A trade war refers to two or more nations raising or creating tariffs or other trade barriers on each other in retaliation for other trade barriers. It is the opposite of free trade.
Economists generally believe trade wars are very non-productive and decrease the economic welfare and total social surplus of all nations involved. However, political scientists may see the threat of a trade war as helpful in winning a concession of some sort from the other side..
Some economists would agree that some 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 would similarly raise tariffs. But increasing, for example, subsidies, is difficult to retaliate against by a foreign country. Many poor countries, for example, don't 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, it risks making the product too expensive for its people to afford.
In the recent free trade deals, (GATT, CAFTA and many others) the United States of America saw fit to lower tariffs in many cases to zero or to very low levels and to open its market to other nations. Left in place was very high domestic taxation on its people which in many cases is above 50% of income.. This produced tax differentials identical to those which would have occurred during a trade war leaving US Citizens De facto victims of a trade war. The unusual feature of this trade war was that Americans found their own government was prosecuting a trade war against them. Curiously this condition remains Free Trade when described by its advocates.
The effect of this has been massive losses of industrial and commercial business for the USA. It has caused the export of many jobs as well. It has essentially told US industrial and commercial business that it must leave the USA. Most new inventions for which Americans are world famous are now produced in non-US facilies. As this phased in US Tax collections diminished by approximately 19% per capita (source US IRS) between the US Fiscal Year 2000 and US Fiscal Year 2004. The US Dollar also is reflecting a concurrent loss of value. The US Trade Deficit is at record levels because of this and debt of the USA is at record levels both for the governmental entities as well as citizens generally.
While being unusual in that this De facto trade war is being prosecuted against US Citizens by the USA, It can clearly be seen that such conditions are effective at destroying their target parties from the arena of trade generally.
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