Trade wars are back in the headlines. In his second term, Donald Trump has reignited tensions with China by imposing new tariffs, following his earlier moves as President when he introduced sweeping trade barriers. His justification? Protecting American workers and countering what he calls China’s “unfair trade practices.”
However, economists warn that trade wars often do more harm than good, increasing consumer prices and disrupting global supply chains. But what does the history of trade wars tell us? And how do they fit into broader theories of global development?
What is a Trade War?
A trade war occurs when countries impose tariffs (taxes on imports) or other trade barriers against each other in retaliation. Historically, mercantilism—where nations sought to maximize exports and minimize imports—dominated trade policy. This led to famous trade conflicts like the Anglo-Dutch Wars of the 17th century. Governments used tariffs to protect domestic industries and control resources, shaping global trade as we know it today.
Has Free Trade Made the World Richer?
Yes—GDP per capita has skyrocketed from $1,100 in 1820 to more than $16,600 today. Free trade allows countries to specialize in goods they produce efficiently while buying what they lack from others. However, the benefits of free trade are unevenly distributed. Wealthier nations gain disproportionately, while poorer ones often remain dependent on raw material exports, a core argument of dependency theory (source).
Why is Free Trade Unpopular?
Despite its economic benefits, free trade is politically contentious. Abraham Lincoln once said, “If I buy a coat in America, I have a coat and America has the money. If I buy a coat in England, I have the coat and England has the money.” This nationalist sentiment explains why free trade remains controversial: it benefits consumers through cheaper goods but can devastate industries in wealthier nations. The “dispersed gains” of free trade benefit many, but the “concentrated losses” harm specific industries—like the steelworkers who lost jobs due to cheap Chinese imports in the UK and US.
Trump and Tariffs: A Protectionist Approach
Donald Trump’s trade policies illustrate this backlash against free trade. In his first term, he imposed tariffs on steel and aluminum, targeting China, Mexico, and Canada. The logic? Protect American jobs and reduce the trade deficit. However, many economists argue that tariffs often backfire, raising prices for consumers while doing little to bring back lost jobs (source). The Biden administration rolled back some of these policies but maintained others, showing that protectionism remains politically popular.
The Global Perspective: Neoliberalism vs. Dependency Theory
From a neoliberal perspective, free trade is essential for economic development—it encourages investment, increases efficiency, and drives innovation (source). However, dependency theorists argue that free trade primarily benefits wealthy countries while keeping poorer nations locked in economic dependence. The ongoing US-China trade war reflects these tensions: the US accuses China of unfair practices, while China argues that US protectionism is merely an attempt to maintain economic dominance.
Find Out More
Trade wars are just one aspect of global economic development. To explore more about how globalization and trade shape economies, check out this guide on globalization and global development: Read more here.
Average US Tariffs:
https://upload.wikimedia.org/wikipedia/commons/a/ad/Average_Tariff_Rates_in_USA_%281821-2016%29.png
