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trade war

Trade wars can occur when countries start imposing barriers to trade (tariffs, for example) against each other. A country might do this to another in order to reduce its trade balance – the amount it spends on goods and services from abroad, relative to the amount it receives from selling its own products. In 2017, the US spent $376 billion more on goods from China than vice versa. Reducing this figure would free up money for the country to spend elsewhere. The US buying fewer Chinese products is one way to go – and tariffs are another, since they raise additional money with which the government can spend elsewhere on growing the economy. By making it more expensive for companies to get stuff they want from abroad, profits are likely to suffer – since costs are rising without being offset by either higher sales or lower costs elsewhere. Companies that try to pass their higher costs along to their customers might face falling sales if would-be customers are put off by higher prices and go elsewhere or decide not to make a purchase at all. This would feed through to lower profits – and likely falling share prices, as well as lower economic growth due to less demand for products. Longer-term a country would hope that any slowdown in economic growth can be offset by its own spending on the economy, using money collected from tariffs.

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