A Year After Liberation Day: How Firms Are Reacting to the Trump Tariffs

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One Year Later

On April 2, 2025, President Trump stood in the Rose Garden and declared “Liberation Day,” announcing a sweeping new tariff regime on U.S. trading partners under the International Emergency Economic Powers Act (IEEPA). One year later, little about that original regime remains intact. Over the following months, the administration repeatedly altered the timing, scope, and implementation of the tariffs. In February 2026, the Supreme Court ruled that IEEPA did not authorize them. The administration then replaced them with a temporary 10 percent surcharge under Section 122 of the Trade Act of 1974, while leaving other tariffs imposed under separate trade laws in place. What began as a sweeping tariff announcement had, within a year, become a far more fluid and uncertain trade regime, with lower overall tariff rates.

Tariffs work through firms primarily by changing two things: the cost of imported inputs and the relative attractiveness of producing at home versus abroad. A central goal of the Liberation Day tariffs was to encourage more production in the United States by raising the cost of foreign sourcing. But onshoring depends on firms being able to predict their future tariff burden, and the Liberation Day regime, announced, revised, litigated, struck down, and replaced within a single year, has offered little predictability. As a result, firms have not only adjusted pricing and considered what changes to make to production, they have also had to plan around tariff uncertainty itself.

Sharing the (Tariff) Burden

Firms facing higher tariff costs have only a few places to put them: into the prices suppliers accept, into their own margins, or into the prices customers pay. Corporate disclosures since Liberation Day suggest that most firms are using some combination of all three to deal with the new tariff regime.

Caterpillar, the Illinois-based heavy machinery manufacture, provides one of the clearest examples of direct margin pressure. In its Q4 2025 earnings announcement, the company reported that operating profit fell in part because of “unfavorable manufacturing costs” which “largely reflected the impact of higher tariffs”.

Other firms provide more insight into how the tariff burdens are shared. Carter’s, a children’s apparel company, states in its 2025 10-K that its response to the 2025 tariffs may include “cost sharing with our vendor partners” and “raising prices to end consumers and our wholesale customers,” while cautioning that these actions “may not fully offset the impact of tariffs.” In its 2025 Q2 earnings release, Standard Motor Products, a manufacturer and distributor of automobile parts, notes that it planned to mitigate tariff-related costs by “cost-sharing with our suppliers,” “re-sourcing to lower-tariffed countries,” and “pass-through pricing to our customers,” yet also acknowledged that “passing through tariff pricing at our cost creates margin rate compression.” The Children’s Place, a children’s specialty retailer, reported a 320-basis-point drop in gross margin in 2025, and attributed 140 of those basis points directly to higher tariffs, marking a rare instance of a firm isolating the tariff effect in its own financials.

Taken together, these examples suggest that firms are not shifting tariff costs in any single direction, but spreading them across customers, suppliers, and margins. Survey evidence tells a similar story: the June 2025 Beige Book, a qualitative report published by the Federal Reserve, reported only partial pass-through by manufacturers, and a New York Fed survey found that most firms passed on at least some tariff-induced cost increases, while roughly a quarter absorbed them entirely.

Relocating, Not Reshoring, the Supply Chain

A central goal of the Liberation Day tariffs was to make foreign sourcing less attractive and encourage more production in the United States. Yet corporate disclosures point instead to country-switching within global supply chains rather than large-scale reshoring to the United States.

For example, Oxford Industries, a premium apparel company, states in its June 2025 10-Q that, “in response to the announced tariffs,” it had “accelerated” its efforts to decentralize sourcing and had “taken steps to shift production in order to increase sourcing from additional jurisdictions.” Build-A-Bear’s 2026 10-K shows the same pattern more quantitatively: China-sourced merchandise fell from over 90 percent before 2020 to 51 percent in fiscal 2025, with Vietnam absorbing 44 percent. Both firms describe reallocating sourcing across foreign countries, not bringing production back to the United States.

Firms’ own filings also make clear that this strategy has limits. Oxford warns that diversification itself can create increased costs, delays, and other disruptions. Stanley Black & Decker similarly notes in its 2025 10-K that tariff mitigation may require the “rationalization, restructuring or relocation of facilities, production or component sources,” while cautioning that such moves may create “additional or new tariffs.”

A key exception is when tariff relief is explicitly tied to domestic investment. Eli Lilly disclosed in its 2025 annual report that its preliminary agreement with the administration provides a three-year grace period during which products under a possible Section 232 investigation “will not face tariffs,” provided the company meets U.S. manufacturing investment commitments. That suggests reshoring is more likely when tariff relief is conditioned on U.S. investment than when firms are responding to broad tariff exposure alone.

The Only Certainty is Uncertainty

If the first two responses concern the level of tariff costs, the third concerns the instability of the regime itself. A striking feature of corporate filings over the past year is how consistently firms describe the tariff environment as something that could change again. Forward guidance, in particular, has become explicitly conditional. PVH’s 2026 outlook “assumes a 15% tariff rate on goods coming into the U.S. effective February 24, 2026” and “does not assume refunds for tariffs previously paid.” AngioDynamics’s April 2026 earnings release states it more plainly, noting that “the situation is fluid” and that “these assumptions may change in the future.”

Firm’s discussions of operational planning exhibit the same hedging. Best Buy’s 2026 Form 10-K states that the “scope, timing, and implementation” of tariff policies remain uncertain and that “ongoing tariff volatility creates challenges for planning inventory, pricing and supply chain strategies.” The same uncertainty appears in refund-related disclosures. Target, for example, states that following the February 2026 Supreme Court ruling, “the process, timing, and amount of any potential refund recovery” remain uncertain and that it is “unable to estimate the financial effects, if any, at this time.” Taken together, these examples illustrate that firms do not view the tariff regime as settled, leading to impacts on their guidance choices, disclosure language, and operational decisions.

What the First Year Suggests about the Next

The first year after Liberation Day suggests that firms are responding along three margins, exactly as economic theory would predict: redistributing costs across margins, customers, and suppliers; switching countries rather than reshoring domestically; and building tariff uncertainty into guidance and disclosure. While the new tariff regime may have increased the cost of foreign sourcing, its ability to induce durable reshoring depends on whether firms see it as credible, predictable, and lasting. The filings examined here suggest that many firms do not—and that the regime’s instability may be undermining its own reshoring objective.

References

  • John Gallemore is an Associate professor of accounting at the University of North Carolina Kenan-Flager Business School. John Gallemore studies how firms’ economic and financial reporting behavior are shaped by corporate tax policy and enforcement. He earned his PhD in accounting, his MBA in finance and his BSBA from UNC Kenan-Flagler.