Tariffs, or taxes on goods imported into a nation, represent the intersection of geopolitics and economics. The use of tariffs in the West has expanded in recent years largely due to an increasingly complex geopolitical environment. These tariffs will likely have economic consequences.
The Hartford’s Global Insights Center, its economic and geopolitical research department, believes that globalization is not ending but changing, and tariffs could accelerate that evolution. Because of tariffs, the U.S. may begin to ease imports from select nations and increase imports from others, which could affect global trade flows. This could impact the economic outlook for some nations and the economic links between the U.S. and others, and could also impact many firms and sectors within the U.S.
It's vital for business leaders to assess tariff trends and the corresponding economic implications in order to mitigate and manage risk.
Background on Tariffs: The History and Today's Landscape
Below, we'll broadly discuss the purpose of tariffs in recent history and up to today.
Tariffs Are Taxes on Goods Imported Into the U.S.
Tariffs can be applied to specific industries and goods coming in from anywhere in the world, all goods coming from a specific country, or a specific industry or good coming from a particular country.
Governments Use Tariffs To Gain Geopolitical Advantages
Tariffs are usually placed on goods originating from rivals, though the U.S. has also enacted them on friends, allies, partners and industries the government seeks to protect from foreign competition. Tariffs reroute trade flows, steering trade away from certain nations and sectors.
Tariffs Reduce International Competition and Increase the Cost of Doing Business
Theoretically, U.S.-based companies may get an edge as prices rise on their imported competition. However, U.S.-based companies may find input materials more expensive, which impacts their cost to produce goods. Or they could see an opportunity to raise prices and match their international competitors.
Tariffs Were Dormant for Decades
Before 1947, tariffs averaged 10% to 20% on goods imported into the U.S., according to the Pew Research Center. But a new economic order emerged after World War II, when international trade flourished, and institutions like the World Trade Organization (WTO) came into existence. Plus, globalization accelerated as companies began to find low-cost centers of production, like Asia. The expansion of manufacturing and trade coupled with new trade deals and free trade agreements lowered tariffs in the U.S. to just 1.4% by 2017, according to data from the U.S. Census Bureau.
A New Era of Tariffs Began in 2018
The U.S. began to raise tariffs, mostly on Chinese goods, because of a shift in domestic politics and increased concerns about China’s long-term ambitions. On account of globalization, China became one of the world’s major manufacturers of goods in the 2000s, enabling it to become a dominant global trading nation and the U.S.’s largest import partner, per data from the U.S. Census Bureau. This in turn helped fuel China’s economic rise, gave it a large current account surplus and boosted China’s U.S. dollar reserves, which were then used to buy U.S. Treasurys.
Due to a perception in some quarters that China’s economic rise occurred because of U.S. consumer demand and U.S. policies – and that this rise could someday be used by China to rival the U.S. economically, militarily and geopolitically – Washington, D.C. began to apply tariffs. By 2024, tariffs on China averaged 10.7%, according to data from the U.S. Census Bureau.
Tariffs Increased Rapidly in 2025
The U.S. enacted many new tariffs in early 2025. They were applied to imports from almost all nations, raising the average tariff on all U.S. imports from 2.3% in 2024 to 24.8% in early 2025. This was the highest, fastest increase in tariffs in more than a century and has the potential to reshape global trade.
Two types of tariffs were announced in early 2025: product tariffs and country tariffs.
New product tariffs enacted through early 2025 include:
- 25.0% tariffs on autos
- 25.0% tariffs on auto parts
- 25.0% tariffs on steel and aluminum
Country tariffs enacted include:
- 145.0% tariffs on many imports from China
- 25.0% tariffs on many imports from Canada and Mexico
- 10.0% tariffs on most imports from almost all other nations
Additional tariffs were also proposed but had not yet been enacted as of May 1, 2025.
Rising Tariffs and the Shift of the Free-Trade Era
For most of modern history, tariffs were a common geopolitical tool. In the 1800s, tariffs ranged from approximately 15% to 60% on all imports into the U.S., according to the Pew Research Center. They fell to approximately 5% during World War I before rising back to approximately 20% after World War II.
Then the world entered the “Free Trade Era,” and everything changed. From the late 1940s until the late 2010s, global economic integration was a geopolitical priority for most major nations. Political leaders sought to enhance economic ties across countries, prioritizing cross-border trade and international financial flows. Policymakers saw the benefits of globalization, which included access to a wider range of resources, cheaper consumer goods and larger labor pools. An economically integrated world was also seen as a conduit to peace.
In October 1947, the General Agreement on Tariffs and Trade (GATT) was implemented, which regulated trade across 153 countries, according to the Duke University School of Law. It was designed to reduce tariffs and promote globalization and international trade. The GATT was eventually supplanted by the WTO in April 1994, which has largely governed international trade for the past 30 years.
Under the GATT and WTO, tariffs declined steadily, becoming almost a non-factor in global commerce. By 2017, tariffs had fallen to just 1.4% of imports into the U.S., per data from the U.S. Census Bureau. Lower tariffs led to a rapid rise in trade worldwide.
Between 1960 and 2022, international trade increased from approximately 26% of global Gross Domestic Product to 63%, per data from the World Bank. And this increase in trade reshaped the world economy, transferring wealth from the U.S., Europe, and other developed regions to China, Hong Kong, Taiwan, Japan, Singapore, South Korea and other nations with substantial manufacturing sectors.
Tariffs Introduce Major Economic Risks
When tariffs are enacted, global trade flows often change direction. Tariffs make imported goods more expensive, causing the U.S. to buy fewer products from firms in affected countries. At the same time, the countries facing tariffs often counteract by adding retaliatory tariffs, diminishing cross-border trade in both directions. As a result, companies begin to seek out new nations to trade with. At times, they may even actively invest in nations that have lower tariffs to boost their production capabilities.
For example, in February 2018, the U.S. announced tariffs on solar cells and washing machines from China, according to the Peterson Institute for International Economics. Additional tariffs on steel and aluminum were enacted that March 2018, and China responded with tariffs on U.S. pharmaceuticals a few months later. Tariffs eventually quadrupled. In turn, trade between the U.S. and China declined by double digits, instead shifting to other markets.
The Auto Sector Could Face Pressure From Higher Tariffs in 2025 and Beyond
The U.S. imports 3.5 million to 6 million autos annually, as well as 2.1 million to 2.8 million light trucks, according to data from the International Trade Administration. Collectively, imports represent almost half of all cars and trucks sold in the U.S. A large share of imports come from Mexico and Canada, while the rest largely come from Japan, South Korea and Germany. The U.S. also imports more than $160 billion in auto parts, mostly from the same nations.
Inflation for new and used cars increased sharply in 2022 and 2023, per data from the U.S. Bureau of Labor Statistics. By 2024, the cumulative impact of auto inflation raised auto prices 20.3% and auto parts by 21.9% above their pre-COVID levels. However, auto inflation began to normalize in 2024 with inflation for new cars, used cars and auto parts either negative or flat.
New tariffs were enacted on autos and parts in early 2025, placing a 25.0% tax on many auto and parts imports. These tariffs could raise retail auto prices substantially. New autos would likely face the largest price increases, but even used autos may get more expensive.
The Cost of Construction Materials Could Also Increase
The U.S. imports 25 million to 35 million metric tons of steel annually, representing approximately 25% of the steel used across industries, according to the International Trade Administration and IBISWorld. Steel is a critical input to many sectors, including construction. U.S. steel tariffs averaged 2.2% in 2017 but increased sharply to 5.8% by 2024, per the U.S. Census Bureau. They reached 25.0% in early 2025.
According to an analysis by the Tax Foundation, tariffs have a large impact on steel prices. When steel tariffs increased by approximately 4% after 2017, steel prices for U.S. buyers rose by an equivalent amount. By this logic, steel prices are highly reactive to tariffs, indicating prices may rise quickly in 2025.
In early 2025, steel tariffs increased to 25.0%. They apply to raw steel and also to steel components like screws and doorknobs. Steel prices impact construction more than almost any other sector, with construction firms buying approximately 46% of all steel in the U.S., according to IBISWorld. This puts construction costs at risk of escalation.
The U.S. also imports high volumes of lumber. Lumber imports primarily come from Canada, China, Brazil, Mexico and Germany. Through early May 2025, lumber was exempted from newly announced tariffs, though this may change. If lumber tariffs are increased, causing lumber prices to rise, building costs could escalate for residential and non-residential construction projects.
The overall cost of construction materials increased by 28.9% in 2021 and another 12.6% in 2022, per the U.S. Bureau of Labor Statistics, in part because of higher steel and lumber prices. Materials like steel and lumber account for more than half of all construction costs, according to IBISWorld, leaving the industry at risk of disruption from tariffs in 2025.
Higher Tariffs Could Create a Headwind for Logistics
So far, the 2025 tariffs have supported logistics demand. The logistics sector is heavily dependent on international trade, and trade activity increased in early 2025 as companies and consumers “ordered ahead” of tariffs, buying goods early to avoid potentially higher prices in the future.
But later in 2025, the logistics industry could face substantial risk. With tariffs applied to all countries, U.S. factory output could shrink, and cross-border trade could decline as consumers and businesses react to higher prices. Logistics demand could decline at seaports, particularly the West Coast ports that process ships sailing from China, where tariffs are the highest. Trucking activity across the Canadian and Mexican borders may diminish. Ultimately, demand for truck drivers, ship workers and warehouse employees could fall.
Logistics demand boomed in 2021 and 2022 during the inventory restocking frenzy as firms replenished their warehouses and shelves after COVID. But logistics jobs declined consistently in 2023 and early 2024, per data from the U.S. Bureau of Labor Statistics, as the sector began rightsizing to current consumer and business trends. Tariffs could thus be another headwind for an industry already under pressure.
Tariffs Could Reduce U.S. Factory Output
Some argue that tariffs boost U.S. manufacturing by reducing international competition. But the opposite typically occurs, and U.S. manufacturing declines, at least temporarily. Tariffs make imports more costly, which gives U.S. factories the ability to raise their own prices, leading to higher costs of doing business across the board, according to an analysis by the U.S. Bureau of Labor Statistics. Higher costs push some customers out of the market, so factories make fewer products (although factory profit margins sometimes increase). After tariffs expanded in 2018, U.S. manufacturing output declined 3.3%, per data from the Federal Reserve Board.
Rather than boosting U.S. factory output, tariffs are far more likely to reroute trade to other nations and lower U.S. manufacturing production. With high tariffs now impacting imports from China, the production of goods may instead move to markets like India and Vietnam.
Geopolitical Value of Tariffs
So far, we've focused on the economic implications of tariffs. To reiterate, tariffs could increase the prices of cars and construction materials, reduce consumer demand due to higher prices, lower U.S. factory output and reroute trade flows as new markets emerge that have lower tariffs than China.
However, tariffs can also offer geopolitical value. Beyond their influence on the U.S. economy, they are occasionally enacted for the following purposes:
Protecting Key Industries
There are strategic reasons for limiting competition in industries such as pharmaceutical and semiconductor manufacturing, even though they create higher costs. The U.S. pharmaceutical sector is critical to developing medicines and procedures that support healthcare. Advanced semiconductors could be crucial to the future of artificial intelligence. Tariffs may be imposed to protect these industries from competition, which could otherwise spread out globally and force the U.S. to become more dependent on foreign markets for medicines and semiconductors.
Protecting National Security
Pharmaceuticals and semiconductors, as mentioned above, could be deemed as crucial to national security. Even more stark examples are defense manufacturing and communication. There are concerns that foreign communications equipment manufacturers, which are sometimes owned by their host governments, could use their imported material for espionage in the U.S. These imports are banned altogether in some cases. In other cases, tariffs and outright bans could help ease their usage in the U.S.
Reducing Competition in Emerging Industries
There are various emerging technologies and industries that countries want to dominate. Governments may subsidize companies in their country to gain a foothold in these technologies and industries, giving them an advantage. Electric vehicles are one example. China has been able to produce electric vehicles at a fraction of the cost of the U.S. There are concerns that Chinese electric vehicles could disrupt the U.S. auto market, creating risks to national security and economic competitiveness. As a result, the U.S. has enacted 100% tariffs on Chinese electric vehicles, according to the International Trade Administration.
Enhancing International Political Negotiations
Some nations are highly dependent on exports. Accordingly, they face larger consequences from rising tariffs. Tariffs can be used to extract concessions from these countries in geopolitical discussions.
In the current geopolitical environment, the U.S. may use tariffs to counteract China’s growing geopolitical influence and goals. The Free Trade Era has arguably benefitted China more than any other nation, which has expanded China’s economic and geopolitical footprint. When China joined the WTO in 2001, it had the sixth largest economy, according to data from the World Bank. It has grown rapidly since then and now has the second largest economy, just behind the U.S. This growth was facilitated by low tariffs that helped China export more goods to the world, gaining wealth in the process.
China’s economic rise and newfound wealth have conveyed increasing geopolitical power, and the country has used this heft to advance its national interests. For example, since 2013, China has invested monetary gains accrued via exports into infrastructure investments in various nations. It has spent more than the equivalent of $1 trillion on roads, bridges, ports, power plants and other projects around the world, according to the Council on Foreign Relations. Its investments have touched 147 countries across virtually every continent. It made these investments to deepen trade relations. However, some worry that the investments were also made to extend China’s influence in these nations and offset the U.S.’ influence. Others are even more worried that China intends to own these assets, such as ports, which are often of significant strategic value.
China’s military has also become more assertive as it tries to gain control over international waters. In one example, China moved warships into contested waters near the Philippines in early 2024, according to Reuters. It also intercepted Australian aircraft over the South China Sea, per the Stanford Freeman Spogli Institute. Ultimately, these actions appear to be part of a larger attempt to control valuable trade routes and gain access to underwater resources like oil and gas, occurring alongside military confrontations with many other nations. And again, China’s military actions can be viewed as encroaching on the U.S.’ geopolitical footprint.
High tariffs could theoretically deter China’s ability to further its geopolitical heft and ambitions.
Tariff Scenarios for 2025 and Beyond
Tariffs are expected to remain elevated. How tariffs ultimately evolve is unpredictable, but some scenarios are more likely than others. Some of the most plausible scenarios include the following.
The Current Tariff Structure Remains in Place
It’s possible that tariffs stay at 145% on imports from China, 25% for products like autos and steel, 25% on most imports from Canada and Mexico, and 10% for imports from most other nations. This scenario could persist for some time, causing large impacts on the economy and global trade.
Tariffs Increase Later in 2025
Tariffs could eventually average 25% or more on all nations and products, increasing from the current 10% baseline, while remaining at 145% on China. In this case, the economic and trade impacts could be even larger.
Tariffs Decline on Some Nations and Products
Tariffs on China may be reduced below 145%, falling to 60% or lower. Some products could be exempted from tariffs, like lumber or consumer electronics. Alternatively, tariffs could fall below 25% on Mexico and Canada and below 10% on other nations. Economic and trade disruptions would still likely occur in a lower tariff environment, though they could be less impactful than under higher tariff scenarios.
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