A trade war is an economic conflict between two countries that involves imposing and increasing tariffs and nontariff barriers against each other. It typically arises from extreme economic protectionism and features so-called tit-for-tat measures, in which each side increases its own tariffs in response to the other’s.
The US’s trade war against China is a dangerous example of this. It threatens global supply chains, and may raise consumer prices for goods from cars to Australian-inspired avocado on toast. It also risks eroding the international rules-based trading regime, as the Trump administration has retreated from using WTO disputes to settle disagreements with other countries and has begun using unilateral tactics to undermine the regime.
In the first six months of this presidency, the US has left behind a decades-long global trade order and embarked on something drastically different and largely untested. As this new world of protectionism takes shape, it’s worth asking: can either side win?
The short answer to that question is no. When tariffs are imposed, they create artificial scarcity and drive up prices as demand stays the same while supplies are restricted. This is why tariffs are one of the most popular “weapons” for countries in a trade war – although there are many other covert forms of protectionism that can have similar effects (imagine having your export permit revoked for no apparent reason or your country disappearing from another’s electronic system of foreign trade, as happened to Lithuania). But despite all the rhetoric and finger-pointing, a real trade war would be costly for both sides.
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