A trade war is an economic conflict in which countries increase tariffs and other nontariff barriers against one another. It typically involves a “tit for tat” approach, with each side increasing its own import tariffs in response to the other’s increases. In general, a trade war leads to slower growth and lower employment, but it can also result in higher prices for consumers.
Trade wars are a frequent feature of political conflicts between nations and they have been around for as long as nations have conducted trade with one another. For example, the British Empire had numerous trade battles with China in the 19th century over the opium trade, and the United States has a history of trade fighting with its colonial possessions.
The US trade war with China has been escalating since 2018, when President Trump first imposed steep tariffs on hundreds of billions in Chinese goods. He claimed that these levies would decrease the US trade deficit with China, bring back manufacturing jobs to America, and force China to reform its unfair trade practices such as IP theft.
But the evidence shows that these benefits are minimal. The evidence also suggests that the costs of US-China trade war retaliation are significant for Americans. According to the Tax Foundation’s General Equilibrium Model, the trade war tariffs have generated more than $264 billion in higher customs duties collected by the federal government from American importers. This revenue is a direct cost to households, but it also hides other indirect costs such as the loss of consumer choice as firms shift production away from high-tariff goods to those not subject to retaliatory tariffs.