A trade war is a series of economic actions by governments that lead to higher prices for consumers and reduced business opportunities. It can also cause economic harm by reducing international cooperation and damaging diplomatic relations.
Governments may engage in trade wars to exert political influence, retaliate against rival governments or companies, or strengthen their strategic alliances. They may also initiate a trade war to gain access to foreign markets or to protect domestic industries.
One of the most common tools used in a trade war is tariffs—taxes on imported goods that apply pressure to trading partners or encourage businesses to source goods from other nations. The ongoing trade war between the United States and China is an example. Both countries have imposed tariffs on goods made by the other and threatened additional tariffs in response to the other’s initial action.
Tariffs increase the cost of imported goods for consumers, and retaliatory measures can harm export-driven industries. These changes can reduce corporate profits, raise costs for consumers, and slow overall economic growth. The impact is often felt more acutely by developing nations that rely on trade for their economic growth.
In addition to tariffs, countries may use a range of other trade barriers. These can include quotas that limit imports, subsidies that support domestic industries, and regulations that block foreign competition. These barriers are often less visible than tariffs, but can be just as disruptive. For example, the European Union has long used agricultural subsidies to protect its farmers from competition from foreign suppliers, and China has a range of restrictions on foreign investment that favors domestic producers.