Effects of ‘Tariff War’ on the USA Itself

In the age of global interdependence, trade wars are no longer isolated skirmishes between governments—they ripple through every layer of society. The United States, often the initiator of tariff wars, has found itself grappling with unintended consequences that strike at the heart of its economy. Of course, they might not admit it, or they may have a completely contrary view of the whole world. Any country frames the tariffs as tools to protect domestic industries, assert geopolitical leverage, and run the political agenda. However, it may have long-term effects that often boomerang back to hurt the very people and businesses they aim to shield.

This discussion explores the multifaceted impact of tariff wars on the US economy, industries, and everyday citizens.

But before we deep dive into this topic, I would strongly recommend you first read the blog What Is a Tariff War? – PolyBlogger.com. This will give you an idea about how the tariff can be weaponized in global politics.

Though I have created this blog keeping the USA as an example, it is certainly not to demean the beloved country, the USA. Also, the current tariff war is between the USA and the rest of the world. But in future, this may happen between different countries. It has happened with the EU and Russia recently, and the consequences may remain the same with a few differences.

From rising consumer prices to disrupted supply chains, we’ll uncover how protectionist policies in business and relations can ironically weaken the nation, political ties, trust, and other key aspects they’re meant to strengthen.

Impact on American Consumers

Rising Prices across the Board

Tariffs are taxes paid by importers, who then pass those costs onto consumers. When the US imposed tariffs on Chinese electronics, machinery, and consumer goods, prices for everyday items—from smartphones to washing machines—began to climb. It is obvious that consumers are the sufferers of tariffs, taxes, duties, inflation, technological change, climate change, government change, etc. The most vulnerable is the consumer.

I understand patriotism plays a key role in diverting the minds of the people of the country. When you want something to be accepted by the people, play the patriotism game. China often plays this game to hide internal unrest.

Please study the examples below to understand how prices have risen in the USA.

• Example: A study by the Federal Reserve Bank of New York found that the average American household paid an additional $831 annually due to tariffs imposed during the U.S.-China trade war. In some videos from the mall, it clearly shows that $6 item is costing $10 now. These videos are of American locals only, so that we can trust at least 50%.
• Effect: This disproportionately affects low- and middle-income families, who HAVE TO spend a larger share of their income on goods.

Now imagine if the government imposes a 50% tariff on the goods from a particular country. The prices will rise by that amount. Who is going to pay for that? What if the prices increase for any critical goods like medicines?

Now the catch is, if the USA is importing any critical goods, it may give concessions to those goods. But then this is purely out of selfishness. What if a country exporting those goods to the USA, stops the exports OR increases the prices further, to match the prices after 50% (or whatever the percentage of tariff is) tariff. For example, a medicine costing $10 is excluded from the tariff and remains cheaper in the USA. But if the country exporting that medicine increases the price by 50% to $15, now, which matches the after-tariff price. Even if the USA wants to act selfishly for its nation, it cannot do so because the people of America may have to pay an increased price. The United States, here, clearly has put itself into trouble.

Exporters may play the same dirty game for every such ‘concessional’ goods.

 Reduced Product Variety

Tariffs can discourage foreign companies from selling in the US market. At the same time, it reduces the variety of products available to consumers across a range of prices, features, and quality. This scenario is especially noticeable in sectors like electronics, clothing, and automotive parts. Even if the products are available, they generally become costly.

• Result: Consumers face fewer choices and often settle for lower-quality or higher-priced alternatives.

Inflated prices generally do not settle after tariff war ends

The general policy for raising the prices of the services that the government offers is –

1. To hike the price by double the target price. For example, if the government wants to raise the price of electricity per unit by $2, it will increase it by $4. If people protest, bring it by $2. People become happy that they won against the government and brought the prices down. But what they do not understand is that the government never wanted to hike the price by $4, but by $2 only. So, the government forced the people to accept its prices without hurting their sentiments and keeping its political face intact.
2. In the same way, once the prices of the goods increase, and the exporters get confidence that the local people are willing to pay the increased cost, though unwillingly, the next time the tariff war halts, the prices may not come down to their earlier level. For example, a $10 medicine may become available at $15 during a tariff war, but after the tariff war is over, the price of the medicine may not be at $10 but may be at $12-13 or even at $15 itself. That is the total loss of that country’s customers.

Impact on U.S. Industries

Manufacturing Sector: A Double-Edged Sword

While tariffs are intended to protect American manufacturers, they often backfire due to the complexity of global supply chains.

• Tariff on the Imported Raw Material: Imposed to protect US producers, these tariffs will increase the costs for industries that rely on these materials, like automotive, aerospace, and construction.
• Outcome: Many manufacturers faced higher input costs, forcing them to raise prices or cut jobs to stay competitive. If a business in the USA imports any raw material, the tariff may increase the cost of final goods. Such cases may lead the domestic manufacturers to face fierce competition with imported goods. Local manufacturers don’t necessarily produce the same variety of goods as the imported ones.
• Denial of supply of Raw Material: Suppose a country denies exporting the raw material, machinery, money, marketing or workforce to manufacture the goods in the USA, the business may face serious troubles.
• Outcome: Imagine you have everything ready to produce the goods, and suddenly one of the above factors faces stress. The manufacturers may face dire consequences if the material becomes costly or unavailable, the market becomes unavailable, machinery breaks down, or the repair or new machine becomes unavailable or expensive.
• Retaliation: Whether the raw material prices go up or down, the USA may not necessarily be able to export the production because there will be retaliation of banning the US goods in the name of protecting local markets. There could be an equal tariff because now it is a tariff war.

Agriculture: Collateral Damage

American farmers were among the hardest hit during the U.S.-China trade war. China responded to US tariffs by slapping duties on soybeans, pork, and other agricultural products.

• Impact:
  • Soybean exports to China plummeted. Farmers lost a bigger market.
  • Farm bankruptcies surged in the Midwest.
  • The government had to issue billions in subsidies to offset losses.

This scenario is like increasing the tariff, facing the increased tariff on exports in retaliation, and spending the earned tariff on subsidies.

What are you trying to achieve? Do you have a clear idea of this? Are you sure that whatever idea you have will work in your favour?

Why is there ego and insecurity, if a country is doing well for its people?

Tech and Electronics

Many US tech companies rely on Chinese components and assembly and Taiwan for semiconductors. Tariffs disrupt supply chains, increase production costs, and delay product launches. To a greater extent, the USA has already suffered this.

• Example: Apple faced pressure as tariffs affected parts used in iPhones and MacBooks, leading to potential price hikes and strategic shifts in manufacturing.

Impact on Small Businesses

Small businesses often lack the resources to absorb tariff-related cost increases or reconfigure supply chains. The most vulnerable businesses are small businesses. They get the hit very early, faster, and harder as well. They generally have limited or no backup. Their finances and reach to the broader markets are limited.

• Challenges:
  • Higher costs for imported goods and materials.
  • Low purchasing power and so lower bargaining power
  • Difficulty competing with larger firms that can negotiate better deals or shift production.
  • Uncertainty in pricing and inventory planning.
  • Vulnerability to taxes and government strategies
• Real-World Example: A small furniture retailer importing parts from China may face a 25% tariff, forcing them to either raise prices (and lose customers) or absorb the cost (and lose profit).

Impact on Employment

Tariff wars can lead to job losses in sectors that rely heavily on imports or exports. Import-export businesses are so sensitive in nature that even the most minor geopolitical change may affect them very easily and hardly at all. Especially when the exchange rate changes due to the government’s strategies and planning, such businesses are badly affected. Hedging in the ‘FX’ is one option, but it is helpful in stable policies, not in volatile markets.

The first thing that happens in businesses during such bad conditions is job cuts. Other remedies come later.

• Manufacturing Jobs: While some jobs are intact, others may not be, due to higher costs and reduced competitiveness.
• Agricultural Jobs: Export declines lead to layoffs and reduced income for farm workers. This sector is the second most vulnerable sector after the export-import business to such uncertain political conditions. Agriculture is the most critical and vulnerable business to the weather conditions. During the Russia-Ukraine war, Ukraine, which is the biggest exporter of wheat, was unable to export any wheat.
• Retail and Logistics: Rising prices and reduced demand can lead to downsizing in the retail and shipping sectors. Price hike is what the USA is experiencing currently, but they will not speak openly.

According to the Peterson Institute for International Economics, the U.S.-China trade war may have cost the US economy over 300,000 jobs. Now that the USA is imposing tariffs on many countries, imagine the rate at which there could be job cuts in the USA.

Impact on Global Reputation and Trade Relations

• Uncertain relationship: Tariff wars strain diplomatic ties and undermine trust in the US as a reliable trade partner. To add to that, the USA is still figuring out how much tariff they will impose on India and other countries. Sometimes they proclaim a 25% tariff, and at different times they will cry out with a 50% tariff, giving the opposing party less time to react and develop a strategy. If that is the plan, then how can someone trust the USA at all?
• Support for a terror country: To add, the USA is continuously supporting Pakistan through aid, even after knowing that the country is a terrorist country. And the USA expects India to stop buying oil from Russia, where India has nothing to do with the Russia-Ukraine war. How to trust the USA?
• Direct support for the Russia-Ukraine war: The USA and its allies directly provide weapons to Ukraine in the war. They are directly supporting the Russia-Ukraine war, but have a selfish and cunning opinion that India is supporting this war by purchasing oil. The world understands this irony, but is silent because it is the USA and they have ties with it or are afraid of retaliation from the USA in terms of sanctions, tariffs, deporting migrants, loss of business, etc.
• Direct support to Israel-Palestine war: The USA is a direct ally with Israel when it comes to the Israel-Palestine war. But the Western, biased media will remain silent on it. That war is against terrorism, but the India-Pakistan war is against humanity. What an irony.
• Allies Alienated: Tariffs on European steel and Canadian aluminium sparked backlash from traditional allies. Europe is the USA’s biggest ally, but only a selfish motive makes the USA act like this. Still, most of Europe will not speak up, because they are NATO members and expect that the USA will help and protect them during the war. Europe must understand the stance of the USA on Taiwan, which is situated in one of the most geographically and politically vulnerable regions. 
• Trade Diversion: Countries began seeking alternative markets, reducing reliance on US exports.
• Long-Term Risk: Many countries will sideline the US risk in future trade agreements and global supply chain networks.

Psychological and Market Effects

Investor Uncertainty

Tariff wars create volatility in financial markets. Investors fear prolonged trade disputes, leading to stock market dips and reduced capital investment.

Business Hesitation

Companies delay expansion, hiring, and innovation due to uncertainty around costs and regulations.

Consumer Confidence

Rising prices and economic instability erode consumer confidence, leading to reduced spending and slower economic growth.

Government Response: Short-Term Fixes

To mitigate the fallout, the US government often resorts to:

• Subsidies: Billions in aid to farmers and affected industries.
• Tax Breaks: Temporary relief for businesses facing higher costs.
• Negotiations: Attempts to reach trade deals that reduce tariffs.

However, these are Band-Aid solutions that do not address the systemic issues caused by tariff wars.

Long-Term Consequences

Supply Chain Reconfiguration

Businesses may shift production to other countries to avoid tariffs, leading to:

• Loss of domestic jobs.
• Increased reliance on third-party nations.
• Higher logistical costs.

Market Reconfiguration

Businesses may shift to other markets where there are lower tariffs and political stability.

Innovation Slowdown

Higher costs and uncertainty discourage investment in research and development, simply because the cost of R&D increases. If the businesses are struggling due to the tariff war, there may be layoffs in R&D.

Erosion of Free Market Principles

Tariff wars distort market dynamics, leading to inefficiencies and reduced competitiveness.

Conclusion: Who Really Pays?

Countries often frame tariffs as strategic moves to protect national interests, but they frequently end up hurting the very citizens and industries they aim to defend. If the tariff war continues for a longer term, it may have dire consequences not only on the domestic market but also on the relationship between the countries. From farmers in villages to tech entrepreneurs in Silicon Valley, everyone will feel the ripple effects of protectionist policies across the economic spectrum. Everyone is sceptical about their job continuity and financial stability.

In a globalized world, isolationist tactics like tariff wars are blunt instruments that rarely deliver precise results. The US must reconsider its approach to trade—favoring diplomacy, multilateral agreements, innovation and mutual trust over economic warfare and political relations. Only then can it safeguard its industries, empower its citizens, and maintain its leadership in the global economy.