Will there be a global trade war? Donald Trump has shocked the world by doing exactly what he said he would do. Some fear he is single-handedly destroying the world economy. Others say Trump is simply playing a game of political chess.
Trump's trillion dollar tariff gamble
Will there be a global trade war? Donald Trump has shocked the world by doing exactly what he said he would do. Some fear he is single-handedly destroying the world economy. Others say Trump is simply playing a game of political chess.
For his whole political career, Donald Trump has had two consistent obsessions: immigration (bad) and tariffsA form of tax on imports. (good). Throughout his 2024 campaign he kept insisting he would hike up tariffs, and perhaps even use them to replace income taxA tax you pay on the money you earn as an individual. It is a huge source of income for most governments. .1
Yet somehow, when he announced massive tariffs on $1.4 trillion of imported goods from the USA's two biggest trading partners, Canada and Mexico, it still took Wall StreetA street in New York City's financial district. The term "Wall Street" is now used to discuss US financial markets as a whole. by surprise.2
It is a huge economic bet. The news has dominated the headlines for days. But last night, Trump announced that tariffs on the two nations will be delayed after they agreed to tighten security. For some, it is proof that Trump's plan is working. For others it shows that Trump blinked first as stock markets fell and his inner circle turned against him.
Trump's additional 10% tariff on all Chinese imports took effect Tuesday. China quickly retaliated with tariffs on US exports, an anti-trust probe into Google, and export restrictions on key chemicals, escalating tensions.
A tariff is a tax on goods imported into the country. Their effect is to make it more expensive to buy foreign-made goods, so that consumers will instead choose to buy from their own domesticRelated to the home. From the Latin "domus", meaning "house". industries.
Tariffs are not unusual. Most countries impose some taxes on goods coming in from abroad.
It is also not uncommon for countries to use these tariffs strategically to protect their own industries. For example, last year the US and the EU each decided to levy vast tariffs on cheap Chinese electric vehicles, which were threatening to flood their markets and devastate their own car industries.
There is often a lot of pressure on governments to engage in this kind of protectionismThe idea or act of protecting a country's domestic industries by taxing imports from foreign countries. , because if a major industry faces steep competition, then it will start losing money and may have to lay off large numbers of its own workers, resulting in higher unemploymentThe share of the labour force that does not have work, but is looking for it or able to do it. and lower economic growthThe process through which a country's wealth increases over time. .
However, economists generally believe tariffs are a zero-sum gameA situation in which when one person gains, another person will lose by an equal amount. that end up making everyone poorer.
When states impose tariffs, it artificially constricts the supply of goods, which means consumers end up paying higher prices.
This can end up being self-defeating. For example, say a country wants to protect its agriculture, so it imposes tariffs on food.
This pushes up the price of eggs, which means businesses that are highly reliant on eggs, like bakers, start going bankrupt. As a result, there is less demand for eggs, meaning farmers have lower profits anyway.
Moreover, other countries do not generally take tariffs lying down. They will impose their own tariffs in response, sparking a trade warWhen countries try to damage each other's trades. They can do this by placing tariffs (taxes) on goods or quota restrictions. .
Since global trade networks are highly interconnected, this can have destructive and unpredictable consequences, pushing up prices and destroying industries everywhere.
Trump is attempting something almost entirely novel: using tariffs not for economic reasons, but for political ones, to put pressure on his neighbours to curb smuggling and irregular migration.
In the past, this kind of political wrangling over imports has turned trade wars into real wars. For example, 19th Century China had a trade surplus with Britain because of global demand for its fine porcelainShiny ceramic pottery. , silk, and tea.
Disliking this disparity, Britain responded by smuggling vast quantities of opiumAn addictive drug made from the juice of the opium poppy. into China. As addiction began to devastate Chinese society, the government sought to ban these imports. In response, Britain declared war, and in the ensuing peace treaty forced China to open up its markets to British goods.3
China has not forgotten this history. It will be watching Trump's tariff policy carefully, and its swift retaliation suggests it is prepared for an extended fight.
Will there be a global trade war?
Yes: Other countries are not going to sit idly by and let the US take advantage of them. Trade barriers are going to shoot up all over the world. We can only hope it goes no further than that.
No: Trump is bluffing. He believes other countries will not risk a trade war, so they will give in to his demands to have the tariffs lifted. He may already have been proven right.
Or... Trump has to win midterm electionsEvery two years, Americans have a chance to vote and choose new politicians to make the country's laws. These votes can take place in the middle of a president's four-year term. at the end of next year. He will take a beating at the polls if prices shoot up and economic growth stalls.
Tariffs - A form of tax on imports.
Income tax - A tax you pay on the money you earn as an individual. It is a huge source of income for most governments.
Wall Street - A street in New York City's financial district. The term "Wall Street" is now used to discuss US financial markets as a whole.
Domestic - Related to the home. From the Latin "domus", meaning "house".
Protectionism - The idea or act of protecting a country's domestic industries by taxing imports from foreign countries.
Unemployment - The share of the labour force that does not have work, but is looking for it or able to do it.
Economic growth - The process through which a country's wealth increases over time.
Zero-sum game - A situation in which when one person gains, another person will lose by an equal amount.
Trade war - When countries try to damage each other's trades. They can do this by placing tariffs (taxes) on goods or quota restrictions.
Porcelain - Shiny ceramic pottery.
Opium - An addictive drug made from the juice of the opium poppy.
Midterm elections - Every two years, Americans have a chance to vote and choose new politicians to make the country's laws. These votes can take place in the middle of a president's four-year term.
Trump’s trillion dollar tariff gamble

Glossary
Tariffs - A form of tax on imports.
Income tax - A tax you pay on the money you earn as an individual. It is a huge source of income for most governments.
Wall Street - A street in New York City's financial district. The term "Wall Street" is now used to discuss US financial markets as a whole.
Domestic - Related to the home. From the Latin "domus", meaning "house".
Protectionism - The idea or act of protecting a country's domestic industries by taxing imports from foreign countries.
Unemployment - The share of the labour force that does not have work, but is looking for it or able to do it.
Economic growth - The process through which a country's wealth increases over time.
Zero-sum game - A situation in which when one person gains, another person will lose by an equal amount.
Trade war - When countries try to damage each other's trades. They can do this by placing tariffs (taxes) on goods or quota restrictions.
Porcelain - Shiny ceramic pottery.
Opium - An addictive drug made from the juice of the opium poppy.
Midterm elections - Every two years, Americans have a chance to vote and choose new politicians to make the country’s laws. These votes can take place in the middle of a president's four-year term.