It’s been a long, winding road, but the often tumultuous trade war between the world’s two biggest economies, the United States and China, appears to have found a way forward. With both sides announcing plans to de-escalate the ongoing conflict, markets across the globe are left to grapple with what this sudden shift in policy means for their future.

1. Trade War Tensions Subside; Renewed Optimism in International Markets

Tit-for-tat tariffs between the US and China have been some of the biggest news events of the past two years, but the recent news of an agreement in-principle could mark a shift in the markets. With the trade war coming to an end, here’s why:

• Stronger domestic demand: The renewed agreement between China and the United States is expected to lead to an increase in domestic demand for both countries. This means higher sales for businesses in each country, aiding in a more stable economic environment.
• Increased investment: A large number of international companies are expected to significantly increase their investments in both countries, with some of the most notable being the automotive industry. Companies such as General Motors and Ford have already expressed their intentions to increase technology investments in China.
• More jobs: The increased investments from companies such as GM and Ford will also lead to job growth in both countries. This could have a ripple effect on both economies, with more people having the means to purchase goods and services.

The end of the two-year trade war could also lead to global market confidence, and a renewed sense of optimism in the markets. Investors will be more likely to take advantage of the increased opportunities in both countries, as there will be less uncertainty surrounding the investment environment.

Although the end of the trade war isn’t a guarantee for success, it does provide a much-needed reprieve for both sides. We may still be months away from seeing the full impact of this agreement, but for now, the news of an agreement in-principle should be celebrated by all involved.

2. Mitigating the Impact of a Trade War: How Governments Took Action

A trade war can have a significant economic impact, but governments have a few ways they can take action in order to mitigate its damage.

Encouraging Diplomacy: One way that governments can look to lessen the impact of a trade war is to encourage international diplomacy. This can mean offering incentives, such as reduced tariffs and the establishment of free trade agreements, to encourage nations to soften their stances and be more amicable when negotiating. Such diplomatic efforts are intended to reduce tensions and promote economic stability in the international markets for both countries.

Increasing Trade Ties: Governments can also look to increase trade ties, such as implementing lower tariffs, promoting cross-border investment, or providing incentives for businesses to export products to overseas markets. This can help to stimulate economic activity and encourage greater integration among nations. As trade increases, so too does spending, which can help to offset the financial fallout of a prolonged trade war.

Reducing Currency Fluctuations: Governments can also work to reduce currency fluctuations, which can destabilize the markets. This can be done through a variety of methods, such as setting up currency swaps and credit lines, and issuing joint currency statements. These measures are intended to ensure the stability of the international markets, promoting a healthy economy and minimizing the damage of a trade war.

• Encouraging diplomacy
• Increasing trade ties
• Reducing currency fluctuations

3. Exploring the Benefits of Improved Relations and Open Trade

Improved Trade Relations Can Create Jobs and Boost Economies

The advantages of improved trade relations and open trade are far-reaching and can offer many benefits to societies around the world. Opening borders to allow goods and services to flow freely across them can be advantageous economically, providing more job opportunities and creating economic growth.

Improved Standards of Living Through Globalization

Globalization is facilitated by an open trade environment, and this can often lead to improvements in the quality of goods and services. This is because companies that operate in open, competitive markets have to create better products in order to remain competitive. Open trade can also lead to improved standards of living in certain geographical areas through increased access to cheaper goods and services.

Creating a More Stable and Represented Global Economy

Moreover, improved trade relations and open trade can help provide a more stable and represented global economy. Countries that are able to freely export and import goods and services can reduce their dependency on any specific economic region. This can help to protect against possible negative economic impacts that may be faced in the future.

• Open trade can create an improved global economy, which can bring benefits to many societies.
• Improved trade relations can facilitate globalization, leading to increased access to goods and services.
• It can also create a more stable and represented global economy, reducing dependency on any one region.

4. Assessing the Future Ofthe Global Economy in the Aftermath

The global economy has suffered immense knocks in the aftermath of the pandemic, with governments scrambling to prop up it up. It remains to be seen how long a recovery is likely going to take, but we can look at a few indicators that will shape the world economy.

• Industry Disruptions: The disruptions caused by the pandemic is likely to cripple industrial output, as many emerging economies cannot secure supplies of vital material. This can stymie production and compromise development.

A second factor to consider is the surge of unemployment, with the workforce in many countries being sent home. This means that even when the market recovers, many people may not have the means to boost it. It could also mean a wave of talent being lost in certain industries.

• Force Majeure: In some countries, the application of “Force Majeure” clauses could mean that contractual obligations are not liable to be met by either the employer or its employees. This can severely hamper any progression in the economy.

Finally, any stimulus packages put in place by governments may only be able to cushion the short-term fall-out from the pandemic and may be insufficient to kick-start any significant economic recovery. This can prolong any downturn and put far greater strain on economies already in distress.

This incident has cast a new light on the dynamic between international trading partners, and has signaled a change in how diplomatic tensions are handled in the international business world. In the end, the easing of trade war tensions has allowed countries to open new lines of communication and re-establish a constructive dialogue with each other, which is beneficial for the global market as a whole. Ultimately, this serves to usher in a more peaceful economic future for everyone.