When countries impose tariffs to reduce dependence on foreign goods and encourage domestic production, they often end up in a trade war. The resulting cycle of retaliatory measures puts increasing strain on multiple sectors. The result is that both sides lose. In a trade war, there is no winner.
The Trump administration has ripped up decades of global trade rules in favor of a nakedly transactional approach to international economic relations, eschewing shared norms and multilateral institutions. It’s a dangerous path to follow. If other countries follow suit, they will adopt beggar-thy-neighbor policies that would damage their own economies and lead to disorder around the globe.
While the United States has a strong incentive to negotiate with China in order to de-escalate, Beijing’s interests are also at play. The country has a massive trade surplus with the United States, and it relies on American companies for critical technologies such as pharmaceutical stocks, cheap electronic chips, and essential minerals that are difficult to substitute any time soon.
The US-China trade war could spiral out of control, threatening global prosperity and sparking protests in countries that depend on American exports. In a recent workshop, the Center for a New American Security ran a trade war simulation to see how foreign governments might respond to the Trump administration’s aggressive tariff attacks. Teams representing traditional U.S. trading partners like Canada, Mexico, and Europe bristled at Washington’s bullying, but they recognized that they needed to work with the United States to mitigate their losses.
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