A trade war is a conflict between countries that makes it harder and more expensive to buy each other’s products. It usually starts when countries want to protect their own domestic industries from foreign competition. They can do this by adding extra taxes (called tariffs) or limiting how much can be imported. This can have big ripple effects, disrupting global supply chains and raising prices for consumers worldwide. The most recent example was the US-China trade war, which started when President Trump accused China of intellectual property theft and imposed a slew of tariffs on Chinese goods. China retaliated with tariffs on American products and introduced new restrictions like export bans on strategic technology like rare earth minerals to thwart US companies such as Apple.
Many governments use tariffs to pressure other countries into agreeing to better trade deals. They can also reduce trade deficits by taxing imports to encourage companies and consumers to buy more locally-made products, thereby reducing the gap between what a country imports and what it exports. However, tariffs can have unintended consequences such as pushing companies to relocate overseas, reshaping global supply chains, and hurting local workers.
The US-China trade war illustrates the complexities of economic policy. Developing countries should learn from this conflict to form appropriate economic policy towards China, including economic openness and market liberalization, while ensuring that disputes are settled based on WTO norms, which take into account the size of the country’s economy.