In a trade war, the US and other nations impose tariffs on each other. This raises the costs of imported goods, harming consumers and businesses in both countries. It also makes it harder to sell abroad, reducing exports and creating new barriers to trade.
While international initiatives like the World Trade Organization aim to reduce trade barriers and promote stability, all nations want to act in their own best interests, and sometimes that includes imposing protectionism. There are reasons for this, including national security, a desire to protect domestic markets, and the need to guard economic secrets. Often, leaders put short-term interests ahead of the broader economy, leading to a trade war.
Even if the trade wars do not turn into a full-blown embargo, they will erode the benefits of globalization. In the long term, these tariffs will likely cause some companies to “deglobalize” by moving operations back to their home country. This will hurt those firms that rely on offshore production and make it more difficult for other companies to benefit from their investment in plants and employees.
Some trading partners may strike bargains with the White House that will reduce or eliminate tariff rates. But this will likely only paper over the flaws in the existing system, as both parties continue to burn leverage and valuable resources. Ultimately, the only way to restore the benefits of free trade is for all countries to implement structural reforms that change the rules and incentives in the global marketplace.
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