Behind the Headline: Tariff Policies Disrupt Global Order

The global economy is reeling from a series of shocks, including the wars in the Middle East and ongoing tariff negotiations between the U.S. and its trading partners. Layna Mosley, a professor of politics and international affairs at Princeton University’s School of Public and International Affairs, explains the impact of tariff policies – including whom they impact the most and what’s likely to happen next. 

How have the Trump administration's tariff policies impacted global economies over the last year? 

Layna Mosley: The tariffs are remaking the nature of global production. China accounted for 22% of U.S. goods imported in 2018, but for only 9% at the end of 2025. Interestingly, U.S. imports overall are up – by 9% in 2025. Most multinational firms rely on supply chain production, and many have shifted that production away from China and toward Mexico and Vietnam, among others.

The Trump administration’s widespread and sometimes capricious use of tariffs also undermines businesses and other governments’ confidence in the rules-based international trade system, a pillar of the global economy for many decades. When tariffs shift frequently and dramatically, firms have difficulty making longer-term investment and production decisions. The U.S. is a much less reliable trading and foreign policy partner than it once was, and this is bad not only for other countries, but also for Americans. 

How is the war in Iran reshaping global trade flows, and where do tariffs fit into that landscape? 

LM: The war has increased prices of oil and natural gas, given the chokepoint at the Strait of Hormuz. These increases are felt more immediately in countries that are more dependent on imported fuel from the Middle East – many Asian countries, for instance. U.S. consumers also are seeing the impact when it comes to gas prices, and these price hikes add to the inflationary pressures generated by tariffs. Financial markets now expect an interest rate hike, given inflationary pressures – which would mean higher borrowing costs for everyone. 

The prices of fertilizers also have increased dramatically, with longer-run implications for global food production and prices. In many low- and middle-income countries, reliance on imports for fuel as well as food means a greater potential for debt and economic crises. And, to the extent that consumers worldwide spend more on energy, they’ll have less to spend on everything else – leading to a decline in global demand. 

What does economic research tell us about who ultimately bears the cost of tariffs — consumers, firms, or foreign exporters?

LM: Importers can choose whether to absorb tariffs – cutting into their profits – or to pass costs on to consumers. Evidence to date suggests that both consumers and firms have borne some tariff costs, although the balance varies across industries and products. Numerous econometric studies suggest that the 2025 U.S. tariffs have resulted in higher prices for U.S. consumers. Foreign exporters do suffer, in the form of reduced demand for their (now more expensive) products. Especially in the short term, though, it’s often U.S. households and businesses that bear the costs.

What long-term consequences might today’s tariff policies have for U.S. competitiveness? 

LM: One of the justifications for tariffs used by the Trump administration is that they will restore the competitiveness of U.S. firms, including in sectors where the U.S. has not had a comparative advantage. Yet in many industries – including some in the manufacturing sector – the U.S. is far from competitive, given the nature of our economy. Producing domestically would introduce significant distortions to the U.S. economy, undermining its overall efficiency. Bringing production back to the U.S. also requires that firms be confident in the stability of U.S. economic policies and in respect for the rule of law. Finally, it’s possible that the current AI-based boom in the U.S. is masking some of the negative effects of tariffs on business confidence.

Do you anticipate a continued rise in protectionism globally, or could we see a return to liberalized trade? 

LM: The protectionist wave is unlikely to recede anytime soon. While global trade itself continues to grow, governments worldwide imposed a record number of new trade-restricting measures in 2025. This likely represents a confluence of events: (1) a long-simmering backlash against economic globalization in many countries; (2) rising geopolitical tensions, which prompt efforts at near-shoring and friend-shoring; and (3) the erosion of the global rules for trade governance, exacerbated by U.S. actions.

How should policymakers weigh the trade-offs between protecting domestic industries and maintaining affordable consumer prices? 

LM: This is a tough public policy problem. Freer trade lowers prices for consumers, but it also generates costs for firms and industries that are not globally competitive, and for the people who work in and live near those businesses. Policymakers sometimes choose trade barriers to protect firms and industries, because they tend to be geographically concentrated and better able to mobilize politically. But other policies, such as those targeted at “left-behind” communities, may be better to address industrial decline. These have a cost but can be more effective than tariffs in the long run. As AI threatens to generate additional dislocations, policymakers will need to confront how to address shifts in work and employment.

Top photo courtesy of Layna Mosley.