Trade Wars: When Tariffs Turn into Battles

Today, we’re witnessing a reality that would have seemed unthinkable just a few years ago: longtime allies and trading partners—the United States and Canada—are imposing tariffs on one another. Tensions have escalated so sharply that some voices have even suggested the U.S. is trying to make Canada its fifty-first state. This unfolding trade war is alarming not only for those within these two countries but for the entire world economy.

What Is a Trade War?

A trade war occurs when countries retaliate against each other by imposing tariffs, quotas, or other trade restrictions. The goal is often to protect domestic industries or punish another nation for its political or economic actions. What begins as one country raising tariffs can quickly spiral into a tit-for-tat escalation, disrupting trade and harming both sides.

The Chicken War: A Classic Example

One of the most well-known trade wars is the so-called Chicken War of the 1960s. It started when American poultry producers flooded the European market with cheap chicken, threatening local farmers. In response, the European Economic Community (the precursor to the EU) imposed heavy tariffs on U.S. chicken imports.

The U.S. retaliated in 1963 with tariffs of its own, targeting French brandy, German light trucks (especially the iconic Volkswagen Bus), and potato starch. The fallout was severe. European chicken prices rose, American consumers faced higher prices for European goods, and Volkswagen saw its U.S. sales plummet due to a 25% tariff on light trucks.

The long-term impact? Volkswagen eventually shifted production to the U.S. to avoid the tariff. But most striking of all: the “Chicken Tax”—that same 25% tariff on foreign light trucks—is still in effect today. It continues to shape global auto manufacturing decisions, forcing many automakers to build their trucks inside the United States.

How Trade Wars Begin

Trade wars are often triggered by trade deficits, geopolitical disputes, or national security concerns. A modern example is the U.S.–China trade war, launched in 2018 under President Donald Trump.

Citing intellectual property theft, forced technology transfers, and a growing trade imbalance, the U.S. imposed tariffs on over $300 billion in Chinese goods. China hit back with its own tariffs on U.S. agricultural products, automobiles, and high-tech components.

The Consequences

Both countries suffered major losses:

• U.S. agricultural exports were slashed by billions of dollars.

• Over 245,000 American jobs were lost.

• China’s economic growth slowed to its lowest level in decades.

• U.S. farmers required $28 billion in government bailouts.

Global supply chains were disrupted, prices for consumer goods surged, and neither side emerged as a clear winner. Instead of revitalizing domestic industries, many companies simply moved production to other countries, like Vietnam and Mexico.

Japan & Semiconductors: Another Costly Battle

The 1980s saw another trade war—this time between the U.S. and Japan over semiconductors. Japan had become a global leader in chip production, outcompeting U.S. manufacturers with better quality and lower prices.

In 1986, the U.S. responded with 100% tariffs on Japanese semiconductors to protect companies like Intel and Texas Instruments. It offered a short-term boost to American producers, but it wasn’t enough. Production still moved offshore, and Taiwan and South Korea rose to dominate the semiconductor industry. Ironically, the U.S. soon became reliant on foreign semiconductors.

Japan, meanwhile, shifted its focus to consumer electronics and automobiles—industries it came to lead globally.

The trade war left a lasting mark on U.S.–Japan relations, proving that high tariffs can push nations to innovate, but not always in the ways intended. Instead of weakening Japan, the conflict forced it to become even more competitive—just in different sectors.

Final Thoughts

History teaches us a clear lesson: trade wars often start with the intent to protect, but they usually end with lost allies, disillusioned consumers, and complicated economic consequences.

Whether it’s chickens, chips, or soybeans, trade wars rarely bring the victories politicians promise. The better path forward? Diplomacy, fair agreements, and global cooperation—because in today’s interconnected world, no nation wins alone.

For more information, please watch our video here.