A trade war occurs when nations make it harder and more expensive to buy each other’s goods by adding extra taxes (called tariffs) or limiting how much can be imported. This is often done to protect local industries from foreign competition, but it can have serious consequences in a globalized economy. The conflicts can disrupt supply chains and raise costs for consumers.
The US-China dispute began in 2018 with President Trump imposing tariffs on steel and aluminum, accusing China of intellectual property theft. The move prompted Chinese tariffs on American goods and led to an escalation of threats. At one point, each nation threatened to impose tariffs on the other’s entire stockpile of goods.
As a result, the two countries’ economies have suffered. A 2024 study by economists Kyle Handley, Fariha Kamal, and Ryan Monarch estimates that retaliatory tariffs have reduced US GDP by 0.26 percent annually since the start of the conflict. The tariffs have also caused a drop in manufacturing employment and increased the cost of raw materials for companies that export to the US.
In an effort to avoid a recession, the US and China seem to be recalibrating their approach. Washington might agree to a baseline 10% tariff on industrial goods, with special carve-outs for certain products, such as aircraft, food, and spirits. Meanwhile, the EU is pushing for a lower rate of the blanket tariff and might even accept quotas on key goods like cars and chemicals.