A trade war is a period of economic conflict between countries. It usually begins with a dispute over unfair trade practices, such as dumping or subsidizing domestic industries. Countries may impose tariffs or other barriers to trade in an attempt to level the playing field and protect their own businesses. They may also launch a trade war to pursue strategic or political goals, such as retaliating against rival governments or weakening political adversaries.
Developing economies, especially those heavily dependent on exports for growth, can be disproportionately affected by an escalating trade war. Tariffs increase the cost of imported goods, leading to higher prices for consumers. In addition, retaliatory measures can disrupt global supply chains and hurt companies that depend on foreign markets for sales and production. For example, the US-China Trade War has sparked China to implement nontariff barriers such as export bans on rare earths and antitrust investigations into Google and Nvidia.
When a trade war escalates, it can create instability in financial markets and hurt investments. It can also damage international cooperation and diplomatic relationships. However, it is important to understand the benefits and costs of a trade war in order to develop policies that benefit all. For example, while it might seem counterintuitive, unskilled workers in the short run gain from lower consumption costs due to a decrease in price inflation. In addition, a trade war can encourage nations to invest in self-sufficiency, leading them to reduce their dependence on foreign goods.