How Big an Impact Will Tariffs Make?

A disclaimer right off the bat: no one knows the economic impact of President Trump’s tariffs. It would be disingenuous to suggest otherwise. This isn’t because we lack the fundamental understanding, analytical tools, or historical lessons needed to make a confident assessment. It’s because friends and foes alike aren’t privy to the details: who will be affected and at what rate; when the tariffs will begin and end; how complete and time-bound the list of exemptions is; what conditions must be met to satisfy the White House; what measures will be taken to soften the blow to consumers; what role the U.S. Congress will play; and so on.

Despite White House efforts to clarify, these questions persist, and in the global market, uncertainty isn’t uncertain—it’s a force like gravity or magnetism. The very fact that these questions remain unanswered produces observable, measurable effects that give us important insights.

To use a sports analogy, the game has already tipped off and we’ve reached the first TV timeout, but we still don’t have a game plan. We have a talented starting lineup, a deep bench, an enthusiastic crowd, and plenty of time on the clock, but we don’t know how we’re going to win. Whether you support the president’s agenda or not, that is the perception from thousands of businesses across the U.S. and around the globe.

Read on for a look into what makes the recent rollout of tariffs so consequential.

What Do Tariffs Really Do?

Behind the buzz, bluster, bloviating, and bemoaning, tariffs are simply taxes. More specifically, they are import taxes, paid by the company importing the products to the government of the country to which they import. By design—and this is important—tariffs make imported products more expensive to U.S. consumers to encourage them to purchase domestic alternatives.

Tariffs can be levied against a wide range of targets: essential commodities like grain, fuel, and metals; specific foreign companies or industries; or large economic blocs such as the European Union.

What’s Old Is New

The U.S. experience with tariffs didn’t begin with Donald Trump. As far back as 1789, George Washington signed the Tariff Act into law. In the decades since, tariffs have been frequently used to protect domestic industries, raise government revenue, and rebalance trade agreements. The breadth, duration, and rate of these tariffs have all varied greatly, as have their results. While tariffs may support long-term infrastructure goals, their short-term effects can be perilously unpredictable.

While tariffs have been a fixture of U.S. economic policy, few administrations have ever wielded them as freely as President Trump’s. This fact has become even more evident since the start of the second Trump administration, which has publicized their implementation as retaliation for unfair trade practices. The current administration’s goals for tariffs include reducing trade deficits, revitalizing manufacturing, enhancing national defense, and curbing illegal immigration.

While the U.S. Constitution grants tariff authority to Congress, legislation has increasingly empowered presidents to act unilaterally—especially under national emergencies, as President Trump has done. Trump's use of reciprocal tariffs to rebalance trade deficits and achieve political objectives has drawn praise and concern.

Risk & Reward

Early analysis has indicated that Trump’s tariff program could pressure foreign companies to relocate operations to the U.S. and raise as much a $5.2 trillion in federal revenue if sustained over 10 years, but this comes at a considerable cost to consumers and market stability, and there's no reason to believe that subsequent administrations would maintain them. The Peterson Institute has warned of a potential $2,600 annual increase in costs per household, while the IMF has downgraded U.S. growth projections a full point due to tariff uncertainties. Historical precedents like the Smoot-Hawley Act underscore the dangers of poorly executed tariff policy.

When implemented thoughtfully, tariffs can raise government revenue, protect key industries, and provide leverage in trade negotiations. However, poorly designed or inconsistently executed tariffs risk economic disruption and recession. Effective tariff implementation requires balancing economic data, demand forecasts, and rate evaluation to avoid blowback and the deterioration of foreign relations.

This point is especially salient because the primary target of Trump’s tariffs is China. Though political and economic rivals, the world’s two largest economies have long enjoyed trade on a scale that is beyond immense. Many fear that Trump’s 145% tariff rate and China’s 125% retaliation are the opening salvo of an extremely destructive—and avoidable—trade war that could see both economies suffer extensively for little to no advantage.

Byte: Tariffs are taxes that act as obstacles to imported goods. While intended to protect and develop domestic industries, they risk retaliation and escalation that can ultimately damage all trade participants.

Read the full article on gray.com to learn more about tariffs and how your business can respond.

Second-Guessing Weakens U.S. Role as FDI Leader

Foreign direct investment (FDI) has long been a strong suit of the U.S. The country has topped Kearney’s annual FDI Confidence Index for 13 consecutive years, but the threat of a major global trade war has already blunted investors’ enthusiasm. Contrast this change with last year’s index, which demonstrated how initiatives like the CHIPS and Science Act and the Inflation Reduction Act attracted substantial FDI in 2023 and 2024. These policies spurred investments in semiconductors, clean energy, and advanced manufacturing. Notably, manufacturing accounted for over 40% of cumulative FDI, with significant inflows into the chemicals, pharmaceuticals, and electronics sectors. Greenfield investments saw a notable increase, reflecting confidence in the U.S. industrial base.

New Policy, New Priorities

Decades from now, historians will look back on the Biden and Trump administrations as a case study in polarized approaches to foreign investment. While it maintained some earlier Trump tariffs against China, President Biden prioritized a stable investment environment and provisions such as grants and tax incentives that would broaden capital sources and reduce liabilities for foreign investors in technology, green energy, and infrastructure. The inauguration of President Trump in 2025 ushered in a rapid reversal of Biden-era policies and programs. Trump’s protectionist agenda and aggressive trade policies—aimed at adversaries like China as well as allies such as Canada and Mexico—seek to rebalance trade agreements and practices in favor of the U.S. but have increased market volatility, prompted retaliatory actions, and created an atmosphere of uncertainty for investors.

According to the Financial Times, the Trump administration's rollback of clean energy initiatives has resulted in the cancellation or delay of nearly 100 projects, leading to a significant decline in investments within the renewable energy sector—one which Trump has repeatedly criticized as an obstacle to economic growth.

As 2025 progresses, the full impact of these policy changes on FDI inflows will become clearer, as will the broader implications for the U.S. economy's growth and its role in the global investment landscape.

If U.S. policymakers can drive the country’s most imbalanced trade partners to the negotiating table while maintaining broader market access and advancing targeted subsidies, FDI is likely to remain robust. Conversely, sustained tariff regimes against the majority of our partners or abrupt regulatory shifts may drive multinationals to diversify into more predictable markets, potentially eroding U.S. leadership in global capital flows.

Byte: Markets don’t like policy whiplash. The quick reversal of the previous administration’s incentives and its reliance on high tariffs to drive domestic industrial development threaten the long-standing U.S. position as the world’s premier FDI destination.

Check out the complete article on gray.com for more information don’t miss Gray in Booth #1217 at the SelectUSA Investment Summit from May 11–14.

Building a Tariff-Proof Business

Businesses can’t afford to wait for tariffs to begin affecting operations. While not set in stone, the Trump administration’s early tariff policy details shed light on how taxes on imported goods could impact your bottom line and project planning. Proactive strategies can minimize these negative impacts.

To reduce tariff liabilities, domestic businesses should adopt holistic strategies, reconsidering supply chain models, pricing structure, product design, and industry association engagement.

• Localize inputs by sourcing more raw materials or components from U.S. suppliers to reduce exposure to duties

• Diversify foreign suppliers in different regions to mitigate risk if any one country or region’s exports are hit with higher tariff rates

• Shorten supply chains by near-shoring or friend-shoring operations to countries with free trade agreements

• Redesign products (materials, dimensions, assembly) so they fall under a lower-duty HTS code, taking care to maintain thorough documentation to avoid penalties

• Apply for a drawback of duties—essentially a refund—on inputs that are subsequently exported

• Protect cash flows through bonded warehouse, delaying duty payment until goods leave the warehouse

• Analyze your margin profile to decide whether to raise prices, absorb some duties, or re-engineer products for lower cost

• Emphasize value where your brand command is strong or “Made in USA” branding to justify price increases

• Look to new export markets (e.g., Europe, Middle East) for higher-margin sales

• Engage industry associations or file for exclusions/exemptions during USTR reviews

While many of these practices offer common benefits to foreign businesses, some may benefit from bolder or more creative initiatives:

• Reconfigure your footprint to avoid import duties altogether by establishing or expanding U.S. subsidiaries or contract manufacturers

• Re-source inputs so that final goods qualify for preferential tariff treatment under free trade agreements such as CPTPP, USMCA, or KORUS

• Import tariff-sensitive parts into an FTZ and perform value-adding operations, then export or enter U.S. customs territory under lower rates

• Ensure proper customs valuation methodology such as deducting royalties or freight to legally minimize dutiable value

• Negotiate longer payment terms or letters of credit to ease cash-flow drag from higher upfront duties

• Partner with U.S. companies that have existing infrastructure, market access, and tariff exemption expertise

• License production to U.S. partners under royalty models, avoiding importation entirely

Adapting to U.S. tariffs isn’t just about cutting costs—it’s an opportunity to revisit your global-sourcing footprint, upgrade your product positioning, and engage proactively with trade policy. Firms that master supply-chain agility, tariff engineering, and regulatory advocacy will not only survive the current cycle but may ultimately emerge stronger and more competitive.

Where the administration goes from here is anybody’s guess. But that doesn’t mean your business can’t act decisively. There are clear paths and proven methods for strategically building flexibility, diversification, and resiliency into your operations. The uncertainty surrounding tariffs and the future of trade isn’t a communication void; it’s a signal that the best path forward is the one you clear yourself.