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Trade wars, Trump tariffs and protectionism explained Trade wars, Trump tariffs and protectionism explained
(3 months later)
Stock markets are tumbling and economists are edgy as talk of a trade war dominates the news. US President Donald Trump has slapped steep tariffs on billions of dollars' worth of Chinese goods, ranging from dishwashers to aircraft tyres.
China is threatening to hit back against planned US tariffs, saying it is "absolutely not afraid" of the consequences. China has long threatened to respond to such a move, and it quickly announced its own tariffs on $35bn (£26bn) worth of US goods.
This puts the world's two largest economies at each other's throats.This puts the world's two largest economies at each other's throats.
But what is a trade war? How does protectionism work? And how will it all affect you?But what is a trade war? How does protectionism work? And how will it all affect you?
What is a trade war?What is a trade war?
It's what it sounds like - a trade war is when countries try to attack each other's trade with taxes and quotas.It's what it sounds like - a trade war is when countries try to attack each other's trade with taxes and quotas.
One country will raise tariffs, a type of tax, causing the other to respond, in a tit-for-tat escalation.One country will raise tariffs, a type of tax, causing the other to respond, in a tit-for-tat escalation.
This can hurt other nations' economies and lead to rising political tensions between them.This can hurt other nations' economies and lead to rising political tensions between them.
US President Donald Trump reckons trade wars are "good" and easy. He's not afraid to raise tariffs.US President Donald Trump reckons trade wars are "good" and easy. He's not afraid to raise tariffs.
But what is a tariff?But what is a tariff?
It's a tax on a product made abroad.It's a tax on a product made abroad.
In theory, taxing items coming into the country means people are less likely to buy them as they become more expensive.In theory, taxing items coming into the country means people are less likely to buy them as they become more expensive.
The intention is that they buy cheaper local products instead - boosting your country's economy.The intention is that they buy cheaper local products instead - boosting your country's economy.
Why is Trump doing this?Why is Trump doing this?
The president is planning tariffs on $60bn worth of Chinese goods, in part because of alleged Chinese theft of intellectual property - which means design and product ideas. The president has imposed 25% tariffs on $50bn worth of Chinese goods, accusing Beijing of stealing intellectual property - which means design and product ideas.
The White House said it has a list of more than 1,000 products that could be targeted by tariffs of 25%. Mr Trump also wants to cut the trade deficit with China - a country he has accused of unfair trade practices since before he became president.
Companies will get a chance to comment before they are put into effect.
Mr Trump wants to cut the trade deficit with China - a country he has accused of unfair trade practices since before he become president.
Mr Trump made a big point on the campaign trail about cutting the country's trade deficits.Mr Trump made a big point on the campaign trail about cutting the country's trade deficits.
He's convinced it hurts US manufacturing, and has said time and time again on the stump and on Twitter that the US must do more to tackle them.He's convinced it hurts US manufacturing, and has said time and time again on the stump and on Twitter that the US must do more to tackle them.
Mr Trump may also be trying to appeal to voters in manufacturing states - including in key bellwether states, like Ohio.
What's a trade deficit?What's a trade deficit?
It's a term meaning the difference between how much your country buys from another country, compared with how much you sell to that country.It's a term meaning the difference between how much your country buys from another country, compared with how much you sell to that country.
And the US has a massive trade deficit with China.And the US has a massive trade deficit with China.
Last year, it stood at about $375bn. Mr Trump's not happy about that.Last year, it stood at about $375bn. Mr Trump's not happy about that.
He wants to cut back this trade deficit, and he intends to use tariffs to do it.He wants to cut back this trade deficit, and he intends to use tariffs to do it.
But while the president hates them, trade deficits are not necessarily a bad thing.But while the president hates them, trade deficits are not necessarily a bad thing.
Many wealthier countries have in recent decades shifted from manufacturing economies to service economies.Many wealthier countries have in recent decades shifted from manufacturing economies to service economies.
The US exported $242.7bn worth of services in 2017, in areas like banking, travel and tourism.The US exported $242.7bn worth of services in 2017, in areas like banking, travel and tourism.
Services account for 90% of the US economy. China, in contrast, doesn't export nearly as many services as it does manufactured goods.Services account for 90% of the US economy. China, in contrast, doesn't export nearly as many services as it does manufactured goods.
So the president's obsession with trade deficits is not always popular, with critics damning the administration's moves as protectionism.So the president's obsession with trade deficits is not always popular, with critics damning the administration's moves as protectionism.
What's protectionism?What's protectionism?
Protectionism is trying to use tariffs to boost your country's industry, and shield it from foreign competition.Protectionism is trying to use tariffs to boost your country's industry, and shield it from foreign competition.
Take Mr Trump's steel and aluminium tariffs.Take Mr Trump's steel and aluminium tariffs.
At the start of March, before his latest moves against China, the president announced a 25% tariff on all steel imports, and 10% on aluminium.At the start of March, before his latest moves against China, the president announced a 25% tariff on all steel imports, and 10% on aluminium.
The Trump administration claims the US relies too much on other countries for its metals, and that it couldn't make enough weapons or vehicles using its own industry if a war broke out.The Trump administration claims the US relies too much on other countries for its metals, and that it couldn't make enough weapons or vehicles using its own industry if a war broke out.
Critics point out the US gets most of its steel from Canada and the EU - staunch US allies.Critics point out the US gets most of its steel from Canada and the EU - staunch US allies.
In theory, taxing foreign steel and aluminium will mean US companies will buy local steel instead.In theory, taxing foreign steel and aluminium will mean US companies will buy local steel instead.
The thinking is that will boost the US steel and aluminium industries, as more companies will want to buy their goods.The thinking is that will boost the US steel and aluminium industries, as more companies will want to buy their goods.
Steel and aluminium prices will go up in the US because there will be less of these goods coming in from abroad - so the greater demand for local steel will push up the price, lifting profits for steel makers.Steel and aluminium prices will go up in the US because there will be less of these goods coming in from abroad - so the greater demand for local steel will push up the price, lifting profits for steel makers.
But does it work?But does it work?
Sort of.Sort of.
US steel makers could get a boost - demand will drive new hires and bigger profits.US steel makers could get a boost - demand will drive new hires and bigger profits.
But the US companies that need raw materials, like car and aeroplane makers, will see their costs rise.But the US companies that need raw materials, like car and aeroplane makers, will see their costs rise.
That means they might have to put up the prices on their finished products. That would hurt consumers.That means they might have to put up the prices on their finished products. That would hurt consumers.
So car prices could go up in the US. As could prices for gadgets, plane tickets and even beer - the price of making a can could rise.So car prices could go up in the US. As could prices for gadgets, plane tickets and even beer - the price of making a can could rise.
How could tariffs affect me?How could tariffs affect me?
They could affect people around the world - especially since China is threatening to retaliate. They could affect people around the world - especially since China has retaliated.
The world's second-largest economy is planning to tax US agricultural and industrial products, from soybeans, pork and cotton to aeroplanes, cars and steel pipes. The world's second-largest economy has taxed US agricultural and industrial products, from soybeans, pork and cotton to aeroplanes, cars and steel pipes.
In theory, China could also tax US tech companies like Apple. That would hit the tech giant, and it could be forced to raise its prices to compensate.In theory, China could also tax US tech companies like Apple. That would hit the tech giant, and it could be forced to raise its prices to compensate.
While the EU is exempt from the new steel tariffs, as are Argentina, Australia, Brazil, Canada, Mexico and South Korea, a global trade war could hurt consumers around the world by making it harder for all companies to operate, forcing them to push higher prices onto their customers. A global trade war could hurt consumers around the world by making it harder for all companies to operate, forcing them to push higher prices onto their customers.
Is free trade better then?Is free trade better then?
Depends who you ask.Depends who you ask.
Free trade is the opposite of protectionism - it means as few tariffs as possible, giving people the freedom to buy cheaper or better-made products from anywhere in the world.Free trade is the opposite of protectionism - it means as few tariffs as possible, giving people the freedom to buy cheaper or better-made products from anywhere in the world.
This is great for companies trying to cut costs, and that's helped drive prices down and boost the world economy.This is great for companies trying to cut costs, and that's helped drive prices down and boost the world economy.
Cars, smart phones, food, flowers - free trade has brought affordable products from around the world to your home.Cars, smart phones, food, flowers - free trade has brought affordable products from around the world to your home.
But at the same time, that means companies are less likely to buy local products. Why buy domestic when you can get more, cheaper, from a different country?But at the same time, that means companies are less likely to buy local products. Why buy domestic when you can get more, cheaper, from a different country?
This means the loss of jobs in wealthier countries, and uneven growth - while free trade has made some people richer, it's made others poorer.This means the loss of jobs in wealthier countries, and uneven growth - while free trade has made some people richer, it's made others poorer.
How is it all going to end?How is it all going to end?
No idea.No idea.
Historians have pointed out that tariffs often lead to higher costs for the consumer, while economists across the board are against the plans.Historians have pointed out that tariffs often lead to higher costs for the consumer, while economists across the board are against the plans.
The Republican Party is also overwhelmingly against Mr Trump on tariffs - they're big supporters of free trade.The Republican Party is also overwhelmingly against Mr Trump on tariffs - they're big supporters of free trade.
Mr Trump's decision to take on China could lead to adverse effects for consumers in the US and in China, but also worldwide.Mr Trump's decision to take on China could lead to adverse effects for consumers in the US and in China, but also worldwide.
An economic showdown between the world's biggest economies doesn't look good for anyone.An economic showdown between the world's biggest economies doesn't look good for anyone.