A trade war occurs when one country (Country A) raises tax or duty on another country’s (Country B) imports in retaliation for Country B raising tariffs on Country A’s imports.
Trade wars are a side effect of trade barrier government actions and policies that restrict international trade, generally with the intent of shielding local businesses and jobs from foreign competition, or of righting balance of trade (a country’s imports exceeding its exports).
The Basics of a Trade War
Trade wars can commence if one country discern another country’s trading practices to be unfair or when domestic trade unions or industry influence peddlers pressure politicians to make imported goods less attractive to consumers. Trade wars are also often a result of a misunderstanding of the pandemic benefits of free trade.
A trade war that begins in one sector can grow to affect other sectors. Likewise, a trade war that begins between two countries can affect other countries not initially involved in the trade war. As noted above a trade war can result from a protectionist penchant.
A trade war is distinct from other actions (e.g. sanctions) that have detrimental effects on the trading relationship between two countries in that its goals are related specifically to trade.