The Effects of International Conflicts on the Domestic Economy

Why a Distant Conflict Raises Prices at Home

Have you ever questioned why the cost of lettuce increases during a conflict in a distant nation? War and international conflict in any country can have a devastating effect on Canada's economy. This article explores the different ways that international conflicts affect Canada's domestic economy and how they are reflected in the statistics of Canada's Gross Domestic Product (GDP).

Exports and Imports

Canada's exports of goods reached a record high of $546.7 billion in 2017, up 5.7 percent from the previous year. The global economy is linked in ways that make all countries interconnected. International conflicts, such as the U.S.-China trade war or Brexit, are also connected to Canada. Canada's exports are a gauge of how much it sells to other nations.

The volume of imports indicates how much Canada buys from foreign nations. Cars are the most common import into Canada, followed closely by trucks, auto parts, and auto accessories. Apart from these, Canada imports crude oil, computers, gold, turbo-jets, and processed petroleum oil. In terms of figures, Canada's goods imports increased by 3.7% in December 2021.

Imports and exports are vital for a country. There are instances of countries that depend entirely on them. A fluctuation in the flow of goods can have a dreadful effect on a nation.

Trade Wars

A trade war is a situation where countries take action against each other by imposing tariffs on goods and services. While the term 'trade war' implies that there are winners, it is more accurate to think of a trade war as mutually assured destruction. When one country raises tariffs, other countries retaliate with their own tariffs. This type of escalation leads to higher prices for both consumers and producers. It can also cause job losses as companies have less access to international markets.

Here is an example of a trade war. A six-year trade dispute between the EU and the US culminated in the 'banana wars'. The US protested that a programme from the EU violated free trade laws. Only 7% of the bananas consumed in Europe come from the Caribbean, and the United States does not ship any bananas to Europe, yet US multinational corporations control 75% of the EU market. The EU allegedly provided privileged access to European markets for Caribbean banana exporters, and in 1993 Europe imposed high import taxes on Latin American bananas. American banana growers and exporters suffered a considerable loss as a result. The World Trade Organization received a complaint from the US about the EU, and after the US triumphed in 1997, the EU was told to change its regulations.

Trade wars are either deliberately planned or the result of rash political choices, typically launched to protect domestic industries or to pressure trading partners into changing their policies.

Tourism Affected by International Conflicts

International conflict and its effect on tourism has been a very hot topic in recent years, especially with the rise of conflicting relationships between Russia and Ukraine.

The Russia-Ukraine conflict has had a negative effect on tourism in both countries. In Russia, tourist numbers dropped sharply since the start of the conflict, with many people cancelling or postponing their trips. In Ukraine, the situation is even worse, with the country's tourism industry effectively destroyed. This has had a devastating effect on the economy of both countries.

In 2020, Russia and Ukraine together accounted for 3% of all foreign travel expenditures worldwide. In 2022, a protracted conflict may result in a global loss of about 14 billion dollars in tourism revenue.

Risk Management Techniques

There are different ways to manage risks today. Some companies may use more than one technique depending on their business objectives.

• Prioritize: Prioritizing risks and threats should always be the first step in developing a risk management plan. You can accomplish this by using a rating scale based on the chance of each danger occurring. Naturally, a danger that falls into the top category should take precedence over the others, and you need a strategy to minimise, or at least reduce, these risks. There is a catch, though: priority should be given to a risk on a lower rung if it has the potential to cause greater financial harm.

• Buy insurance: Determine the forms of insurance your company might need by evaluating liabilities and regulatory requirements. The most common ones are life insurance, professional insurance, and disability insurance. Compared to the possible expense of uninsured risk, purchasing insurance offers peace of mind if something goes downhill.

• Limit liability: The legal concept of limiting liability prevents a business from being held accountable for amounts greater than the worth of its assets. This rule is founded on the notion that a corporation's stockholders should not be held accountable for the obligations of the corporation. Limiting liability can help prevent lawsuits or other legal action against the company, protect the company's assets and reputation, and help the company avoid financial losses. In a scenario of international conflict, limited liability helps reduce the brunt of the conflict on the company.

How a Payment Processor Helps During a Conflict

RapidCents is a payment processor that has been helping merchants operate their online businesses smoothly. There are different ways RapidCents can add stability to your business amid an international conflict. We help merchants by providing a stable way to continue payment processing without having to worry about currency instability.

A good payment processor helps merchants during international conflict by allowing them to process payments in multiple currencies from different parts of the world. For example, if a merchant is selling goods or services to customers in the United States and Canada, they need to accept payments in both US and Canadian dollars.