In a trade war, nations impose tariffs against one another in order to exert leverage. Tariffs make it more expensive to import and export goods, which may prompt businesses and individuals to shift resources between the two countries. This shifting and redistribution of resources creates economic uncertainty that can cause overall economic growth to slow.
The trade war began in January 2018 when President Trump announced tariffs on solar panels and washing machines, followed by steel and aluminum tariffs citing national security concerns. This move prompted the EU, Canada, and China to levy tariffs on various American products. The tariffs impacted everything from Harley Davidson motorcycles to Chinese-made steel and aluminum, as well as food, technology, and pharmaceuticals.
As tariff rates rose, global manufacturers rerouted their supply chains to Vietnam and Mexico, American consumers bore the brunt of higher prices, and the US and China saw reduced trade flows. In mid-May, after months of escalating hostilities and back-channel talks in Geneva, the US and China agreed to a 90-day truce.
While the pause may have slowed further escalation, it did not resolve the underlying issues of Chinese industrial subsidies and state-owned enterprises. Both sides continue to pursue their own agendas, and there is no clear sign of a trade deal in the foreseeable future. Explaining the impact of a trade war to students requires a deeper dive into how the tariffs affect different groups of workers. In particular, tariff increases tend to increase the price of labor-intensive goods, making specialization less attractive and thus reducing job opportunities for some individuals while increasing others’ wages. This is often missed when discussing trade wars from an aggregate perspective.
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