Why trade wars leave everyone worse off

[UNITED STATES] The sudden pause in the U.S.–China trade war exposes an often-overlooked truth: international trade benefits both buyers and sellers, not just exporters. While President Trump once seemed eager for a headline-grabbing “win,” dragging the trade war into the year’s end might have earned him an unintended title — not peacemaker, but economic experimenter. By pushing global commerce to its breaking point, Trump inadvertently tested foundational principles of trade theory, highlighting the mutual dependencies that underpin modern markets. Even without the stark image of empty American shelves this Christmas, it’s worth asking: what would a “victory” in such a war really look like?

The False Promise of One-Sided Gains

At the heart of the trade war rhetoric is the flawed belief that one country can “beat” another at trade. Classical economic theory, dating back to David Ricardo’s work on comparative advantage, holds that nations specialize and exchange because both sides gain. Tariffs, sanctions, and trade barriers disrupt these mutual benefits, raising costs not only for foreign sellers but for domestic consumers and producers reliant on global supply chains. Data from 2019 showed U.S. importers paying billions more in tariffs, costs largely passed on to American businesses and shoppers. The idea of “winning” by hurting a trading partner overlooks how deeply intertwined modern economies are.

The Real Costs Behind Political Posturing

While Trump’s trade war aimed to protect U.S. industries and rebalance deficits, the ripple effects reached far beyond steel mills and soybean farms. Financial markets wobbled with each escalation, as uncertainty over tariffs hit investor confidence. U.S. manufacturing indices dipped, farm bankruptcies spiked, and tech firms worried about supply chain disruptions. Globally, the IMF revised growth forecasts downward, citing trade tensions as a key risk. These were not isolated blows to China; they were shared economic pains. Far from demonstrating U.S. dominance, the prolonged standoff showcased the fragility of global interdependence — and the costs of wielding tariffs as blunt instruments.

Forecasting the Limits of Economic Brinkmanship

Had the U.S. escalated to a full-scale trade war through year-end, the consequences would have been far more dramatic. Retail inventories, heavily reliant on Chinese goods, would have thinned, leading to shortages and price spikes during the crucial holiday season. American companies, unable to easily pivot supply chains, would face production slowdowns. On the global stage, countries watching the two economic superpowers slug it out might accelerate efforts to decouple or form alternative trading blocs, reshaping global commerce in ways unfavorable to both Washington and Beijing. Rather than securing a decisive win, the U.S. risked catalyzing a systemic reshuffle that left all players worse off.

What We Think

Trump’s trade war experiment serves as a vivid case study in economic reality: no one truly “wins” a trade war because trade itself is not a zero-sum contest. While it’s tempting for politicians to frame global commerce as a battlefield, the real-world dynamics are far more cooperative and interdependent. The recent pause in hostilities offers a critical moment for reflection. Policymakers must recognize that sustainable economic strength comes not from punishing trade partners but from fostering resilient, mutually beneficial exchanges. As the U.S. contemplates its next moves, the lessons of this costly standoff should not be ignored — because in the interconnected world of trade, hurting your partner often means hurting yourself.