A trade war is a conflict between two or more countries that involves raised tariffs or other protectionist trade barriers in an attempt to shield domestic industries from foreign competition. Countries typically begin a trade war when they feel that their trading relationships are out of balance, for example when they import more than they export and want to reduce the deficit by increasing domestic production.
When a country starts a trade war, it often imposes tariffs on foreign goods to make them more expensive and to push consumers toward domestic products. This was the main goal of the U.S.-China trade war, which started in 2018. Other tools in a trade war include quotas that limit the number of imported goods, subsidies to support domestic industry, and regulations that block foreign competition. These tools are less obvious than tariffs but can be equally disruptive and may inflame trade tensions.
As trade wars escalate, they can disrupt global supply chains. Companies that rely on imported materials for their products may experience higher production costs or longer lead times, which can affect the entire economy. They also may face uncertainty and potential legal challenges as they try to navigate the conflict. This was the case with the US-China trade war, which impacted industries such as soybeans and motorcycles. Some nations that are caught in the crossfire of these trade wars may secure deals to lower or remove tariffs, but this could be short-lived if other disagreements surface.