A trade war is a conflict between countries that involves adding extra taxes (called tariffs) or otherwise making it harder and more expensive to buy each other’s goods. These conflicts can be caused by a variety of reasons, but often they are designed to protect local industries from cheaper foreign competitors. However, when these conflicts extend to a wide range of industries and involve major trading partners, they can have far-reaching consequences.
A key concern is that the higher prices for imported products reduce demand, which can lead to slower growth in the economy overall and less tax revenue for governments. Some analysts also worry that a trade war could escalate to include restrictions on the sale of high-tech technologies and intellectual property rights.
In addition, a trade war can be highly disruptive to global supply chains. For example, during the U.S.-China trade war, which began in 2018, the U.S. imposed tariffs on Chinese goods in response to Beijing’s theft of American technology, while China responded by targeting American agricultural products like soybeans. This back-and-forth raised prices and hurt companies that weren’t even involved in the original conflict.
President Trump claims that his tariffs will help the economy by increasing tax revenues, bringing back manufacturing jobs, and forcing China to reform its trade practices—but this has yet to happen. In fact, the most likely result of a trade war is that retaliation from other countries will cut into US economic output and incomes, which in turn lowers tax revenues for the federal government.