A trade war is a situation where countries try to damage each other’s economies by adding extra taxes or restrictions on imported goods. This can lead to higher prices for consumers, as well as disruptions in global supply chains.
The causes of trade wars vary but often include economic, political, and social elements. For example, a country may adopt protectionist policies to protect local jobs and industries from cheaper foreign imports. This can be especially true when a nation has an imbalance between its exports and its imports, as in the case of the Smoot-Hawley Tariff Act of 1930 in the United States, which raised tariffs to combat a growing trade deficit and worsened the Great Depression.
As a result, nations can become embroiled in long-running trade conflicts that can have significant negative effects on global growth. In addition, trade tensions can halt investment and stifle innovation in sectors that depend heavily on international trade.
In the latest round of trade conflicts, the US and China continue to exchange threats and levy penalties on each other’s goods. As the two largest economies in the world, they have hugely impacted markets around the world.
Importers and manufacturers are impacted by these trade wars, as they must now pay more for raw materials or products made from those materials. As a result, those companies pass on the higher costs to their customers or end users. This can also lead to shortages if there is not a domestic alternative to the imported product.