When a country imposes tariffs to limit foreign trade and protect domestic industries, it enters a trade war. These disputes are a source of rising prices and economic dislocation that can be detrimental for all involved.
During his presidential campaign, President Trump expressed disdain for many existing trade agreements and vowed to bring manufacturing jobs back to the United States from places like China. Since his election, he has ratcheted up his protectionism in a bid to accomplish that goal. He has threatened to pull the U.S. out of the World Trade Organization (WTO), and imposed steep tariffs on China, Canada, and Mexico.
The WTO is a neutral international body that regulates and arbitrates global trade disputes. It is designed to prevent countries from using tariffs to gain unfair competitive advantages over other countries. In practice, however, countries often engage in trade wars by using tariffs to punish or reward their trading partners.
A trade war typically results in higher prices for consumers, as manufacturers must pay more for the raw materials needed to produce goods. Consumers may also face shortages as domestic substitutes for imported goods aren’t readily available.
US exports to China fell sharply after the initiation of the trade war, but they have not returned to pre-trade war levels. In fact, retaliatory tariffs from China and other trading partners have reduced American exports to those countries by an estimated $79 billion in 2024. That figure includes retaliation against Section 232 steel and aluminum tariffs, as well as retaliatory tariffs on goods targeted by Section 301, such as corn, soybeans, poultry, cotton, potatoes, and dextrin.
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