Exploring the impact of trade wars, economic sanctions, and the disruption of global supply chains.

By late 2019, the U.S. had put tariffs on about $350 billion of Chinese imports. This raised average duties from 3.7% to 25.8%. Americans saw these changes in prices at checkout.

This article looks at how the U.S. views The Weaponization of Economics. We explore how economic warfare and statecraft change how goods are made and sold. We also look at how economic coercion, sanctions, and diplomacy affect global networks.

We use a 2025 survey of 50 supply chain experts and research by Pablo Fajgelbaum and Amit Khandelwal. The data shows firms changed by diversifying suppliers, nearshoring, and using digital tools. Costs and delays spread across many sectors, from electronics to autos.

For U.S. businesses, the situation is serious. Managers need to plan for ongoing disruptions, not just short-term ones. Policies may change, but higher costs often stay. The real question is how quickly companies can adjust to these changes.

Key Takeaways

• Tariffs and sanctions quickly pass on costs to consumers and businesses.
• Global supply chains are now shaped by The Weaponization of Economics, economic warfare, and economic statecraft.
• Financial sanctions and economic diplomacy create second-order effects that raise costs and shift trade routes.
• Survey evidence shows widespread disruption and rapid moves toward supplier diversification and nearshoring.
• Digital visibility—AI, predictive analytics, and blockchain—helps manage uncertainty and compliance.
• Political economy dynamics influence who pays, who benefits, and how firms recalibrate.
• Resilience beats lean alone: buffers, dual sourcing, and governance that integrates geopolitics are essential.

Case study overview: trade wars, sanctions, and global supply chain fragility in a connected economy

Trade frictions have tested how firms source, ship, and plan across global value chains. This section presents a case study built on a U.S.-focused analysis to map real-world stress points and decision paths. It highlights where economic diplomacy meets the market and how political economy incentives set the frame for action.

Scope and research approach for a U.S.-focused case study

The inquiry blends descriptive and analytical methods in a U.S.-focused analysis. We fielded a cross-sectional survey of 50 professionals in supply chain management, international trade, and logistics using purposive sampling.

The 20-item questionnaire mixed multiple-choice and Likert questions on disruption extent, affected functions, and responses like diversification, nearshoring, and digital tools. Frequency and percentage analyses supported pattern spotting, with charts aiding interpretation.

Ethics protocols protected respondents and data. Limits include the non-longitudinal design and a sample size that cannot represent all global value chains. Yet the case study offers grounded signals on how firms act amid shifting rules of economic diplomacy.

Defining trade wars, economic sanctions, and supply chain disruption

Trade wars rely on tariffs, quotas, and other barriers aimed at shielding local sectors. These steps often prompt tit-for-tat moves that widen exposure across global value chains.

Economic sanctions restrict trade and finance to press for policy change on security or human rights. They represent a core tool of economic diplomacy and can reshape routing, pricing, and financing choices.

Supply chain disruption covers procurement delays, contract renegotiations, higher input costs, and shortages—such as semiconductor gaps—that cascade through networks. In a connected economy, shocks propagate fast and test buffers at each node.

How political economy dynamics shape outcomes

Tariffs levied during 2018–2019 covered hundreds of billions in targeted imports, while retaliatory moves hit farm and industrial hubs. Counties with pivotal electorates tended to receive more import protection, reflecting a classic political economy logic.

Phase One paused escalation but maintained duties, and tighter export controls shifted the policy mix. With near-complete pass-through in several categories, domestic buyers faced higher costs, linking welfare outcomes to both design and timing.

Institutional context—such as debates around the WTO dispute system—framed how economic diplomacy advanced. Together, these forces shaped firm playbooks within sprawling global value chains, underscoring why a rigorous case study approach remains vital in a U.S.-focused analysis.

U.S.-China trade war as a turning point for global value chains

The U.S.-China trade war changed how companies plan and price their global production. It showed how tariffs can affect global value chains and change trade terms. These changes changed how companies source, invest, and manage risks.

Tariff waves (2018–2019), scope, and magnitude versus the Smoot-Hawley

In 2018 and 2019, the U.S. raised duties on about $350 billion in Chinese goods. China then raised duties on about $100 billion in U.S. exports. U.S. tariffs on targeted lines went from near 4% to about 26%.

China’s retaliatory rates went from about 8% to 21%. This was a bigger shock than the Smoot-Hawley, which raised duties on a smaller base. The recent tariffs hit a larger share of GDP and more products.

Complete tariff pass-through and who paid: consumers and firms

Studies show that tariffs were almost fully passed on to import prices. U.S. shoppers and businesses saw higher prices. This affected many products and origins, hurting exposed sectors.

For households, it meant higher prices on everyday items. For businesses, it squeezed margins and cash flow, especially for seasonal contracts.

Targeting intermediates: two-thirds of affected products were inputs

About two-thirds of the Chinese items targeted were intermediate inputs and capital goods. China’s countermeasures focused on U.S. intermediates, too. This increased costs through global value chains, as tariffs were applied at each step.

This led to higher prices in electronics, machinery, and assembly-heavy areas. A single bill of materials could span several borders.

Phase One pause without reversal: persistence of higher costs

The Phase One deal in January 2020 paused new tariffs and reduced some rates. But most duties stayed, and exemptions were limited. Higher costs remained in contracts and catalogues, affecting trade terms.

With only partial relief, companies adjusted orders and redesigned sourcing. They treated the tariffs as ongoing, not a brief shock.

The Weaponization of Economics

The world now mixes markets with power. Governments use tariffs, licensing, and payment bans to influence others. This shows how economics is used as a weapon, affecting prices, access, and rules.

Economic warfare, coercion, and statecraft in modern geopolitics

Economic warfare is more than just blockades. It includes tariffs, entity listings, and compliance chokepoints. These tools put pressure on specific areas with great precision.

States use economic coercion and statecraft to get technology, supply chains, and data. The U.S. has expanded its toolkit with Section 201, 232, and 301 measures. This shift has affected firms in various sectors, like steel and semiconductors.

Financial sanctions and export controls as tools of economic diplomacy

Financial sanctions cut off funding and settlement through banks and networks. Export controls limit advanced chips and tools, enforced by licensing and audits. These policies are key in economic diplomacy.

The U.S. Treasury and Commerce Department’s actions affect companies worldwide. Payment messages on SWIFT and dollar clearing at JPMorgan Chase and Citigroup show intent quickly. Visa and Mastercard’s platform policies also play a role.

Strategic goals versus unintended consequences for businesses and consumers

Goals include protecting national security and slowing military use. But these actions can raise costs and reduce product variety. Companies adjust supplier lists and inventory levels.

Big companies like Apple and General Motors can adapt quickly. But small and mid-sized businesses face higher costs and slower changes. Consumers see higher prices when products become scarce, as during chip shortages.

In this landscape, economic warfare, economic coercion, and economic diplomacy converge—defining how power moves through prices, networks, and rules.

Sanctions and secondary effects: lessons from measures against Russia

When the U.S. and its allies imposed sanctions on Russia, the world saw big changes. Trade routes, banking systems, and insurance markets all moved quickly. Companies had to deal with new rules, blocked payments, and higher costs.

Trade and finance restrictions: ripple effects through partner networks

Rules on dollar clearing and SWIFT access caused delays from Antwerp to Dubai. Freight forwarders and reinsurers changed how they worked. Banks like JPMorgan and HSBC took longer to settle payments.

Distributors in Turkey and the UAE found new ways to move goods and get money. This shows how sanctions affect more than just the targeted country.

Winners and losers: MNC pivots versus SME exposure and revenue loss

Big companies like Siemens, Apple, and Maersk set up teams to follow new rules. They moved their goods to other routes. They also used software to track their products and check for banned items.

But small and mid-sized businesses lost orders and struggled to keep cash flowing. They didn’t have the tools or advice to keep up with changing sanctions. This shows how digital tools help big companies but leave smaller ones behind.

Ethical and policy trade-offs in economic coercion

Economic coercion tries to change a country’s actions, but it can hurt civilians. Policymakers face tough choices between national security and helping small businesses. They use special rules and licenses to soften the blow while still pressuring Russia.

Companies learned to invest in tracking their supplies and checking where goods go. Governments need to be clear about what they want and when. This helps everyone follow the rules better and avoid hurting the wrong people.

Operational impacts on procurement, production, and logistics

Trade frictions now affect factory floors and finance teams. Companies with global supply chains face tighter lead times and more compliance tasks. This leads to procurement disruption, production delays, and logistics bottlenecks, hurting margins and predictability.

Survey evidence: over half of organizations are significantly or extremely disrupted

Recent surveys show 52% of organizations are hit hard by trade actions. Another 30% feel moderate pressure. The biggest impact is on companies that source inputs abroad and face policy changes without warning.

Many firms have reworked their supplier networks and made big changes. They’ve also built up inventories and used digital tools to track risks. This helps prevent production delays.

Where the pain concentrates: procurement delays, supplier relations, cost spikes

Procurement disruption starts with longer quotes and revised terms. Tariffs and audits add costs, straining supplier relations. Companies also build up inventories to avoid logistics bottlenecks.

Compliance costs and reclassification reviews lead to price increases. Duties on intermediate goods compound the problem, causing factory downtime and late orders.

Industry hotspots: electronics, automotive, pharma, logistics

Electronics and automotive face chip shortages and tariffs, leading to production delays and option deletions. Automakers like Ford, General Motors, and Toyota adjust their schedules when microcontrollers are delayed.

Pharmaceutical producers deal with export bans, tighter inspections, and sourcing changes. Shortages force redesigns of cold-chain routes, worsening logistics bottlenecks in busy corridors.

Carriers and forwarders, such as Maersk and UPS, report congestion, rerouting, and fee surcharges. KPMG notes that relying on a few markets, having lean inventories, and limited digitization increases risk in global supply chains.

Strategic responses: diversification, nearshoring, and inventory buffers

Firms are changing their strategies to avoid shocks and build resilience. They focus on three main actions: diversifying suppliers, nearshoring, and keeping more inventory. The goal is to have shorter supply chains, quick responses, and steady production.

Supplier diversification as first-line resilience

Procurement teams are looking for more suppliers to reduce risks. They spread out demand among trusted vendors to avoid bottlenecks. This strategy works well with long-term contracts and shared forecasts, helping firms stay strong when policies change quickly.

Big companies like Apple and General Motors are adding more suppliers for key parts. They now consider location risk as much as price. This leads to more stable lead times and fewer production stops during trade changes.

Nearshoring and regionalization: Mexico, India, Vietnam rise

Companies are setting up closer to markets through nearshoring and regionalization. This cuts down on shipping time and tariff costs. Mexico benefits from the USMCA and its close ties to the U.S. market. India offers lower labour costs and better logistics. Vietnam is known for its fast factories and trade deals.

Electronics, auto parts, and clothing are leading the shift. Shorter distances mean quicker restocking and better quality control. This makes production more resilient and closer to where products are needed.

From lean to resilient: larger safety stocks and working-capital implications

Many teams now keep more inventory for key parts. They move away from lean models to absorb shocks. This keeps production steady but uses more working capital and increases costs.

Digital leaders use smart planning to manage inventory. Small and medium-sized enterprises (SMEs) face cash challenges but still build some stock. The key is to have enough inventory for resilience without overusing working capital.

• Actionable levers: qualify second sources, map tier-2 exposure, and set regional reorder points.
• Network design: blend nearshoring with selective regionalization to match product clockspeed.
• Cash discipline: align inventory targets with working capital thresholds and service goals.

Digital supply chains: visibility, prediction, and control under uncertainty

Firms are making the digital supply chain more real-time. They use data from networks, policies, and logistics to find hidden issues. This helps them act quickly and avoid big losses.

AI and predictive analytics to anticipate tariff and sanction shocks

Teams use AI in supply chains to watch for tariff changes and sanctions. They use predictive analytics to predict where problems might happen. This way, they can adjust their stock before it’s too late.

Retailers, car makers, and drug companies feed their plans into AI. It warns them about risky areas, suggests better suppliers, and updates safety stock levels when rules change.

Blockchain for provenance, compliance, and partner trust

Manufacturers use blockchain provenance to check where goods come from and how they were made. This creates a record that can’t be changed. It helps prove goods meet standards, building trust with banks, insurers, and shipping companies.

Big names like Walmart and Maersk show how blockchain helps track goods. It makes audits quicker and makes everyone more accountable in a complex digital supply chain.

Bridging the SME digital gap in risk-aware supply chains

Big companies use the latest tools quickly, but small suppliers often struggle. It’s important to help them keep up for a truly risk-aware supply chain.

Steps to help include easy-to-use dashboards and shared analytics from Microsoft and SAP. Amazon Web Services and Google Cloud offer prebuilt connectors. These make it easier for small businesses to join in.

Political economy, electoral incentives, and economic statecraft

Trade policy is shaped by many factors. These include electoral incentives, lobbying, and media cycles. In Washington, national security goals and economic statecraft guide the agenda. Meanwhile, firms and households deal with the effects.

How domestic politics shape tariff targeting and retaliation

In 2018, tariffs focused on competitive counties. This followed the median-voter pressure. Chinese retaliation hit agriculture and equipment in Republican areas.

This happened during Brexit and the U.S. leaving the Trans-Pacific Partnership. It showed how electoral incentives meet economic statecraft.

Campaigns highlighted factory jobs and farm incomes. This led to quick actions seen as national security. Tariffs and counter-lists reflected domestic coalitions, not just efficiency.

Distributional impacts across regions, sectors, and households

Tariffs raised prices for consumers and firms. This had big effects on different areas. Electronics and auto hubs saw higher costs.

Small and midsize suppliers faced more challenges than big companies. These issues affected local jobs and finances.

Designing policies that balance national security and economic welfare

Good policies are narrowly scoped, predictable, and clear. They should focus on national security. Targeted tools and sunset reviews help manage losses.

Support for SMEs helps them adapt. This includes digital tools and compliance. Clear rules reduce uncertainty and align with long-term welfare.

Cost transmission and welfare: who ultimately pays for trade conflict?

Prices quickly rise when tariffs are applied. Studies show that import prices almost fully reflect these tariffs. This means U.S. buyers face higher costs, affecting their purchasing power and welfare.

These effects are not just seen in store prices. Taxing intermediate inputs raises costs for manufacturers. This leads to higher prices for consumers, thinner profit margins for businesses, and uncertainty for investment plans. Even big names like Apple and Ford must adjust their strategies.

Tariff pass-through to prices and aggregate real-income effects

When tariffs are fully passed on, import costs directly increase. This affects real income, especially for those who buy imported goods. While the overall impact on GDP seems small, the effects are more pronounced for those in trade-exposed sectors.

Consumption and purchases are delayed as a result. Retailers adjust prices in phases, starting with fast-moving items and then slower ones. This creates financial stress for businesses with thin cash reserves.

Input-cost amplification via intermediate goods exposure

Tariffs on intermediate inputs amplify cost pressure along supply chains. A small increase in the cost of a component can significantly raise the price of a final product. This forces companies to rethink their products or find new suppliers.

• Higher bill of materials raises sticker prices downstream.
• Capacity plans shift as parts become scarce or volatile.
• Credit needs grow to finance larger safety stocks.

Terms of trade, revenue, and firm-level adjustments

Retaliation can lower export prices in certain sectors, affecting the terms of trade. Tariff revenue helps, but it’s not enough to offset the broader costs. Exclusion carve-outs offer some relief, but they don’t solve the overall problem.

Companies respond by switching suppliers, adjusting prices, and building larger inventories. They also negotiate shorter contracts, diversify their ports, and track costs more closely to manage risks and protect cash.

Sector case insights: semiconductors and critical goods

U.S. manufacturers are facing a tough situation. They deal with semiconductors and other critical goods through a complex system of tariffs, export controls, and supply chain changes. Auto, tech, and industrial companies see longer wait times and higher costs for parts. They adjust their plans every quarter.

Signals from the factory floor point to bottlenecks at wafer fabs, test houses, and component distributors, while compliance teams adapt to shifting rules. This leads to constant changes in sourcing, pricing, and delivery times across different products.

Electronics tariffs, component shortages, and auto production delays

When tariffs were placed on chips and other components, costs went up just as demand did. Ford, General Motors, and Tesla had to delay their car models because of missing parts. Best Buy and Apple also had to adjust their product launches due to high prices and long waits for items like graphics cards and gaming consoles.

Suppliers changed their contracts to share risks. Companies at lower levels in the supply chain built up more stock for parts like voltage regulators and sensors. This helped keep production going but used up cash and space in warehouses.

Export controls and supply chain reconfiguration risks

Controls on advanced chips and equipment changed how designs and sources were planned. Companies like Nvidia, AMD, and Intel had to change their product lines for certain markets. Companies like ASML, Applied Materials, and Lam Research had to deal with license reviews that affected when they could ship.

Companies in the U.S., Mexico, India, and Vietnam were looking for new ways to get parts. This made it harder to follow rules and took longer to qualify new suppliers. It also added to the time needed to check parts for reliability and security.

Resilience strategies for critical technologies

Now, companies use both dual-sourcing and nearshoring to protect themselves from shortages. They use AI to spot problems early and blockchain to check the origin of parts. They set up safety stocks based on how volatile the supply chain is, not just how long it takes to get parts.

• Qualify second sources in Mexico, India, and Vietnam for key ICs and passives.
• Model electronics tariffs and export controls in quarterly scenarios tied to capacity plans.
• Use multi-tier visibility to track die, substrate, and assembly risks in real time.

Building resilient, risk-aware global supply chains

Volatile tariffs, sanctions, and export controls now shape daily operations. Firms that move from cost-only thinking to risk-aware supply chains protect margins and speed. The path runs through clear governance, practical scenario planning, and disciplined dual-sourcing with compliance-by-design built into every workflow.

Governance: integrating geopolitics into enterprise risk management

Stronger governance ties geopolitical scanning to enterprise risk management. Leading teams track regulatory moves from the U.S. Department of Commerce, the Office of Foreign Assets Control, and the European Commission. They route alerts to buyers and finance within hours.

Boards ask for supplier risk scoring, exposure to intermediate inputs, and heat maps by region. Companies like Apple and Samsung disclose supplier lists and performance metrics. This pushes steady upgrades in continuity plans.

Scenario planning for tariffs, sanctions, and export controls

Effective scenario planning blends past tariff waves with forward signals from shipping data, commodity prices, and central bank statements. Teams stress-test procurement, inventory turns, and pricing under full pass-through, partial pass-through, and rate-quota mixes.

Procurement leaders simulate sanctions and export-control shocks on critical components, including semiconductors and specialty chemicals. They set triggers for reorder points and preapproved alternates, keeping risk-aware supply chains responsive when policies shift overnight.

Partner portfolios, dual-sourcing, and compliance-by-design

Diversified partner portfolios spread exposure across Mexico, India, and Vietnam while keeping selective capacity in the United States. For high-impact parts, disciplined dual-sourcing reduces downtime and bargaining risk, even if unit costs rise.

Compliance-by-design embeds provenance checks, human-rights due diligence, and export-control screening into ordering and payments. Blockchain-backed lot tracking and automated restricted-party screening help SMEs match the rigour of larger firms. The result is cleaner audits, faster releases at ports, and steadier performance across risk-aware supply chains.

Conclusion

The case study reveals how The Weaponization of Economics has changed global supply chains. Tariffs, export controls, and sanctions have altered costs and sourcing. Complete tariff pass-through has led to higher prices for U.S. consumers and businesses.

Even after a pause, ongoing duties kept costs high. This shows that trade wars have a lasting impact on businesses.

The U.S.-China trade war affected about $350 billion in imports and $100 billion in exports. It had a bigger impact than the Smoot-Hawley Tariff Act. Most targeted items were parts and goods needed for making other products.

Sanctions on Russia also had effects on finance and logistics. Companies with global reach adapted faster than smaller ones. This widened the gap between them.

Companies found ways to adapt. They diversified suppliers and moved production closer to home. They also built up stockpiles and used digital tools for better planning.

Now, managing geopolitical risks is part of business strategy. Companies plan for different scenarios and design their operations to meet these challenges.

Policies need to balance national security with economic well-being. Clear, focused actions can protect incomes and maintain leverage. Helping small businesses go digital is crucial for everyone’s resilience.

The main takeaway is clear: in today’s world, lasting success comes from strong, flexible, and diverse global supply chains.