When President Trump imposes tariffs on China and other foreign countries in the name of protecting American jobs, the resulting trade war can affect more than just US-China relations. Ultimately, it can reshape global trade patterns by restricting access to markets for goods produced in the countries involved, increasing prices and decreasing the amount of available raw materials. This can lead to a loss of competitiveness in domestic markets and create shortages of certain products. In addition, increased tariffs can cause companies that are deeply integrated into the global economy to experience slower growth abroad, which can depress stock prices and broader economic activity.
Tariffs on steel, aluminum and washing machines, for example, have already lowered the economy’s terms of trade. These increases in import prices can crimp consumer spending and reduce the amount of money that businesses are spending on inputs, such as labor and energy. This reduces production and output, which reduces tax revenue for government entities.
The United States is deeply integrated into the global economy, and when global trade slows because of tariffs, overall economic growth in the country can suffer. This can prompt investors to rotate out of risky stocks into safe assets like bonds or gold, which can drive down stock prices. In particular, the decline in trade with China can make it harder for American companies to sell their products there, reducing profits and stock prices.