America and China are at each other’s throats in a trade war while Europe waits on the wings fearing the continent will be dragged into the row.
But why has President Donald Trump spoken out about protectionism and placed tariffs on Chinese imports to the US worth billions of dollars – and threatened to increase them to cover imports worth hundreds of billions of dollars more.
China has responded by announcing tariffs against US goods.
What is a trade war?
A trade war is when one country slaps a tariff – a tax paid on imports at a border – on the goods coming from another country.
The aim is to make the goods more expensive for customers who will buy cheaper home-produced items – this boost jobs and helps the economy.
But although the tariffs are good for importers, they can damage the economies of exporting countries as they lose sales, factories produce less, and this means workers lose their jobs.
What has Trump done to China?
The American president has increased tariffs by 25% on Chinese goods worth $50 billion.
He says China steals designs and flouts intellectual copyright to produce the same goods as American companies but only cheaper.
Trump believes this is not good for the American economy and wants to restore the balance – part of his Making America Great Again campaign.
What is protectionism?
Protectionism is the economic theory Trump is following – shielding domestic industries from foreign competition by taxing imports.
How does this impact the trade deficit?
The trade deficit is the difference between the value of goods the USA imports from China and the value of goods that are exported to China.
The balance is $375 billion in favour of China.
Trump wants a smaller deficit and hopes the money raised by tariffs will help kick-on the American economy to fill the gap.
What about trade with Europe and the UK?
Trump has slapped tariffs on steel and aluminium imports. The European Union including the UK, equals Canada as the biggest exporters and stand to face the most economic damage from the tariffs.
Do tariffs work?
Yes and no. The theory seems good until you look at what America exports to China. Manufactured goods arrive from China, but food and services mostly go the other way. Tariffs on goods are unlikely to boost agriculture.
And steel and aluminium tariffs could make anything made from them more expensive in the USA, which raises inflation.
Only time will tell if Trump is right.