With globalization, tariffs and trade wars have become strong economic tools used by countries to protect economies, balance trade deficits, or react to unfair practices. Although these strategies can sometimes provide short-term returns, they also carry major risks in terms of end-consumer prices, production and commercial continuity, and international diplomacy. This situation becomes more relevant in the U.S., where trade policies play a pivotal role in modeling the economic landscape.
What is Tariff and What is Trade War?
Basically, customs tariffs are applied to products imported from abroad and are designed to make foreign products more expensive and less attractive compared to local alternatives. Governments impose tariffs for various reasons, such as protecting local industries from cheaper foreign competition, increasing domestic revenue, or using them for bargaining in international negotiations. While customs tariffs can create a more favorable environment for domestic businesses, they generally cause higher prices for the final consumers.
A trade war starts when two or more countries enter a cycle of increasing tariffs or trade barriers against each other. These typically arise when one country imposes additional tariffs on imports, and the affected country acts with similar measures. Over time, this reciprocal escalation can disrupt global supply chains, slow down economic growth, and create uncertainty in financial markets.
The Latest Example of a Trade War
One of the most significant modern examples is the U.S.-China trade war which began in 2018 during the first Trump administration. In this war, the U.S. imposed tariffs on billions of dollars’ worth of Chinese imports on the grounds of unfair trade practices and intellectual property theft. In response, China imposed tariffs on U.S. goods, significantly affecting sectors such as agriculture, technology, logistics, and manufacturing.
In 2021, the Biden administration maintained most of these tariffs while seeking diplomatic solutions to resolve trade conflicts. The U.S. has also started arguing with the European Union (E.U.) over steel and aluminum tariffs.Â
Afterwards, by 2023, the U.S. imposed restrictions on semiconductor exports to China, planning to limit China’s technological advancements in the artificial intelligence and defense sectors. This move has led to measures from China, including export restrictions on critical minerals used in chip production, and has heightened tensions between the two countries.
Today: What’s Happening?
During his second term, President Trump reignited a trade war with the E.U., Mexico, and Canada, in addition to China. On March 4th, 2025, Trump imposed a 25% tariff on Canadian and Mexican goods, added 10% on Canadian energy, but later exempted all USMCA (United States-Mexico-Canada Agreement) compliant goods until April 2nd. He also raised the tariff on all Chinese goods to 20%. The U.S. has also introduced a 25% tariff on all steel and aluminum imports from around the world. Several countries, including those in the E.U., have begun proactive negotiations with Trump to prevent additional tariff disputes.
What to Expect Going Forward?
Economists state that prolonged trade conflicts, especially between the U.S. and major trading partners, are causing a slowdown in global economic growth. OECD emphasizes that tariffs negatively affect international trade, and that this situation has lowered GDP growth forecasts for many countries.
There will also be several possible results:
- Customs tariffs can enhance sustainability and increase domestic production by protecting local producers and farmers from foreign competition.
- Customs tariffs can make imports more expensive, encouraging consumers to buy domestic products and thus reducing the trade deficit.
- Customs tariffs increase the costs for importers, which can lead to all products being sold at higher prices.
- Countries subject to tariffs will retaliate. This could lead to increased trade restrictions and a decline in U.S. exports.
- Economic uncertainty may arise for businesses, supply chains may be disrupted, economic growth may slow down, and consequently, unemployment rate may increase.
The trade wars between the U.S. and its trading partners are becoming more and more difficult every day and don’t seem to end anytime soon. While domestic businesses are strengthening, it seems that households will be the most affected due to rising consumer prices.
