A trade war happens when countries hit each other's goods with tariffs and other trade barriers, usually as retaliation for what one side sees as unfair trade practices. The U.S. and China have been locked in one, on and off, since 2018.
At a Glance
- Trade wars involve tariffs and trade restrictions imposed back and forth between nations.
- They aim to protect domestic industries but often raise prices for consumers.
- The U.S. China dispute dates to 2018 and continues into 2025 and 2026.
- A 2024 IMF style analysis found American importers bore most of the cost of China tariffs.
- Economists remain split on whether the benefits to domestic industry outweigh the costs to shoppers.
Why Countries Start Trade Wars
Trade wars grow out of protectionism, the practice of shielding domestic businesses and workers from foreign competition. Governments often turn to tariffs, taxes on imported goods, to close a trade deficit, which happens when a country buys more from abroad than it sells. Domestic industry groups and labor unions frequently push politicians toward these measures, arguing that cheaper imports are costing jobs at home.
A trade war differs from sanctions in one important way: sanctions can pursue broader political or humanitarian goals, while a trade war is narrowly about trade itself. Governments have other tools too, including import quotas, strict product standards, and subsidies designed to keep manufacturing from moving overseas.
A Long History, From Opium to Steel
Nations have fought over trade for centuries. Colonial powers clashed in the 1600s over exclusive trading rights with their overseas territories. Britain and China fought actual wars over opium trade in the 1800s, with British naval power eventually forcing China to open its markets further.
The United States has its own cautionary tale. The Smoot Hawley Tariff Act of 1930 pushed import duties toward 40% to protect American farmers, prompting other countries to retaliate and global trade to collapse, worsening the Great Depression. President Roosevelt later worked to undo the damage through the Reciprocal Trade Agreements Act.
The Current U.S. China Standoff
President Trump's first term opened a new chapter in January 2018, with tariffs on steel, aluminum, solar panels and washing machines. China, the European Union, Canada and Mexico all faced or imposed duties in response. By May 2019, close to $200 billion worth of Chinese imports were subject to U.S. tariffs, and China hit back with its own duties on American goods.
An International Monetary Fund analysis found that American importers, not Chinese exporters, absorbed most of the tariff costs, which were then passed along to U.S. consumers through higher prices. That is the opposite of what a trade war is supposed to achieve for the country imposing the tariffs.
Tensions eased briefly with a truce in December 2018 and a formal trade deal signed in January 2020. But the reprieve did not last.
President Biden raised tariffs on Chinese electric vehicles to 100% in 2024, with solar cells and semiconductors taxed at 50% and lithium ion batteries at 25%. China promised further retaliation. Since returning to office in 2025, President Trump has added new tariffs on Chinese goods, drawing more countermeasures from Beijing. Negotiations have produced temporary reductions, but many barriers remain, and officials on both sides are still arguing over how much tariffs should shape the relationship going forward.
Who Actually Wins a Trade War?
Supporters say tariffs protect domestic manufacturers, create jobs, and give a country leverage over trading partners accused of unfair practices. Critics counter that tariffs raise prices, shrink consumer choice, and can trigger shortages when there is no domestic substitute for the affected goods.
Most economists lean toward the critics' view, since tariffs interfere with the gains countries normally get from specializing in what they produce best. Still, some argue there is a strategic case for protecting industries tied to national security, such as defense manufacturing, even if the products cost more than buying them abroad.
What Happens Next in the U.S. China Dispute
Tariff levels between the two countries have shifted repeatedly since 2018, and the pattern shows no sign of settling. Each round of tariffs has been met with retaliation, followed by negotiation, followed by new tariffs. Whether the current back and forth ends in a lasting agreement or another escalation remains an open question for policymakers in both Washington and Beijing.