Trade wars, protectionist acts or whatever you want to call them have been the driving force behind much of the recent market volatility. History shows that trade wars are not that uncommon. The Visual Capitalist has put together a list of the seven other interesting trade wars that the U.S. has been involved in dating back to the 1930s.
Tariffs are imposed as a way to reduce the trade deficit, which is the difference between how much money a country spends on imports and how much money is earned via exports. Trade deficits pose two potential issues for a country:
- Think about a deficit as a tab. At some point in the future that tab is expected to be paid.
- The imports you are bringing are either higher quality or cheaper, which may put unintended consequences on other businesses.
In the most recent dispute with China, both countries have enacted initial tariffs and retaliatory measures. The initial measures are expected to have muted economic impact; however, the full impact may not be fully understood until both sides either reach an understanding or dive deeper into counter measures.
How does it end? That’s the $1,000 question and only time will tell how this plays out. The initial impact appears to be relatively modest. This upcoming earnings season is likely to provide a better understanding and outlook and the real impact.
