A trade war is when countries stop cooperating and start placing tariffs, restrictions or other burdens on each other’s goods. Leaders may begin these disputes to protect local industries or challenge unfair practices. However, these disputes often slow economic growth and reduce trust between nations. They also increase prices for consumers who have to pay higher taxes on the goods they buy.
When the US slapped hefty tariffs on China, Chinese officials responded with threats of their own. They vowed to fight to the bitter end—which could mean a world economic showdown.
For now, both sides appear to be in a holding pattern as they await the outcome of talks aimed at resolving this dispute. But even if a solution is reached, it’s likely that tariffs will remain in place.
The biggest impact of this ongoing trade war will be on supply chains. Higher customs duties will raise the cost of importing materials and goods that are necessary for manufacturing. This will cause companies to raise their prices, which they then pass on to customers. As a result, the price of goods and services will go up—including food, beer, coffee, gas, clothes, jewelry, new cars, and consumer electronics like smartphones and computers. It will also make home building supplies more expensive, which can discourage new construction and lead to higher rents.
While it’s important to protect domestic industries, long trade disputes can have major negative impacts on global trade and prosperity. History has shown that such conflicts can also fuel extremism and elicit military responses.