Effects of Trade Wars on Real Estate. Finance Research Paper

Effects of Trade Wars on Real Estate
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Abstract
One of the challenges that the international community faces in contemporary society is instilling control on international trade and preventing the event of a trade war and its consequences, especially on 'standby' countries. Organizations like the World Trade Organization (WTO) have not been able to keep international trade in check as unfair competition is still the main approach of many countries to achieve global economic powers of scale. With an increasing number of companies engaging in real estate, it is imperative to focus on the impacts of trade wars on real estate. Different researches have been conducted in recent generations to understand how trade wars have affected the real estate industry. To address the research gap existing in this area, this research focuses on addressing the implications of trade wars on the real estate market. This research will focus on presenting different case studies including the United States, the U.K., China, and Canada. Further, the research will discuss how the real estate industry has evolved over the years, the challenges it has faced, and the approaches and policies that have been implemented to address the same. The findings of the paper show that trade wars can have both positive and negative influences on real estate depending on the targeted products and nations. The paper draws from different trade wars in history and their effect on the countries involved but mostly covers the most recent trade war between China and the US.[The WTO is responsible for controlling the international trade through policy-making, negotiation and dispute resolution]
Introduction
International trade claims numerous supremacy battles between nations in the effort to provide an attractive business environment for their products and put barriers to another’s. Chen (2019) defines trade war as the result of countries retaliating against each other by raising the tariffs and other restrictions like quotas on opposing countries. It is the tedious process of talking, bargaining and retaliating between countries aimed at gaining economic advantage for their traded goods (Kwa-Zulu Natal Provincial Treasury, 2018). A trade war begins at the point a country protects her domestic industry by restricting the imports of another; an exercise that harbors the potential to benefit domestic producers and job opportunities but can slow economic growth and trade between all the involved countries in the long run (Khan, 2019). Trade wars have the power to affect the market flow of both products and human resources which can adversely affect the respective industries and even the larger economy of the country.
Chen (2019) defined real estate as a property that comprises land, buildings and natural resources like plants, animals, and minerals. Real estate forms a significant element of a county's economy and a recession in the industry can result in dire effects on the overall economy of the country. Productivity and growth in the real estate industry of a country depend on the availability of raw material like stone and steel as well as human resources like builders and buyers and /or renters. Just as the industry affects the overall economy, the economy's stability, in turn, affects the real estate industry especially in the growth realized through the purchasing power of the citizens of a country.
Relationship between real estate and trade wars
The connection between trade wars and real estate comes when the wars affect the raw materials for a building like steel, land and other building materials. Another connection between the two is realized through the overall effect of trade wars on the economic stability and availability of jobs. Positive impacts of trade wars are usually felt in the initial stages of the war but weakens the industry with time due to minimal competition hence reduced innovation. When tariffs are directly imposed on real estate products like steel, it affects the industry directly while effects on dependent sectors like labor, bank interests and foreign investment are some of the indirect ways in which a trade war can affect the real estate industry.
There have been numerous trade wars throughout history with each of the participants seeking to amplify the protectionist perspective on international trade although most of them led to stunted economic growth to the participants which affect the purchasing power of citizens and productivity of the economy. Reducing trade deficit and boosting domestic production power are some of the positive results of a trade war while industry efficiency and trade advantage are negative results of trade wars to the participating countries (Carvalho et al, 2019). A trade war can also affect countries not involved in the war either negatively or positively depending on their position on the affected products and the countries.
Effects of trade wars on real estate
There are several ways in which trade affect the real estate industry of the involved nations. It can affect the countries' GDP, job market, and the availability of raw materials. This can either positively or negatively affect the short-term and/or long-term economic aspects depending on the action taken by the administrations and WTO. The retaliation after the first sanctions and the international organization's actions are usually the determinant of the results.
1 Positive effects
Benjamin et al (2003) conducted a study on America’s industrial cities and concluded that continued foreign competition on native industries especially in large industries like steel and automobile would decrease their power and strength necessitating the need for federal investment. Trade war’s major concern is to protect the local industries against uncontrolled and unfair competition from foreign products (Khan, 2019). According to Voice of America (2009), the 2002 tariffs on steel from the European Union by President George Bush was one of the trade wars by the United States and the EU. The trade war had significant impacts on the overall welfare, GDP and general terms of trade. The study showed various results on both countries after the US imposed the tariffs, the European retaliation and after the war. The table below shows the effects accrued by the US AND EU as a result of the steel war the two economies experienced in 2002.
Scenario

Welfare total
(% of GDP)

Welfare allocation
(% of GDP)

Terms of Trade (% -change)


EU

USA

EU

USA

EU

USA

After US tariffs

-0.003174

0.001096

-0.00614

-0.000412

-0.008291

0.013025

After EU retaliation

0.001407

-0.001559

-0.000233

-0.000115

0.005293

-0.011616

Combined

-0.001766

-0.000463

-0.000847

-0.000527

-0.002998

0.001410

Table 1. Effects of the trade war between the EU and USA[The welfare total refers to the overall market effects like terms of trade and the allocations]
The table above shows the effects of the trade war on the steel sector and the ways it influenced the economy of both countries. The European incurred losses after the tariffs amounting to US$1 billion and $600 as retaliation by the European Union onto the United States. The $1 billion the US cut on European steel imports were reflected in internal production in the US which can result in growth in the US domestic steel manufacture.
The above case scenario shows that real estate from both the US and EU was affected. The US revived and increased domestic production while the EU had a surplus of 159 million tons which were left unexported as a result of the US war (Benjamin et al, 2003). The steel Salvoes can be attributed to being the cause of the housing boom experienced between 2001 and 2006 registering a price-rent incr...