Economic experts may disagree on many issues, but most agree that international trade, when structured properly, benefits all parties. Any barrier to free trade, such as tariffs, subsidies, import quotas, currency devaluation, and other protectionist policies—what 18th-century economist Adam Smith called a “beggar-thy-neighbor” policy—tends to shrink the overall economic pie for everyone involved. This is why it’s so important to avoid a full-blown trade war.
But since President Trump imposed tariffs on hundreds of billions in Chinese goods in 2018, escalations haven’t stopped. He claimed that the levies would decrease the US trade deficit with China, bring back manufacturing jobs to the United States, and force China to reform its trade practices, including intellectual property theft.
A trade war disrupts global supply chains, raises prices for consumers, and can lead to prolonged periods of economic stagnation or even conflict. It can even damage economies that were initially unaffected by the dispute.
But a disaggregated perspective provides a more nuanced view of the effects of a trade war. The study finds that while the average American loses when tariffs are imposed, some workers actually experience gains. This is especially true for unskilled workers in the labor-intensive manufacturing sector. While they will still face significant losses in consumption over the long run, their loss is offset by gains in wages. That’s why it’s so important to avoid escalations that can be damaging to the entire economy. Instead, policymakers should focus on creating a more open economy, which can benefit all Americans and the rest of the world.