While running for office, Donald Trump disdained many of the current trade agreements in place between nations, and he promised to bring manufacturing jobs back from abroad. Since becoming president, he has embarked on a protectionist campaign against China and other major trading partners that has included threats of substantial fines for alleged intellectual property theft and significant tariff increases.
A trade war would lead to higher prices for goods that require imported components, including food, beer, coffee and gas, electronics like computers and smartphones, new cars, and building supplies such as wood and metal. These higher prices could discourage new construction, and put additional pressure on an already scant housing market. It is also possible that tariffs will foul up supply chains and make it more difficult for companies to obtain the supplies they need. In some cases, companies may choose to manufacture goods domestically rather than import them, but this could increase the price of those goods as well.
A disaggregated perspective that looks at the experience of specific worker groups adds a layer of complexity to our analysis. While it is true that a trade war is bad for most economies from an aggregate perspective, it is not necessarily a complete disaster for all workers. Workers in the unskilled import-competing sector fare worse than those in the export-competing sector, but workers in the high-skilled service and manufacturing sectors still see a significant gain in consumption under a trade war scenario.
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