A trade war, when protectionist measures escalate, damages global economic output and consumer prices. Countries imposing tariffs and those that are subject to them lose from higher import prices, while consumers suffer from lower productivity efficiency. It is a self-defeating scenario that is especially dangerous at this time, when monetary stimulus is beginning to wear off and oil prices are elevated, and political risks are on the rise.
A tit-for-tat of tariff increases and counter-tariffs disrupts global supply chains, raises costs for consumers and slows economic growth. While short-term benefits for domestic industries may appear to justify a trade war, the overall effect is usually to erode market stability and international cooperation.
Regardless of the outcome, the current trade dispute is damaging the global economy and will reduce corporate investment opportunities. In addition to higher tariff rates, China is implementing nontariff barriers such as export bans on rare earths and antitrust investigations of US companies. In the long term, these barriers could derail globalization, which depends on free movement of goods and capital.
It is hard to predict what Trump will do next, but he might continue to target particular sectors such as technology. In this case, he might seek to further limit foreign investment in China or restrict Chinese investment in the US, a move that would directly affect technology firms like Google and Nvidia, while targeting Beijing’s ambitions to lead the world in science and innovation. This is a dangerous game that could derail the US-China relationship and hurt global economic growth.