PERSPECTIVE

Navigating the new tariff landscape and its economic impact

5-MINUTE READ

April 10, 2025

The landscape to date

On April 2, President Trump unveiled the largest and most sweeping tariff package to date in his second term. This consisted of an additional 10% tariff on imported goods from all countries, which entered into effect on April 5, and higher, individualized “reciprocal” tariffs of up to 50% on imports from 57 countries including China, Japan and EU nations. The latter initially came into effect on April 9, but have since been paused for 90 days for all countries except China, which instead saw its reciprocal tariff increase to 125%. The 10% universal tariff remains in place.

The current reciprocal tariffs–and the 90-day pause–do not apply to Canada and Mexico, as these countries face a separate 25% tariff on goods that do not comply with the United States-Mexico-Canada Agreement (USMCA), nor to foreign-made autos, steel and aluminum, which are also subject to a separate 25% tariff.

With these developments, the average trade-weighted, or effective, tariff rate on goods imports into the U.S. has risen to roughly 29%—the highest level since the early 1900s and up from only 2.4% at the end of 2024.

Figure that shows the estimated impact of announced measures on overall U.S. effective tariff rate.

As noteworthy as the magnitude of the tariffs, however, is the unprecedented uncertainty introduced by their scale and ever-changing nature. The only certainty is that executives should focus on creating more resilient organizations to navigate this historically volatile environment.

The economic impact of tariffs

The economic impact of the new U.S. tariff regime is likely to be substantial. In the U.S., risks of a recession have risen considerably. And how will the new U.S. tariff regime affect the global economy? As shown below, Asia is particularly exposed to higher tariffs, with the EU also facing a significant increase.

Figure that shows the estimated impact of tariff packages on average tariff rates imposed on key US trading partners.

Another factor that will determine the global impact is the extent to which other countries retaliate by increasing their own tariffs. To date, only Canada and China have implemented retaliatory tariffs against the U.S. The EU signaled an intent to impose new tariffs but put them on hold in response to President Trump’s 90-day pause.

Decisions to retaliate will be influenced by the perceived costs and benefits. The figure below illustrates three significant variables that may affect countries’ responses:

the effective tariff rate increase they face under the new U.S. tariff regime;
the share of goods exported to the U.S. as a percentage of their GDP; and
the country’s relative importance as a destination for U.S. exports

Bubble graph that shows country scores based on dependence on U.S. exports for economic growth and the increase in effective tariff rates.

The interaction of these variables could give rise to at least three broad future tariff scenarios. Given the high level of uncertainty at play and the frequent shifts in U.S. trade policies in recent weeks, these should be viewed as illustrative signposts along a continuum of possible outcomes.

In the first scenario, “pragmatic de-escalation”, reciprocal tariff reductions are negotiated for most countries, as well as possible exemptions from some of the product-specific tariffs.

The first step of this process is already playing out with the April 9 pause of the higher reciprocal tariffs. In this scenario, the Administration may choose to maintain the minimum 10% universal tariff for two key reasons: (1) to preserve some support for the Administration’s re-industrialization and fiscal revenue objectives; and (2) to limit the scope for tariff evasion via transshipment and other methods, something the Administration has consistently voiced as a concern. This scenario outcome, our analysis shows, could bring the U.S.’ effective tariff rate back down to a range of 15-17% (compared to the estimated 29% at present).

In the second scenario, “holding the line”, certain trading partners are able to secure tariff reductions from the U.S. if they offer particularly large concessions.

But for most others, the threatened higher reciprocal tariffs are ultimately re-instated. This could be the outcome of a hardline negotiating approach by the U.S. and a high bar for granting tariff relief. It could also reflect renewed prioritization of re-industrialization as the U.S.’ main strategic objective, and the belief that this can only be meaningfully achieved if higher tariffs are ultimately implemented and maintained for an extended period. Under this scenario, additional product-level tariffs currently under consideration (such as semiconductors and pharmaceuticals) would also be implemented in support of re-industrialization and national security considerations. Collectively, this would keep the U.S. effective tariff in the vicinity of 30%.

In the third scenario, “disorderly escalation”, failed negotiations and/or significant retaliation by other countries would cause tariff rates to spiral higher, and the trade war could broaden to include restrictions on cross-border services, technology and investment.

This outcome could push the U.S.’ effective tariff rate north of 40% and also result in considerable and widespread increases in the tariff rates other countries charge on the U.S.

A rapid response is needed

To respond to fast-moving policy changes, companies should focus on fortifying their enterprise resilience to navigate in this environment; such measures should simultaneously secure the present, while creating a more competitive, profitable future.

Strengthening enterprise resilience begins with rigorous insight into the spectrum of risks facing the company—both immediate and long-term. As economic fragmentation deepens and recession risks rise, executives should ask: How has the near-term and long-term outlook changed, and how might it affect our performance across business lines?

Scenario planning, for example, needs to be embedded at the enterprise level, taking into account both top- and bottom-line impact. The goal: move beyond merely reacting to change and toward proactively preparing for fundamental shifts in demand, financial conditions and global trade.

Enterprise resilience is enabled by four resilience pillars:

As tariffs and supply shocks ripple through global networks, the tradeoff between near-term management and longer-term capital investment is becoming sharper. Companies should therefore rethink how they manage their cost structure, network and logistics, as well as supplier relationships and sourcing strategies, and capital prioritization, in order to achieve profitability, cash flow, and return on invested capital. In this environment, operational resilience is about agility and the determined pursuit of productivity gains.

As costs rise and demand stays unpredictable, companies face a tough balancing act: protecting margins without pushing customers away. Indeed, with price sensitivity increasing, companies need to know what costs can realistically be passed on, as well as where value needs to be created or reinforced. Building commercial resilience means acting not just to protect margins, but also to grow intelligently—even in down cycles. And as value pools shift rapidly, companies should ensure their innovation and marketing investments are aligned with emerging areas of opportunity. Success depends on the ability to anticipate changing customer priorities and strategically reallocate resources toward the segments and offerings where future growth and profitability are most likely to reside.

People are at the heart of any resilient organization. But employee concerns about issues like inflation, job insecurity and labor market shifts challenge both morale and retention. Companies also need to plan for the workforce impact of reindustrialization, reshoring and restructuring—and support employees through it all.

Geopolitical risk, trade friction and talent shortages are putting new pressure on enterprise technology infrastructure. As a result, when fostering technology resilience, the pursuit of “dynamic adaptability” is now just as important as the quest for reliability: Can systems support margin defense? Can they scale securely under strain? AI should play a central role in this transformation—not just through automation, but through the focused deployment of technology and talent against the most critical opportunities and risks that a company faces. This requires organizing cross-functional teams to align AI capabilities with strategic priorities, from adjusting logistics and procurement strategies in response to trade shifts to optimizing pricing and workforce deployment in real time.

Ready for resilience

As the new tariff regime reshapes the global business landscape, resilience should be at the top of every executive’s agenda.

By focusing on the four capabilities that enable enterprise resilience described above, companies will greatly strengthen their resilience—and, in so doing, turn it into a competitive edge. That’s a welcome bit of certainty in an uncertain world.

Read the report