The law of unintended consequences is alive and well—and it’s hitting American businesses right where it hurts.
In 1996, I visited BYD’s first factory in Shenzhen: a modest three-story building with a thousand young women hand-assembling batteries. No automation, no robotics—just a river of rural labor powering the line. Fast forward nearly 30 years, and BYD is a global powerhouse driven by R&D, robotics, and AI—producing everything from advanced batteries and electric vehicles to humanoid robots.
Over countless visits to China, I witnessed the country transform from a low-cost labor economy to a tech-fueled industrial machine. Factory owners proudly showed off Siemens and Fuji Surface Mounting soldering lines as their plants automated and scaled. This rapid shift helped China become a manufacturing juggernaut, but it also created internal challenges—like staggering youth unemployment, now affecting more than 200 million.
The Supply Chain Reality
Now in 2025, the U.S. is implementing sweeping tariffs in hopes of bringing “Made in America” roaring back. But tariffs are being used to fix a long-term structural issue with a short-term blunt tool—and that mismatch could have painful consequences.
The theory behind tariffs is simple: make imports more expensive, and domestic goods become more competitive. That should, in theory, strengthen U.S. industry and labor. But in practice, the U.S. doesn’t have the supply chain depth, labor force, or manufacturing infrastructure to meet the need. A customer recently told me, after learning about a 75% duty on the next product batch: “What’s the alternative? Nobody makes this here.” He’s right.
Tariffs on raw materials—steel, aluminum, lumber—hurt more than help. About 33% of U.S. imports go into manufacturing, 7% into construction, and 10% into agriculture. Add 40–60% in duties to these inputs, and you’re not promoting domestic industry—you’re choking it.
Margin Squeeze and the Labor Domino
Small and mid-sized businesses are being hit from all sides: rising tariffs, higher labor costs, slowing demand, and razor-thin margins. They can’t pass those increases to customers because everyone is competing to stay afloat. Larger players with deeper pockets can weather the storm. Smaller firms? Not so much.
And when margins get squeezed, labor is the first cut. Take Apple as an example: if an iPhone costs $400 to import, a 54% China tariff adds $200 per unit. Apple can absorb the cost, pass it on, or cut elsewhere. Most likely? They’ll trim operating costs and jobs.
This ripple effect is real. Layoffs lead to reduced consumer spending, which leads to lower demand—and the cycle continues. The very working-class Americans that tariffs aim to protect may be the first to suffer from their effects.
A Blow to U.S. Competitiveness
Tariffs don’t just hurt importers, they hurt exporters too. When your input costs rise, your product becomes less competitive abroad. Add retaliatory tariffs, and suddenly U.S. manufacturers are fighting uphill battles overseas.
Consider Boeing: the 787 Dreamliner sources around 60% of its components globally. Under current tariffs, estimates suggest the cost to build one in the U.S. could rise by $40 million per aircraft. If I’m the CEO and there are no exemptions in place, I’m not expanding U.S. production—I’m looking abroad.
Meanwhile, long-time allies are hedging their bets, exploring supply chains in Europe and Asia. The fallout isn’t just economic. It’s geopolitical.
Outsourcing and AI: The Silent Job Killers
With domestic labor costs on the rise, companies are turning to two levers: offshore staffing and AI. Both trends are accelerating—especially in white-collar sectors like HR, accounting, and customer service.
And while low-income households are already vulnerable to rising prices, they’re now being squeezed harder. These households spend more on goods than services, and they feel inflation first. Their demand for higher wages adds pressure to labor-intensive industries—hospitality, agriculture, construction—which are already hurting.
The Bigger Picture
The U.S. runs a $1 trillion annual trade deficit, but it also runs a $300 billion surplus in services—our strength in tech, finance, education, and tourism. We still represent 25% of global GDP, and that gives us leverage.
But it’s fragile leverage. If we push too hard with protectionist policies, we risk alienating our trade partners and eroding our global influence. Rising anti-American trade sentiment could bleed into our most valuable exports: services.
And this time, the U.S. isn’t just picking a fight with one country—it’s taking on the entire world all at once. In that equation, the rest of the world is a far larger economy than the U.S. alone. If they push back, we may find ourselves more isolated than protected.
A Smarter Path Forward
Rather than trying to recreate the past, we should invest in the future. That means leaning into sectors where we already lead—or have the potential to lead: semiconductors, pharmaceuticals, automation, robotics, drones, and autonomous vehicles. These are capital-efficient, innovation-driven industries that play to America’s strengths.
Rebuilding U.S. manufacturing around these pillars makes more sense than chasing a return to outdated supply chains. Competing with China won’t be about labor cost—it will be about out-automating, out-scaling, and out-innovating them. China is no longer the world’s factory floor—it’s a nation of smart factories and AI-driven production systems.
If tariffs are the only tool we use, we’ll build walls when we should be laying foundations.
Let’s stop protecting the economy of yesterday—and start building for the economy of tomorrow.