Trade war
When a nation imposes tariffs on imported goods, it increases the cost of those goods for consumers. That reduces demand, and a trade shock like this can push consumer spending down. It can also make it harder for companies reliant on international supply chains to keep their profit margins healthy.
As a result, trade wars can reduce overall economic growth in the countries where they occur. In addition, they can cause uncertainty and confusion in global financial markets, which can hurt investments. They can also weaken international cooperation and damage diplomatic relationships.
In the US, President Trump’s trade strategy reflects his desire to bring manufacturing jobs back to the country, and he has threatened to impose higher baseline tariffs. Many communities that used to depend on these industries have felt left behind by outsourcing and global supply chains. If they find political support, some protectionist policies could boost local economies.
The EU’s negotiating dilemma is more complicated. Its 27 member states have diverse interests, including carve-outs for the automotive industry, and a number of them are worried about damage to transatlantic defense cooperation. The EU’s trade commissioner is working to find a deal that would satisfy Trump, but the US president’s mercurial nature makes that difficult.
Some scholars frame the trade war as a manifestation of the “Thucydides Trap,” a theory that when a rising power challenges an established one for world leadership, conflict is inevitable. Others point to structural issues, including China’s closed market and state-led industrial policy, as the root cause of friction.
About the Author
