Written by Amy Shen (Research Lead), Arjun Tholakapalli, Brendan Furnari, Alec Ke
KEY POINTS:
Economic Disruptions & Inflation:Â Tariffs on China, Mexico, and Canada have raised manufacturing costs, disrupted supply chains, and increased consumer prices, particularly in electronics, automobiles, and steel-dependent industries.
Corporate & Industry Adjustments:Â Companies like Apple, Caterpillar, and Ford are reshoring production, stockpiling inventory, and redesigning supply chains to mitigate tariff impacts, while some industries, such as agriculture, struggle with lost export markets.
China’s Retaliation & Global Trade Shifts: China has imposed counter tariffs on U.S. goods, particularly in agriculture, while strengthening trade ties with the EU and diversifying its supply chains to reduce reliance on U.S. imports.
Stock Market & Government Interventions:Â Tariff uncertainty has led to stock market volatility, prompting U.S. government subsidies and policy adjustments to support affected sectors like farming and manufacturing.
Future Outlook & Trade Policy Implications:Â Businesses must prioritize supply chain resilience and alternative sourcing as tariffs continue to reshape global trade, increasing uncertainty for long-term investment and economic growth.
The proposed and implemented tariffs from the new Trump administration on marks a significant shift in U.S. trade policy. Tariffs are taxes imposed on imported goods, designed to make foreign products more expensive and less competitive in the domestic market. While tariffs can have the intended effect of protecting domestic industries, they also carry economic implications, including higher costs for consumers and disruptions in supply chains. Donald Trump plans to reshape global trade dynamics by imposing tariffs on various foreign goods, particularly from China, Mexico, and Canada. Below is a list of the proposed/implemented tariffs under the Trump administration:
-         10% tariff on imports from China in addition to China’s existing tariffs
-Â Â Â Â Â Â Â Â Â 25% tariff on imports from Mexico and Canada
-Â Â Â Â Â Â Â Â Â 25% tariff on the import of steel and aluminum set to take effect on March 12
There are a few goals these tariffs look to achieve. One goal is to protect domestic industries and U.S. jobs. In theory, increasing the cost to import goods would lead consumers purchasing domestic goods rather than foreign goods. Furthermore, it would be in a company's best interest to source from a domestic supplier because of the cost component, resulting in more jobs created in the U.S. A second goal is to use the U.S. economy as leverage in negotiations related to national security. In February 2025, President Trump announced the 25% on all imports from Mexico and Canada, leading to negotiations between the neighboring countries. The result was to pause the tariffs for 30 days. In exchange, Mexico committed to deploying 10,000 troops to its border with the United States, while Canada pledged to appoint a "fentanyl czar" and continue implementing the border security plan announced in 2024. The final goal is to reduce the U.S. trade deficit by discouraging the purchase of foreign products. Show below is the trade deficit between the U.S. and China:
Although the intentions are clear, these policies will have profound impacts on global supply chains, U.S. businesses, and the broader economy. The tariffs will also impact various industries, particularly steel, aluminum, automotive, and electronics. This paper will explore how various companies are responding, the economic consequences of trade disruptions, and the sector-specific challenges faced by U.S. businesses, especially those in direct competition with China.
Company Responses & Adjustments
To explore the potential impact tariffs can have on businesses we can look at the previous impact on Caterpillar Inc. In the second quarter of 2019, the leading manufacturer of construction equipment paid $70 million in tariffs, contributing to a $328 million rise in manufacturing costs (Supply Chain Dive). This led to the implementation of cost-cutting measures where they redesigned machines to produce equipment with 20% fewer parts. Additionally, they explored various methods to optimize their supply chain with a lean methodology. Looking forward, the steel tariffs could increase costs by over $300 million and decrease revenues by over 35% (Holladay Construction Group). To avoid such a significant impact, companies are adopting various methods to prepare and respond to the tariffs proposed by the Trump administration such as relocating production, increasing prices, and designing more resilient supply chains.
In response to the introduced tariffs, companies are shifting supply chains to be more resilient by design in a few ways. First, manufacturers may hedge risks by increasing inventory in strategic areas. This marks a shift away from a just-in-time inventory model, as companies prioritize resiliency over efficiency to counteract the ongoing trade war and related global disruptions. Second, firms may explore opening new facilities in non-tariff regions or relocating logistics hubs around less disrupted zones. Third, companies will have more dynamic scenario planning to prepare for the uncertainty. Ford Chief Financial Officer explained at the Wolfe conference that Ford is considering where to strategically invest resources to have a small amount of inventory built in key areas. Also, they intend on not taking radical action yet, instead increasing scenario planning so they have action plans ready (Detroit Free Press).
One-way domestic companies can become more resilient is to strategically shift production away from China to mitigate rising costs and combat global uncertainty. Apple plans to spend $500 billion domestically and create a projected 20,000 US jobs over the next four years to build a new server manufacturing facility in Houston, Texas and an AI supplier academy in Detroit, Michigan (ZDnet). This aligns with the objectives of the Trump administration's tariff policies aimed at reducing the U.S. trade deficit and creating additional jobs. However, it is important to note that Apple has already been taking steps to diversify its operations away from China. Although this action acts as a long-term plan to avoid tariffs, Apple is still projected to increase prices in the short-term.
Many companies across industries will increase prices to offset the increase in costs brought on by the tariffs. Despite moving some production domestically, Apple still faces the dilemma of raising prices. If Apple takes on the added cost of tariffs, the company could lose 26 cents in 2026 earnings per share, translating to a 3.1% dip (ZDnet). Apple may increase their prices by 9% to adequately offset the cost of tariffs and subsequent cost of lost sales, according to Wamsi Mohan, an analyst at Bank of America. Similarly, Acer has announced a 10% price increase for its laptops in the U.S., attributing the hike to the new 10% tariff on Chinese imports (The Verge). Prior evidence from 2018-2019 shows that it’s not uncommon for a company to pass 100% of a tariff cost down to the end consumer, with it varying by sector (AEA Papers and Proceedings). This demonstrates an overall increase in prices for consumers as a consequence of tariffs.
Economic Outcomes
Immediate Impact on the U.S. Economy
GDP Growth: Changes in economic growth rates.
Job Market: Sector-specific employment gains and losses.
Inflation: Rising costs of goods and services.
Consumer Price Increases
Due to higher import costs.
Trade Balance Shifts
Changes in the U.S.-China trade balance.
Stock Market Volatility
Fluctuations in investor confidence.
Government Relief Efforts
Initiatives like farmer subsidies to counteract retaliatory tariffs.
The imposition of tariffs on Chinese imports and the subsequent retaliatory measures by China have had an immediate and far-reaching impact on the U.S. economy. One of the most significant effects has been on GDP growth. The U.S. economy has experienced slower growth rates due to increased trade costs, disruptions in supply chains, and reduced exports. While the economy has shown resilience in some areas, the trade conflict has added a layer of uncertainty, leading to lower than anticipated growth projections. The tariff-induced slowdown in manufacturing and agricultural sectors, which rely heavily on Chinese markets, has weighed on the overall economy, hindering more robust economic performance.
The job market in the United States has also been impacted by the trade tensions with China. While certain sectors have seen job growth, others have faced significant employment losses. In particular, industries such as manufacturing, which were directly impacted by the tariffs, have seen job losses as companies cut back on production or moved operations overseas to avoid higher costs. On the other hand, sectors like logistics and warehousing, which support the movement of goods, have experienced some employment gains due to the increased complexity of global supply chains. However, the overall employment picture remains mixed, with trade-sensitive industries suffering while others have adjusted to the changing trade landscape (Econofact).
The trade conflict has also contributed to inflationary pressures in the U.S. economy. As tariffs on Chinese goods increased, the cost of imports rose, which in turn led to higher prices for consumer goods and raw materials. Products such as electronics, machinery, and clothing, which are commonly sourced from China, saw price increases due to the added tariffs. These cost hikes have affected businesses that rely on imported goods, ultimately passing on the increased costs to consumers. This has led to a general rise in the consumer price index, affecting both everyday items and industrial inputs, further contributing to inflationary pressures within the economy (Federal Reserve Bank of Boston).
One of the direct consequences of the rising tariffs has been consumer price increases. As the U.S. implemented higher tariffs on Chinese imports, the price of products such as electronics, clothing, and household goods rose due to higher import costs. Retailers, unable to absorb these cost increases entirely, passed them on to consumers in the form of higher prices. These price hikes have affected consumer purchasing power, particularly in middle and lower-income households, leading to increased scrutiny of the trade war’s impact on cost-of-living expenses. As these goods become more expensive, U.S. consumers are faced with making difficult choices, potentially reducing discretionary spending, which in turn slows economic growth (CBS News).
The trade conflict also had a significant impact on the U.S.-China trade balance. The U.S. has long had a substantial trade deficit with China, and the tariffs were aimed at reducing this gap by making Chinese goods more expensive and less competitive. However, the tariff measures led to a shift in trade patterns. While U.S. exports to China dropped due to retaliatory tariffs, China began to source products from other countries, like Brazil in the case of soybeans, reducing U.S. market share. As a result, the U.S. trade deficit with China remained persistently high, with the tariffs proving ineffective at significantly reducing the imbalance. This shift also led to a decline in certain U.S. industries' exports, further complicating the U.S. trade balance (The US-China Business Council).
Stock market volatility has been another key consequence of the U.S.-China trade war. The uncertainty surrounding the outcome of trade negotiations, as well as the direct effects of tariffs, caused substantial fluctuations in investor confidence. The initial tariff announcements led to sharp declines in stock prices, particularly in industries such as technology and agriculture, which are highly dependent on global trade (Business Insider). However, market sentiment improved following trade deal announcements and hopes of a resolution, only to dip again with new rounds of tariffs or failed negotiations. This volatility has impacted long-term investor decisions and contributed to the overall sense of instability in financial markets.
In response to the economic strain caused by the trade war, the U.S. government introduced several relief efforts, particularly targeting industries most affected by retaliatory tariffs. For example, farmers, who faced a significant loss of exports to China, were provided with subsidies to offset their losses. These subsidies were aimed at stabilizing the agricultural sector, which had been hit hardest by the loss of Chinese markets for U.S. agricultural products like soybeans.
Additionally, the U.S. government initiated programs to support affected manufacturers, providing tax relief and funding for businesses to adapt to the changing trade environment. These efforts were designed to mitigate the adverse impacts of tariffs on U.S. businesses and workers, though critics argue that they have not been sufficient to fully counteract the broader economic effects of the trade war (The New York Times).
China's response & Trade Retaliation
Impact of U.S. Tariffs on Chinese Imports
Effects on U.S.-China trade dynamics.
China’s Retaliatory Tariffs
Targeted U.S. industries (e.g., agriculture, technology).
Case Study: U.S. soybean market share loss to Brazil.
Global Manufacturing Shifts
Companies relocating from China to countries like Vietnam and India.
China’s Countermeasures
Strengthening trade with the EU and other markets.
Domestic policies to stabilize economic growth.
The imposition of tariffs on Chinese imports by the United States has significantly altered the dynamics of U.S.-China trade. These tariffs were initially introduced under the premise of addressing China's unfair trade practices, intellectual property theft, and trade imbalances. As a result, U.S. companies that rely heavily on Chinese imports for goods ranging from electronics to consumer products faced higher costs. This disruption not only strained supply chains but also prompted U.S. manufacturers to reconsider their sourcing strategies. Additionally, these tariffs led to an increase in the cost of goods for American consumers, as importers passed on the additional costs. The retaliatory measures from China exacerbated the situation, further complicating trade relations and influencing the broader economic environment (CBS News).
In response to the U.S. tariffs, the Chinese government has been imposing its own retaliatory tariffs, targeting specific sectors in the U.S. economy. The agricultural sector, particularly U.S. soybean exports, faced significant challenges as China, a major importer of American agricultural products, levied tariffs on U.S. agricultural exports. Similarly, U.S. technology products, including semiconductors and electronics, saw their market access restricted due to higher tariffs. These retaliatory tariffs created a two-fold pressure on U.S. industries—reducing the competitiveness of U.S. products in Chinese markets and disrupting long-established supply chains. The agricultural sector, in particular, was one of the hardest hit, as China sought alternative suppliers, especially in markets like Brazil, which had benefited from lower tariffs (AP News).
One of the most illustrative examples of the effects of retaliatory tariffs is seen in the U.S. soybean market. Prior to the trade conflict, China was the largest importer of U.S. soybeans, with the U.S. holding a dominant share of the global soybean market. However, after China imposed a 25% tariff on U.S. soybeans, China shifted its purchasing to Brazil, which emerged as a leading supplier. The U.S. saw its market share in China dramatically decline, while Brazil capitalized on the opportunity to expand its export volumes. This shift not only hurt U.S. farmers economically but also led to long-term changes in global supply chains for soybeans, with China establishing a more diversified sourcing strategy. The case of soybeans highlights the vulnerability of U.S. agriculture to tariff policies and the broader impact on international trade flows (National Corn Growers Association).
As a result of the tariffs and broader trade tensions between the U.S. and China, many multinational corporations began to reassess their manufacturing strategies. Several companies, particularly those with significant production in China, decided to relocate their manufacturing operations to other countries to mitigate the impact of tariffs and reduce supply chain risks. Countries like Vietnam and India became attractive alternatives for firms seeking to maintain cost-effective production without the added burden of U.S. tariffs.
The relocation of manufacturing to these nations has contributed to the growing prominence of Southeast Asia as a key global manufacturing hub. This shift is not only a reaction to tariff pressures but also a reflection of the broader trend of companies seeking to diversify their production bases in order to minimize the potential risks associated with over-reliance on China (Reuters).
In response to the economic challenges posed by the U.S. tariffs and trade actions, China has implemented several countermeasures so far to stabilize its economy and secure alternative trade relationships. One significant strategy was strengthening trade ties with the European Union (EU) and other global markets. By diversifying its export destinations, China sought to reduce its dependency on the U.S. market. The China-EU relationship, in particular, has seen notable growth, as both parties expanded trade agreements and cooperation in areas such as technology and infrastructure.
Furthermore, China has focused on domestic policies to stabilize its economic growth. Measures such as increasing investment in technology, improving domestic consumption, and supporting key industries like electronics and manufacturing were introduced to counteract the negative effects of the trade war. These policies not only sought to mitigate the economic slowdown caused by tariffs but also aimed to strengthen China's position in the global economy in the long term (China Briefings).
Industry-Specific Impact
The tariffs imposed by the Trump administration have affected many industries, especially electronics, which rely heavily on Chinese parts. With an extra 10% tariff on imports from China, companies that make or assemble electronics in the U.S. will face higher costs. Major suppliers like TSMC, Samsung, and SK Hynix, which provide chips for Apple, Nvidia, and other tech firms, will also be impacted. These extra costs will likely be passed down to consumers, making products like smartphones and laptops more expensive (Reuters, 2025).
China’s retaliatory tariffs have hit U.S. agriculture hard, especially for products like soybeans, pork, and dairy. Since China was one of the biggest buyers of these goods, many Chinese companies have switched to suppliers in Brazil. This has led to lower incomes for American farmers, forcing them to find new markets, often at lower prices (ICIS, 2025). The drop in U.S. agricultural exports to China and the financial strain on farmers show just how serious these trade disruptions are.
Industries that depend on Chinese materials and parts—like automotive, pharmaceuticals, and consumer goods—are facing higher costs and supply chain issues. A 10% tariff on all U.S. imports from China has pushed companies to look for new suppliers or change how they manage inventory. Some businesses are shifting to regional supply chains and stockpiling goods to reduce their exposure to tariffs, moving away from the usual just-in-time model (Argon & Co, 2025). While this shift helps reduce reliance on China, it takes time and money, leading to higher costs in the short term.
Rising import costs have led to higher prices for everyday consumer goods. Retailers like Walmart and Target have warned that essentials like clothing, shoes, and household items will become more expensive. To avoid these extra costs, many companies are looking for new suppliers in Vietnam, India, and Mexico, but switching supply chains takes time and money. As a result, consumer spending habits are expected to change, especially for middle- and lower-income households, who are more affected by price increases (Ashurst, 2025).
If tariffs stay in place or go up, industries that rely on global supply chains will keep facing higher costs, tighter profit margins, and possible job cuts. Some companies are managing by moving production, but others are struggling with rising expenses. These tariffs have wide-reaching economic effects, highlighting the need for long-term policies that balance protecting U.S. industries with maintaining economic stability. Businesses must continue adjusting to shifting trade policies to stay competitive (Tax Foundation, 2025).
Steel & Aluminum Impact
The 25% tariffs have caused big challenges for U.S. industries and global trade. Many American businesses that rely on imported materials, like steel and aluminum, have seen their costs go up. Some companies have tried to absorb these costs, while others have passed them on to consumers or looked for new suppliers in different countries. At the same time, these tariffs have led to trade tensions, with other countries responding by placing their own tariffs on U.S. goods, making things even more complicated (Ashurst, 2025).
One of the hardest-hit industries is the auto sector, which depends on parts and materials from around the world. Toyota has managed to lessen the impact by producing more in the U.S., especially at its Kentucky plant. This has helped the company avoid some of the cost increases from tariffs on imported parts. Still, the rising costs of raw materials, like steel and aluminum, have made it more expensive to build cars, which means higher prices for consumers (Detroit Free Press, 2025).
General Motors (GM), on the other hand, has struggled more because it relies heavily on imported materials. Since so many of its parts come from outside the U.S., the tariffs have raised production costs significantly. To deal with this, GM has had to adjust its production strategies, consider cutting jobs, and even rethink where it builds certain vehicles. The company has also warned that these higher costs could make its cars less competitive compared to those from manufacturers in countries without tariffs (Reuters, 2025).
Across the auto industry, companies are trying to adjust by changing their supply chains. Some are investing more in North American factories to meet domestic production rules, while others are looking for suppliers in countries with better trade agreements. While these changes could help in the long run, they require time and money, making things tough for manufacturers in the short term (Argon & Co, 2025).
Overall, the 25% tariffs have made it more expensive to produce goods in the U.S., especially in manufacturing and the auto industry. Some companies are finding ways to adapt, but others are struggling with rising costs and tougher competition. This situation shows how important trade policies are in balancing economic protection with long-term business success (Tax Foundation, 2025).
Outlook & Trade Policy Implication
The recent increase in tariffs during the Trump administration is set to cause major disruptions for both global and U.S. supply chains. A 10% tariff on all imports from China, aimed at reducing fentanyl inflows, has already led to Chinese retaliation with tariffs on major U.S. exports like coal, liquefied natural gas, and crude oil (Reuters, 2025). These countermeasures could raise costs for U.S. manufacturers that depend on Chinese raw materials and components, possibly leading to price hikes for consumers and shortages in critical sectors such as automotive, energy, and technology.
China’s long-term plan to handle these tariffs involves boosting domestic production and forming new partnerships with other economies (Reuters, 2025). If this works out, China might become less reliant on imports from the U.S., pushing American companies to find alternative suppliers or move production elsewhere—both actions could increase costs and extend lead times. Moreover, businesses with global supply chains might face widespread disruptions as they rethink sourcing strategies to dodge higher tariffs, resulting in shifting trade flows and more complex logistics.
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The wider consequences go beyond just U.S.-China relations. Other countries might start using similar protectionist policies, which would increase trade uncertainty and break down global supply networks. For instance, the European Union is already getting ready to negotiate car tariffs with the U.S., hoping to avoid a trade war that could mess up transatlantic supply chains (Politico, 2025). Industries that rely on complicated international supply chains, like automotive and electronics, are under growing pressure to rethink their procurement and production strategies. A study by the National Bureau of Economic Research shows that changes in tariff policies can create ripple effects across industries, driving up costs and making logistics more complicated (NBER, 2021).
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As tariffs continue to change trade dynamics, U.S. supply chains should prepare for higher costs, increased unpredictability, and potential changes in sourcing and production. Companies that don’t adapt to these conditions risk losing their competitive edge, while those that actively diversify their supply bases might become more resilient in a trade environment that’s increasingly uncertain.
Conclusion
The Trump administration’s trade policies marked a significant shift in U.S. economic strategy, particularly through the imposition of tariffs on imports from China, Mexico, and Canada. These measures aimed to protect domestic industries, reduce the trade deficit, and preserve American jobs but also introduced economic challenges such as increased manufacturing costs, higher consumer prices, and supply chain disruptions. Industries reliant on steel and aluminum faced rising costs, leading companies to adjust operations by redesigning products, shifting production locations, and modifying supply chain strategies.
Major corporations like Apple and Mattel responded by diversifying manufacturing locations to minimize tariff exposure. Additionally, the tariffs led to inflationary pressures, impacted employment trends, and contributed to stock market volatility. Certain industries benefited from the protectionist policies, but others, including agriculture and technology, faced setbacks as China imposed retaliatory tariffs, causing U.S. farmers to lose a key export market. Government subsidies and incentives sought to mitigate economic damage, though their long-term effectiveness remained uncertain.
China’s response to U.S. tariffs further reshaped global trade dynamics, with retaliatory measures aimed at reducing reliance on American goods and strengthening ties with other economic partners such as the European Union. The trade war also accelerated shifts in global manufacturing, as companies sought alternative production hubs in countries like Vietnam and India to avoid tariffs. The technology sector faced challenges, with tariffs on semiconductors raising costs for companies dependent on Asian suppliers, further straining an already vulnerable supply chain.
These broader shifts highlighted the growing complexity of international trade, where firms prioritized supply chain resilience over efficiency. While the Trump administration’s trade policies sought to create leverage in trade negotiations and strengthen the domestic economy, they also introduced uncertainties that continue to influence corporate strategy, investment decisions, and economic policy discussions. The long-term effects of these policies underscore the difficulty of balancing protectionist measures with broader economic stability.