Behind Every Tariff Policy Lies Not Just a Nation’s Economy But the Prosperity of Its People
From the US-China standoff to global supply chain shocks — long-term impact of tariffs beyond the headlines.
In an age of globalisation, trade wars have reemerged as a powerful — and polarising — force in international politics. Tariff policies, often wielded to shield domestic industries or pressure economic rivals, are no longer just footnotes in policy briefings. From headlines to boardrooms, their ripple effects are being felt across the world.
Over the last decade, the resurgence of protectionist policies, particularly tariff-based trade wars, has dramatically reshaped the global economic landscape. These policies, designed to recalibrate trade balances or protect national industries, have triggered economic disruptions that reach far beyond the borders of the involved nations.
What would a US-China trade war do to the world economy?
And what happens when the dust settles?
This blog aims to dive deep into the long-term impacts of trade wars and tariff policies—analysing not just the short-term tremors but the tectonic shifts they create in trade flows, international relations, global supply chains, and financial ecosystems. The US-China trade war—perhaps the most consequential trade conflict of our time—serves as a compelling case study, offering valuable insights into the sustained economic fallout and adaptive strategies that follow.
📚 Literature Speaks: What the Research Tells Us
This research seems more relevant today than ever. Just this week, a full-scale trade war between the US and China has reignited, with both sides imposing tariffs as high as 125% on each other’s imports.
This sharp escalation threatens not only the bilateral trade relationship but also sends shockwaves through global supply chains, investment flows, and economic sentiment. In light of these developments, understanding the long-term impacts of tariff wars isn’t just an academic exercise—it’s an urgent economic priority.
To examine these impacts through a more rigorous lens, a thorough literature review was conducted by Johannes Eugster, Florence Jaumotte, Margaux MacDonald, and Roberto Piazza. Although published back in 2022, their work feels more relevant than ever in today’s climate.
What emerged from this deep academic dive was a nuanced understanding of how trade wars shape global economic interactions over time. Priority was given to studies that explored:
Macroeconomic effects (GDP, trade volumes, employment rates)
Regional case studies with a focus on the US-China economic conflict
Sector-specific impacts (agriculture, tech, manufacturing)
Global trade patterns and strategic realignments
After filtering over 75 papers, 35 high-quality, methodologically sound studies were selected for deeper analysis. These form the backbone of this post.
Key Takeaways: Trade Wars Leave a Lingering Mark
1. Disrupted Global Supply Chains
Tariffs create bottlenecks in supply chains, increase manufacturing costs, and reduce competitiveness. When the US levied tariffs on Chinese goods, the ripple effect spread far and wide: companies across industries—from tech to textiles—scrambled to find alternative suppliers or absorb price hikes. In many cases, those costs were passed on to consumers.
2. Financial Market Volatility
Markets hate uncertainty. Trade wars fuel investor anxiety and shake up financial indices. The US-China conflict, for example, saw wild market swings—particularly affecting companies with deep ties to Chinese manufacturing or consumer markets. Tech stocks, agricultural ETFs, and import-heavy manufacturing shares were particularly vulnerable.
3. Sector-Specific Struggles, Especially in Agriculture
When China retaliated with tariffs on US agricultural products—soybeans being a key target—American farmers found themselves on the losing end of a geopolitical chess game. With exports dwindling, many had to rely on government subsidies to stay afloat. Meanwhile, countries like Brazil and Argentina filled the gap, forging stronger trade ties with China.
4. Redrawn Economic Relationships
Interestingly, trade wars don’t just damage relationships—they reshape them. The US-China standoff led to diversification strategies, with both countries seeking new partners to hedge future risks. China increased imports from Latin America, while the US eyed Southeast Asia and renewed interest in regional trade agreements. In the long term, these realignments could change the face of global trade.
🧩 What Does It All Mean?
These findings offer more than a retrospective—they paint a roadmap for future policy. The long-term consequences of trade wars transcend the balance sheets of importers and exporters.
Efficiency is compromised: Supply chain disruptions reduce productivity and slow innovation.
Markets remain jittery: Persistent volatility creates hurdles for long-term investment planning.
Vulnerable sectors pay the price: Industries with limited diversification options (like agriculture) bear disproportionate losses.
Geopolitical dynamics shift: Alliances are broken, formed, and recalibrated based on strategic necessity rather than ideological alignment.
In essence, trade wars spark a domino effect. What starts as a tariff tweak ends up realigning global production, consumption, and investment patterns.
Real-World Relevance: Not Just for Economists
For business strategists, understanding these dynamics is essential for risk assessment and supply chain planning. For policymakers, the findings underscore the importance of diplomacy over economic brinkmanship. For academics and students, this evolving body of research offers fertile ground for deeper investigation.
Most importantly, for the public, it’s a reminder that trade policies are not abstract—they directly affect prices at the supermarket, the stability of jobs, and the performance of retirement portfolios.
🔦 Research Spotlight
Ever notice how some countries seem to grow much faster than others over the long run? One key idea economists use to understand this is Total Factor Productivity (TFP)! Think of TFP as a measure of how efficiently a country combines all its inputs – like labour, capital (machines, buildings), and raw materials – to produce output. When TFP grows, it means a country is getting more bang for its buck without necessarily using more resources. Things like technological advancements, better management practices, and improved education can all boost TFP. It's like the secret sauce that fuels sustainable economic growth!
Stay curious, stay informed!
Limitations and What’s Next
This blog relies primarily on secondary research, with the China–United States trade war as its focal point. While it's the most documented and impactful conflict of its kind in recent memory, other trade wars—such as Brexit-related trade policies or the US-EU Airbus-Boeing dispute—offer valuable alternative contexts worth exploring.
Future research could benefit from:
Primary data collection across diverse regions
Econometric modeling to establish stronger causal relationships
Sector-specific deep dives into tech, energy, or pharmaceuticals
Role of global institutions like the WTO in mediating and mitigating conflict
Final Thoughts: Toward a More Cooperative Trade Future
The resurgence of trade wars in the modern era forces us to reckon with a tough reality: protectionist policies may win political points in the short term, but their long-term costs are deeply systemic. They disrupt economic rhythms, upend industries, and alter the global balance of power.
If there’s one clear takeaway, it’s this: stable, rules-based international trade is not just an economic ideal—it’s a geopolitical necessity.
As nations continue to recalibrate their positions in an evolving global economy, the need for cooperative, data-driven, and transparent trade policy has never been more urgent. Because behind every tariff is not just a nation’s economy—but the prosperity of its people.
What do you think?
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Thanks for reading! Hope you enjoy the research roundup!