While the Trump administration has persistently argued that import levies will help relatively smaller United States-based manufacturers, it appears that these smaller companies are actually the ones bearing the brunt of the pain of higher costs that tariffs are supposed to protect them against.
A recent case study of the impact levies have on a Hallmark Cards-owned Crayola paint set shows how tariffs - aimed at making made-in-America products more competitive and bringing more manufacturing onshore - have undesired outcomes.
While 70% of the products Crayola sells globally are manufactured at its headquarters in Pennsylvania’s Lehigh Valley, the art supply company is currently straddling major cost increases and production challenges due to U.S. trade tariffs on imported components and raw materials.
Higher cost of US imports
According to supply chain logistics platform Flexport, a tariff of 30.1% will be placed on the brush within the Crayola set when it is sent from China to the U.S., assuming each brush costs less than five U.S. cents, while a tariff of 27.5% applies to each brush that costs more than five U.S. cents.
Meanwhile, across the U.S. industry, there’s no shortage of evidence that a significant part of the higher cost of U.S. imports will be passed on to the U.S. consumer and to U.S. companies relying on intermediate products from abroad to produce finished goods at home.
As U.S. tariffs become entrenched in global supply chains, rising costs are expected to push up the prices of their products and erode their export competitiveness.
Overall, 85 countries – including 27 members of the EU and U.S.-Mexico-Canada Agreement - have agreed to tariff rates above the baseline 10% that more than a dozen other U.S. trading partners are subject to.
While Japan, Israel, China, and mostly developing economies have witnessed their U.S. tariffs drop since April 2025, India saw its rates rise between April 2025, leaving it with the highest tariff rate globally.
Trade imbalance inertia
While the future of many of Donald Trump’s tariffs remains subject to a pending Supreme Court ruling, the toing and froing of tariffs under the so-called “Fair and Reciprocal Plan” on 2 April, 2025, suggests they’re far more complicated to implement than his administration ever envisaged.
Meanwhile, 10 months down the track, tariffs have failed to make a meaningful dent on the global trade imbalance – a major bugbear for Trump - or the U.S. overall trade deficit.
Nor does the revenue collected from these tariffs appear be enough to offset the economic loss from access to cheaper imports.
Meanwhile, U.S inflation - still well above the 2% target of the Federal Reserve - needs to be reigned in to drive both employment and stable prices.
At face value, it appears that the increase in the prices of imported and domestic goods is creating double-whammy headwinds for the Fed’s inflation containment initiatives.
That’s because imported goods are now to subject to sizeable tariffs, while domestic goods are also affected by the increased cost of intermediary goods subject to tariffs.
Fed’s dilemma
Ironically, strong consumer demand creates something of a Catch-22 for the Fed, and assuming it holds up, analysts expect the effect of tariffs on inflation to slowly unfold in the coming months.
Based on its own numbers, the Fed reveals that the tariffs implemented on China alone in February and March 2025 had, by May, contributed to a 0.33 percentage point increase in core goods personal consumption expenditures (PCE).
It has also contributed to a 0.08 percentage point increase in overall core personal consumption expenditures (PCE prices) – an indicator of inflation closely monitored by the Fed.
Adjustment to tariffs is also being held responsible for modest growth in U.S. industrial output in 2025, with durable goods manufacturing growing at its slowest pace in years.
Unsurprisingly, country-specific reciprocal tariffs announced on April 2, 2025 couple with the negative unintended consequences for the U.S. economy and its industry, have heightened uncertainty over the outlook for the country’s financial well-being.
This fear is clearly weighing heavily on the minds of global institutional investors.
A research centre at Yale University, The Budget Lab, suggests that as of 17 November 2025, the U.S. average effective tariff rate rose to 16.8% – the highest since 1935 – from 2.4% before April 2 2025.
Given that cost increases are too large for most companies to fully absorb, analysts now worry that an immediate price hike will further diminish competitiveness, resulting in a corresponding slump in consumer demand.
Meanwhile, the outlook for U.S. consumer demand in 2026 is defined by a "K-shaped" resilience, with robust spending from high-income households offsetting growing financial strain and "value-seeking" behaviour among lower- and middle-income groups.
While aggregate demand remains constructive, overall growth is expected to moderate as tailwinds from tax refunds fade and the labour market softens.
