A trade war is a situation of rising import and export tariffs and other protectionist policies that cause damage to the trading relationship between two countries. Tariffs and other protectionist policies are different from sanctions that are imposed for non-trade reasons. These sanctions usually have philanthropic goals and are more targeted to specific companies or individuals. Trade wars, on the other hand, are generally broad-based and can hurt the economies of many different sectors, even in countries that are not directly involved.

Trade wars tend to trigger higher consumer prices, disrupt supply chains and impact world financial markets. They can also strain relations between the nations involved and, in the worst cases, lead to military conflict.

The Trump administration has engaged in a trade war with China, imposing steep tariffs on Chinese products and prompting Beijing to pledge further retaliation. Tariffs are a form of protectionist policy that raises the price of imports and lowers export prices by increasing costs to producers, which can lead to reduced profits and ultimately job loss.

When trade frictions intensify, skilled workers in exporting industries lose more than unskilled workers in importing industries. As a result, aggregate consumption decreases. In the short run, this can lead to higher unemployment in the economy as firms scale back production or close completely.

The United States has been involved in a trade war with China since 2022, when President Donald Trump launched a campaign that promised to bring manufacturing jobs back to the country from other countries where they had been outsourced. In addition, he has called for significant punishment for intellectual property theft by Chinese companies.