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On April 2, 2025 President Trump enacted a sweeping tariff hike, catapulting the U.S. average effective tariff rate to around 23%—a tenfold increase from the previous year. The move rattled markets and injected deep uncertainty into global trade. For executives in the industrial sectors, this shift demands more than a reactive shrug. It calls for a strategic rethink of risk, supply chains, and long-term positioning.

Despite the temporary 90-day pause on retaliatory tariffs for most countries, the signal is clear: we’ve entered a new era of unpredictable trade policy—what economists from Boston Consulting Group call a regime of “deliberate uncertainty.”

This isn’t a bilateral dispute—it’s a one-versus-all trade war. The U.S. has applied tariffs broadly, without targeting specific countries or industries. In contrast, other nations are only engaging the U.S. The asymmetry is important: while the U.S. risks global blowback, its trade partners face disruption only in their U.S. business. This weakens the U.S.’s negotiating position and complicates outcomes for global companies trying to plan.

First-Order Effects: Supply and Demand Shocks

1. Supply shocks – mostly self-inflicted for the U.S.

Tariffs act as a tax on imports, and those costs pass through to businesses and consumers. For U.S. manufacturers, this means costlier inputs and squeezed margins. The expected result: higher inflation, reduced real incomes, slower consumption, and weaker GDP growth—projected to drop by 1.4% in 2025.

2. Retaliatory pain – limited but real for others

If other nations impose counter-tariffs, they too face inflation and slower growth, though the effect is smaller—around 0.1 % to 0.3 % GDP impact—because they’re targeting only U.S. goods.

3. Demand shocks – trade partners hit harder

Higher U.S. tariffs make it harder for foreign producers to sell into the U.S. market. The impact depends on how sensitive demand is to price changes. For most countries, the hit could range from -0.2 % to -0.6 % of GDP. But for highly exposed economies like Vietnam, losses may top 6 %.

4. U.S. exports face headwinds

As other countries respond, American exports decline. Though the U.S. is less reliant on exports than, say, Germany or China, the widespread nature of retaliation could shrink GDP by another 0.5 %.

Trump’s tariff policy seeks to reshore production and revive U.S. manufacturing. But tariffs are a blunt instrument. Unlike targeted incentives like the CHIPS Act, which spurred strategic investments in semiconductors, tariffs affect all goods, regardless of their economic or strategic value.

The risk? Misallocating resources to low-productivity sectors like furniture or apparel, which may cannibalize labor and capital from more advanced industries. With unemployment already low, the economy doesn't have surplus workers to absorb new, labor-intensive production. This could drag down average productivity and hinder long-term growth—a net loss for the economy.

Trade policy isn’t just a Washington game anymore, it’s a frontline issue for global business. Managing macro risk, once a niche skill, is fast becoming essential. Industrial leaders who invest now in analytical capacity, scenario planning, and supply chain intelligence will not only endure the current turbulence—they’ll gain a competitive edge for whatever comes next.

Five Hidden Undercurrents Leaders Can’t Ignore

Beyond the immediate economic drag, industrial leaders should watch for five secondary effects—less predictable, but equally important.

• Confidence erosion

Consumers and businesses lose faith. Even if confidence metrics don’t always predict outcomes (as seen in recent years), they remain a bellwether worth monitoring.

• Wealth effects

Markets have already taken a hit. Lower equity valuations translate to lower consumer spending and tighter capital for firms.

• Policy missteps

The Federal Reserve is stuck between battling inflation and supporting growth. Tariffs complicate their dual mandate and raise the odds of miscalculation.

• Competitiveness loss

Around 50% of U.S. imports are intermediate goods—raw materials, tools, components. Tariffs increase production costs and erode the competitive edge, especially in capital-intensive industries.

• Compounding shocks

When an economy is weakened, it becomes more vulnerable. A financial mishap, cyberattack, geopolitical event, or even natural disaster could hit harder and last longer under these conditions.