Last week, President Trump issued sweeping tariffs on imports from the United States’ major trading partners, reversing course on decades of policy promoting global free trade. This week, he announced a 90-day pause on “reciprocal” tariffs, but increased the tariff rate for Chinese imports to a whopping 125% (while leaving intact a 10% tariff on imports from all other countries and tariffs he imposed in February on steel and aluminum). While U.S. stocks rebounded following President Trump’s announcement of the pause, the impact of the remaining tariffs on global and domestic competition remains to be seen. Because the U.S. has not adopted sweeping tariffs since the 1930s, we have little precedent for understanding the impacts of tariffs on the modern economy.
By imposing a tax on imported goods, tariffs are designed to provide a competitive advantage for products that are manufactured in the United States. Certainly, goods from China will now be far less competitive compared to those manufactured in other countries or in the United States (to the extent those products are manufactured outside of China at all). And China was one of the main sources of U.S. imports in 2024 across a variety of industries. All told, whether the “reciprocal” tariffs go back into effect in 90 days or not, we are entering an era of economic protectionism that, in addition to its first-order impact on global competition, will affect competitive dynamics within the United States as well.
Below, we consider whether the imposition of tariffs will raise the risk of anticompetitive conduct by U.S. businesses hit with those tariffs in the first instance.
Short Term: Opportunities for Importer Collusion
Tariffs will raise costs for all domestic business that rely on imported goods. This includes retailers, which sell imported goods directly to consumers, as well as manufacturers, which assemble end products in the U.S. but often use equipment, component parts, and packaging from abroad as inputs for those end products. Both types of businesses will likely seek to pass these tariff “costs” on to their consumers.
But the key question is: how much?
Within an industry dependent on the same imports, business can compete by internalizing more of their increased costs and reducing their profit margins: by doing so, they can offer lower prices, vis-à-vis their competitors, to consumers and, theoretically, increase their sales. Their role as “middlemen” in mitigating the impact of tariffs on consumers thus introduces an additional layer of potential competition.
However, businesses may not embrace this opportunity to compete, particularly as global markets reflect considerable uncertainty about future demand. They may feel that these costs are artificially imposed by government decree rather than economic reality and, as a result, be loath to compete in this manner.
These businesses could potentially treat this inflection point as an opportunity to collude, ensuring that all “middleman” pass on most or all of their increased costs to so none of them is “harmed” by tariffs more than any other.
Trade groups and associations, for example, will likely coordinate to develop a unified strategy for responding to tariffs. For example, businesses might jointly approach the government with shared policy proposals, especially if they rely on the same key imports such that their interests are aligned.
However, notwithstanding that this kind of coordinated advocacy constitutes protected speech immune from antitrust liability, these types of discussions can devolve into potential antitrust violations. During such discussions, businesses could agree—explicitly or implicitly—to pass their increased costs on consumers.
The post-tariff environment could also facilitate tacit collusion, in which competitors closely monitor each other and, even without a formal agreement, match price increases. Industry participants will watch carefully to see how competitors respond to tariffs by raising prices. Rather than undercutting them, they may choose to follow suit.
From an enforcement perspective, the challenge lies in proving that industry participants have, in fact, agreed to fix prices in response to the tariffs. These conversations are likely already taking place, as businesses begin internalizing the tariffs, which primarily went into effect on April 5th and 9th. Enforcers must begin identifying industries where prices appear to be moving in lock step and monitoring the behavior of market participants.
Long Term: Increased Consolidation
In the longer term, price increases driven by higher costs may also lead to market consolidation with smaller businesses exiting or otherwise being swallowed up by larger firms as failing or flailing competitors. This could increase the potential for the surviving players to engage in monopolistic conduct or to make anticompetitive transactions.
In the absence of anticompetitive agreements like those described above, as tariffs raise costs, businesses will compete to minimize price increases for consumers.
Larger firms with more diversified operations may be better positioned to absorb the higher costs of tariffs. For example, if Firm A not only sells a widget, but also offers services such as training, marketing, and repairs services for the widget at a premium, it may be able to defray price increases for the widget by increasing the price for these add-on services instead. By contrast, if Firm B’s business is limited to selling widgets, it will have no choice but to pass its increased costs directly onto consumers through price increases. Customers will opt for Firm A’s widget instead of Firm B’s, with or without Firm A’s add-on services. Firm A will gain market share at Firm B’s expense, and Firm B may eventually be forced to sell.
Larger firms will also be more financially equipped to weather the economic downturn that most investors anticipate tariffs will cause, further contributing to market exit or acquisition and increasing consolidation.
Finally, tariffs may raise entry barriers that exacerbate consolidation. Assuming tariffs remain in place and successfully promote investment in U.S.-based manufacturing (neither of which is guaranteed), established players will enjoy a competitive advantage because building domestic manufacturing capacity requires substantial investments. These startup costs may be prohibitively high for potential new entrants. Would-be disruptors will no longer be able to rely on cheaper, imported parts that might have otherwise allowed them to compete by maintaining lower costs.
Consolidation within an industry makes it easier for the remaining players to engage in monopolistic or oligopolistic conduct without the threat of losing share to competitors. Accordingly, regulators and policymakers should pay close attention to signs of increased consolidation as the economy adjusts to the new tariff landscape.
In sum, tariff policy may very well increase the risks of anticompetitive outcomes for end consumers. Antitrust enforcers should remain vigilant to ensure that this does not occur.
