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What Is a Trade War?

Credit: The Street
Published on November 12, 2019 - Duration: 01:39s

What Is a Trade War?

A trade war is when two or more countries put tariffs on each other's goods.

If that's hard to understand, think about it this way: Imagine the two countries as dueling siblings.

One sibling hits the other.

The one who got hit, hits back and says 'he or she started it.'

That's an over simplification, but the point is that it's a political tit-for-tat.

Most economists agree that the global economy is better off with free trade than without it.

So what would prompt a trade war?

A number of offenses could do the trick.

Recently, Trump won the presidency and wanted to keep laborers happy.

So he implemented tariffs on Chinese goods imported to the U.S. He taxed them, reducing demand for them.

But the higher price a buyer must pay for those Chinese goods means that American makers of those goods can raise prices.

This is, theoretically, a positive for American manufacturers of goods like steel and clothing materials.

Those companies can hire more workers, which is part of Trump's plan.

But China's not going to just watch this happen to its manufacturers.

Hence, a trade war.

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