When a trade war begins, supply chains are disrupted. The cost of a variety of products—from new cars to Australian-inspired avocado on toast—increases. While some of these increases can be explained by higher production costs, many are the result of increased tariffs imposed by a country on imports. As global trade becomes increasingly interlinked, a trade war can quickly spread across entire economies.
While running for President, Donald Trump disdained most current trade agreements and promised to bring back manufacturing jobs and force China to reform its trade practices, including intellectual property theft. He imposed his first round of tariffs in 2018, threatening to increase them as needed to address the country’s trade deficit with China. While the US and Chinese governments have since engaged in several rounds of negotiations, these have been largely fruitless.
During the 1930s, a series of high import tariffs in the United States and retaliation by other countries helped fuel the Great Depression. The Smoot-Hawley Tariff Act, which was enacted in response to rising protectionist sentiment in the wake of the Great Depression, raised tariffs on a wide range of goods and contributed to the economic catastrophe that began in the United States and spread throughout the world.
In light of the growing evidence that the trade war is unwinnable, it may make sense for some countries to secure deals that lead to lower tariff rates. But this will require a willingness by the Trump administration to give up its negotiating position. Given the president’s deep unpopularity abroad, this is not a likely outcome.