Who is Bearing the Cost of Trump's 2025 Tariffs? A Sector-by-Sector Analysis of Trade War Pressures and Equity Implications

The U.S. trade landscape in 2025 is shaped by a web of tariffs that have redefined global commerce, with businesses and consumers grappling with the fallout of Trump's aggressive protectionist policies. As the administration continues to expand and defend tariffs under Section 232, IEEPA, and reciprocal trade measures, the financial burden is being distributed unevenly across sectors. This article examines how manufacturing, retail, and logistics companies are absorbing these costs—and what this means for equity valuations in an era of escalating trade tensions.

The Tariff Landscape: A New Normal

As of July 2025, the U.S. weighted average applied tariff rate stands at 16.8%, the highest since 1943. These tariffs, ranging from 10% baseline rates to as high as 125% on Chinese goods, are justified as tools to protect national security and domestic industries. However, their economic toll is undeniable. The Tax Foundation estimates these measures could reduce U.S. GDP by 1.0% in the long run, with households facing an average tax increase of $1,683 by 2026. Meanwhile, legal challenges to the IEEPA tariffs linger, with a critical appeal hearing set for July 31, 2025.

Manufacturing: Margin Erosion and Supply Chain Reconfigurations

Manufacturers, particularly in automotive and electronics, are among the most exposed. The 25–50% tariffs on steel and aluminum have spiked input costs, with cascading effects on downstream sectors. For example, the steel content of household appliances like dishwashers and refrigerators is now subject to expanded tariffs, squeezing profit margins. Caterpillar and Deere have issued profit margin warnings, while Tesla and General Motors have cut or withdrawn guidance due to supply chain uncertainties.

The sector's struggles are reflected in equity valuations. The consumer discretionary sector, which includes many manufacturers, saw a 2.95% median probability of default in Q2 2025—the highest among industries. J.P. Morgan analysts note that rising hardware costs could delay AI adoption, further pressuring tech manufacturers like AMD and TSMC. Investors are increasingly underweighting import-dependent firms, betting on a shift toward domestic production and automation.

Retail: Price Hikes and Consumer Backlash

Retailers are absorbing the brunt of tariff-driven inflation. With the average U.S. household losing $2,800 in 2025 purchasing power, companies like Walmart, Target, and Best Buy have raised prices on appliances, toys, and linens. These hikes, however, are eroding consumer demand, particularly among lower-income households. Best Buy and Target have cut earnings guidance, while Nike and Crocs have raised prices to offset costs.

The sector's equity valuations have plummeted. Credit rating downgrades in Q2 2025 highlighted the sector's vulnerability, with a median probability of default of 2.95%. Retailers are also facing retaliatory tariffs from China and the EU, which have imposed duties on $330 billion of U.S. exports. For instance, the EU's 25% tariffs on U.S. agricultural products have hit farmers hard, indirectly affecting retail supply chains.

Logistics: Navigating Complexity and Capitalizing on Demand

While manufacturing and retail sectors struggle, logistics companies are emerging as relative beneficiaries. The fragmented trade environment has driven demand for domestic distribution and customs brokerage services. UPS and DHL have reported increased contracts for U.S.-centric supply chains, while FedEx has expanded its domestic infrastructure to meet the surge in localized shipping.

However, the sector is not without risks. Retaliatory tariffs and supply chain delays have forced logistics firms to delay capital expenditures. DSV A/S, for example, has announced a 15% reduction in infrastructure investments to hedge against further trade disruptions. Despite these challenges, logistics equities remain resilient, with J.P. Morgan analysts projecting strong performance as businesses adapt to the new trade reality.

Equity Valuations and Investment Implications

The divergent impacts of tariffs are reshaping equity valuations. Import-dependent sectors like manufacturing and retail face margin compression and heightened default risks, while logistics and AI software firms show resilience. Investors are recalibrating portfolios to prioritize sectors with domestic production capabilities and low exposure to global supply chains.

Key takeaways for investors:
1. Underweight Discretionary Retail: Retailers with high exposure to imported goods are vulnerable to margin erosion and consumer backlash.
2. Hedge Manufacturing Exposure: While tariffs protect some industries, others—like automotive and electronics—face rising costs. Seek firms with diversified supply chains or domestic production capabilities.
3. Overweight Logistics and AI Software: These sectors are poised to benefit from localized supply chains and technological innovation.

The Bigger Picture: Who Bears the Cost?

Ultimately, the costs of Trump's tariffs are shared by businesses, consumers, and the broader economy. While the government collects record tax revenues, businesses absorb higher input costs, and consumers face inflated prices. The long-term sustainability of this model remains uncertain, particularly as legal battles and retaliatory measures escalate. For investors, the key is to anticipate sector-specific vulnerabilities and opportunities, balancing short-term hedging with long-term bets on innovation and self-sufficiency.

In this high-stakes environment, adaptability is paramount. As the appeal of the IEEPA tariffs looms and global trade dynamics shift, the winners and losers of Trump's 2025 trade war will become ever clearer.