When nations start attacking each other with trade barriers, it’s called a trade war. These escalating conflicts disrupt global supply chains and raise prices for consumers. They often result in prolonged periods of economic stagnation or conflict. They may even spark military responses. Although governments must protect their interests, long-term economic stability and growth are best achieved through cooperation and open markets. Trade barriers might address short-term goals, but they ultimately shrink the economic pie for everyone involved.
Since 2018, President Trump has imposed steep tariffs on billions of dollars worth of goods imported from China and other countries, and Beijing has responded with its own levies. The president has claimed these levies will decrease the US trade deficit with China, bring manufacturing jobs back to the United States, and force Beijing to reform its mercantile and intellectual property practices. He’s also promised to negotiate a deal with China that will accomplish these goals and more.
Many economists have evaluated the consequences of these tariffs and have found that they raise prices for consumers, reduce economic output and employment, and lead to a weaker economy. Some of these results are due to behavioral effects, such as firms raising prices for their products or reducing investment in response to higher costs.
Other results are due to the impact of lower incomes for workers and owners of capital, which lowers incentives to work or invest, and leads to a smaller economy. Still other impacts are due to the depreciation of the US dollar, which makes it harder for US firms to sell their goods and services abroad.
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