When President Trump ran for office, he complained that many trade agreements benefit the US only the rich and powerful. He promised to bring manufacturing jobs back to the United States. He has since launched an unprecedented attack on foreign trade, and his administration has already imposed tariffs against China.
While tariffs are the most visible and disruptive tool in the trade war, other countries have numerous ways to limit imports or support domestic industries. These include quotas that restrict imports, subsidies that subsidize production, and regulations that block foreign competition. China has stepped up its use of these tools, including export bans on rare earths and anti-trust investigations of American companies such as Google and Nvidia.
If the trade war escalates, the bottom could fall out of global supply chains and send ripple effects throughout the economy. It would also harm farmers and consumers in both the United States and China, as well as manufacturers, investors, and other businesses that depend on healthy trade ties.
It is hard to see how the trade war can be won by either side. As a result, it may be better to settle a trade dispute than to prolong the conflict and inflame economic pressures. But it is important to understand the implications of any settlement. The best option is likely to involve lowering or eliminating tariffs and removing nontariff barriers, such as investment restrictions, that hurt both sides. A trade agreement with China would probably require a change in the Chinese government’s company subsidy policy, and it might involve changes in intellectual property rights that could curb innovation by Chinese firms.
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