A trade war is a battle between nations that threatens to disrupt global supply chains, raise consumer prices and damage international relations. While they may offer protection to domestic industries, long-term trade wars hurt the economies of all involved, and can slow global growth.
President Trump has used the threat of tariffs to try to reshape international trade policies and advance his vision for the world economy. His tactics are risky and he risks blundering into trade wars that accomplish nothing more than raising costs for consumers. Whether he’s fighting for his own favored companies or for the greater good, Trump’s willingness to be disruptive could set in motion changes that fundamentally alter the global trading system.
When the US imposes tariffs, trading partners often retaliate by placing their own taxes on American products. These new costs make American goods less competitive, reducing sales and revenue for exporters. That can affect everyone from soybean farmers to airplane manufacturers. A recent study estimates that the retaliation against the Section 232 steel and aluminum tariffs will reduce US GDP by 2.3 percent in the near term, and reduce 10-year revenue by $146 billion.
Adding to the complexity, most foreign leaders are guarding their own national interests when responding to Trump’s coercive tactics. Their political capital is on the line as they try to balance the need to protect their own citizens against the risk of damaging their economic prospects and global standing. As a result, some trade wars escalate without compromise.