When a country imposes tariffs, it passes some or all of the cost to the consumers that buy those goods. The higher prices can also discourage investment and reduce economic growth. Ultimately, trade wars hurt everybody.
In a trade war, the countries that import the most experience losses in economic output as they struggle with increased costs of doing business. Countries that export may experience gains in economic output, but only if their products can reach foreign markets. In other words, the global division of labor is disrupted.
We have seen this play out with the United States’ recent tariff escalation. First, it impacted steel and aluminum, followed by a wide array of consumer goods that the United States imports from China. These companies have incurred higher input costs and have lost sales both domestically, in the United States, and in third countries where their goods are subject to Chinese tariffs.
Then the European Union stepped in, threatening to retaliate with its own hefty tariffs. This threatens to cause the kind of global economic disruption that has historically resulted when nations escalate trade disputes.
Join The Conference Board President & CEO Steve Odland and his guests, David Young, president of the Committee for Economic Development and senior director at The Conference Board Economy, Strategy & Finance Center, and Erin McLaughlin, senior economist at The Conference Board, as they discuss the numerous ways that countries wield protectionist policies in trade wars.