A trade war occurs when a country raises tariffs on imports to punish another. Tariffs are taxes that are designed to change the balance of trade, but they can also be imposed on exports to protect domestic industries. Other protectionist policies can include quotas, product standards, government subsidies, or investments in certain industries.
The Trump administration has used tariffs to increase revenue and pressure companies to manufacture in the United States rather than abroad, but they have also pushed prices up for US consumers. In addition, other nations have retaliated against the US by raising their own tariffs on American goods. As a result, the price of US-made products is higher, and many companies have chosen to move production offshore to reduce their costs. This is a process known as deglobalization and can have serious impacts on economies around the world.
Despite the posturing and threats, most experts say a trade war is unlikely to end soon. A recent meeting between President Trump and Chinese President Xi did not result in an agreement that will rebalance the trade relationship. Instead, tariffs and retaliatory tariffs will likely remain in place for the foreseeable future.
The trade war is already causing significant economic damage, according to economists at the Tax Foundation. Since the start of 2018, the tariffs have generated over $264 billion in higher customs duties for the US government, compared to $89 billion in tariffs collected during the Obama and Biden administrations combined. These increased duties have raised prices for American consumers and businesses, reducing their incomes and consumption. The higher prices have also led some companies to relocate production overseas or stop doing business with the US.