When a country puts tariffs (taxes) on imported goods, it hopes that the extra cost will make it less likely for people to buy those items. That would push consumers to buy locally made products instead – boosting the local economy. However, if other countries retaliate with their own tariffs, the trade war escalation can become a spiral of tit-for-tat increases in levies.
The US and China’s retaliatory tariffs currently affect $330 billion worth of exports each, or about one-third of total exports from both countries. The vast size of the US market means that China and other foreign exporters will have a hard time finding alternative markets.
This could lead to lower global economic growth, as businesses scale back production or find it uneconomical to keep trading. In addition, a reduction in global trade can increase operating costs for companies that rely on global supply chains.
Although some economists argue that protecting domestic industries is a good thing, the current trade conflict has serious downsides for both sides. It can hurt international economies and raise political tensions, as seen in the case of the US-Japan trade frictions from the 1950s to the 1990s. It can also lead to higher prices for consumers, as was the case with automobiles when the US and Japan fought trade battles in the 1980s.