During his campaign, President Trump spoke out against many current trade agreements and promised to bring manufacturing jobs back to the United States. After becoming president, he embarked on a protectionist campaign, including imposing tariffs to punish countries for perceived unfair trade practices. He also threatened to pull the United States out of the World Trade Organization, an impartial entity that regulates and arbitrates trade among 160 member nations.
As a result of the trade war, exports of American products to foreign markets have fallen. The drop in trade with China was especially pronounced. This reduction in trade with China has led to higher prices for American consumers and reduced incomes for American workers and owners of capital. These behavioral effects are why it is so important to consider the consequences of tariffs before they are imposed.
In addition, tariffs lead to retaliation from foreign governments and companies, who will have to increase prices in the US to sell their products abroad. This will also hurt American firms that provide services to overseas customers, like information technology companies. Historically, foreign retaliation has most often taken the form of a tariff on imported goods. However, other methods can be used. For example, President Obama’s administration blocked two Chinese acquisitions of US companies on the basis of a national security review.
Economists generally agree that free international trade is better for all parties than protectionism. But it is difficult to achieve this goal if countries are locked into a cycle of tit-for-tat trade disputes that escalate into full-fledged trade wars. Even if a trade barrier helps a particular group of political insiders, long-term economic stability and growth can be jeopardized.