Deal or No Deal: How Trade Agreements Are Shaping the Tariff Landscape

In a global economy defined by shifting alliances, inflationary pressures, and post-pandemic recovery, the conversation around tariffs and trade agreements is once again taking center stage. As companies across supply chains brace for further volatility, the lack of formalized trade deals, despite increasing executive action, is creating uncertainty with far-reaching consequences.

Recent analysis of the U.S. economy reveals a landscape where the strength of the labor market, persistent inflation, and evolving tariff policies are intricately linked. Understanding how these factors interact is crucial to navigating the coming months and years, especially for industries reliant on global trade and pricing stability.

Labor Market Strength Masks Deeper Risk

The current U.S. labor market continues to show resilience. Unlike the prolonged recovery that followed the Great Recession, the workforce has not only bounced back from the COVID-induced downturn but has continued to expand. This strength has helped keep the broader economy afloat, even as other indicators signal caution.

However, this doesn’t mean recession risks are off the table. Many macroeconomic trends including stagnating consumer spending, persistent inflation, and rising tariffs carry the potential to weaken employment growth. A sustained downturn in job creation would be the most likely trigger a recession, especially if it coincides with price increases that limit consumer purchasing power.

Tariffs as a Hidden Cost

Tariffs act much like a sales tax, even though they often go unnoticed by end consumers. When tariffs rise, the added cost is absorbed or passed along at various points throughout the supply chain. Ultimately, this translates into higher prices for consumers or reduced margins for businesses, depending on how companies choose to absorb the shock.

Economic models and historical trends consistently show that tariffs raise prices in the broader economy. The key concern is that these artificial price increases could re-ignite inflation just as central banks are working to bring it under control. If tariffs continue to rise or remain unpredictable, they could delay interest rate cuts or even prompt rate hikes to counteract inflationary pressure.

Manufacturing May Benefit—but Cautiously

One sector that appears better positioned to benefit from current trade dynamics is U.S. manufacturing. Indicators such as job openings and new order volumes suggest that manufacturers are beginning to prepare for increased demand. In particular, durable goods like vehicles and machinery may see a resurgence in domestic production, aided by tariffs that make imported alternatives more expensive.

This trend could signal the early stages of reshoring or capacity expansion—especially in areas that had previously outsourced large portions of their production. However, it’s important to note that high-tech manufacturing, including advanced electronics, is unlikely to return to the U.S. in meaningful volume. The economics simply don’t support large-scale reshoring of these industries.

Policy Volatility Is Fueling Market Instability

While there are isolated benefits for certain sectors, the broader economic narrative is dominated by volatility. U.S. effective tariff rates have reached levels not seen in over a century. This spike reflects a dramatic departure from decades of relative trade policy stability, leading to confusion and concern in both financial markets and boardrooms.

This type of policy whiplash, where tariffs are imposed, lifted, or modified in quick succession, creates deep uncertainty. Market participants are left guessing about the next move, which dampens investment and complicates long-term planning. It also heightens inflationary risk, as businesses build buffers for expected cost increases, often preemptively raising prices.

The Illusion of Trade Deals

Despite high-profile announcements about new trade arrangements or tariff negotiations, most recent changes have not resulted in actual signed agreements. Executive orders can impose or adjust tariffs temporarily, but long-term changes require Congressional approval and negotiation between sovereign governments.

Until formal treaties are signed and ratified, the U.S. is essentially operating in a gray zone, implementing unilateral policy without the structure or stability that actual trade agreements provide. This creates a situation where tariffs can be weaponized in broader geopolitical or economic disputes, leading to further unpredictability.

There are several possible motivations behind the current approach to tariffs. Some policymakers see them as tools to force renegotiations, especially in sectors like manufacturing that have suffered decades of outsourcing. Others view them as geopolitical leverage, particularly in negotiations with nations like China and Vietnam. Still, a more cynical view suggests that market manipulation benefiting those who anticipate or influence these shifts is an underlying factor.

Global Implications and Strategic Shifts

The global reaction to recent U.S. trade policy has been one of concern and reevaluation. Close allies such as Canada and Mexico have questioned the logic behind being targeted by tariffs, while European and Asian economies are beginning to diversify their trading relationships.

Some emerging markets, particularly in Africa and Southeast Asia, see the current environment as an opportunity to reposition themselves in the global supply chain. By offering alternatives to Chinese production, these regions could attract investment and carve out new economic roles. However, these changes will take time and carry their own risks.

In the meantime, global uncertainty is likely to continue dragging on international growth. Lower forecasts from the International Monetary Fund (IMF) for both the U.S. and broader global economy reflect concerns about prolonged instability in trade relationships.

Inflation and the Supply Chain Cost Dilemma

For those managing procurement, pricing, or vendor relationships, tariffs present a significant challenge. As the cost of imported goods rises, companies must choose between eating those costs or passing them along. Either approach can strain supplier relationships and squeeze margins.

To manage this, many organizations are renegotiating contracts with a focus on risk-sharing. Some are raising list prices with built-in discounts to offer flexibility. Others are investing in analytics to better forecast cost spikes and prepare procurement strategies in advance.

There’s also growing pressure to localize or diversify supply chains where possible. However, shifting production is rarely fast or cheap and in many cases, it may not be economically viable in the short term. This means many companies will be forced to operate in a high-cost environment for the foreseeable future.

Looking Ahead: Stabilization on the Horizon?

Most economic forecasters expect 2025 and early 2026 to be the most volatile period for tariffs and inflation. By mid-2026, there may be a turning point either through new trade agreements or a general plateau in tariff changes as political and economic pressures demand stabilization.

For manufacturing, the next 12–18 months could offer a growth opportunity if capacity expansion aligns with rising demand. But much of this hinges on whether the broader economic environment supports consumer confidence, job growth, and stable pricing.

Tariffs are likely to continue shaping procurement, pricing, and production decisions. As organizations adapt, those with flexible strategies and strong supply chain relationships will be better positioned to navigate the shifting landscape.

In the meantime, uncertainty remains the only constant. And until formal trade agreements replace executive actions, the question remains: Deal or no deal?

Want to prepare your business for the impact of tariffs? Access the Tariff Toolkit to explore practical resources to help you stay ahead of pricing pressures, protect margins, and strengthen supplier collaboration.