Beyond the Border: The Rising Cost of Doing Business in a Tariff-Tight World
Apr 16, 2025
If we earned a dime every time the word “tariff” came up this month, we’d have quite the windfall. That’s because Donald Trump has placed tariffs at the heart of his economic strategy.
President Trump introduced a sweeping tariff policy, more aggressive than anything seen in over a century. This approach marks a sharp departure from the U.S.’s traditional role as a champion of global free trade. On April 9, just hours after certain tariffs took effect, Trump announced a 90-day postponement for several countries (excluding China).
Yet, significant questions remain: Will tariffs actually boost the U.S. economy as claimed? And how will this unpredictability affect the country’s standing as a cornerstone of the global economic system?
This dramatic shift in trade policy could have wide-ranging consequences. Different sectors and countries will feel the impact unevenly, making it essential for businesses and policymakers to understand the potential ripple effects.
In Canada, the situation points to risks of slower growth, rising inflation, and potential interest rate cuts. Stock markets in North America tumbled in response, with similar downturns seen across Europe and Asia.
If the proposed high-end tariffs persist, both the U.S. and global economies could edge closer to recession. Retaliatory measures from nations like Canada, the EU, and China — and subsequent U.S. countermeasures — remain a looming threat.
However, there’s a possibility that these tariffs are merely a negotiation tool — an opening gambit rather than a final policy path. Even so, the current rhetoric and near-term disruption warrant caution. Given the breadth of sectors and countries involved, it’s still too early to make definitive calls on the long-term impact on growth and inflation.
Tariffs, Trade Wars, and the Trump Playbook
On April 2nd, former President Donald Trump reignited his tariff strategy, announcing a blanket 10% tariff on imports, accompanied by a 34% surcharge on Chinese goods and 20% on select EU imports. In response, China retaliated with an 84% tariff, prompting Trump to escalate Chinese duties to a staggering 125%. More recently, Trump paused new tariffs for 90 days for most countries — but not for China, keeping the base 10% tariff intact.
This isn’t new territory for Trump. Between 2017 and 2021, his first term was marked by aggressive tariff policies — targeting everything from washing machines to solar panels. Critics at the time warned of trade policy and inflation link. Yet, prices remained relatively stable, and some domestic sectors reported moderate gains.
Now, Trump seems poised to scale that experiment — and both sides of the debate have compelling arguments. Proponents argue tariffs are a revenue-generating tool. In 2019 alone, U.S. customs collected $72 billion from tariffs. With $3.8 trillion in imports recorded in 2023, a 10% blanket tariff could theoretically yield hundreds of billions in revenue. Trump even proposed replacing income taxes with tariff income. Advocates also claim that higher import prices could motivate companies to shift manufacturing back to the U.S., strengthening domestic industries and protecting jobs.
Free trade advocates counter that tariffs are simply taxes—ones that consumers ultimately bear. Importers pass along the added costs, making everyday goods more expensive. And retaliation is real: during Trump’s first term, China targeted U.S. soybeans, severely impacting American farmers. There's also the domino effect — a win for one industry might spell loss for another. Steel tariffs, for example, may support domestic producers but hurt automakers who rely on cheaper imports, forcing cuts in production or jobs.
In today’s hyper-globalized economy, tariffs can cause ripples far beyond their intended targets. Take a single car — it contains nearly 30,000 parts, sourced from dozens of countries. Rebuilding such complex supply chains entirely within the U.S. would be slow, costly, and inefficient, potentially undermining productivity and innovation. Moreover, prolonged tariff wars could damage U.S. trade relations, weaken the dollar, and push allies and trade partners to explore alternative markets.
The impact of tariffs on economic activity and markets
Analyzing the effects of U.S. tariffs is difficult, as the impact will largely depend on specifics, such as the goals, products involved, new rates and any possible exemptions. There are also the potential policy responses from other countries, including retaliation, bilateral trade deals and potentially lowering trade barriers to ease restrictions on U.S. companies in global markets. Finally, modeling the impact of tariffs relies heavily on various assumptions and potential policy responses in each country.
Here is a broad overview in which to think about the possible impact:
Growth: Tariffs generally act like a negative supply shock, raising the price level and limiting growth through various mechanisms. These mechanisms can cause companies to postpone their investments and reduce household purchasing power.
The extent of these negative impacts on growth will depend on several factors, including the duration of the higher tariffs, the nature of retaliatory and counter- retaliatory actions, the efficiency of tariff collection and the feedback effects in global financial conditions.
Looking back at President Donald Trump’s first term, U.S. GDP growth still averaged 2.7% from 2017 to 2019, despite the trade war. However, this might have been because tariffs did not end up being significant. U.S. customs duties collected doubled between 2017 and 2019, but the increase only accounted for 0.2% of GDP at the time.
Inflation: Raising the cost of imported goods could lead companies to pass those prices onto consumers. These tariffs may reduce international competition, giving domestic producers more runway to raise prices themselves, exacerbating inflation pressures. A common estimate is that 30% to 50% of the cost will be passed onto consumers, though the rate may be higher for products with fewer substitutes.
Whether this translates into sustained inflation depends on the U.S. Federal Reserve’s response to this price level shock. Fed officials could overlook a one-time price increase caused by higher tariffs, but if core inflation moves too far from the central bank’s target, it could justify postponing rate cuts.
Varied Global Impact
The effects of these tariffs will not be uniform across the globe. Different countries and regions will experience varying levels of impact, with some economies more vulnerable due to their reliance on exports to the US. As nations begin to announce retaliatory measures, the landscape of global trade is poised for upheaval.
If these tariffs remain in place, we can expect a substantial downgrade in growth forecasts for both the US and the global economy. While a recession may be avoided, world trade volumes are likely to suffer significantly, affecting economic performance through 2025 and beyond.
China: The tariffs represent a significant challenge for China, likely prompting a fiscal response that may not fully counteract the negative economic impacts.
Eurozone: The Eurozone could see a reduction in GDP growth by 0.2 to 0.3 percentage points due to the new tariffs. While a full retaliation from the EU is not anticipated, targeted responses may emerge, affecting investment and economic stability.
UK: The UK’s growth forecast has been downgraded, with expectations now below 1% for this year. The primary impact will stem from weakened US and global demand, alongside heightened trade policy uncertainty.
Asia-Pacific: Countries like Vietnam, South Korea, and Taiwan are particularly vulnerable due to their trade dependencies. Conversely, India and the Philippines may be better insulated from the tariff shocks.
Latin America: While the region is largely spared from the brunt of these tariffs, the overall impact on growth forecasts cannot be overlooked. With a minimum 10% tariff applied to most countries and a generally low dependence on US exports, the effects may be limited but still significant.
Sector-Specific Consequences: Navigating the Ripple Effects
The introduction of tariffs is expected to impact industries unevenly, dampening business sentiment across several key sectors. Early analyses indicate that while a full-blown global recession may be avoided, the economic disruption could still be significant—especially for industries heavily dependent on international trade.
In this climate of elevated uncertainty, businesses must prepare for potential shifts in supply chains, pricing pressures, and demand fluctuations. A thorough understanding of how these changes affect individual sectors will be essential for effective strategic planning, risk mitigation, and market adaptation.
Global Trade at a Crossroads: Co-operation or Protectionism?
With global trade dynamics already under strain, the unfolding “Great Trade Diversion” may push the system to its limits. There’s still an opportunity for nations to recommit to the principles of fair and open trade. Notably, current international rules do allow temporary trade restrictions in cases where countries face a surge in imports.
Canada, for instance, has the ability to respond proactively by identifying vulnerable sectors and leveraging the Canada Border Services Agency to initiate investigations. This would enable quicker deployment of temporary import safeguards to protect domestic industries from severe disruption.
The direction the global economy takes now is critical. One path upholds the global trade framework, preserving decades of cooperative growth and stability. The other risks a cascade of retaliatory, protectionist actions that could further destabilize markets. As China continues to export in large volumes, the temptation to adopt unilateral and potentially illegal trade barriers—similar to those recently seen in the U.S.—is growing. The world stands at a defining moment: renew commitment to global rules or risk weakening the very system that has powered international prosperity.
Looking Ahead: What Comes Next?
The tariff landscape is likely to remain fluid, with adjustments expected across several measures already in place. In the short term, we anticipate a rise in tariff levels, though these may moderate over time depending on the industry and country involved.
Fortunately, many corporations are entering this phase from a position of strength, supported by healthy balance sheets and historically high profit margins. That said, some businesses are likely to see increased input costs, though the magnitude of this impact will vary and remains uncertain.
In a more extreme scenario—where tariffs remain elevated and widespread—rising operational costs could force companies to scale back capital expenditure, reduce workforce size, or, in the worst case, contribute to a broader economic downturn. Retaliatory tariffs from trade partners remain one of the most significant risks to watch. If the newly proposed measures are implemented as-is, the downward revision of corporate earnings estimates may follow, as businesses begin to absorb steeper-than-expected trade penalties.
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