What is "trade war"

n. The practice of nations creating mutual tariffs or similar barriers to trade.

A trade war refers to two or more states raising or creating tariffs or other trade barriers on each other in retaliation for other trade barriers. Increased protection causes both nations' output compositions to move towards their autarky position.

Some economists would agree that certain economic protections are more costly than others, because they may be more likely to trigger a trade war. For example, if a country were to raise tariffs, then a second country in retaliation may similarly raise tariffs. But an increase in, for example, subsidies, may be difficult to retaliate against by a foreign country. Many poor countries do not have the ability to raise subsidies. In addition, poor countries are more vulnerable than rich countries in trade wars; in raising protections against dumping of cheap products, a government risks making the product too expensive for its people to afford.