A trade war is the thing of which economists’ nightmares are made. They sit up at night dreading the collapse of free trade efforts, looking at the closed economies of the world, like Cuba and North Korea, and wondering how any reasonable leader could think that such a system, a system in which countries tried not to trade with each other, could ever function. Unfortunately, Donald Trump ran on just such a campaign promise: he was going to enforce tariffs on imports from China, unavoidably setting of a trade war between the world’s two largest economies.
The consequences of Trump’s trade war with China are far-reaching and various. Here are ten of them just to give you an idea of how bad this could get.
1. Manufacturing could cost more in the United States as the price of raw materials skyrockets. Perhaps most importantly, aluminum and steel are for the most part imports in the United States, so a tariff on these materials would affect multiple industries
2. Electronic devices could cost more. By and large, our smartphones, our video game consoles, our laptops, and our televisions are all manufactured in China with low-cost labor. Were that to change, the price difference would be passed on to you, the consumer.
3. Sales of American produce could fall. American soy and corn, which are huge earners, would probably be the first exports on which China would slap a retaliatory tariff. As the prices of these crops went up, people in China would not be able to afford as much, hitting the bottom line for farmers in the United States.
4. Clothing could cost more. Just like electronic devices, much of our apparel is sewn and created in China and then shipped back to the United States to be sold. Once again, a tariff (or retaliatory price increases) would mean higher prices for Americans.
5. Progress on solar energy could slow down. Coupled with the Trump administration’s anti-science, pro-fossil fuel policies, a tariff on Chinese imports would necessarily mean higher costs of solar panels and other solar energy supplies.
6. Prescription drug prices could go up. Because so many of these drugs, especially in their generic forms, are manufactured in China and then sent to the United States, insurance carrier may need to hike premiums (even further than they have been hiked already) to offset the cost of a tariff.
7. Less directly, international relations on the whole could become less stable. It is true that countries who are economically incentivized not to go to war with each other are a lot less likely to do so. Removing that incentive and making the United States and China less economically dependent on each other would make a direct war between the world’s two largest militaries more likely.
8. A new standard would be set. Rather than moving toward free trade everywhere, the world could follow the example the Trump administration is setting and try to game the system for their own short-term benefit. Long-term, this could create disastrous collapses across world markets.
9. In response to the rising price of steel and aluminum, American industry could respond by reigniting its manufacturing sector. By virtue of the costs of labor in the United States and China, however, this reignition would only ever be temporary. The American economy had not become a service economy on accident: it was because the cost of labor, based on the higher cost of living and the higher per capita relative to the rest of the world, made the manufacturing industry untenable.
10. China, in addition to retaliating directly with tariffs, could retaliate by doing more business elsewhere, should the tariffs make that business so much more attractive than business in the United States that doing so made economic sense.
Overall, Trump’s trade war with China is not a blip in the radar: its consequences are real and undeniable, and they could affect the entire world economy.