The Governmental Use of Tariffs: 100 Years of Economic Impact and Lessons for Business Leaders
From the developing Thriving Through the Storm Business & Leadership series
Updated September 2026
Tariffs can look like government policy that belongs in Washington rather than in an operating plan. For a business, however, a tariff can quickly become a question of purchase cost, margin, pricing, sourcing, inventory, cash, customer demand, and competitive position.
A tariff or duty is a tax imposed by a government on imported products. The applicable rate depends on the product, its classification, its country of origin, and the trade rules in effect. For management purposes, leaders should look beyond the tariff itself and understand the full landed cost of a sourcing decision, including purchase price, transportation, insurance, applicable duties, fees, brokerage, inventory carrying costs, and other costs required to place the product where the business needs it.¹
That makes tariffs more than a political issue. They are a business-risk issue.
The useful leadership question is not whether tariffs are always beneficial or always harmful. Governments use trade measures for different purposes, and their effects differ across industries and companies.
The Practical Questions
Where are we exposed?
What changes if our costs or markets change?
What alternatives do we have?
And how quickly can we act?
WHY TARIFFS MATTER TO BUSINESS LEADERS NOW
Tariffs are not simply a historical subject. On September 15, 2026, the United States International Trade Commission published Revision 19 of the 2026 Harmonized Tariff Schedule of the United States.² The Office of the United States Trade Representative also maintains a current record of presidential tariff actions and trade arrangements adopted during 2025 and 2026, including actions affecting reciprocal tariffs and a temporary import surcharge proclaimed in February 2026.³
China-related Section 301 tariffs remain another active area of policy. The Office of the United States Trade Representative initiated a second four-year review of the China Section 301 actions on May 6, 2026, and certain product exclusions remain extended through November 9, 2026.⁴
The economic effects require careful interpretation. In its July 2026 Monetary Policy Report, the Board of Governors of the Federal Reserve System reported that tariff increases had contributed to higher prices for some consumer goods. The Federal Reserve also cautioned that tariff effects cannot be observed directly in official consumer-price statistics because the outcome depends on the responses of consumers, firms, importers, and foreign exporters.⁵
For business leaders, the conclusion is not that every tariff will produce the same result. It is that tariff exposure should be treated as a variable operating risk that can change cost, margin, demand, sourcing, and competitive conditions.
SMOOT-HAWLEY: PROTECTION, RETALIATION, AND A CHANGE IN DIRECTION
The Smoot-Hawley Tariff Act of 1930 is frequently used as a simple cautionary story about protectionism. The history is more complicated.
The United States Department of State's Office of the Historian notes that scholars disagree about how much protection Smoot-Hawley actually provided and about the extent to which the tariff itself provoked retaliation that pushed the world deeper into the Great Depression.
What is well established is that protectionist policies adopted by many countries contributed to a severe contraction in international trade. United States exports to Europe fell from $2.341 billion in 1929 to $784 million in 1932, while world trade declined by about 66 percent between 1929 and 1934.⁶
The leadership lesson is not that one tariff caused the Great Depression. It is that trade policy can interact with weak demand, financial stress, retaliation, and other government actions in ways that amplify risk.
The policy reaction also changed the direction of United States trade policy. The Reciprocal Trade Agreements Act was signed into law on June 12, 1934. It temporarily authorized the president to negotiate reciprocal tariff changes within limits established by Congress. Between 1934 and 1939, the Roosevelt administration concluded trade agreements with 19 countries, and the negotiating approach later provided a model for the General Agreement on Tariffs and Trade.⁷
For executives, the continuing lesson is concentration. Heavy dependence on one country of supply, one export market, one customer group, or one policy assumption can turn a government action into a much larger business problem.
THE POSTWAR SHIFT TOWARD NEGOTIATED TRADE RULES
After the Second World War, trade policy increasingly moved toward negotiated rules and multilateral tariff reductions. Twenty-three countries signed the General Agreement on Tariffs and Trade on October 30, 1947. The agreement combined negotiated tariff concessions with rules intended to govern trade, and provisional application began on January 1, 1948.⁸
The Uruguay Round of trade negotiations, conducted from 1986 through 1994, expanded the agenda beyond tariffs to include services, intellectual property, agriculture, dispute settlement, and other areas. The resulting World Trade Organization agreement entered into force on January 1, 1995.⁹
For businesses, the development of trade agreements did not eliminate complexity. Product classification, origin rules, documentation, customs procedures, and other requirements still determine whether a shipment receives the treatment management expects.
That distinction matters. A favorable tariff rate creates little value if the company has misunderstood the product classification, cannot establish origin, lacks the required documentation, or has built its sourcing decision around assumptions that are no longer valid.
REGIONAL INTEGRATION: FROM THE NORTH AMERICAN FREE TRADE AGREEMENT TO THE UNITED STATES-MEXICO-CANADA AGREEMENT
The North American Free Trade Agreement entered into force on January 1, 1994. Tariffs were eliminated progressively, and by 2008 all duties and quantitative restrictions had been eliminated except for a limited number of agricultural products traded with Canada. The agreement also addressed rules of origin, customs procedures, agriculture, government procurement, investment, services, intellectual property, and dispute settlement.¹⁰
The United States-Mexico-Canada Agreement entered into force on July 1, 2020 and substituted for the North American Free Trade Agreement.¹¹
The executive lesson is that a trade agreement does not make sourcing frictionless. A supplier's quoted price is only one part of the economics. Origin requirements, documentation, freight, customs procedures, lead time, inventory, capacity, quality, and concentration risk can change the true cost and reliability of the sourcing decision.
Leaders should compare alternatives on total economic cost and strategic risk, not purchase price alone.
UNITED STATES-CHINA TARIFFS AND UNEVEN BUSINESS EFFECTS
Beginning in July 2018, additional Section 301 tariffs were imposed on thousands of products imported from China. The United States International Trade Commission later examined the short-term effects of Section 301 tariffs and Section 232 tariffs on the industries directly and most affected from 2018 through 2021.
The findings show why the effect of a tariff depends heavily on where a company sits in the value chain. The Commission found that United States importers bore nearly the full cost of the tariffs studied because import prices increased at approximately the same rate as the tariffs. Across the sectors affected by Section 301 tariffs, imports from China declined 13 percent on average, United States production value increased 0.4 percent, and United States product prices increased 0.2 percent.¹²
Effects differed by industry. Section 232 steel and aluminum tariffs increased production in the protected industries, while higher input prices reduced production in downstream industries on average. The Commission emphasized that its study was not a complete economy-wide assessment and therefore should not be used to claim an overall net economic benefit or loss from the tariffs.¹³
Retaliation created another form of exposure. The United States Department of Agriculture's Economic Research Service estimated annualized United States agricultural export losses from retaliatory tariffs at $13.2 billion from mid-2018 through the end of 2019, with the largest losses concentrated in soybeans, sorghum, and pork.¹⁴
These outcomes illustrate a central leadership point: the same policy can affect companies very differently. A protected domestic producer may gain pricing room. An importer may face a higher landed cost. A downstream manufacturer may pay more for inputs. An exporter may face retaliation. A competitor sourcing from another country may gain an advantage.
A leader therefore needs to understand the company's own position in the value chain rather than relying on a broad political or economic conclusion.
WHAT LEADERS SHOULD DO WHEN TARIFF EXPOSURE CHANGES
Map exposure by product and country.
Know what the company imports, where it originates, how it is classified under the Harmonized Tariff Schedule of the United States, and whether additional duties, exclusions, or special treatment apply. Classification is governed by legal rules and notes, and Chapters 98 and 99 can alter duty treatment. When classification remains uncertain, United States Customs and Border Protection can issue a binding ruling.¹⁵
Calculate landed cost, not purchase price.
Build sourcing comparisons around the full economic cost of getting a product where it is needed. A lower purchase price can be offset by duties, freight, insurance, customs fees, brokerage, longer lead times, additional inventory, financing cost, quality risk, or disruption exposure.
Model margin and pricing scenarios before the cost arrives.
Do not wait for a tariff change to appear in the income statement. Model what happens if duties increase materially on important inputs. Determine what can be absorbed, what can be offset through productivity or sourcing changes, and what may need to be reflected in customer pricing.
Identify supplier and country concentration.
A second supplier is not a meaningful alternative if it has never been qualified, lacks capacity, cannot meet specifications, or depends on the same country or upstream source as the primary supplier. Alternatives are most valuable when they are evaluated before they are urgently needed.
Review contract terms.
Understand who bears duties, freight, surcharges, and other trade-related costs. Review price-adjustment provisions, purchasing commitments, lead-time obligations, termination rights, and customer agreements. Contract language written for stable conditions can become expensive when government policy changes quickly.
Coordinate inventory decisions with cash flow.
Buying inventory ahead of an expected tariff increase may reduce unit cost, but it also consumes cash, increases carrying cost, and can create obsolescence or demand risk. Inventory protection and liquidity protection have to be evaluated together.
Prepare customer communication before pricing changes.
Customers are more likely to understand a price change when management can explain what changed, what the company has done to offset the effect, and what choices remain. An unexplained price increase can damage trust even when the underlying cost increase is real.
Watch retaliation as well as import duties.
A business may have little direct import exposure and still be vulnerable if foreign governments target its exports, its customers sell into affected markets, or a customer's costs and demand change because of trade actions.
Establish decision triggers and ownership.
Determine who monitors tariff developments, who validates product classifications, who recalculates landed costs, who evaluates sourcing alternatives, and who has authority to act. Define the conditions that require a pricing, inventory, sourcing, or customer decision.
A tariff response should be a management process, not an emergency meeting after margins have already deteriorated.
THE STRATEGIC LESSON: PREPARATION CREATES OPTIONS
Government trade policy can change faster than a company can redesign a supply chain, qualify a supplier, rewrite a contract, or recover a lost margin.
That makes prediction a poor substitute for preparation.
Leaders do not need to predict every tariff action. They need visibility into the products, suppliers, countries, customers, contracts, margins, inventory, and cash flows that would be affected if policy changes. They also need alternatives that have been considered before pressure makes every decision urgent.
This article connects directly to the developing Thriving Through the Storm Business & Leadership series. The second book of the series examines major disruptions outside normal business-cycle patterns, including governmental actions, financial crises, energy shocks, pandemics, geopolitical threats, and market disruptions.¹⁶
Tariffs are one example of the broader leadership problem: an external decision can change the economics of a business before management has time to change the underlying operation.
The objective is not to eliminate uncertainty.
It is to preserve enough information, liquidity, flexibility, and alternatives that leaders can respond deliberately when external conditions change.
SUMMARY AND CONCLUSION
Tariff history does not support a simple conclusion that tariffs always strengthen an economy or always weaken it. The evidence supports something more useful for business leaders.
Tariff effects depend on the policy, the product, the country, the response of trading partners, and the company's position in the value chain. A policy that helps one domestic producer can raise costs for a downstream user. A company with little import exposure can still be affected through retaliation, customer demand, supplier costs, or competitor behavior.
History also warns against simple causal stories. Smoot-Hawley belongs in the history of interwar protectionism and collapsing international trade, but its role in deepening the Great Depression remains debated. Modern tariff evidence likewise shows different effects across industries rather than one uniform economy-wide result.
For executives, the most useful conclusion is operational.
Know where the company is exposed.
Understand the true economics of sourcing.
Challenge assumptions about suppliers and countries.
Model the margin and cash consequences before they arrive.
Review contracts.
Prepare customer communication.
Establish decision triggers.
Preserve alternatives.
Business leaders cannot control government trade policy. They can control how prepared the organization is when government action changes the conditions under which it must compete.
Prepared companies have more choices.
And when conditions change quickly, choices are one of leadership's most valuable assets.
Endnotes
Endnote 1: United States Department of Commerce, International Trade Administration, “Import Tariffs & Fees Overview and Resources,” accessed September 16, 2026, https://www.trade.gov/import-tariffs-fees-overview.
Endnote 2: United States International Trade Commission, “Harmonized Tariff Information,” accessed September 16, 2026, https://www.usitc.gov/harmonized_tariff_information.
Endnote 3: Office of the United States Trade Representative, “Presidential Tariff Actions,” accessed September 16, 2026, https://ustr.gov/trade-topics/presidential-tariff-actions.
Endnote 4: Office of the United States Trade Representative, “Four-Year Review,” China Section 301-Tariff Actions and Exclusion Process, accessed September 16, 2026, https://ustr.gov/trade-topics/enforcement/section-301-investigations/section-301-china-technology-transfer/china-section-301-tariff-actions-and-exclusion-process/four-year-review.
Endnote 5: Board of Governors of the Federal Reserve System, Monetary Policy Report, July 10, 2026, https://www.federalreserve.gov/monetarypolicy/2026-07-mpr-part1.htm.
Endnote 6: United States Department of State, Office of the Historian, “Protectionism in the Interwar Period,” Milestones in the History of U.S. Foreign Relations, 1921–1936, accessed September 16, 2026, https://history.state.gov/milestones/1921-1936/protectionism.
Endnote 7: United States Department of State, Office of the Historian, “New Deal Trade Policy: The Export-Import Bank & the Reciprocal Trade Agreements Act, 1934,” Milestones in the History of U.S. Foreign Relations, 1921–1936, accessed September 16, 2026, https://history.state.gov/milestones/1921-1936/export-import-bank.
Endnote 8: World Trade Organization, “Fiftieth Anniversary of the Multilateral Trading System: WTO/GATT—Chronology of Achievements,” accessed September 16, 2026, https://www.wto.org/english/theWto_e/minist_e/min96_e/chrono.htm.
Endnote 9: World Trade Organization, “The GATT Years: From Havana to Marrakesh,” Understanding the WTO, accessed September 16, 2026, https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact4_e.htm.
Endnote 10: Office of the United States Trade Representative, “North American Free Trade Agreement (NAFTA),” accessed September 16, 2026, https://ustr.gov/about-us/policy-offices/press-office/ustr-archives/north-american-free-trade-agreement-nafta.
Endnote 11: Office of the United States Trade Representative, “United States-Mexico-Canada Agreement,” accessed September 16, 2026, https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement.
Endnote 12: United States International Trade Commission, Economic Impact of Section 232 and 301 Tariffs on U.S. Industries, Investigation No. 332-591, Publication 5405 (Washington, DC: United States International Trade Commission, March 2023; corrected May 2023), 23, https://www.usitc.gov/sites/default/files/publications/332/pub5405.pdf.
Endnote 13: United States International Trade Commission, Economic Impact of Section 232 and 301 Tariffs on U.S. Industries, Investigation No. 332-591, Publication 5405 (Washington, DC: United States International Trade Commission, March 2023; corrected May 2023), 18, 21–22, https://www.usitc.gov/sites/default/files/publications/332/pub5405.pdf.
Endnote 14: Stephen Morgan, “Retaliatory Tariffs Reduced U.S. Agricultural Exports Annually by $13.2 Billion; Impacts Were Concentrated in Midwestern States,” United States Department of Agriculture, Economic Research Service, January 24, 2022, https://www.ers.usda.gov/data-products/charts-of-note/103078.
Endnote 15: United States International Trade Commission, “Frequently Asked Questions (FAQS) about Tariff Classification, the Harmonized Tariff Schedule, Importing, and Exporting,” accessed September 16, 2026, https://www.usitc.gov/harmonized_tariff_information/frequently_asked_questions.
Endnote 16: Jeff Mayfield, “Business & Leadership,” accessed September 16, 2026, https://www.jeffmayfield.org/copy-of-profile.
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