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Recent headlines have highlighted countries increasing tariffs on one another, but what does this signify, and what are the broader implications? A trade war is an economic conflict between nations that involves imposing protectionist measures in retaliation against perceived unfair trading practices. While it is widely accepted that international trade, when structured properly, benefits all parties by leading to economic growth and efficiency. Nonetheless, many nations continue to adopt protectionist policies. These include tariffs, currency devaluation, investment controls, and import quotas, often justified as necessary to shield domestic industries or address trade imbalances.

However, tariffs are pro-producers and anti-consumers. While tariffs and quotas may temporarily protect local businesses, they frequently lead to higher consumer prices, reduced market efficiency, and retaliatory actions from trading partners (Prajapati, 2018). This worsens economic inequality by disproportionately affecting lower-income households, who bear the brunt of rising costs for goods and services. Furceri et al. (2018) found that higher tariffs lead to more unemployment and wider inequality, adding to the overall harm caused by tariffs. While tariffs have little effect on the trade balance—partly because they cause currency values to rise—they lead to a drop in consumption. Moreover, trade wars can disrupt global supply chains, harm export-dependent industries, and strain diplomatic relations (Berthou et al., 2018). While protectionist measures may offer short-term gains for specific sectors, their long-term impact often undermines economic stability and fairness, with tariff barriers often unjustified by social well-being (Muradovna, 2020). That is why trade wars commonly occur in developed and wealthy nations such as the U.S. and China.

Muradovna (2020) argued that removing all trade barriers worldwide could lift over 500 million people out of poverty within 15 years, and developing countries stand to gain hundreds of billions in annual income, with at least half of this increase coming from eliminating protectionist measures against their exports in industrialized nations. 

In response to trade barriers, the General Agreement on Tariffs and Trade (GATT) was a treaty made to reduce trade barriers in 1947; over time, a permanent international organization was established in 1995, the World Trade Organization (WTO) that oversees global trade rules. According to Mattoo & Staiger (2020), The GATT/WTO trading system is based on two main principles: most-favored-nation (MFN) and reciprocity. The MFN principle ensures that a country treats imports of the same product from different nations equally, without discrimination. If a country lowers tariffs for one trading partner, it must do the same for all others. On the other hand, Reciprocity emphasizes that trade deals should be balanced so that when countries agree to reduce tariffs, each can expect a roughly equal increase in the value of their exports and imports. The Philippines is part of this system as a WTO member, meaning it follows these rules in its trade practices. This includes granting equal treatment to imports from all WTO members and engaging in fair trade negotiations that aim for mutual benefits.

The most recent trade war case is the U.S.-China trade war, which began in July 2018 when the U.S. imposed a 25% tariff on $34 billion worth of Chinese imports, citing concerns over unfair trade practices, intellectual property theft, and trade imbalances. China retaliated against U.S. goods with similar tariffs, escalating the conflict. The trade war was driven by the U.S. desire to protect domestic industries, reduce the trade deficit, and address issues like forced technology transfers and China’s industrial policies (Fajgelbaum & Khandelwal, 2021).

Similarly, the trade war between the U.S., Canada, and Mexico started on February 1, 2025, when the U.S. imposed 25% tariffs on most imports from Canada and Mexico, with Canadian oil and energy exports taxed at 10%. The tariffs were justified as a response to illegal immigration and the opioid crisis, particularly the flow of fentanyl across borders (Lawder et al., 2025). Canada and Mexico retaliated with their tariffs, leading to economic tensions and disruptions in North American supply chains.

What would this mean for the Philippines?

According to NEDA Undersecretary Rosemarie G. Edillon, the ongoing trade war between the U.S. and China presents an opportunity for the Philippines. If the country positions itself as an alternative supplier for U.S. imports, it could benefit from shifting trade dynamics. Additionally, Canada could leverage its regional free trade agreements, potentially strengthening trade ties with the Philippines. 

According to Olano (2019), although the Philippines could gain from redirected trade, it faces strong competition from neighboring countries like Vietnam and Malaysia, which have advantages due to better infrastructure and closer proximity to China. Moreover, the services sector in the Philippines is vulnerable because it relies heavily on the economic conditions of other countries, particularly those deeply integrated into globalization and global value chains (GVCs). 

The Philippines remains a bystander in global trade conflicts and should avoid direct involvement. Adrian R. Mendoza, an Assistant Professor at the University of the Philippines School of Economics, cautions against complacency as the situation remains uncertain. He warns that a worst-case scenario would be the U.S. imposing tariffs on all imported semiconductors, given that electronics accounted for 63% of total Philippine exports in 2024. Semiconductors, the largest component, comprised 41.9% of total exports, valued at ₱1.29 trillion (approximately $21.93 billion) (Inosante, 2025). Tariffs can raise prices in the U.S., reducing demand for Philippine exports and potentially leading to lower remittances from overseas Filipino workers in the U.S. Higher import costs may also contribute to domestic inflation in the Philippines (Pelkmans-Balaoing, 2025).

Experts such as Mendoza and Philip Arnold P. Tuaño, Dean of the Ateneo School of Government, recommend diversifying export markets by strengthening trade relations with the European Union, Japan, Australia, and China to mitigate risks. This strategy aligns with global trade shifts following the pandemic and the U.S.-China trade war.

Economists continue to debate the benefits and consequences of trade wars, but the general consensus is that while protectionist policies may offer short-term advantages for specific industries, their long-term effects are often detrimental. It is hard to dictate who wins in a trade war, as larger and wealthier nations like the United States and China often cope better due to their ability to absorb economic shocks and leverage their market power. These countries may experience higher welfare gains from imposed trade barriers than smaller nations that depend on free trade for growth. However, even for big economies, long-term losses in efficiency, productivity, and international cooperation often outweigh the benefits.