Whichever side of the recent US tariffs and the related trade war you’re on, the socioeconomic impact of even short-term tariffs can be lengthy, significant, and far-reaching. The sad truth is, most people don’t understand the real effects of tariffs on business costs. As is the case with many arenas in our post-postmodern world, there’s frequently a disconnect between the people who understand the ins and outs of a particular subject and the people who earn a living making public policy that impacts it. This also applies to the people in the media whom we trust to inform us about related issues.
As far as tariffs are concerned, many people, including some CEOs, most politicians, and often the media, simply don’t understand how tight the margins and timeframes are that allow various supply chains to operate. They’re essentially blind to the real and potential long-term impacts such tariffs can have on anyone and everyone even tangentially connected to a particular supply chain, as well as how problems with one supply chain can have deleterious effects on a seemingly unrelated supply chain, and even upon a nation’s economy as a whole.
Today we’re going to have a look at the immediate, apparent, and potential long-term/hidden costs of tariffs, and hopefully help provide some more insight into just how problematic a trade war can be for all parties involved.
When discussing the immediate and long-term impacts of tariffs and trade wars, we can approach it from several perspectives, including:
Let’s look at these factors in a little more detail.
When a government or administration applies a blanket tariff on all goods from a particular country, there may be some sort of grace period or warning notification in advance, and there may not. If the US announces that all Chinese goods will be subject to a 145% tax, the prices for these goods can skyrocket overnight. And obviously, a 145% jump in import duties from one day to the next has to be accounted for by suppliers, vendors, and retailers raising the prices of these items. This might sound like hyperbole in order to make an editorial point, but as we reported previously, this exact situation occurred in early May, 2025, as the “de minimis tariff loophole” expired. Prior to this date, imported Chinese parcels with total values under $800 had been allowed to enter the US without any import duties. However, at the expiration of the de minimis exception, ultra-low-cost ecommerce sites like Temu, AliExpress, Shein, and Alibaba were subject to the full impact of the trade war between the US and China, with many items jumping in price by an almost unbelievable 150%. During the ensuing chaos, multiple complaints were made by both Chinese and US businesses, and eventually a temporary compromise de minimis tariff rate of 54% was agreed to by President Trump.
So, do tariffs have a widespread impact on prices for consumer goods, raw materials, and other categories? You bet they do. Here are just a few examples of increased prices specifically related to the recent trade wars.
This potentially huge jump in prices can be exacerbated further because, in cases where imported goods are already in transit in shipping containers or waiting in port to pass through customs, the increase in price occurs at the point of import, well after all deals have been struck and suppliers have been paid based on the previous pricing structure. This means that buyers dealing in Chinese goods (in this particular case) have to account for not only the increased tariffs in their new pricing structure, but they also may have to anticipate a concomitant increase in prices from their suppliers in the future. Why? Because suppliers will be hit by a sudden lack of buyers, at least from countries that are levying heavy import duties, and this often results in a sudden drop in demand on the supply side. Suppliers may choose to drop their prices in order to woo current or potential wholesale buyers, but they often operate on extremely thin margins, relying on sales volume to make it worth their while. So, they may instead be forced to raise their prices in order to maintain acceptable profit margins despite the drop in sales numbers.
Wholesalers and retailers, who also often operate on very slim margins (especially for the cheapest items from China as in this example), are thus forced to scramble not only to somehow absorb a huge increase in import tariffs, but an increase in sourcing- or supplier-level costs as well.
Increased supply costs can obviously have dramatic negative impacts on US businesses relying on goods and materials from countries embroiled in a trade war, particularly small and medium-sized businesses that often don’t have the emergency capital or other financial options available to help weather such a severe storm. We mentioned above that 80% of toys purchased in the US are made in China. TrueCommerce cites a 2025 survey from the Toy Association that found that nearly half of US toy companies could go out of business if current tariffs persist, citing the inability to pivot fast enough to remain competitive.
Supply chain disruption caused by tariffs can also increase the prices of US-made items (which we’ll further discuss in another context in a below section). As one example from the auto industry, Barron’s reports that recent auto/component tariffs of up to 25% could increase US car costs by 15%, adding $25 billion to GM’s expenses alone—and threatening to eliminate profits made on on lower-end models.
In the US auto industry in particular, it’s important to note that the US trade wars are not solely between the US and China. When President Trump announced a blanket 25% tariff on all imported Mexican-built autos and auto parts, US automakers initially went into panic mode, immediately and vigorously lobbying the Trump administration for a re-think. Since US automakers rely so heavily on Mexican parts, a tariff on these items would essentially be a tariff on these US companies. In 2024, Mexico was the number one country of origin for US light vehicle imports, with a value of almost $78.5 billion. Today, over 80% of cars produced in Mexico are exported to the US. However, as noted, US automakers are also heavily reliant on Mexican-made parts and components to produce their domestic vehicles. So a heavy tax on Mexican-sourced components is effectively a heavy tax on US companies like Ford and General Motors. You can read our full article for more details on this subject.
Another way that tariff-induced supply chain disruptions can have significant cost-related impacts on various businesses is in increased costs of warehousing (in the case of a sudden surplus of inventory) or sourcing (in the case of a sudden lack of supply for materials, components, or finished goods). If a particular widget from, say, China triples or quadruples in price overnight, any business that relies on these widgets will immediately scramble to find alternative widgets from Lithuania or Madagascar or wherever. The alternative widgets might take longer to arrive, may be of more questionable quality, and/or may be significantly more expensive than the previous price of the Chinese widgets, but if they’re available and are priced lower than the new high-tariff widgets, they might be seen as an attractive option. A company’s cash reserves could be burned up quickly in order to pay the upcharge for Lithuanian widgets, but the production lines will keep moving and clients’ order deadlines can still be met.
On the other hand, if a reciprocal tariff is levied by a country that historically purchases a lot of widgets, the makers and suppliers of the widgets will likely be hurriedly searching for alternative buyers in non-tariff countries. Even if the market has suddenly turned in favor of the buyers, widget suppliers might decide that selling their items at a lower price in order to secure alternative buyers can prevent a situation where they have a huge amount of excess inventory to deal with. Increased storage/warehousing costs, exacerbated by the rapid timelines created by capricious, even weekly spikes in import duties, can quickly eat into profits, especially in markets running on razor-thin profit margins. Those increased operational costs can deplete company reserves, cause price spikes for consumers, and impact the financial health of any related business along the supply chain.
Tariffs or increased passage fees can also have severe implications for logistics and adjacent companies. If the Suez Canal Authority suddenly decides to add an additional 15% toll for any US-flag container ship, shipping and logistics companies might start adjusting their routes around the horn of Africa, if the additional costs of fuel and the extra transit time work out to be lower than the cost of the added tax. However, this additional cost is naturally passed on to the logistics/transport companies’ clients where possible, or must be absorbed until either the toll is removed or adjustments are made.
The Washington Post reports that during the 2025 surge of Chinese tariffs, US port traffic dropped 25-40% in just five weeks. These slowdowns are still being even into Q3, further extending disruption for all directly and tangentially related companies.
Tighter delivery windows, overcrowded (or undercrowded) ports/docks, and increased demands on next-leg logistics resources all add to potential delays, fees, and overall costs.
It’s a well-known economic phenomenon that the perception of financial instability creates actual financial instability. If people fear their bank is shaky, it can create a run on the bank, people withdraw all their money, and the bank actually becomes shaky. If people worry that their 401ks or mutual funds are going to drop in value, they might pull their money out of the market, which can drive the NASDAQ, Dow Jones, and S&P 500 indexes to record lows and reducing the actual value of 401ks and mutual funds, all based on consumer confidence or perception.
As just one recent example, even before the aforementioned de minimis Chinese tariff exemption expired, de-minimis-qualified Chinese ecommerce exports to the US had already plummeted by 65% in the first three months of 2025. It may have technically been business as usual for parcels under $800 in value, but the uncertainty of the status of Chinese imports generally created by the daily fluctuating tariff percentages on other goods obviously had an impact on producers, suppliers, importers, and retailers of non-tariff items.
Furthermore, uncertainty in any trading/business environment has other implications in addition to just investors. For example, The Council on Foreign Relations reports, “Worryingly, trade uncertainty has dramatically increased today compared to [the first Trump administration]. From January 2016 to June 2019, the Fed’s Trade Policy Uncertainty (TPU) Index rose nearly 60 percent following the imposition of tariffs. From January until April 2025, the TPU Index spiked a whopping 218 percent, which threatens to depress US investment and job creation as the effects of the tariffs wind through the economy.” [emphasis added]
So, hiring and job creation are likely to be depressed by tariff-related uncertainty… but it gets worse. TrueCommerce reports that the April 2025 25% tariff on imported vehicles and parts, including those from Canada and Mexico, disrupted North American automotive supply chains so badly that Stellantis, a leading multinational automotive manufacturer, responded by temporarily shuttering factories and laying off 900 US workers due to operational uncertainty. Not good.
Even things as fundamental as the Fed’s target federal funds rate (which directly impacts interest rates) are being impacted by tariff-related turmoil. The Guardian reports, “The chair of the Federal Reserve, Jerome Powell, has blamed Donald Trump’s tariffs for preventing the immediate interest rate cuts the president has demanded . . . . Speaking on a panel of central bankers in Sintra, the Fed chair said: ‘In effect we went on hold when we saw the size of the tariffs. Essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs. We didn’t overreact, in fact we didn’t react at all. We’re simply taking some time.’ Asked if the Fed would have cut its key Fed funds rate further, from the current target range of 4.25-4.5%, if it wasn’t for tariffs, Powell said: ‘I think that’s right.’”
NetSuite points out further implications of uncertainty due to rapidly changing trade policy: “With so many trade routes subject to tariff changes that may or may not last, it’s hard for companies to navigate around the problem. As one expert put it: ‘Where do you go?’ Restructuring a company’s sourcing and production is costly, complex, and time-consuming. For example, in capital-intensive industries, such as manufacturing, companies must plan months—even years—in advance to complete the required investments.”
While a trade war might not be solely responsible for creating financial turmoil and uncertainty, it can indeed be a significant contributing influence, especially in a tenuously stable US economic environment that seemingly goes from fat-and-happy to end-of-the-world on the slightest whim.
Historically, tariffs can have catastrophic effects on domestic and even global economies. One notorious example is the Smoot-Hawley Tariff Act of 1930. Moller Wealth Partners points out, “The US Congress passed the Act in an effort to protect American farmers and manufacturers from foreign competition during a period of economic downturn. The tariff raised duties on over 20,000 imported goods, ranging from food to industrial products, with the expectation that domestic production would rise. However, the Smoot-Hawley Act had devastating effects on the global economy and the stock market. As other nations retaliated with their own tariffs on US exports, international trade volumes plummeted. The collapse of trade worsened the Great Depression, deepening unemployment and reducing the purchasing power of consumers worldwide. For the stock market, the immediate aftermath of the tariffs was devastating. The US stock market experienced severe declines during this period. The Smoot-Hawley tariffs are often cited as one of the key catalysts in the downward spiral that led to the global depression.”
Another related impact that tariffs can have on the US economy is in general inflation. CNBC reports that the US consumer price index is expected to jump to 4.5% in the later quarters of 2025. This is up from 2.8% as of February 2025, and essentially double’s the Federal Reserve’s target for limiting long-term inflation.
A general downturn in the modern US economy can also result from lengthy trade wars, as large, public (and increasingly global) corporations face rising costs. As an example, Nike projects up to $1 billion in annual added costs, resulting from the 60% tariff on ~16% of its footwear. This not only may directly impact Nike’s customers as the company is forced to increase prices, but slowing sales and increased operational costs also can dramatically impact a business’s bottom line. If overall profit margins and the financial health of a company start to look a little “in the red,” investors start to get twitchy and might decide to sell stock in order to cash in on their profits before the prices drop due to increased operational costs.
Another example is Corona Beer maker Constellation Brands, which in June 2025 missed first-quarter sales and profit estimates. A Reuters report blamed consumer fears of rising tariffs and economic uncertainty. However, President Trump’s recent announcement of his administration’s plans to double the tariffs on imported steel and aluminum from 25% to 50% certainly added its own influence to the company’s costs of doing business. When a publicly traded company misses quarterly profit and sales estimates, it can have far-reaching impacts on consumer/investor confidence and start to put any business on unsteady financial ground.
One common justification for tariffs is to take the pressure off of domestic businesses and allow them to remain competitive in the face of cheaper imported goods. However, one of the “what is not seen” impacts that a 21st-century Bastiat might have pointed out is that a tariff-generated environment of rising prices for foreign goods may also give US businesses the go-ahead to raise their prices as well. After all, if US consumers are still looking for the products they want and need, and if foreign-sourced items are suddenly 20%, 30%, or 40% more expensive, a US product that’s “only” 10% more expensive than last year suddenly starts to look more attractive as an alternative. A healthy capitalist society encourages businesses to make hay while the sun shines, so to speak, and if customers will tolerate or even be grateful for a 3%-5% increase in prices compared to much of the rest of the market, then many US businesses (and their investors) will be more than happy to take that extra revenue if they can.
How can the ripple effects of tariffs be permanent? Well, increased prices on consumer goods, whether due to inflation or tariffs (or a combination), generally never go back down to where they were before, even if the rate of inflation drops or the tariffs are lifted. Investopedia pointed out in 2023, “Inflation may be going down, but those pre-pandemic prices we remember at the grocery store, car dealerships, and department stores? They’re most likely gone forever. That’s because prices, on average, are a one-way ticket, generally rising over time, and falling only when something has gone wrong with the economy. Officials at the Federal Reserve who set the nation’s monetary policy are determined to keep it that way.”
Marketplace.org echoes, “will prices come back down? The answer is… no. For most things — like meals at restaurants, clothes, or a new washer and dryer — prices are not going to come back down.” You may point out outliers where prices regularly rise and fall, such as in US crude oil and fuel prices, or something like gold (or eggs, which due to huge issues with supply recently seemed to be worth as much as gold). However, in general, consumer prices only move upward. Not many companies ever think to themselves, “You know what? We’re making too much money. We should drop our prices.”
Furthermore, inflation of pricing in one consumer category doesn’t just impact that category. We mentioned earlier that the price of toys in the US is projected to increase by 50%-100% due to tariffs on Chinese goods (and sports equipment is closely related, since the vast majority of these items are also made in China). If US parents effectively have half as much money to spend on toys or related items as they did a year ago (since the prices of the desired items have increased by 50% or even doubled), they either have to choose not to purchase these kinds of goods, or drastically reduce their spending in other areas. Less available spending money means less discretionary spending on entertainment, dining out, vacations, car upgrades, newer phones or other electronics, and pretty much everything else. You can see how a serious increase in prices for one category of goods can soon snowball and create financial tension across multiple American industries and demographic groups.
So, we can see how complicated it becomes to predict or deal with the full effects of tariffs and trade wars. It’s not simply a matter of a jingoistic X% increase in the price of certain goods from Y country. The impacts of the tariffs, and even the current threats of additional tariffs, are sure to be felt for a significant period of time before the ripples dissipate… and as noted above, many of the impacts may never fully dissipate. The bottom line is that multiple industries, as well as the US public in general, are likely going to have to live with increased costs, product shortages or excess inventory, and the effects of general economic uncertainty for some time to come.
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