The Macroeconomics of U.S. Tariffs, Global Retaliation, and Shifting Trade Dynamics

Impact on Business Valuations

Tariffs have long served as a tool for national governments to protect domestic industries, correct trade imbalances, or as leverage in international negotiations. This article explores the cascading impacts of recent U.S. tariffs and reciprocal trade barriers on U.S. goods and services.

Tariffs have long served as a tool for national governments to protect domestic industries, correct trade imbalances, or as leverage in international negotiations. The United States, as the world’s largest economy, holds a central role in shaping global trade norms. In recent years, particularly following the 2016 presidential election, the U.S. adopted a more protectionist stance, introducing a series of tariffs on imports, notably from China. These measures, alongside global reciprocal tariffs, have had significant ramifications for the U.S. economy and international trade.

This article explores the cascading impacts of U.S. tariffs and reciprocal trade barriers on U.S. goods and services, with a specific focus on business valuations, Gross Domestic Product (GDP), Gross National Product (GNP), global trade, and long-term growth prospects. It also discusses the consequences of a balanced trade scenario for an advanced economy, effects on business confidence, and the broader global economic risks including potential recessionary pressures and sovereign credit implications.

Timeline of U.S. Tariffs and Global Retaliation

• January 2018: U.S. imposes tariffs on solar panels and washing machines (30%).
• March 2018: Steel (25%) and aluminum (10%) tariffs under Section 232, citing national security.
• July 2018: First round of China-specific tariffs worth $34 billion under Section 301.
• August 2018–September 2019: Progressive escalation of tariffs on $550 billion of Chinese goods.
• June 2019: India imposes retaliatory tariffs on 28 U.S. products.
• July 2020: Phase One deal leads to partial rollback, but many tariffs remain.
• 2022–2023: Biden administration maintains most tariffs, while seeking WTO-compatible industrial policy.
• April 2024: European Union threatens retaliatory tariffs on U.S. digital services taxes.
• January 2025: New Trump administration reimposes tariffs on Chinese electric vehicles and solar technology components, citing national security and unfair competition.
• February 2025: 15% blanket tariff proposed on all imports from nations running trade surpluses with the U.S.
• March 2025: China, EU, and South Korea announce reciprocal tariffs on U.S. agricultural goods, aircraft, and digital services.
• April 2025: U.S. extends tariffs to semiconductors and rare earth imports; WTO challenges anticipated.
• May 2025: Canada and Mexico impose tariffs on processed foods, auto parts, and petrochemical products.
• June 2025: G7 and BRICS countries warn of rising protectionism; global trade forecasts revised downward.
• June 2025: Partial rollback proposed on some tariffs following business backlash and consumer price spikes.

Economic Impacts on U.S. and Neighboring Businesses

U.S. exports of goods, particularly agricultural and manufactured products, have faced significant headwinds due to retaliatory tariffs. Soybean exports to China, once a major destination, plummeted by over 50% in 2018–2019. Exports of services, including technology and intellectual property licensing, have also faced new regulatory hurdles abroad as a form of indirect retaliation.

Tariffs have raised input costs for U.S. manufacturers relying on imported components, reducing competitiveness and narrowing profit margins. The U.S. auto industry, for instance, faced significant cost increases due to steel and aluminum tariffs, which were in many cases passed on to consumers. In 2025, the expansion of tariffs to include semiconductors and rare earth materials affected technology and defense contractors, causing operational delays and cost overruns.

Small and medium-sized enterprises (SMEs), which lack the supply chain flexibility of large multinational firms, were disproportionately impacted. Many SMEs faced lost export markets, difficulty sourcing affordable materials, and reduced cash flow. According to the American Small Business Association, 45% of SMEs reported reduced profitability in Q2 2025 as a direct result of tariff impacts.

Canadian and Mexican businesses, closely tied to U.S. supply chains, were also impacted. Tariffs on U.S.-origin goods led to retaliatory measures on American imports, straining bilateral trade. Mexican automotive and food processing sectors experienced price volatility, while Canadian exporters faced declining demand from U.S. consumers deterred by higher prices.

Impact on Business Valuations

Investor uncertainty around trade policy has led to volatility in equity markets. Businesses reliant on global supply chains or with significant exposure to international markets saw diminished valuations due to revenue uncertainty and increased operational costs. Sectors such as semiconductors, aerospace, and agriculture have experienced notable equity drawdowns during the height of tariff escalations.

Moreover, mergers and acquisitions activity slowed due to unpredictability in future earnings projections. The valuation multiples of firms in tariff-exposed industries declined as investors priced higher risks and lower growth prospects. According to Goldman Sachs, the average enterprise value-to-EBITDA ratio for industrial firms declined by 1.5 points in Q2 2025 alone.

Bloomberg Intelligence noted that valuations for companies with over 30% revenue exposure to international markets underperformed the S&P 500 by more than 10% in Q1 2025. Credit default swap (CDS) spreads for industrial and manufacturing companies widened significantly, indicating higher perceived credit risk.

Effects on GDP and GNP

According to the Congressional Budget Office (CBO) and independent economic research, the cumulative effect of tariffs since 2018 has been a drag on U.S. GDP. Estimates suggest a 0.3% to 0.5% reduction in annual GDP growth during peak tariff years. GNP, which accounts for income from overseas investments, also faced negative impacts due to foreign retaliation and strained bilateral ties.

In 2025, the International Monetary Fund (IMF) projected a further 0.4% drop in U.S. GDP due to trade disruptions, alongside a 0.2% contraction in Canadian GDP, and a 0.3% slowdown in Mexico. The reallocation of resources away from efficient global supply chains toward protected domestic industries resulted in allocative inefficiency, further suppressing economic output.

Oxford Economics revised down U.S. GNP forecasts for 2025 and 2026 by 0.6%, citing shrinking foreign investment returns and weakening global competitiveness. Economists from the Brookings Institution argue that prolonged tariff regimes will compound productivity losses and reduce the U.S.’s long-term potential output.

Global Trade and Growth Prospects

The rise in protectionism has undermined the multilateral trade order. The World Trade Organization (WTO), already weakened by gridlock in its dispute settlement mechanism, struggled to respond to the wave of tariffs. Global trade volumes contracted in 2019 for the first time in a decade, and the trend continued into the early 2020s amid ongoing trade tensions and the COVID-19 pandemic.

Emerging markets and export-dependent economies experienced reduced demand for intermediate goods, hurting their growth. The 2025 tariffs led the Organisation for Economic Co-operation and Development (OECD) to downgrade global growth forecasts by 0.5 percentage points. Analysts at Morgan Stanley and JPMorgan Chase warned of a potential global recession by late 2025 or early 2026, driven by fractured supply chains and falling consumer demand.

Economist Nouriel Roubini emphasized that global decoupling from China and the U.S. could lead to “stagflationary pressures” in multiple regions, while World Bank President Ajay Banga called for “an immediate halt to unilateral tariff increases” to prevent a 2026 recession.

Limitations of a Balanced Trade Scenario

While addressing trade deficits is often politically popular, an economy with no material trade imbalance is not inherently optimal. Trade deficits can reflect strong consumer demand and investment. For the U.S., an artificially enforced balanced trade scenario may reduce capital inflows and disrupt global confidence in the dollar as a reserve currency.

A move to balanced trade via heavy tariffs may necessitate lower imports, which could constrain consumer choice and elevate prices. Domestic producers might not always be able to meet demand, leading to inefficiencies and resource misallocation.

Business Confidence and Investment

Business confidence is a critical driver of capital investment, hiring, and innovation. The uncertainty surrounding trade policy, particularly sudden tariff impositions and reversals, significantly weakened corporate confidence. The Business Roundtable CEO Economic Outlook Index dropped sharply in 2019, reflecting executives’ concerns over tariff-related costs and global instability.

In 2025, this trend persisted. The National Federation of Independent Business (NFIB) reported that 38% of small businesses delayed investment decisions due to policy uncertainty. Industry groups like the U.S. Chamber of Commerce have issued repeated warnings about the chilling effects of tariffs on long-term competitiveness.

A PwC survey in June 2025 found that 62% of CFOs at Fortune 1000 companies planned to reduce capital expenditures over the next 12 months due to rising costs and regulatory unpredictability. Capital flight from manufacturing hubs in North America toward Southeast Asia and Eastern Europe were also reported by logistics firms and trade consultants.

Consumer Prices and Inflationary Pressures

Tariffs on intermediate and consumer goods inevitably led to price increases. Studies by the Peterson Institute for International Economics and the Federal Reserve found that most tariffs were borne by U.S. consumers and businesses rather than foreign exporters. Price hikes in electronics, apparel, and household goods disproportionately affected low- and middle-income households.

In 2025, inflation remained stubborn due to tariff-related supply constraints. The Consumer Price Index (CPI) saw a 0.7% year-over-year increase directly attributable to tariff pass-throughs, according to the Bureau of Labor Statistics.

Moody’s Analytics estimated that the average American household spent an additional $720 in 2025 on tariff-related price increases. Combined with elevated interest rates, consumer purchasing power fell sharply, triggering a slowdown in discretionary spending.

Risk of Global Recession and Bilateral Negotiations

Prolonged trade disputes, especially between the U.S. and China, risk destabilizing the global economy. The IMF and World Bank have warned of synchronized slowdowns driven by trade fragmentation. Supply chain decoupling, though aimed at enhancing resilience, may lead to higher costs and inefficiencies globally.

Bilateral negotiations, such as the Phase One deal between the U.S. and China in January 2020, have provided temporary relief but failed to address structural tensions. Without robust multilateral cooperation, such agreements often falter amid political cycles and competing strategic interests.

The intensified tariff activity in 2025 has led to renewed calls for diplomatic engagement. However, with the possibility of a global recession looming in 2025 or 2026, the urgency for comprehensive and cooperative trade solutions has become critical.

Moody’s Downgrade and Sovereign Credit Implications

In 2025, Moody’s downgraded the U.S.’s sovereign credit rating from Aaa to Aa1, citing rising federal deficits, growing debt-servicing costs, and persistent political gridlock. The agency noted that U.S. debt and interest payment ratios have significantly outpaced those of similarly rated nations.

The downgrade is expected to marginally raise borrowing costs by increasing Treasury yields, reflecting heightened risk. Following the announcement, the 10-year Treasury yield rose to 4.48%, and long-term debt ETFs fell by about 1%. Equity markets also reacted negatively, with the S&P 500 ETF down 0.4% in after-hours trading.

Moody’s was the last major agency to maintain the U.S.’s top rating, following earlier downgrades by S&P in 2011 and Fitch in 2023. Analysts warned that without structural reforms to reduce persistent fiscal deficits, further downgrades remain possible. Moody’s stated it does not expect current policy proposals to yield meaningful reductions in debt or mandatory spending.

The credit cut reflects broader concerns about fiscal sustainability and adds to the mounting pressure from protectionist trade policies and global economic uncertainties.

Conclusion

The imposition and reversal of tariffs by the U.S., and the resulting global retaliation, have had far-reaching effects on the economy. From reduced exports and higher consumer prices to strained business confidence and downgraded credit outlooks, the costs of protectionism have become increasingly evident.

While the goal of correcting trade imbalances and protecting strategic industries may hold merit, these policies must be pursued with a long-term, multilateral approach that avoids unnecessary disruption. As the U.S. navigates an evolving global economic landscape, the path forward must balance domestic priorities with global stability and economic efficiency.

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Christina LoRusso, MSA, CDFA, CFE, CVA, MAFF, is the founder of LoRusso Forensics LLC, a firm specializing in litigation support, business valuation, and financial forensics. She brings extensive expertise in analyzing complex financial matters involving nonprofits, healthcare, marital dissolution, fraud, and economic damages. Ms. LoRusso has also served as an economics expert and legal assistant, with a background in domestic and international tax advisory for real estate investors. Actively engaged in public service, she collaborates with law enforcement through the LVMPD Multicultural Advisory Council, as well as assisting citizens in investigating alleged misconduct, and has contributed to a task force promoting credentialing pathways for military and police professionals through the NACVA.

Ms. LoRusso may be contacted at (702) 241-0063 or by e-mail to c.lorusso@lorussoforensics.com.

 

References

• Congressional Budget Office (CBO) Reports, 2018–2025
• Peterson Institute for International Economics
• International Monetary Fund (IMF) World Economic Outlooks
• U.S. Trade Representative (USTR) annual reports
• Moody’s Investor Services press releases, 2023–2025
• Business Roundtable CEO Economic Outlook Index
• Bureau of Labor Statistics, 2025
• Goldman Sachs Global Investment Research
• National Federation of Independent Business (NFIB) Surveys, 2025
• Oxford Economics Global Projections
• PwC CFO Pulse Survey, 2025
• Bloomberg Intelligence Equity Insights, 2025
• Nouriel Roubini, Economic Outlook Commentary, 2025
• Ajay Banga, World Bank Address, June 2025