A trade war involves countries imposing tariffs against one another, raising prices and disrupting supply chains. In the long run, they can reduce global trade and economic growth.
While running for president in 2016, Donald Trump expressed disdain for many current trade agreements, promising to bring manufacturing jobs back to the U.S. from nations where they had been outsourced, like China and India. After becoming president, he escalated his protectionist campaign, and threatened to pull the United States out of the World Trade Organization, an impartial international entity that regulates and arbitrates trade among the more than 160 countries that belong to it.
During a trade war, businesses that rely on imported components face higher production costs and delayed shipments because of tighter customs checks at the borders. As a result, their profit margins are squeezed, and some may close operations altogether. Meanwhile, consumers pay more for the goods and services they need and the economy slows down.
The extent of the impact depends on how wide-ranging and extensive the tariffs are. For example, a study from economists Kyle Handley, Fariha Kamal and Ryan Monarch estimates that the US-China trade war has already cost the American economy $27 billion due to retaliatory tariffs.
Having well-managed diplomacy that can achieve successful deals could help mitigate the damage, but that requires a clear understanding of what’s at stake for foreign policymakers. Trump’s penchant for bombast may make it difficult to persuade foreign governments that any deals he makes will stick.
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