A trade war is a battle between nations over global market access and tariffs on imported goods. Tariffs are taxes on goods and services from a foreign country, such as the 10 percent U.S. tax on Chinese shoes that President Trump has imposed. Such taxes raise prices for consumers and businesses, who must either pay the higher cost or find alternative sources. As a result, the ensuing disruptions in global supply chains will increase costs for businesses and consumers, potentially slowing growth and harming productivity. In addition, gutted rules will breed distrust, which could lead to a cycle of unilateralism and transactionalism that threatens global economic stability and prosperity.
Since the start of Trump’s presidency, his administration has rejected decades of free-trade orthodoxy and embraced core tenets of mercantilism. This approach holds that trade deficits do profound harm and that government should use force to prevent domestic businesses and consumers from engaging in commercial exchanges that hurt the country’s economy.
Since 2017, the Trump administration has imposed tariffs on everything from steel and aluminum to washing machines, solar panels, and China-made electric cars. These tariffs and their retaliation reduced the value of imports by more than $380 billion, including the effect on consumer prices. The current tariffs are expected to generate an additional $79 billion in duties for the US government, based on initial import values. However, the actual amount collected will be less than this static estimate because evasion and avoidance reduces tariff revenues and the effects on real income lower other tax revenue.
