Waging a Trade War: Lessons from Trump's Escalating Tariff War with China

Strategic Insights -

The global economy is bracing for a potentially catastrophic trade war, as President Donald Trump's escalating tariff battle with China threatens to spiral out of control. Despite economists' warnings of devastating consequences, including higher prices and reduced choice for consumers, Trump remains committed to using tariffs as a bargaining tool. But what does his unpredictability mean for countries considering retaliatory measures?

Key Takeaways:

  • Studies suggest that trade wars lead to high tariffs damaging to consumers in both countries involved, with recent research documenting significant declines in Chinese economic activity in sectors affected by US tariffs.
  • Imposing tariffs on foreign goods can damage a nation's own consumers, and countries considering counterattacks with retaliatory tariffs must weigh their goals and the price they are prepared to pay.
  • Effective tariff retaliation targets selected goods, minimizing domestic economic impacts and maximizing harm to the foreign economy.
  • Global value chains and interlinked production between countries must be considered when targeting goods, as seen in the complex web of US-China trade relationships.
  • The US-China trade war concluded with a trade deal in January 2020, with the US cutting some tariffs and China committing to increase US imports by $200 billion over two years.
  • There is limited evidence to suggest that retaliatory tariffs played a significant role in the de-escalation of US-China tensions, but US businesses and consumers may have felt the pain from tariffs on Chinese goods.

Statistics:

  • 90% of economists advise against using tariffs as a bargaining tool, citing their devastating impact on consumers and economic activity (Trump has ignored this advice).
  • The US-China trade war resulted in 5 waves of tariffs and subsequent retaliations, concluding with a trade deal in January 2020.
  • The US cut some tariffs under the trade deal, and China committed to increase US imports by $200 billion over two years.
  • imports from China fell by 16% in 2019 due to trade tensions, with US businesses and consumers feeling the pain (Source: US Census Bureau).
  • Retaliatory tariffs imposed by the EU on US goods, such as jeans and Harley-Davidson motorbikes, led to renegotiation of some tariffs in 2021.

Sources:

  • "Trump has shown he will backtrack on tariffs. What does that say about how to wage a trade war?" by Antonio Navas, Senior Lecturer in Economics, University of Sheffield, (Conversation -- UK, 2025).
  • Studies on the impact of trade wars and retaliatory tariffs (various sources).