While higher tariffs increase costs for businesses and consumers, uncertainty surrounding trade policy can create additional challenges. Companies may delay investments, postpone hiring plans, or alter sourcing decisions when they lack visibility into future costs or trade rules. “Businesses can typically adapt to higher costs once they understand what those costs will be,” says Matt Schoeppner, senior economist at U.S. Bank. “The greater challenge is making long-term decisions when policy outcomes remain uncertain.” Today, some of the broad uncertainty surrounding tariff rates has narrowed, but it has not disappeared. Instead, attention has increasingly shifted toward country-specific trade rules, sector restrictions, product exemptions, and regional trade agreements, leaving companies with a clearer sense of the overall policy direction but continued uncertainty around the details.
Article
A new phase for U.S. trade policy: From tariff shock to strategic realignment
October 30, 2026
Key takeaways
Tariffs remain elevated by historical standards, but their effects on inflation and economic growth have generally proven more manageable than many initially feared.
Global trade has remained resilient, with higher tariffs redirecting trade flows and supply chains rather than producing a broad retreat from international trade.
Supply chains have become more diversified, but that has not necessarily meant disengagement from China, which remains deeply integrated into global manufacturing networks.
Trade policy is increasingly extending beyond tariffs to technology, national security, industrial policy, and access to critical resources.
The past two years brought no shortage of uncertainty surrounding U.S. trade policy. The Trump tariffs, legal challenges, shifting negotiations, and changing trade relationships have repeatedly altered the outlook for businesses operating across global supply chains. Economists worried that escalating trade tensions could reignite inflation pressures, discourage investment, and increase the risk of slower economic growth.
“Those concerns are understandable,” says Beth Ann Bovino, chief economist, U.S. Bank. “Tariffs act as a tax on imported goods, raising costs for businesses and, in many cases, consumers.” Throughout much of the period, companies faced difficult decisions regarding sourcing, pricing, hiring, and investment while the future direction of trade policy remained uncertain.
Today, the picture looks somewhat different. Effective tariff rates remain considerably higher than they were just a few years ago, continuing to raise costs and complicate sourcing decisions. Yet the economy has proven more resilient than many expected. Consumer spending remains solid, labor-market conditions have stabilized, and firms have increasingly adapted to the new trade environment.
“Perhaps the biggest surprise is how effectively businesses adjusted,” says Bovino. “While tariffs have increased costs, companies have spent the past year or so finding new suppliers, new markets, and new ways to operate.” As a result, the conversation has shifted. The question is no longer whether tariffs could trip up growth. Instead, many decision-makers are focused on how to compete in a world where higher tariffs, industrial policy, and strategic supply-chain considerations may remain permanent features of the economic landscape.
“One common assumption was that higher tariffs would simply result in less trade. In many cases, what occurred instead was different trade.”
Matt Schoeppner, senior economist, U.S. Bank
Tariff uncertainty narrowed, but it didn’t disappear
When discussing trade policy, it is easy to focus on tariff rates themselves. Yet for much of the past two years, economists were often more concerned about uncertainty than tariffs alone.
“There was never much debate that higher tariffs would create some economic headwind,” says Matt Schoeppner, senior economist, U.S. Bank. “The bigger question was how large that drag might become.” Early in the policy rollout, businesses faced an unusually wide range of possible outcomes. Some scenarios envisioned sharply higher effective tariff rates, widespread retaliation from trading partners, and meaningful disruptions across global supply chains.
Those outcomes carried significant implications for investment decisions. “Businesses can often adapt to bad news,” says Schoeppner. “What is much harder to adapt to is uncertainty surrounding bad news.”
Over time, however, some of the largest unknowns began to fade. Firms gained a clearer understanding of likely tariff levels, supply-chain costs, and areas of potential exposure. Economists also became better able to estimate the likely effects of tariffs on inflation and growth.
At the same time, uncertainty did not disappear. It evolved. Rather than focusing exclusively on tariff rates, businesses today are paying closer attention to country-specific trade rules, sector-level restrictions, product exemptions, regional trade agreements, and national security considerations. “The broad outlines of trade policy are clearer today,” says Schoeppner. “But companies still face important questions regarding market access, sourcing strategies, and where future trade restrictions may emerge.”
As a result, trade uncertainty has become more targeted rather than more widespread.1 The risk of an economy-wide shock appears smaller than it did a year ago, but businesses must still navigate an environment where trade policy remains an active policy tool.
Global trade adapted rather than contracted
One of the biggest concerns surrounding higher tariffs was the possibility that global trade volumes would decline sharply. But that has not happened.
“One common assumption was that higher tariffs would simply result in less trade,” says Schoeppner. “In many cases, what occurred instead was different trade.” Imports from China have fallen substantially compared with pre-tariff levels, while imports from countries such as Vietnam, Thailand, Taiwan, and Mexico have increased significantly.2 Instead of abandoning international trade altogether, many businesses adjusted sourcing relationships and diversified supply chains.
Rather than producing a broad collapse in trade activity, tariffs often redirected trade toward alternative suppliers and regions. “Trade flows proved remarkably adaptable,” says Bovino. “Companies adjusted supplier networks, logistics systems, and procurement strategies much more quickly than many expected.” In some cases, that has meant more complex supply chains spanning multiple regions before products reach their end markets.
As a result, measuring trade disruption has become more complicated. Goods may no longer arrive directly from the same countries as before, but global production networks remain deeply interconnected.
Supply chains diversified, but China remains deeply integrated
Diversification has not necessarily meant disengagement from China. “China remains an extraordinarily important part of the global manufacturing ecosystem,” says Schoeppner. Direct U.S. imports from China have fallen sharply, but China remains deeply embedded in global supply chains. Chinese components and intermediate goods are increasingly reaching the U.S. indirectly through products assembled elsewhere.3
This highlights a critical distinction between reducing direct dependence on a country and removing that country from global supply chains altogether. For many companies, diversification has proven more realistic than complete relocation. As a result, supply chains increasingly reflect a mix of reshoring, nearshoring, friend-shoring, and supplier diversification rather than a wholesale retreat from globalization.
The inflation impact has been more contained
Another major concern surrounding tariffs was their potential impact on inflation. Early on, economists worried that higher import costs could trigger broad price increases, complicate Federal Reserve policy, and undermine progress toward price stability.
“Tariffs are still inflationary,” says Bovino. “The question is not whether tariffs raise costs, but whether they create a lasting inflation problem or a one-time increase in prices.”
That distinction has become increasingly important. Tariffs have contributed to higher goods prices, with U.S. Bank economists estimating they have added roughly one-half of a percentage point to inflation since early 2025.4 Firms have also responded through cost controls, supply-chain changes, and productivity improvements, while evidence that tariff-related price increases have developed into a broader, self-reinforcing inflation cycle has remained limited.
“As time has progressed, the magnitude of tariff effects has become easier to quantify,” says Schoeppner. “That doesn’t mean the costs disappeared, but businesses and policymakers have a much better understanding of what they’re dealing with.”
“This shift has changed the inflation debate,” adds Bovino. “Rather than asking whether tariffs are inflationary, economists are increasingly focused on how long those effects persist and whether future trade actions create additional price pressures.” For now, the evidence suggests tariffs have created a meaningful but manageable headwind rather than a broad inflationary shock.
Growth proved more resilient than expected
While inflation concerns attracted significant attention, tariffs also raised questions about the broader economic outlook. Early on, economists worried that higher import costs would materially reduce purchasing power, pressure profit margins, weaken confidence, and discourage investment. Under those conditions, many feared slower growth – or even a recession – could follow.
“Tariffs still represent a headwind to economic activity,” says Bovino. “Higher costs can affect both businesses and consumers, and they remain an important consideration in our outlook.”
Yet despite those challenges, economic activity has remained surprisingly resilient. Consumer spending has continued to support growth, labor-market conditions have remained relatively stable, and business investment has held up better than many expected. In addition, strong spending on artificial intelligence (AI) infrastructure and related technologies has provided an important offset to other areas of weakness.
“The economy has not been immune to the effects of tariffs,” says Schoeppner. “But the adjustment process has generally been smoother than many expected.” While higher tariffs continue to weigh on activity at the margin, businesses and consumers have demonstrated a greater capacity to absorb those costs than many economists initially anticipated.
Why North America has become a focal point
The changing trade landscape has affected countries differently. “The United States is generally less sensitive to trade disruptions than many countries because trade represents a smaller share of overall economic activity,” says Schoeppner.
That is not necessarily true elsewhere. Canada, Mexico, and many economies across Europe and Asia rely more heavily on exports and cross-border supply chains to support growth.5 Changes in tariffs, market access, or trade agreements can therefore have larger economic consequences.
The ongoing review of the U.S.-Mexico-Canada Agreement (USMCA) underscores both the importance and growing complexity of those relationships. The agreement remains in place, but continued negotiations over tariffs, rules of origin, and other trade issues have introduced new uncertainty around the future of North American trade.
For businesses operating across North America, long-term investment decisions increasingly depend on understanding where production occurs, how inputs move across borders, and how future trade rules may evolve. “The distribution of trade is changing,” says Bovino. “Some countries and industries are attracting investment and gaining market share, while others are facing greater challenges.”
AI, semiconductors, and strategic industries are becoming part of the trade story
The trade debate is also expanding beyond tariffs themselves. Increasingly, trade policy is becoming intertwined with industrial policy, supply-chain security, national security, energy infrastructure, and technological leadership.
“We’re seeing trade policy become much broader than tariffs alone,” says Schoeppner. Industries tied to semiconductors, AI, advanced manufacturing, energy infrastructure, critical minerals, and other strategic technologies have become increasingly important to policymakers around the world. These industries are already influencing investment decisions, trade patterns, and supply-chain design.
“Where products are manufactured is becoming almost as important as how efficiently they can be produced,” says Bovino. In many respects, this represents a structural shift in the global economy. Businesses that previously focused primarily on cost and efficiency must now weigh resilience, geographic diversification, regulatory considerations, and access to critical materials.
Tariff updates: What trade developments should businesses watch next?
If the past year was defined by adaptation, the next phase may be defined by strategic competition. Beyond tariff rates themselves, businesses should pay particularly close attention to ongoing tariff updates, the USMCA review, evolving restrictions on strategically important products and technologies, and policies affecting semiconductors, critical minerals, AI infrastructure, and energy.
“The broader trend is clear,” says Schoeppner. “Trade policy is no longer operating as a stand-alone issue, but is increasingly connected to economic competitiveness, industrial strategy, and technological leadership.”
For companies, that means sourcing and investment decisions may increasingly depend not just on cost, but on where production occurs and how individual markets fit within emerging trade and technology alliances.
Bottom line
The global trade environment looks very different today than it did just a few years ago. Tariffs remain elevated by historical standards and continue to create challenges across international supply chains. They also remain a source of upward pressure on prices and a modest headwind to economic growth.
Yet the broader economy has adapted more effectively than many anticipated. Companies diversified suppliers, trade flows shifted across regions, and global supply chains evolved rather than collapsed. At the same time, economic growth remained resilient despite significant policy changes.
Most importantly, the trade story is no longer simply about tariffs. The emerging reality is a more fragmented, more strategic, and increasingly technology-driven global trading system. The broad direction of policy may be clearer, but navigating a world where trade, industrial policy, national security, and technology are increasingly interconnected will remain an important competitive challenge.
FAQ
Rather than reducing trade activity altogether, many companies have adapted by diversifying suppliers, shifting sourcing to alternative countries, and reevaluating supply-chain strategies. “One of the key developments has been adaptation,” says Beth Ann Bovino, chief economist at U.S. Bank. “Many firms adjusted procurement strategies, explored new supplier relationships, and found ways to manage higher costs.” Those shifts have helped limit some of the economic disruption initially feared. They have also redirected trade toward different countries and suppliers, contributing to a more diversified, but also increasingly complex, global trading system.
Tariffs remain inflationary because they increase the cost of imported goods. However, their effects have so far been more contained than many initially feared. “Tariffs have contributed to higher prices,” says Bovino. “The more important question has been whether those effects become persistent and broadly embedded throughout the economy.” So far, evidence that tariff-related price increases have developed into a broader, self-reinforcing inflation cycle has remained limited. That suggests tariffs have created a meaningful price-level shock without generating the kind of widespread inflationary spiral that many economists initially feared.
Reciprocal tariffs are tariffs imposed to address tariffs or other trade barriers that the U.S. says put American producers at a disadvantage. They are generally intended to encourage trading partners to lower barriers or negotiate different trade terms. Like other tariffs, however, reciprocal tariffs can increase costs for importers and complicate sourcing and investment decisions for companies operating across global markets.
Increasingly, the trade debate extends beyond tariff rates alone. Attention is shifting toward supply-chain security, regional trade agreements such as the U.S.-Mexico-Canada Agreement, industrial policy, and strategically important industries including semiconductors, artificial intelligence, advanced manufacturing, critical minerals, and energy infrastructure. “We’re seeing trade policy become more closely connected to economic competitiveness and national security considerations,” says Schoeppner. “As a result, businesses will likely continue monitoring not only tariff rates, but also how evolving trade and industrial policies influence investment decisions and global supply chains.” The broader question is how companies compete in a global trading system where cost and efficiency remain important, but resilience, geography, technology, and strategic considerations increasingly shape where investment and production occur.
Direct U.S. imports from China have fallen, but that does not necessarily mean China has been removed from U.S. supply chains. Production has increasingly shifted toward alternative suppliers in countries such as Vietnam, Thailand, Taiwan, and Mexico, while Chinese components and intermediate goods can still reach the U.S. through products assembled elsewhere. “Diversification has not necessarily meant disengagement from China,” says Schoeppner. “China remains deeply integrated into global manufacturing, even as companies broaden their supplier networks.”
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U.S. Bank Economic Research Group
Beth Ann Bovino
Chief Economist
Ana Luisa Araujo
Senior Economist
Matt Schoeppner
Senior Economist
Adam Check
Economist
Andrea Sorensen
Economist
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