As the name suggests, a trade war is a period of escalated tariffs and export restrictions between nations. Historically, the goal of such policies was to protect domestic industries from foreign competition, but they can also raise prices for consumers and cause political backlash.
During his presidential campaign, Donald Trump expressed disdain for current trade agreements and promised to bring manufacturing jobs back to the United States. After his election, he began enforcing steep import duties on China and other trading partners in an effort to combat alleged intellectual property theft and unfair trade practices. The resulting trade war has disrupted global supply chains, raised prices for consumers, and slowed economic growth.
Countries can use many strategies when battling a trade war. They can impose counter-tariffs or export bans, suppress the value of their currency to lower the price of goods they are selling to foreign markets, or challenge trade policies through international bodies like the World Trade Organization.
In a trade war, all parties suffer losses. The most immediate loss is for those who export products, as tariffs reduce their income and consumption. Workers in domestic export-competing sectors experience similar losses, while unskilled workers in import-competing sectors hardly lose at all. However, when tariffs increase the price of raw materials that manufacturers rely on to make their goods, their profit margins shrink. As a result, companies may need to pass on these increases in costs to consumers or raise prices for their goods altogether.