Understanding Tariffs & Their Business Impact: A Practical Guide

The U.S. has recently reinstated and expanded tariffs on key imports, including steel, aluminum, and a range of Chinese goods, signaling a shift in trade policy that could have significant implications for businesses. These measures, aimed at bolstering domestic industries and addressing trade imbalances, come at a time of heightened global economic uncertainty. For private businesses, the effects could range from increased production costs to supply chain disruptions and pricing shifts.

This guide provides a comprehensive breakdown of tariffs—what they are, their historical role in U.S. trade policy, the industries most affected, and actionable strategies businesses can implement to navigate these changes effectively. Understanding these factors will be crucial for companies looking to minimize risks and adapt to the evolving trade landscape.

1. What Are Tariffs?

A tariff is a tax imposed by a government on imported goods, typically used to:

• Protect domestic industries by making foreign products more expensive.
• Generate revenue for the government.
• Influence trade policy and negotiations.

For example, if the U.S. imposes a 25% tariff on steel imports, it means foreign steel producers must pay this tax when selling steel in the U.S., making domestic steel more competitive.

2. A Brief History of U.S. Tariffs

• Pre-World War II: The U.S. relied heavily on tariffs to protect domestic industries. The Smoot-Hawley Tariff Act (1930) raised import taxes significantly, worsening the Great Depression by triggering retaliatory tariffs from other countries.
• Post-WWII: The U.S. shifted toward trade liberalization, leading to lower tariffs under agreements like the General Agreement on Tariffs and Trade (GATT) and later the World Trade Organization (WTO).
• Recent Years: The Trump administration (2018-2020) imposed tariffs on Chinese goods, steel, and aluminum. While the Biden administration removed some, the current government has reinstated and expanded certain tariffs in 2025.

3. Economic Effects of Tariffs

The impact of tariffs varies depending on the industry and supply chain structure. Here are key effects:

Higher Costs for Businesses & Consumers

Tariffs increase the cost of imported materials, which businesses must absorb or pass on to consumers

• Example: A 10% tariff on semiconductors raises production costs for companies like Apple, Tesla, and gaming console manufacturers.
• Result: Higher prices for electronics, cars, and appliances.

Supply Chain Disruptions

Industries relying on foreign-sourced raw materials will see increased costs and potential shortages.

• Example: The automotive industry, which imports steel and aluminum for vehicle production, faces rising manufacturing costs. Companies may need to find alternative suppliers, delay production, or raise prices.

Retaliatory Tariffs

Other countries may respond by imposing their own tariffs, making it harder for U.S. businesses to export goods.

• Example: When the U.S. imposed tariffs on European steel, the EU responded with higher tariffs on American whiskey, motorcycles, and agricultural products.

4. Industries Most Affected by Tariffs

Industries Negatively Affected           

• Automotive: Higher material costs (steel, aluminum) – Companies affected: Ford, GM, Tesla
• Technology & Electronics: Increased prices for components (semiconductors, batteries) – Companies affected: Apple, Intel, Microsoft
• Retail & Consumer Goods: Higher import costs for goods made in China – Companies affected: Walmart, Target, Nike
• Construction: Rising material costs (steel, aluminum, lumber) – Companies affected: Bechtel, Turner Construction
• Aerospace: Increased cost of aluminum and components – Companies affected: Boeing, Lockheed Martin

Industries That Could Benefit

• Steel & Aluminum Production: Reduced foreign competition – Companies: U.S. Steel, Alcoa
• Domestic Manufacturing: Encourages companies to source locally – Companies: Caterpillar, John Deere
• Agriculture (Certain Sectors): Some protection from foreign imports – Companies: Tyson Foods, Cargill

5. What Businesses Can Do to Prepare

Given the current trade environment, businesses need to adjust operations to mitigate tariff risks. Here are practical steps to take:

• Reevaluate Supply Chains
  • Companies should diversify sourcing to reduce dependence on tariff-affected regions.
    • Example: Electronics manufacturers like Apple have shifted production from China to Vietnam and India to avoid Chinese tariffs.
  • Lock in Long-Term Supplier Contracts
    • If your business depends on imported materials, negotiate fixed-price contracts to hedge against price fluctuations caused by tariffs.
      • Example: S. construction firms are signing multi-year agreements with domestic steel producers to secure stable pricing.
    • Automate and Reduce Costs Elsewhere
      • If raw material costs increase, businesses should look for internal efficiencies to offset higher expenses.
        • Example: Auto manufacturers are investing in robotics and AI-driven production to cut labor costs and counteract rising material prices.
      • Pass on Costs Strategically
        • Businesses must decide whether to absorb the increased costs or gradually raise prices for consumers.
          • Example: Companies like Whirlpool increased appliance prices by 5-10% after previous U.S. steel tariffs.
        • Explore Domestic Alternatives
          • Companies importing heavily from affected regions should consider sourcing from U.S. suppliers if price competitive.
            • Example: Walmart has expanded its “Made in America” initiative to source more U.S.-produced goods.
          • Utilize Tariff Exemptions and Refund Programs
            • Some businesses may qualify for exemptions or refund programs like the U.S. Customs Duty Drawback Program which reimburses businesses for tariffs paid on goods that are later exported.
              • Example: S. companies importing parts for assembly and re-export can apply for a tariff refund.

6. Looking Ahead: What to Expect

The current U.S. trade policy suggests tariffs will remain a key tool for economic strategy. Businesses should monitor:

• Potential Retaliatory Tariffs – Countries like China and the EU may respond with their own trade restrictions.
• Inflationary Pressures – Tariffs are likely to lead to higher inflation without corresponding economic growth. The New York Federal Reserve found that the 2018–19 U.S.-China trade war raised prices by 0.3%.
• Election Outcomes & Policy Changes – The 2026 elections could shift trade policy significantly.
• Supply Chain Innovations – Growth in regional manufacturing hubs (e.g., Mexico and India) may alter sourcing strategies.

By planning ahead, private businesses can minimize the negative effects of tariffs and capitalize on emerging opportunities in domestic manufacturing.

If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.