When a country puts tariffs or other trade barriers in place to protect domestic industries, it’s known as a trade war. This can cause economic conflict between nations and reduce international cooperation.
The Trump administration has used the term trade war to describe the escalating trade conflict with China and other trading partners. While Donald Trump campaigned on bringing manufacturing jobs back to the US, he has continued to impose tariffs and other protectionist measures since taking office. These actions are intended to address what the White House has described as unfair trade practices by China.
A trade war can be expensive for all parties. The costs of a trade war are not just the higher prices that consumers pay for imported goods. Manufacturers also face rising input costs, which can lead to price increases for manufactured products and services. This can lead to consumer inflation, which is a significant economic problem for both the economy and households.
In the short run, higher prices can lead to decreased production, which can lower employment and incomes. In the long run, higher prices can depress demand, leading to a recession.
During the first two years of the trade war, the increased tariffs have generated over $264 billion in higher customs duties collected for the US government from importers. This is the equivalent of about $625 per year, on average, for each US household before accounting for behavioral effects like lower incomes and reduced output.