On April 2, 2025, the United States announced sweeping tariffs on virtually every trading partner — 10% baseline on all imports, with higher rates targeting China (54%), the EU (20%), Japan (24%), and dozens of others. The White House called it "Liberation Day." Economists called it the most significant trade policy shift since the Smoot-Hawley Tariff Act of 1930.
One year on, the tariffs are still in place and still reshaping the global economy. Here is what is actually happening — and what it means for inflation in 2026.
What the Tariffs Actually Did to Prices
The short answer: they pushed prices up, but not as much as the worst-case scenarios predicted, and not uniformly across products.
Categories most affected: electronics, clothing, furniture, steel and aluminium products, and agricultural machinery. Import prices in these categories rose 8–14% by late 2025. Some of that was passed to consumers. Some was absorbed by retailers compressing margins. Some was offset by currency moves.
But here is what most analysis missed: the tariffs did not just raise prices. They accelerated a structural shift in global supply chains that was already underway. Companies that had been thinking about moving production out of China for years suddenly had a financial reason to do it immediately. Vietnam, Mexico, India, and Indonesia all saw manufacturing investment surge in late 2025 and into 2026.
The Retaliation That Changed Everything
China did not respond with matching tariffs immediately. Instead, it restricted exports of rare earth minerals — materials essential for electric vehicles, semiconductors, and defence technology. This was more strategically damaging than tariffs because rare earths have no short-term substitutes. The US has limited domestic supply. Allies had limited stocks.
The rare earth restriction pushed the WTM Trade score above 85 and kept it there. Supply chain stress for tech manufacturers became acute. Defense procurement costs rose. The rare earth story was less visible than tariff headlines but more economically consequential.
The Countries That Are Actually Winning
Trade wars have winners and losers. In this one, the clearest winners so far are:
- Vietnam: Electronics and clothing manufacturing surged. Apple, Samsung, and Nike all accelerated their Vietnam operations. GDP growth hit 7.2% in 2025.
- Mexico: Nearshoring boom. Auto parts, electronics assembly, and consumer goods all shifted south. The maquiladora sector grew 23% in 2025.
- India: Pharmaceuticals, textiles, and IT services all gained market share as US buyers diversified from China.
The clearest losers: US consumers (higher prices), Chinese exporters (lower volumes), and global shipping companies (disrupted route economics).
What It Means for Inflation in 2026
The Liberation Day tariffs were always a lagged inflation story. Import prices rose in Q2–Q3 2025. Consumer prices followed in Q3–Q4 2025. In 2026, the tariffs are no longer the primary inflation driver — the Iran war and oil prices have taken that role. But they remain a background inflationary pressure that makes the current oil shock more severe because supply chains are already stressed.
Think of it this way: the tariffs raised the inflation baseline. The Iran war is now adding to an already-elevated starting point. That combination is why the WTM Finance score, despite being at only 48/100, is likely to rise as these pressures compound.
What Happens Next
Three scenarios are most likely in the next 12 months:
Negotiated de-escalation (30% probability): A US-China trade deal reduces tariffs in exchange for Chinese concessions on rare earths and market access. Prices gradually normalise. This is the market's base case — which is why the Finance score is relatively low.
Tariffs become permanent (50% probability): The political incentives to maintain tariffs outweigh economic arguments. Supply chains fully restructure around the new normal. Prices stay elevated but stop rising. This is the "new baseline" scenario.
Further escalation (20% probability): The Iran war creates a geopolitical realignment that deepens US-China trade hostility. Rare earth restrictions expand. Technology sector supply chains fragment completely. This would push the WTM Trade score above 95 and contribute to a significant inflation resurgence.