Share and Follow
Economists say trade wars between the United States and its trading partners will create harmful ripples throughout the global economy.
, while Mexican President Claudia Sheinbaum pledged retaliatory measures in the coming days.
But on Thursday, Trump announced a pause on the fresh tariffs for about a month. Canada halted wave of upcoming countermeasures, but Trudeau said the government would remain in a trade war with Washington for “the foreseeable future”, even if there are “breaks for certain sectors”, until all the tariffs are removed.
The US this week also announced a doubling of duties on Chinese goods to 20 per cent, part of an ongoing trade war between the two countries. China has warned it “will firmly counter” the measures.
imported from countries including Australia, which is set to take effect from 12 March.
While the measures are designed to be a show of economic force, economists say a trade war undermines a country’s own economy.
What is a trade war?
Flavio Menezes, a professor of economics at the University of Queensland, said a trade war occurs when multiple countries place trade restrictions on each other.
“As each side retaliates, trade is reduced, consumers face higher prices due to increased costs of imported goods, investment slows, and overall economic harm ensues,” he told SBS News.
He said tariffs and subsequent trade wars can offer short-lived economic advantages to countries like the US.
“While the US economy may experience short-term growth — though this is far from guaranteed — it would come at the cost of higher inflation, as tariffs raise the prices of imported products,” he said.
“Even if there were temporary gains, they would not be sustainable.”
Professor Tim Harcourt is chief economist at University of Technology Sydney and a former chief economist at the Australian Trade Commission.
He described a trade war as a “tit for tat”, ultimately harming the global economy.
“Putting up tariffs is like putting rocks in your own harbour,” he told SBS News.
How could Australians be impacted?
He explained that tariffs are like a tax, driving up the cost of goods and services, which can escalate during a trade war.
Ultimately, it’s consumers, workers and farmers who foot the bill.
“By imposing tariffs on Canada and Mexico, the US is actually hurting their own consumers, workers, and farmers,” he said.
“In the end, there are no winners in trade wars, everyone loses as does the world economy.”
Trade wars can also have knock-on effects for other nations.
“The negative effects of US tariffs would ripple through the global economy, initially impacting major trading partners like China, Canada, and Mexico, before spreading to Australia and others through secondary effects,” Menezes said.
For example, if a US-China trade war weakens the Chinese economy, China will reduce its imports from Australia, amplifying the disruption.
What does it mean for consumers?
During a trade war, both consumers and retailers need to adapt.
Shortages are likely as new importation procedures slow the time products take to cross borders.
The ensuing delays and higher tariff rates could push some retailers to raise prices to cover cost increases.
Others may limit purchases to discourage hoarding behaviour.
Menezes explained this can lead to inefficiencies, and ultimately higher prices at the checkout.
“Tariffs inevitably lead to an inefficient allocation of resources, ultimately stifling economic growth. This inefficiency arises because resources are diverted from their highest-valued uses,” he said.
On a broader scale, trade wars have a destabilising effect on economies and can lead to share markets shifting dramatically.
Can trade wars impact shares and superannuation?
“A trade war can drive down share prices if there’s going to be a global downturn,” Harcourt said.
“Conversely, some stocks may rise like Australian steel producer Bluescope which would benefit from US steel tariffs [because tariffs will cause prices to rise].”
AMP chief economist Shane Oliver explained that your superannuation is tied to stock market performance.
“Super funds typically have about 60 per cent invested in share markets, so that will have an impact on super funds,” he told SBS News.
“The reason super funds have a high exposure to shares is because they provide higher returns for investors over long periods. But the price of that is the share markets can be quite volatile.”
