil Services Exam Pakistan
Social and Political Analyst
Senior Writer in Gulf Observer and The Europe Today.
More article ? From Neutrality to Global Impact: Turkmenistan’s Role in LLDC3 and International Affairs – https://eureflect.com
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