Trade Wars; What Are They and Can It Affect Me?


US President Donald Trump has threatened to impose tariffs on an additional $200bn (£151bn) of Chinese goods in a growing trade row.

Mr. Trump said the 10% tariffs would come into effect if China “refuses to change its practices”. The move would be a major escalation of the dispute which has already seen the US place 25% tariffs on $50bn worth of Chinese goods including steel. China has responded by accusing the US of “blackmail”, raising fears of a full-blown trade war. The Chinese Commerce Ministry said the country would take “qualitative” and “quantitative” measures and “fight back firmly” against additional tariff measures by the US government.

Mr. Trump insists that China has been unfairly benefiting from a trade imbalance with the US for years and that they are failing to deal with intellectual property theft, which means design and product ideas. The President had pledged to use tariffs to cut the US trade deficits during his 2016 election campaign and is making good on his promise to the American people.

What is a trade war?

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 on products made abroad, causing the other to respond, in a tit-for-tat escalation. 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 will buy cheaper local products instead – boosting your country’s economy. However, a consequence of such action is that it can hurt other nations’ economies and lead to rising political tensions between them.

Mr. Trump’s actions have led many to accuse him of protectionism: trying to use tariffs to boost your country’s industry and shield it from foreign competition. At the start of March, before his latest moves against China, the president announced a 25% tariff on all steel imports and 10% on aluminum. 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.

How can they affect me?

With the World’s two largest economies going head-to-head in an escalating trade war, the impact can be felt globally. 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. It can and has already started to have a destabilising impact on global markets and investors become cautious and drive down share prices. This, in turn, can affect your investments and those of the big pension companies who invest our money into the markets. In addition, it can affect currency values making some stronger and others weaker.

Keep up to date with the latest news on this Trade War at BBC Business News

Jasmine Lambert Chartered Financial Planner
Jasmine Lambert

Jasmine is the Managing Director and a Chartered Senior Financial Planner at Redwood Financial. She helps clients manage and grow their wealth and protect their estate. Jasmine also provides expert advice in our FREE Redwood Webinars, where you can learn more about Wills, Trusts and Estate Planning.

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