Why a trade war matters

President Trump’s comments in early March about placing tariffs on imported steel and aluminum spooked the stock market and sparked conversation. On March 8 he officially placed a 25 percent tariff on imported steel and a 10 percent tariff on aluminum, and on July 6 a 25 percent on $35 billion worth of goods from China – prompting a mirrored response from Beijing with tariffs of their own. Most of the talk about these tariffs has revolved around the issue of if they could be the start of a costly trade war, one that the President says “we’ve already lost.” But what exactly is a trade war and why would it matter?

A trade war is described as a situation in which countries try to damage each other’s trade by creating or raising tariffs or quotas on goods that are imported. Tariffs are taxes that a government must pay on imported goods, which, in theory, makes those goods more expensive than if they were produced domestically. Producing these goods domestically provides the possibility of more jobs and thus more money into the local economy. This is what President Trump hopes will come from his plan.

But tensions can surface in this scenario when a country places what another country thinks are unfair tariffs on their goods, leading the offended country to respond with tariffs of their own, resulting in a back-and-forth battle of taxed goods.

In June, Trump said if China were to retaliate, he would fire up a 10 percent on another $200 billion in tariffs. China has already responded to U.S. tariffs as mentioned above, targeting farm goods, aircraft, and other items. In total, the U.S. has threatened China with almost $500 billion in tariffs, a number that China would not be able to match. The Guardian reports that China’s exports to the U.S. in 2017 totaled around $130 billion.

According to The Wallstreet Journal, the White House said it would begin assessing the additional 10 percent with hearings to begin in late August. China has also filed a complaint with the World Trade Organization on the U.S.

Countries besides China could be affected as well, and several allies of the U.S. have voiced disapproval of Trump’s actions. The European Union (EU) is a large voice in the debate, previously saying it was ready to impose tariffs on goods like Harley-Davidson motorcycles and Levi’s jeans if the President were to follow through on his words. Canada also opposed the tariffs as they are the top exporter of steel to the U.S., making up 16.7 percent of all imported steel according to Reuters.

This opposition caused Trump to make temporary exemptions for several allies like the EU and Canada, and also for other major steel exporting nations like Brazil, South Korea, and Mexico, who are all in the top five of highest steel exporters to the U.S.

While this issue has a lot to do with governments and global politics, it affects individuals as well. The price of everyday items made of steel and aluminum like cars, cans, or kitchen utensils could rise. Some also argue that it could actually result in the loss of manufacturing jobs in auto industry because it will cost more to make a vehicle, meaning companies won’t be able to pay as many employees as they currently can.

The situation has been facing tough criticism all around, but some still have a positive outlook on what can come from them. Commerce Secretary Wilbur Ross defended President Trump’s plans in an interview on CNBC by using the example of a can of Campbell’s soup. Ross said that “[In a can] there is about 2.6 cents worth of steel. If that goes up by 25 percent, that’s about six-tenths of one penny. Who in the world is going to be too bothered by six-tenths of a cent?”

Though nothing extreme has resulted from these tariffs yet, investors and the global economy will continue be on close watch as the world’s two largest economies move forward.