When a country raises tariffs or other barriers to trade in order to protect domestic industries, it is involved in a trade war. The conflict can have a variety of causes, from accusations of dumping (selling products at unfairly low prices to hurt competitors) and subsidies for domestic businesses to political or strategic rivalries. It may also be sparked by concerns about the impact of global supply chains on jobs and economic stability.
Trade wars escalate tensions, disrupt economies, and can have far-reaching consequences, including recessions and supply chain disruptions. They can also weaken global cooperation and damage diplomatic relations. Although international organizations such as the World Trade Organization aim to reduce trade barriers, sometimes a nation puts its own interests first, especially when there are noneconomic considerations such as national security or the need to protect trade secrets. Moreover, some nations promote trade policies that benefit certain political insiders at the expense of the general public.
In addition to raising tariff rates, nations can use other types of trade barriers such as investment restrictions and antitrust investigations to interfere with each other’s businesses. The US and China are currently enmeshed in a trade war over intellectual property theft, with the Trump administration threatening to add new tariffs on more than 100 Chinese products.
Companies that rely on foreign suppliers must rethink their business strategies. For example, some tech firms may move away from sourcing raw materials in China and instead invest in developing their own production facilities.
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