Who Wins a Trade War? Nobody

Trade tensions between the United States and the rest of the world are escalating, as President Trump promotes tariffs that he says will protect American workers and industry. After imposing small-scale taxes on imported products such as dishwashers and solar panels and expanding to tariffs on aluminum and steel, Trump is now threatening to levy stiff penalties on China.

As America’s protectionist measures have increased in recent months, so have retaliatory moves from other countries, which have responded with fees targeting U.S. exports such as motorcycles and orange juice.

In late June, Trump said on Twitter that “Trade must be fair and no longer a one way street!” But rather than protecting U.S. producers, his actions are fueling a trade war that will likely lead to higher prices for American consumers and reduced profits for American companies, according to Joel Trachtman, professor of international law at the Fletcher School of Law and Diplomacy.

To learn more, Tufts Now recently spoke with Trachtman about tariffs, trade wars, and what to expect next.

Tufts Now: What are tariffs, and what are they meant to achieve?

Joel Trachtman:

Tariffs are taxes on imports. While they were first instituted to raise revenue for government, their modern function is to protect domestic producers from import competition. The WTO—World Trade Organization—and its GATT—General Agreement on Tariffs and Trade—predecessor have reduced worldwide tariffs significantly, increasing global welfare greatly. 

In March, President Trump said, “trade wars are good and easy to win.” Has that been true historically, and do you think it will be this time?

Trade wars have always been bad and both sides always lose. That will be true this time. The only kernel of correctness would be if, hypothetically, a trade partner responded to threats of barriers by reducing its own barriers. This is what President Trump seems to hope for, but China, Europe, and our other trade partners have made clear that they will not back down.   

Are Trump’s recent imposition of tariffs on aluminum and steel and his threats to levy $200 billion in tariffs and penalties on China likely to help or harm American workers and American companies?

The steel and aluminum tariffs will help a small number of companies and workers in that sector, while harming a much greater number of companies and workers in sectors that use steel and aluminum, which includes much of the manufacturing sector. Companies will shift production outside the U.S. in order to avoid these tariffs. 

The current U.S. imposition of tariffs has prompted international retaliation, with countries in addition to China implementing their own tariffs on American exports. Does the U.S. stand to gain or lose more from these conflicts?

The U.S. will lose from this retaliation. For example, China’s retaliation targets U.S. agricultural goods, which will hurt the United States agricultural producers.  

What will be the likely longer-term impact of a trade war on the stock market and the U.S. and global economies? 

A trade war will reduce the value of U.S. companies. Already, companies like Harley-Davidson are absorbing losses because of higher steel and aluminum prices and higher tariffs on its products abroad. Stock market valuations have already begun to decline in anticipation of these losses. The U.S. and global economy will be hurt by the lost efficiency of production due to these tariffs.   

Heather Stephenson can be reached at heather.stephenson@tufts.edu.