Conflict Shaping Global Economies — How Wars Can Take Their Toll

By: Isla Hildebrand

In such a connected world, it's no surprise that conflict remains an ever-trending topic. Whenever war is brought into conversations, it tends to bring about a mental picture of weapons, death, and the battlefield. While this is true, there is also an entire financial plan working behind the scenes at the same time, one that isn't always a news headline. The toll a war takes on an economy is one of the most drastic demonstrations of how a country's financial department can do a full 180 within months.

When war breaks out, economies usually take a turn for the worse. Inflation spikes prices, jobs become scarce, paychecks become few and far between, and global trade shifts to an imbalance. It becomes difficult for governments to make proper decisions, and while the tourism sector of the economy may plummet, the weapons/artillery scene will prosper. Everyone around can feel these effects, even if they aren't involved themselves, and the big picture is never a pretty one.

Even after the war ends, and life returns to a semi-normal pace, the economy is still suffering. Financial blows can be felt for years after the conflict, and the country's infrastructure may never return to what it once was. As always, it's so important to stay informed of global events, but taking a look at the economic side is often glanced over.

All countries can feel the outcomes of war, and it's vital to understand how any sort of conflict can shape the future of your finances. So today, we take a closer look at the economic side of wars and the outcomes that follow.

Let's begin!

What Are The Current & Immediate Effects

In times of crisis, all areas of an economy are quick to respond and share resources they have available. Over time, this can lead to a depletion of those assets, specifically any sort of metal, construction, or agricultural area. Governments tend to turn their attention to where funding is needed now, towards weaponry, troops, equipment, and medicine. In the United States, an estimated $8 trillion was spent on the post 9/11 wars in Afghanistan and Iraq.

In order to receive funding for war, governments have to raise taxes and cut down on external programs. That's why we see a lot of academic and creative sectors vanish, while the defense sectors rise. Any sort of sectors that vanish are usually done by force, as more important departments begin to weed them out. It's also fairly common that we see a more dominant country take control of an inferior one, most recently between Israel and Gaza. Israel has managed to take the upper hand, so that they have been able to destabilize many aspects of Gaza's everyday life. By blocking food shipments, forcing trade to stop, and committing inhumane war crimes, Israel has managed to turn Gaza into a shell of what it used to be.

Within the Russia and Ukraine conflict, we saw a similar pattern, and since Ukraine was a main exporter of agricultural-based products, prices for such items skyrocketed out of basic necessity. So for us here in America, or other countries around the world, we felt the effects of grocery bills rising in price.

The economic effects of war act like ripples in a pond. It starts local, within involved countries, but slowly, all areas of the globe begin to feel it. Sometimes it's abrupt and comes out of nowhere, and other times it's been simmering for months or even years. The first round of fire, if you will, involves massive hits to a nation's economy. This includes a rise in taxes, a spike in prices, and trade shifts, but these are simply the foundation for the long-term effects. This is when commerce sectors die out, GDP drops, and overall HDI reports begin to decrease.

When conflict continues to extend over a period of time, these effects drag out and worsen in the long term. The beginning of the outcomes lays out the groundwork for a much lengthier narrative. Any sort of disruption to a national economy can be startling, regardless of the level of the war itself.

How Do Careers and Industry Change?

When we speak about how the workplace changes during war, we briefly touch on how different industries either rise or fall, and how it forces certain sectors to shut down due to a lack of funding. To add to this, it's common that in some areas of the world, individuals, specifically men, are asked to serve in the military instead of continuing their original job. To keep a country afloat in a crisis, the sectors in main use must be in constant employment and functioning smoothly. So for the military, weaponry, and medical sectors, there is a spike in employment, even if the salary doesn't increase. Along with this, governments tend to place a larger emphasis on cybersecurity by protecting digital commerce areas.

Women also face the possibility of being added to employment areas that were previously male-dominated. Similar to how during WWII women took over baseball, it's the same concept, but in terms of the job market. Women may take over factories or hospitals if the majority of the male population is on the front lines. These effects are usually permanent, bringing a sense of light in a time of darkness. When the conflict hopefully ends, unemployment can spike again as the population becomes imbalanced. With the return of soldiers, it can be difficult to find areas of work for every individual to earn a living wage.

Along with an imbalance of population/work employment, when wars come to a close, there is also a massive disproportion in terms of industry development. For industries that specialize in manufacturing, weaponry, shipping, and technology, they begin to prosper in the face of conflict. For more global concepts, such as the travel industry, any trading centers, and farming businesses, they tend to suffer the effects of war in real time. These industries are typically forced off the stage and have no choice but to shut down to save efforts.

For countries across oceans, they're able to send in supplies or offer safe living areas to those in conflict areas/war zones. Sometimes products or sold, other times they're traded, but most of the time they're sent in as aid. For governments involved, the focus after a war is on rebuilding the economy and infrastructure. Regardless of how long this could take, economies fluctuate around the world during times of crisis, and it's up to political figures in power to do their best to restore their country.

So, What Are The Permanent Outcomes?

After all the gunshots, bombs, and grenades are launched, and the final chapters of war come to a close, peace treaties and documents are signed. Now, it's time for economic rebuilding, and it's a long financial journey ahead. It's now a time of reparation; whether that's in terms of buildings and roads, electronic and technological grids, or areas of commerce such as education.

It can be a lot financially to repair a country, meaning the entire process can take years, but it's important to move forward rather than remain stagnant. When soldiers, prisoners of war, and refugees return to their homeland, they need medical attention, housing, and proper education in terms of public opportunity. When it comes to farmland, it's important that the agriculture trade is rebuilt, but this is one of the harder areas to rebuild, as it's very costly and time-consuming.

For neighboring and external countries, they do their best to send in help to rebuild the weakened nation. Whether that's in terms of food supply, investments, or effective modernization, it allows for relationships among the world to prosper. If a country is in a state of disarray after a war, however, that means there's no political system set up, and the economy is unstable. This can lead to a pattern of decreasing HDI results, so taxes continue to fluctuate, debt is prominent, and unemployment is common. It's much harder to dig themselves out when the situation reaches this level of disorganization, but it's more common nowadays, unfortunately.

Conflict can pave the way for new relationships to blossom and for new economic prosperity for some, but it can also lead to financial downfall and government uncertainty for others. Economists have discovered that economic output usually falls by 30% and inflation begins to increase after war. It's only half of the plot to win a war; dealing with the financial aspect of it makes for a much longer recovery.

The True Cost of Conflict

At the end of the day, war is first and foremost a time of conflict, violence, and death, and these topics will continue to act as a headline during a time of crisis. But taking a closer look at the behind-the-scenes side of it all and focusing on the economic effect, both immediate and long-term, we can better understand how the global market affects everybody. Regardless of whether the outcomes of war hit us directly, the financial environment will always be altered.

Some sectors of the economy will flourish and dominate the market scene for years to come, while other sectors will completely vanish due to a lack of funding. The face of industries will change along with this, as new figures come into industries while others go to serve in the military. But when the conflict ends, it can remain difficult to find space for everyone in terms of supporting the workspace.

Recovery isn't linear, and it can take decades for stability to return. But understanding how the economic side of war can create a domino effect beyond the nations involved is crucial in understanding how the balance between global power and world market dominance works. Conflict shapes everyone around it, and understanding how it shapes you is vital in order to craft a structured, stable, financial future.