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March 26, 2018, 3:19 a.m. EDT

Who gets hurt in a trade war? Mostly not China

With 19% of a total of $6.26 trillion in U.S. debt to foreign creditors, China is the biggest holder of U.S. debt

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By Marie Kasperek


STR/AFP/Getty Images
Cargo ships berth at a port in Qingdao, China.

A global trade war is not out of the question anymore. President Donald J. Trump has set the first domino in motion, and it will be hard to stop.

Specifically, Trump has in March alone imposed two tariffs — one targeting Chinese imports and the other the steel and aluminum imports that took effect Friday.

Taken together, these tariffs will have far-reaching, global implications that could escalate into a trade war.

What is a trade war?

A trade war has two basic components.

First, it is often said to be a side effect of protectionism — a situation in which one country retaliates against another that imposes trade barriers (such as tariffs and quotas) on the other country. In today’s highly interconnected global economy, these actions have implications for the warring countries’ trading partners as trade will be rerouted elsewhere. This creates the risk of other markets becoming flooded unless they take precautionary measures in the form of import quotas themselves, creating even more barriers to free trade.

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How we got here: A history of U.S. steel wars before Trump

President Trump is considering imposing steep tariffs on foreign steel and aluminum, sparking fears of a trade war with China and other nations. But he is not the first U.S. President to impose tariffs and quotas on foreign steel.

Second, the reason for the action — when one country believes that another country’s trading practices are unfair. In this case, the United States is taking measures in response to China stealing and transferring intellectual property from U.S. businesses, findings of the U.S. Trade Representative’s so-called Section 301 investigation .

Read: Here’s all the stuff the U.S. imports from China that’s causing a huge trade deficit

While the consensus in Washington seems to endorse a tougher stance on China overall, Trump’s actions are rash and it is hard to see the endgame. If anything, the timing couldn't be worse. The steel and aluminum tariffs that came into force on Friday don’t necessarily create an environment in which many countries would be willing to support the currently unilateral actions of the Trump administration against China.

While some of the United States’ closest trading allies (Mexico, Canada, the European Union, Australia, Argentina, Brazil, and South Korea) are temporarily excluded from the tariffs on steel and aluminum, their relations with Washington have been strained and will remain tense. Rufus Yerxa, president of the National Foreign Trade Council, takes it a step further , claiming that it “might create more sympathy than pressure for China.”

Who gets hurt in a trade war?

Short answer: Mostly not China.

Short-sighted short-term political gains are outweighed by long-term political and economic implications.

Politically: Trump’s actions are in line with his trade policy of “America First” and his campaign promises to be “tough on China.” Looking ahead to the mid-term elections in November, the tariffs on China might seem like a smart move for Trump to maintain the support of his voter base. However, if expert estimates are to be believed, his actions might not only offset his voters’ benefits from the tax cuts through higher prices for consumers, but Chinese retaliation might ultimately hit parts of his core the hardest.

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