+ What are Tariffs? + Tariffs and Trade Barriers + Trade Wars + How Would a Trade War Affect You? + Who Has the Highest Tariffs? + Protectionism -- -- Economy Economics Trade War By James Chen -- -- Table of Contents (BUTTON) Expand * What Is a Trade War? * The Basics of a Trade War * Brief History of Trade Wars * The Pros and Cons of a Trade War * Real World Example -- -- * Real World Example What Is a Trade War? -- A trade war happens when one country retaliates against another by raising import tariffs or placing other restrictions on the opposing country's imports. A tariff is a tax or duty imposed on the goods -- -- raising import tariffs or placing other restrictions on the opposing country's imports. A tariff is a tax or duty imposed on the goods imported into a nation. In a global economy, a trade war can become very damaging to the consumers and businesses of both nations, and the contagion can grow to affect many aspects of both economies. -- -- contagion can grow to affect many aspects of both economies. Trade wars are a side effect of protectionism, which are government actions and policies that restrict international trade. A country will generally undertake protectionist actions with the intent of shielding -- -- Key Takeaways * A trade war happens when one country raises tariffs on another country's imports in response to increased tariffs from the first country. -- -- country's imports in response to increased tariffs from the first country. * Trade wars are a side effect of protectionist policies. * Trade wars are controversial. * Advocates say trade wars protect national interests and provide advantages to domestic businesses. -- advantages to domestic businesses. * Critics of trade wars claim they ultimately hurt local companies, consumers, and the economy. -- -- US China trade balance The Basics of a Trade War -- Trade wars can commence if one country perceives a competitor nation has unfair trading practices. Domestic trade unions or industry lobbyists can place pressure on politicians to make imported goods less -- -- lobbyists can place pressure on politicians to make imported goods less attractive to consumers, pushing international policy toward a trade war. Also, trade wars are often a result of a misunderstanding of the widespread benefits of free trade. -- -- widespread benefits of free trade. A trade war that begins in one sector can grow to affect other sectors. Likewise, a trade war that begins between two countries can affect other countries not initially involved in the trade war. As noted above, this import tit-for-tat battle can result from a protectionist penchant. -- -- penchant. A trade war is distinct from other actions taken to control imports and exports, such as sanctions. Instead, the war has detrimental effects on the trading relationship between two countries in that its goals are -- -- implementing government subsidies for processes to deter outsourcing. Brief History of Trade Wars -- Trade wars are not an invention of modern society. Such battles have been going on for as long as nations have conducted trades with one another. Colonial powers fought with each other over the rights to -- -- By May 2019 tariffs on Chinese imports impacted nearly US$200 billion of imports. As with all trade wars, China retaliated and imposed stiff duties on American imports. According to a report from CNBC, a study by the International Monetary Fund (IMF) shows that the U.S. importers of -- -- the American consumer in the form of higher product prices. The Pros and Cons of a Trade War -- The advantages and disadvantages of trade wars in particular and protectionism, in general, are the subjects of fierce and ongoing debate. -- -- ultimately creates more American employment. These policies also serve to overcome a trade deficit. Further, proponents believe that painful tariffs and trade wars may also be the only effective way to deal with a nation that behaves unfairly or unethically in its trading policies. -- -- substitute for the imported goods that tariffs have impacted or eliminated. Having to pay more for raw materials hurts manufacturers' profit margins. As a result, trade wars can lead to price increases—with manufactured goods, in particular, becoming more expensive—sparking inflation in the local economy overall. -- -- expensive—sparking inflation in the local economy overall. Real World Example of a Trade War While running for President in 2016, President Donald Trump expressed -- -- Economics How Would a Trade War Affect You [:0] -- -- ETFs Can ETFs Help You Benefit From a Trade War? [:0]