Why do trade wars between countries happen? To offset a lack of purchasing power

Today, everyone has heard of the tariff war initiated by former U.S. President Donald Trump against nearly every country on the planet. These tariffs have had direct consequences on thousands of jobs in the countries targeted — and the tariffs themselves change almost weekly, causing uncertainty in stock markets and investments. Even within the United States, it's American consumers who ultimately pay the price, as they are the ones who bear the cost of higher prices caused by these import duties.

Let's take an example of a Canadian-made product that used to sell for $100 in the U.S. before the tariffs. If a 25% tariff is imposed, that same product now sells for $125 in the U.S., and it's the American consumers who absorb that 25% increase. What Trump calls a "tariff" is essentially a tax for the consumer.

This tariff war was first imposed by President Trump on the U.S.'s neighboring countries, Canada and Mexico. Trump claimed that the U.S. was being treated unfairly by these two countries because they had trade surpluses (i.e., they exported more to the U.S. than they imported). Canada, for instance, had a trade surplus of over $100 billion with the U.S., but Trump argued that the U.S. was "subsidizing" Canada to the tune of $2 trillion, that the U.S. needed no Canadian products, and that without this "subsidy," Canada would cease to exist. He even suggested that Canada should become the 51st U.S. state to avoid this outcome.

In reality, Canada doesn't force the U.S. to buy anything; the U.S. buys Canadian goods because they're cheaper (such as oil) or because they lack the capacity to produce them, due to missing infrastructure or raw materials (like potash or aluminum).

The U.S. then imposed 25% tariffs on Canadian steel, aluminum, and automobiles, along with a 10% tariff on oil and potash (which American farmers critically need for fertilizer). But that was just the beginning — soon, the rest of the world would be affected by Trump's economic policies.

On April 2, during a White House conference, President Trump officially declared "Liberation Day," imposing tariffs ranging from 10% upwards on 185 countries (essentially the entire world), particularly targeting China, the European Union, and Vietnam. Days later, the U.S. imposed 145% tariffs on Chinese imports, prompting China to retaliate with 125% tariffs on certain U.S. goods. As a result, anything made in China now costs more than double in the U.S., discouraging Americans from purchasing Chinese-made goods.

Why did the U.S. launch this all-out trade war? The goal was to bring back factories that had relocated to other countries and, with them, the jobs that had been outsourced. Trump's message to companies was clear: "If you want to sell in the U.S. without tariffs, set up your factories here."

Offshoring

On paper, this sounds logical — but in practice, it's nearly impossible. Since the 1980s, American companies have outsourced manufacturing to countries with lower labor costs, fewer regulations, and faster production. Initially to Mexico, then to China (even lower costs), and now to countries like Bangladesh and Vietnam, where wages are even lower. This trend led to the loss of millions of manufacturing jobs in the U.S. and increased reliance on global supply chains.

In 2024, the U.S. imported $439 billion worth of goods from China and exported only $144 billion — essentially making China the factory of the U.S. Another example: only 2% of the clothing worn by Americans is made in the U.S.; the rest comes from Asian countries.

Even if factories were to return to the U.S., production costs would skyrocket — primarily due to wages. In the U.S., the average hourly wage in manufacturing is around $25. In comparison:

•    Vietnam: ~$3/hour

•    Indonesia: ~$2.50/hour

•    Bangladesh: under $2/hour

An iPhone that retails for $1,000 could cost $3,500 — more than triple — if made in the U.S.

The U.S. wants to bring back jobs but refuses the low wages and working conditions seen in Asia. Relocating factories is also expensive and time-consuming. The only way to produce as cheaply as in Asia would be to use robots — but that wouldn't solve anything, since no salaries would be paid to the population.

In reality, the U.S. cannot currently do without China — especially for electronics and semiconductors. As a result, a few weeks later, President Trump was forced to backtrack and lift tariffs on Chinese-made electronics (e.g., phones, computers). And in May 2025, after negotiations in Geneva, the U.S. and China agreed to reduce tariffs: the U.S. lowered theirs from 145% to 30%, and China cut theirs from 125% to 10%.

The competition for jobs isn't limited to international borders — it happens between provinces and regions, too. Governments offer subsidies and tax incentives to attract companies to settle in one area over another. A stark example is in Africa, where European products (especially food) are often subsidized during production or export. These subsidies allow products to be sold at prices lower than local production costs, thus undermining African producers.

The root cause of trade wars

International trade tensions mainly arise from countries wanting to export more than they import — in technical terms, to have a "favorable trade balance." Every country wants to sell more abroad than it buys, in order to earn foreign currency and offset its lack of domestic purchasing power.

But it's impossible for every country to have a favorable trade balance. If some countries succeed in exporting more than they import, there must be others doing the opposite. Since all countries aim to sell more than they buy, trade conflicts inevitably arise — and can even escalate into armed conflict.

The main reason countries try to export more and restrict imports is a lack of inherent purchasing power within the current financial system (see the article A Cannot Buy A + B in MICHAEL, January–February 2024 issue).

The solution: a dividend for all

The ideal approach to international trade is for each country to become as self-sufficient as possible — producing the goods and services it needs, and importing only what it cannot produce domestically. As Louis Even wrote:

"The solution to the problem requires, as a basic principle, that each country prioritize its domestic trade over its foreign trade. This can only happen if every country asserts its sovereignty over its own monetary policy, so that all local production is consumed locally to meet local needs. A monetary policy that issues domestic purchasing power in relation to domestic production would ensure economic security for the population, and would eliminate the fierce competition for markets — both foreign and domestic."

This will only be possible by breaking free from the grip of international bankers. That day — and only that day — will mark the true "Liberation Day" for every nation, including the United States.