In a trade war, countries increase tariffs on each other’s products to gain leverage in negotiations. This raises the terms of trade, but also hurts domestic consumers by reducing their access to imported goods.
Countries use non-tariff barriers to achieve political goals in trade disputes, such as imposing export bans or limiting foreign investment. These strategies can devastate global supply chains and escalate tension between nations. The costs can far outweigh the benefits.
While governments must protect their interests, long-term economic stability and growth are best achieved through cooperation and open markets. Trade barriers might address specific short-term goals, but they disrupt global production networks and push up prices for consumers. In the end, everyone loses.
Tariffs are only effective if a country can raise them without its trading partners retaliating. Otherwise, the terms-of-trade effect is neutralized and consumer prices rise. An April 2019 research publication from the International Monetary Fund used a variety of economic models to calculate that a 25 percent tariff would reduce US GDP by roughly half.
The United States and China are in a trade war with each other. The Trump administration announced new tariffs on steel and aluminum on February 4, then imposed a broader set of duties on Chinese imports on March 12, including cars, soybeans, and aircraft.
China responded in kind with retaliatory tariffs on American products, including soybeans, corn, and cars. Combined with a previous retaliation from Canada and the EU, the resulting global tariffs cover over 100 percent of US imports from China.