What is a 'Tariff War'

A tariff war is an economic battle between two countries in which Country A raises tax rates on Country B's exports, and Country B then raises taxes on Country A's exports in retaliation. The increased tax rate is designed to hurt the other country economically, since tariffs discourage people from buying products from outside sources by raising the total cost of those products.

BREAKING DOWN 'Tariff War'

A country might incite a tariff war is because it is unhappy with one of its trading partners' political decisions. By putting enough economic pressure on the country, it hopes to force a change in the opposing government's behavior. This type of tariff war is also known as a "customs war."

Tariff Wars in the News

The U.S. had not imposed high tariffs on trading partners since the 1920's and early '30s. Because of the tariffs in that era, overall world trade declined about 66% between 1929 and 1934. In the post World War II period, President Donald Trump was one of a few presidential candidates to speak about trade inequities and tariffs when he vowed to take a tough line against international trading partners, especially China, to help American blue-collar workers displaced by what he described as unfair trade practices. In December 2016, rumors circulated that President-elect Donald Trump's transition team wanted to propose tariffs, but President Trump did not act until January 2018 when solar panels and washing machines were targeted for tariffs. In March, tariffs of 25% were added to imported steel and 10% on imported aluminum. Several countries were exempted, but Trump announced the U.S. government would apply tariffs on $50 billion worth of Chinese imports. That led to back and forth tariff announcements as the Chinese government retaliated in early April with a 15% tariff on 120 U.S. products sold in China and 25% on eight products such as pork. In response, President Trump added $100 billion worth of Chinese products to the list.

The tariffs have led to significant debate. Many economists and trade organizations that represent large U.S. companies are opposed to the tariffs, but supporters include the AFL-CIO, the largest U.S. union, and Ohio's Senator Sherrod Brown because he stated it would provide a boost to Ohio's steel plants. There has been much debate in the House of Representatives and the Senate. Speaker of the House Paul Ryan and Senate Majority Leader Mitch McConnell urged Trump to rethink his proposal or to target the tariffs more narrowly.

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