How US Tariffs Backfired and Hurt American Industries
The Boomerang Effect of Tariff Policy
When the United States imposed tariffs on Chinese goods in 2018, they triggered a series of economic consequences that rebounded against domestic industries. These tariffs, initially targeting $34 billion worth of Chinese imports, expanded to affect over $550 billion of goods by 2019. The policy aimed to reduce the trade deficit and pressure China to address concerns about intellectual property practices. Instead, American businesses absorbed unexpected costs as supply chains fractured under the new economic pressures.
The tariffs ranged from 10% to 25% on thousands of product categories, including industrial components, raw materials, and finished consumer goods. For American manufacturers who relied on these inputs, production costs increased almost overnight. A study by the Federal Reserve Bank of New York estimated that the tariffs cost American businesses and consumers approximately $3.2 billion per month in added tax costs and another $1.4 billion in deadweight losses.
Manufacturing Sector: Higher Costs, Lower Output
American manufacturing companies faced immediate challenges when the tariffs took effect. Firms that had built their supply chains around Chinese components suddenly needed to pay 25% more for critical inputs or scramble to find alternative suppliers. For many specialized components, alternatives simply didn’t exist or required months of testing and certification.
The machinery sector illustrates this impact clearly. Companies that produced agricultural equipment, construction machinery, and industrial tools relied heavily on specialized steel components from China. When these parts became subject to tariffs, production costs rose by an average of 6-8%. Unable to absorb these costs entirely, manufacturers passed approximately 75% of the increases to customers, reducing demand and overall sales volume.
Small and medium-sized manufacturers felt the impact disproportionately. Unlike larger corporations, they lacked the financial resources to absorb higher input costs, the market power to pass costs to customers, or the operational flexibility to quickly reconfigure supply chains.
Steel and Aluminum: Protection at a Price
The steel and aluminum tariffs, imposed under Section 232 of the Trade Expansion Act, were meant to revitalize domestic metal production. While U.S. Steel and other American producers initially saw price increases of 25-30% and announced plans to reopen dormant facilities, these benefits proved temporary and narrowly distributed.
Downstream industries that use steel and aluminum as inputs—comprising over 6.5 million American jobs compared to roughly 140,000 in metal production—experienced negative effects. Auto manufacturers, appliance makers, and construction firms saw their material costs rise between 11% and 18% in the first year following tariff implementation. These increased costs translated to higher prices for American consumers and reduced competitiveness in export markets.
Agricultural Exports: Farmers Bear the Brunt
China’s retaliatory tariffs targeted American agricultural exports with precision. Before the trade war, China represented the second-largest market for U.S. agricultural products, purchasing $19.5 billion of American farm goods in 2017. When China imposed retaliatory tariffs on soybeans, pork, dairy, and other agricultural products, exports to China dropped by over 50% in the following year.
Soybean farmers experienced the most severe impact. China had purchased approximately 60% of total U.S. soybean exports prior to the trade war. After retaliatory tariffs, Chinese purchases fell by nearly 75%, causing soybean prices to drop from $10.50 per bushel to under $8.50—below the production cost for many farmers. Iowa and Illinois farmers, who lead U.S. soybean production, saw per-acre profits swing from positive to negative in a single growing season.
The U.S. government responded with subsidy programs, including the Market Facilitation Program, which distributed $28 billion to affected farmers between 2018 and 2020. However, these payments often arrived months after farmers experienced losses and didn’t fully compensate for lost market share.
Consumer Electronics: Disrupted Innovation
The consumer electronics industry relies on complex global supply chains, with Chinese factories producing components for products designed in the United States. When tariffs hit these supply chains, American technology companies faced difficult choices: absorb the costs, pass them to consumers, or attempt to relocate production—a process that typically takes years.
Companies that produced smart home devices, computer peripherals, and networking equipment saw their import costs rise by 10-25%. The tariffs affected not only finished products but also components such as circuit boards, capacitors, and sensors used in American assembly operations. This created a cascading effect through supply chains that ultimately increased retail prices for American consumers by an average of 8-12% across affected product categories.
Retail and Consumer Impact
American retailers selling Chinese-made consumer goods—from furniture to clothing to electronics—faced higher costs that ultimately reached consumers. The National Retail Federation estimated that tariffs cost the average American household over $1,200 annually in direct and indirect expenses by 2020.
Walmart, America’s largest retailer, warned that tariffs would lead to price increases « on products ranging from paper goods and detergent to electronics and apparel. » These predictions materialized as the trade war continued, with price increases on thousands of everyday items affecting American consumers across income levels.
The Supply Chain Scramble
As tariffs persisted, American companies began restructuring their supply chains—a process both costly and disruptive. Manufacturing operations that had taken decades to optimize required significant investment to relocate or replace. Companies reported spending millions on supply chain adjustments, with completion timelines stretching into years rather than months.
Some firms relocated production to Vietnam, Malaysia, or Mexico, but these transitions came with complications. Alternative manufacturing locations often lacked the skilled workforce, infrastructure, or component ecosystem that had made Chinese manufacturing efficient. Companies that attempted to shift production back to the United States encountered labor shortages, higher costs, and regulatory hurdles.
A survey by the American Chamber of Commerce in China found that by 2019, 40.7% of respondent companies were considering or had already begun relocating manufacturing facilities outside China. However, only 6% were considering moving operations back to the United States, highlighting the complex reality of global manufacturing networks.
Economic Ripple Effects
The overall economic impact extended beyond directly affected industries. Business investment declined as uncertainty about trade policy led companies to delay capital expenditures. The Federal Reserve estimated that trade policy uncertainty reduced U.S. aggregate investment by approximately 1.5% by the end of 2019.
Employment effects proved difficult to measure precisely, but research by the Federal Reserve Bank of New York suggested that the tariff exchange destroyed more jobs than it created. While some protected sectors added positions, downstream industries and export-oriented businesses reduced their workforces, resulting in a net negative effect on employment.
Regional Economic Impacts
The economic consequences of the trade war distributed unevenly across American regions. States with agriculture-dominant economies like Iowa, Nebraska, and Minnesota saw farm bankruptcies increase by 20% in 2019. Manufacturing-heavy states in the Midwest experienced mixed outcomes—some manufacturers benefited from protection while others suffered from higher input costs and retaliatory tariffs.
Coastal states with major ports saw decreases in shipping volume and related economic activity. The Port of Los Angeles, which handles approximately 40% of container imports from China, reported a 19.1% decrease in shipments during the first quarter of 2019 compared to the previous year.
Lessons for Trade Policy
The experience of American industries during the trade war demonstrates the interconnected nature of modern economies. Policies designed to protect specific sectors often generate unintended consequences that ripple through supply chains and affect seemingly unrelated industries.
Economic data compiled after the initial phase of the trade war indicates that the tariffs failed to achieve their primary objectives: the bilateral trade deficit with China remained largely unchanged, increasing slightly from $375.6 billion in 2017 to $378.8 billion in 2018, before decreasing to $345.2 billion in 2019 due largely to overall trade volume reduction rather than structural changes.
For American businesses, the trade war highlighted vulnerabilities in global supply chains but also demonstrated the challenges of rapid supply chain reconfiguration. The experience prompted many companies to prioritize supply chain resilience and diversification—not necessarily reshoring—as protection against future disruptions.
The Path Forward
American industries that weathered the trade war emerged with valuable insights about supply chain management, market diversification, and policy risk. Many companies accelerated automation initiatives to reduce labor dependencies, invested in more flexible manufacturing systems, and developed deeper relationships with suppliers across multiple countries.
The agricultural sector expanded marketing efforts in alternative international markets, including Southeast Asia, the Middle East, and Latin America. While these markets haven’t fully replaced Chinese demand, they represent important steps toward more diversified export strategies that make American farmers less vulnerable to single-market disruptions.
Manufacturing companies have increasingly adopted « China plus one » sourcing strategies, maintaining Chinese suppliers while developing parallel supply chains in other countries. This approach balances the efficiency of established Chinese manufacturing networks with risk mitigation through geographic diversification.
The evidence from multiple economic studies suggests that broad-based tariffs generate wide-ranging consequences that often undermine their intended benefits. For American industries navigating global competition, the trade war demonstrated that protection comes with substantial costs—and these costs typically spread far beyond the industries the policies aim to help.
This article is an excerpt from the book The First Round – Inside the US-China Trade War and China’s Early Edge by Olivia Brown -ISBN 978-2-488187-20-6.
