Tariffs and Trade Wars

A tariff is a tax on imported goods. It's the oldest and most common trade barrier.

How Tariffs Work

When the US puts a 25% tariff on imported steel:

• A Chinese steel producer selling at $100/ton now costs $125/ton in the US market
• US steel producers become more competitive (their prices haven't changed)
• US consumers and industries that use steel pay higher prices
• The US government collects tariff revenue

Why Countries Use Tariffs

• Protect domestic industries — Shield home producers from cheaper imports ("infant industry" protection)
• National security — Maintain domestic capacity in strategic industries (steel, semiconductors)
• Retaliation — Punish other countries for unfair trade practices
• Revenue — In some developing countries, tariffs are a major source of government revenue
• Bargaining chip — Threaten tariffs to win concessions in negotiations

Other Trade Barriers

• Quotas — Limits on the quantity of goods that can be imported
• Subsidies — Government payments that make domestic goods artificially cheap
• Non-tariff barriers — Regulations, standards, and bureaucratic requirements that effectively block imports (e.g., Japan's food safety regulations that make rice imports nearly impossible)

The US-China Trade War

The most significant trade conflict of the 21st century:

2018: Trump imposed tariffs on $360 billion of Chinese goods, citing intellectual property theft and unfair subsidies. China retaliated with tariffs on $110 billion of US goods.

Key tariffs:

• 25% on steel and 10% on aluminum (global, not just China)
• 25% on $250 billion of Chinese goods (electronics, machinery, components)
• China's retaliatory tariffs hit US agriculture — soybean exports to China dropped 75%

Impact:

• US consumers paid an estimated $80 billion more annually in higher prices
• US farmers needed $28 billion in government bailouts
• Global supply chains began shifting — some manufacturing moved from China to Vietnam, Mexico, India
• Neither country clearly "won" — both economies absorbed costs

2024-2025: Tariffs remain largely in place under Biden, with additional restrictions on Chinese technology (chips, EVs, solar panels). The era of US-China free trade is over.