Trade war - Definition and Overview

A trade war refers to two or more nations raising or creating tariffs or other trade barriers on each other in retaliation for other trade barriers. It is the opposite of free trade.

Economists generally believe trade wars are very non-productive and decrease the economic welfare and total social surplus of all nations involved. However, political scientists may see the threat of a trade war as helpful in winning a concession of some sort from the other side..

Some economists would agree that some economic protections are more costly than others because they may be more likely to trigger a trade war. For example, if a country were to raise tariffs, then a second country in retaliation would similarly raise tariffs. But increasing, for example, subsidies, is difficult to retaliate against by a foreign country. Many poor countries, for example, don't have the ability to raise subsidies. In addition, poor countries are more vulnerable than rich countries in trade wars; in raising protections against dumping of cheap products, it risks making the product too expensive for its people to afford.

See Also

• Trade sanctions
• Economic sanction

Example Usage of Trade