Tariffs have been dominating the news for months, and many consumers remain confused about what they can expect going forward. Trade policies, and particularly tariffs, can reverberate through the economy in unexpected ways.
The tariffs introduced by the current administration are intended to strengthen domestic industries by making imports more expensive. While supporting American manufacturing by purchasing products made in the U.S. sounds like a great idea, the real picture is more complicated.
In fact, the Tax Foundation, an independent and conservative-leaning think tank based in Washington D.C., has found that the cost of U.S. tariffs is almost entirely borne by U.S. firms and consumers.1
Let’s look at how that happens.
The intricacy of global supply chains
In the modern environment, manufacturing is carried out within a complex global network. Even goods labeled "Made in the USA" typically contain components or ingredients sourced from other countries.
Trump’s tariffs have primarily targeted items like steel, aluminum, electronics, and other raw or intermediate materials. By increasing import taxes on these goods, production costs rise for industries reliant on these foreign components—even if the finished products are labeled as American.
From tech devices to furniture, countless sectors found themselves grappling with this new financial strain. The result? American consumers pay higher prices regardless of their commitment to domestic goods.
The automotive industry
While your car might be manufactured—or more accurately, assembled—in Detroit, it probably incorporates microchips from Taiwan, steel from South Korea, and upholstery fabric from Mexico.
The final assembly may take place in the United States, but the production process depends on an intricate chain of suppliers. Take the Cadillac CT4, for example; it may be assembled in Detroit, but a mere 15% of its parts originate in the U.S. or Canada.2
Trump-era tariffs on steel and aluminum have significantly raised the cost for these essential raw materials. Domestic automakers that rely on imported metal have two choices: absorb the rising production costs, or pass them along to consumers. Care to guess what’s happening? For every car or truck sold, the additional costs stemming from tariffs on raw materials are embedded in the sticker price, with American consumers left to foot the bill.
Even manufacturers who rely on American steel and aluminum face market pressures. As tariffs have made imported metals more expensive, domestic producers are raising their prices to align with higher global costs. Regardless of whether the materials come from domestic steel mills or international suppliers, the net result is painful for manufacturers and consumers alike.
Technology
While a laptop might bear a recognizable American brand name, the inner workings—semiconductors, chips, and displays—come from foreign suppliers.
Although U.S. companies may design the most advanced chips in the world, actual manufacturing is often outsourced primarily to Taiwan.3 Other components for electronics are sourced heavily throughout Southeast Asia.
When tariffs target these types of goods, U.S. companies face rising input costs. Manufacturers of American-made products can’t escape the higher costs, which are inevitably reflected in retail prices.
Clothing and textiles
A less obvious example is the clothing industry. According to GQ, "Sixty years ago, most of the clothing Americans bought was made in America, but thanks to free trade deals, globalization, and apparel brands’ perennial pursuit of ever lower labor costs, most of it is now imported."4
For a garment to be legally labeled "Made in USA," the Federal Trade Commission requires that all inputs are also made in the USA.5 Some manufacturers play fast and loose with the designation, as most textiles and dyes used to create "American-made" garments are imported.
At the same time, American-produced textiles and raw materials have become more difficult to source due to the competition from imports. Tariffs make imported raw materials more expensive, costs that are passed on to consumers. At the same time, truly American-made clothing comes at a higher cost. Either way, the consumer bears the burden.
Agriculture
Even farmers are not immune. While they may grow crops domestically, they often rely on imported equipment and technology for harvesting, processing, and transportation—industries also affected by tariffs. Those higher costs are reflected in food prices.
Construction
The U.S. construction industry heavily depends on materials such as lumber, steel, and aluminum. When tariffs target these imports, domestic builders face skyrocketing expenses.
American-made materials don’t offer a cheaper alternative, because domestic prices typically follow the inflated market trends set by the new tariffs. Consumers suffer when the higher prices are reflected in higher rents, property prices, and contractor fees.
Pharmaceuticals
While American pharmaceutical companies are global leaders, nearly 88% of active pharmaceutical ingredients (APIs) used in U.S.-manufactured drugs are imported.
Current tariff policy has hinted at potentially sizable tariffs on these imported compounds, particularly those coming from India and China.6 Consumers and businesses alike may see drug prices rise, and patients who rely on drugs that are titularly "Made in the USA" may face difficulties in affording vital medications.
The "pass-through" impact of tariffs
The vast majority of businesses are neither able nor willing to see their profits eroded by higher expenses. When tariffs drive up the price of raw materials, the logical response from most businesses is to pass these expenses on in their price.
Economists refer to this as the "pass-through" effect. Retailers might label their products as "Made in America," but that is hardly a guarantee that they or their customers won't suffer from the higher supply chain costs imposed by trade barriers.
The economic implications of tariffs
The most significant insight from current trade policies is that they are likely to affect far more than just the immediate targets of the tariffs. By increasing the cost of doing business at every level, tariffs contribute to overall inflation. Whether you’re buying a new "American" car, renovating your home, or headed to the grocery store, you’re going to feel the impact.
Moreover, tariffs create market inefficiencies. When companies are forced to alter their supply chains in response to trade barriers, they can incur additional logistics, research, and operating costs. Shifting from established relationships might strengthen domestic suppliers in some cases, but the transition can impact productivity and profitability in ways that hurt businesses and consumers alike.
Finally, there is the geopolitical dimension. By disrupting global trade relationships, these policies can lead to retaliatory moves from other countries. This was evident during the first Trump administration in 2018, when President Trump imposed multiple rounds of tariffs on China. The trade war that followed resulted in $27.2 billion in agricultural export losses.7 China and Brazil have already threatened retaliatory action.
The takeaway
While the notion of buying American feels good to many, it’s no protection against the economic reality of trade policies. Tariffs on raw materials and intermediate goods can drive up costs across industries, even for goods that bear the "Made in the USA" label. This underscores the complexity of interconnected global markets—a reality that trade interventions cannot erase.
The lesson is clear: When it comes to trade wars, no one truly wins. While buying American has symbolic and economic value, tariffs make it nearly impossible for consumers to insulate themselves from the broader consequences of globalized production. Inevitably, they will share the burden.
5 min read
