Most important feature of protectionism is that there is a possibility of a trade war

• It’s much more costly if other countries respond to US tariffs with tariffs of their own on US exports

  • These tariffs are part of a broader pattern of two-way retaliatory interactions, including restrictions on foreign investment, restrictions on foreign market entry, restrictions on joint ventures between firms of two countries, and new visa restrictions on travel

Tariffs and other restrictions harm US producers but offer some benefits to US consumers

• When US tariffs bring foreign tariffs in retaliation, it’s likely that US consumers and US producers are both harmed on net

  • China increased its trade restrictions on US soybeans, not US aircraft because it’s much easier to find suppliers of soybeans than aircrafts, so China chose to impose trade restrictions that would hurt the US at least cost to China

  • They also reduced tariffs on imports from US competitors

Worldwide shift if trade networks illustrates how a trade war can increase economic uncertainty and make it harder for businesses to know where to invest

• This may stop investment all together which lowers wages and slows down economic growth