President Trump's administration is considering tariffs on a broad range of imported goods, creating more global economic uncertainty. These tariffs would disrupt global supply chains and lead to higher consumer prices, especially in sectors like automotive, electronics, and pharmaceuticals. Retaliatory measures from trade partners, particularly China, Canada, and Mexico, are likely, sparking a risk of trade wars. For companies, it will remain crucial to diversify production networks and find ways to absorb higher costs.
Changing US trade policy adds to economic uncertainty and can lead to trade wars
The tariffs President Trump's administration is considering would impact a broad range of trade partners and goods. They would impact Chinese, Canadian, Mexican and EU imports, especially in areas where the US has the largest trade deficit.
Such strategy creates more economic uncertainty for companies. New trade tariffs also increase the risk of trade wars and increased costs for companies. In a worst-case scenario, it could cost US importers USD1.2 trillion annually.
Trade tariffs would have a significant impact on US supply chains and consumer markets
The US is heavily reliant on imports of higher-value-added capital goods that dominate US trade structure. Motor vehicles was the largest import category by value, with imports up 23% in 2024 as US manufacturers increased vehicle and component sourcing from Mexico. US industry is also heavily reliant on imports of electronics and other hi-tech goods, mainly from Asian countries. Despite accelerated production reshoring efforts and investments into domestic industry, US imports of electronics still expanded by 50% over 2019-2025. Increased import tariffs on these B2B goods would have a significant impact on the US supply chains and manufacturing sector, making input components more expensive.
Imports represent 70-80% of the total consumption of consumer goods and electronics
Source: Euromonitor International
US apparel and footwear consumption almost exclusively consists of imported goods. The US is also heavily reliant on imported mobile phones, computers, TV receivers and other consumer electronics. These goods are essential, and higher costs because of new trade tariffs would be directly passed on to end-consumers.
The US runs a significant supply deficit of pharmaceuticals.
Total consumption of pharmaceuticals exceeded domestic production by more than USD500 billion in 2024, with the demand gap filled by imports, mainly from the EU
Source: Euromonitor International
A proposed 25% tariff on all EU imports would have a significant impact on the pharmaceuticals industry, increasing import prices by as much as USD74 billion. Supply diversification efforts would also be limited, at least in the short term, due to already high production concentration in the EU and limited technological know-how in alternative countries.
The proposed US trade tariffs have the potential to cause severe supply disruptions across multiple industries. In the agricultural sector, US suppliers are particularly vulnerable to retaliatory counter-tariffs from key buyers such as Mexico, Canada and China. Counter-tariffs from these countries could lead to significant market share losses and economic hardships for US farmers and agricultural businesses.
The automotive industry is also at risk, with tariffs causing severe disruptions across the supply chains of the US, Mexico and Canada. These countries are major suppliers of vehicles and automotive components to each other, and any increase in tariffs would lead to higher operating costs and new car prices. The automotive sector's intricate supply chain means the impact of tariffs would be felt not only in the US but also in its trading partners.
For consumer goods, the impact of higher tariffs would be particularly severe. Because of the limited diversification potential in this sector, US consumers would bear the brunt of these increased costs, at least in the short term. Higher tariffs would lead to increased operating costs for companies that would be passed on to consumers, potentially driving inflation up by three percentage points.
Countries are likely to implement asymmetric counter-measures on US exporters
The likelihood of retaliatory measures from trade partners in response to US trade tariffs is high.
These measures are expected to target specific US industries to cause maximum economic disruption while minimising negative effects on domestic markets
Source: Euromonitor International
China has the most room to manoeuvre and introduce harsh counter-tariffs on US exporters. China can introduce counter-tariffs on US imports of agriculture, plastics, chemicals and energy products with minimal impact on its own market as US goods, in most cases, represent less than 1% of total consumption.
Canada and Mexico have less room to introduce harsh counter-measures because of interconnected supply chains; however, the countries are likely to target specific goods and sectors. Canada is planning to introduce tariffs on a broad range of US goods, including fresh food, alcoholic drinks, footwear, steel, aluminium, and aerospace products. These tariffs are designed to target sectors where the US is highly dependent on exports, thereby maximising the economic impact. Mexico is also considering additional trade tariffs ranging from 5% to 20% on a broad range of US goods. However, Mexico hinted it would exempt US automotive imports to minimise negative effects on its own economy.
The final effects of trade tariffs will depend on the ability to reach compromises between the US and its trade partners. In a worst-case scenario, B2B goods and commodities would be hit by severe tariffs, inflating import prices by around 20%. However, a more compromised approach, where only selected goods are targeted, would help to minimise negative effects, especially on consumer goods.
Companies will need to adapt to these challenges by diversifying their production networks, localising production where possible and stockpiling critical goods. However, these efforts will take time and both companies and consumers will feel higher price pressures across supply chains in the short term.
More information on trade tariffs and the impact on industries is available in the strategy briefing, Navigating New Trade Landscape: The Impact of US Trade Tariffs on Key Industries.
