2025 Tariff War: Long-Term Impacts on Supply Chains and Employment in the United States and China

At present, trade relations between the United States and China are once again becoming increasingly tense. Additional tariffs imposed on China and other major trading partners are intended to protect U.S. domestic manufacturing and reduce the trade deficit, but at the same time they are exerting broad impacts on corporate activity and the labor market.
This article organizes the latest developments in U.S.–China tariff policy and explains their practical implications for corporate management, supply chain strategy, and the employment environment.

Impact on U.S. Companies and the Labor Market

Impact on U.S. Companies
In April 2025, President Trump announced the introduction of a “global common tariff” (a 10% tariff on all imported goods) and “reciprocal tariffs” (raising U.S. tariff rates to match those imposed by trading partners that maintain higher tariffs). While these policies aim to reduce the U.S. trade deficit and protect domestic industries, they have produced the following effects on businesses.

• Rising Costs and Price Pass-Through
  Tariffs have increased the cost of imported raw materials and products, forcing companies to pass these costs on to prices. For example, prices of goods imported from China have risen significantly. As a result, consumers’ purchasing power has declined, and companies are facing an increased risk of falling sales.
• Supply Chain Disruptions
  Because U.S. companies rely heavily on imports from countries such as China and Mexico, tariff-related cost increases are forcing them to restructure their supply chains. In the manufacturing sector in particular, securing alternative sourcing channels is difficult, and rising production costs are eroding profit margins.
• Deterioration in Small Business Sentiment
  Uncertainty surrounding tariff policy and worsening sales outlooks have been the primary drivers behind declining business confidence, with the number of companies expecting improvements in business conditions over the next six months recording a sharp drop—the largest since December 2020.
• Benefits for Certain Companies
  Some domestic manufacturing sectors (such as steel producers and certain agricultural machinery manufacturers) may benefit from improved competitiveness due to tariffs. For example, U.S. agricultural machinery manufacturer John Deere may be able to expand its market share by strengthening domestic production amid intensifying competition with Japanese firms such as Komatsu and Kubota.

Impact on Employment in the United States
The tariff conflict is also having multifaceted effects on the labor market. While protectionist policies aim to create domestic jobs, employment growth has slowed in the short term, and long-term impacts remain uncertain.

• Slowing Employment Growth
  Economic uncertainty stemming from tariff policy and more cautious consumer behavior have weighed on job growth. Although the unemployment rate remains flat at 4.1%, prolonged tariff effects could lead to stagnation in the labor market.
• Job Gains in Certain Sectors
  Temporary employment increases are believed to be driven by front-loaded demand ahead of tariff implementation and by efforts to strengthen domestic production. However, employment figures for January and February have been revised downward, casting doubt on the sustainability of these gains.
• Changes in Job Quality
  Tariff-driven price increases are squeezing household budgets for low-income families and retirees, affecting job quality. In one example involving automobile sales staff in New York, rising vehicle prices due to tariffs (such as a USD 4,000 increase for SUVs produced in Mexico) have led to declining sales, prompting some workers to consider shifting from sales roles to repair and maintenance positions.
• Risk of Stagflation
  The U.S. Federal Reserve has acknowledged the possibility of “mild stagflation,” in which economic slowdown and rising prices occur simultaneously, driven in part by tariff-related inflationary pressures. If inflation continues to rise while economic growth slows, the labor market may become increasingly unstable.

Impact on Chinese Companies and Employment

Let us now examine the impact of the current tariff conflict on China, particularly in countries that have maintained retaliatory measures and where the United States continues to impose exceptionally high tariffs.

Impact on Export-Oriented Companies

• Sharp Increase in Export Costs and Pressure on Profit Margins
  U.S. tariffs have significantly increased the cost of Chinese exports to the U.S. market. Manufacturing sectors (such as electronics, machinery, and textiles) and high-tech industries (such as electric vehicles and batteries) have been particularly affected. According to surveys, the majority of 600 surveyed Chinese export companies stated that their profit margins are too thin to allow for price cuts, leading more firms to pursue cost reductions and workforce downsizing to absorb tariff burdens. As a result, small and medium-sized export-oriented companies face heightened risks of financial distress, bankruptcy, or market exit.

• Withdrawal from the U.S. Market and Market Contraction
  Due to tariffs, Chinese products have become less competitive in the U.S. market. Consequently, export-oriented companies are being forced to reassess business models that rely heavily on U.S.-bound exports. While some firms are attempting to shift toward emerging markets in Europe and Asia, these markets do not match the scale of U.S. demand, making sales recovery difficult.
• Supply Chain Reorganization and Overseas Relocation
  To avoid tariffs, many export-oriented companies are relocating production bases to Southeast Asia (such as Vietnam and Thailand) or to Mexico. In Vietnam, for example, Chinese-affiliated companies have emerged as major export hubs for shipments to the United States, with electronics and apparel manufacturers expanding local production to mitigate tariff costs. However, this trend also implies a contraction of domestic production in China, potentially accelerating factory closures and job losses. In particular, export-oriented firms in coastal regions such as Guangdong and Zhejiang are expected to face severe regional economic impacts as production shifts overseas.

• Sector-Specific Impact on High-Tech Industries
  The United States has placed particular focus on China’s high-tech industries (such as BYD and CATL), hindering their ability to expand market share in the U.S. and accelerating technological decoupling between the two countries. In addition, risks to overseas expansion are rising due to the revocation of “most-favored-nation” treatment and restrictions on Chinese investment in the United States.
• Employment Impact
  Financial difficulties among export-oriented firms directly affect employment, with rising unemployment risks driven by factory closures, particularly among small and medium-sized enterprises. Data from QuantCube Technology indicate a marked weakening in labor market conditions.

Impact on Companies Focused on the Domestic Market

• Indirect Effects of Economic Slowdown
  Although domestic market–oriented companies are less directly affected by the tariff conflict, broader economic slowdown driven by declining exports has indirect impacts. According to NPR reporting, economic growth in China is expected to slow due to tariff effects, potentially dampening domestic consumption and affecting sales for domestic-oriented firms. Retail and service sectors (such as food and beverage and tourism) are particularly vulnerable to demand declines caused by reduced consumer purchasing power. A CKGSB survey shows that consumer confidence fell in March 2025, indicating that economic uncertainty is constraining growth for domestic market–focused companies.

• Opportunities and Constraints for Domestic High-Tech Companies
  Within the domestic market, high-tech sectors (such as AI, cloud services, and smart devices) continue to grow. Supported by China’s “digital economy” initiatives, domestic technology companies (such as Tencent, Alibaba, and Huawei) may expand revenues through growing domestic demand and government contracts. However, risks remain due to U.S. technology export controls and decoupling, which may restrict component sourcing and technological development.
• Employment Impact
  Employment at domestic-oriented firms has not been hit as directly as at export-focused companies, but hiring is becoming more cautious due to overall economic slowdown. New recruitment in the service and retail sectors may decline.
• Shift Toward the Domestic Market and Intensifying Competition
  As export volumes shrink, some companies are attempting to pivot toward the domestic market. This shift may intensify competition, leading to price wars and battles for market share. In consumer goods (such as apparel and food) and electronics sectors, oversupply risks could heighten downward price pressure. Intensified competition may further compress profit margins for small and medium-sized domestic firms, accelerating consolidation and market exit.

Summary

The renewed tightening of tariff policies between the United States and China is exerting multi-layered impacts on corporate management. Rising import costs for raw materials and intermediate goods are squeezing profit margins, particularly in manufacturing, and increasing the risk of performance deterioration in industries where price pass-through is difficult. At the same time, urgent reassessment of global supply chains is required, including reducing overreliance on China-centered sourcing and production structures or adopting alternative networks such as “China plus one” strategies. This, in turn, necessitates renewed evaluation of logistics costs and supply risk management.

In labor markets, while tariff policies may encourage partial reshoring in certain industries, there are also concerns that declining international price competitiveness will weigh on employment in export-driven and globally oriented firms. Over the medium to long term, regional reallocation in manufacturing and logistics may accelerate, leading to structural changes in labor markets.

For businesses, agile and strategic responses are essential in an international trade environment marked by high uncertainty. By pursuing cost optimization, flexible production systems, and diversified risk strategies, companies can maintain and strengthen competitiveness. Moreover, the ability to anticipate policy changes and regulatory shifts will be a critical determinant of corporate resilience.

Rather than viewing the current tariff conflict solely as a risk, positioning it as an opportunity for structural reform and market strategy redesign will be key to securing future competitive advantage.

In the next article, we will examine how the current tariff conflict may reshape international trade rules going forward.

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