A few days ago, U.S. and Chinese officials convened in London for a crucial round of trade talks, in an attempt to lower the temperature on a simmering economic rivalry that has shaped global commerce for over half a decade. The meetings focused not only on tariff reductions, but also on broader flashpoints, including critical mineral exports and cross-border data regulations, two battlegrounds that could reshape entire industries from EVs to ecommerce.
The backdrop to these discussions was a fragile 90-day truce brokered in May. As part of the deal, the U.S. slashed tariffs on select Chinese imports from a staggering 145% to 30%, while Beijing reciprocated by reducing its duties on American goods from 125% to 10%. While the numbers made headlines, the temporary nature of the détente left businesses and consumers in limbo, waiting for the other shoe to drop. Preferably, not a tariffed one.
That truce followed earlier efforts to cool tensions in Geneva, where Washington and Beijing had reached a tentative agreement that briefly soothed markets and signaled a possible reset. But optimism quickly faded. U.S. officials accused China of dragging its feet on key commitments.
The renewed diplomatic push in London came at a precarious moment for both economies. Chinese customs data revealed a dramatic 34.5% plunge in exports to the U.S. in May compared to a year earlier—the sharpest drop since the pandemic froze global trade in early 2020. On the U.S. side, both business and household confidence had taken a visible hit. First-quarter GDP contracted, largely due to a surge in preemptive imports as companies and consumers scrambled to beat expected price hikes.
The price tag of protectionism
Despite the escalating game of tariffs, consumer prices haven’t surged as sharply as economists once feared. That’s not because a trade war is magically painless. It’s because many retailers have been playing defense. Rather than passing higher import costs directly onto shoppers, brands have been eating the margins, offering discounts, shrinking packaging, or quietly switching suppliers. In short: consumers were spared, but balance sheets took the hit.
It’s a clever patchwork approach, but not a sustainable strategy. As profit margins thinned, retailers across sectors—from grocery chains to beauty conglomerates—found themselves squeezed between inflation-sensitive customers and tariff-swollen supply chains.
That pressure, once slow-burning, has started registering in the broader economy. According to the most recent report by the Congressional Budget Office, tariff policies implemented between January and May 2025 are projected to cut deficits by $2.8 trillion over a 10-year period while shrinking the U.S. economy, raising the inflation by an average of 0.4 percentage points in both 2025 and 2026 and reducing the purchasing power of households overall.
As price fatigue builds and consumers grow warier of stretched budgets, demand could falter just as supply chains begin adjusting to the new normal. Retailers, already strained from months of cost absorption, may soon be forced to make tougher choices—whether through price hikes, job cuts, or restructuring.
No wonder Washington and Beijing made their way back to the negotiating table. Neither side could afford to let economic dogma take precedence over domestic resilience.
The new math behind brand survival
Procter & Gamble has reached its limit. After months of absorbing tariff-related costs and shielding shoppers from noticeable price hikes, the world’s largest maker of household staples is now tightening its belt. In early June, the company announced plans to cut 7,000 jobs—about 6% of its global workforce—and exit several product categories over the next two years.
Yet, the move is not only an internal belt-tightening. P&G, like many multinational firms, is contending with a jittery consumer base, rising input costs, and a global trade climate that has grown increasingly unpredictable.
The company expects a $600 million before-tax hit in fiscal year 2026 due to ongoing tariffs. To blunt the impact, it plans to raise prices on selected products and streamline its operations. But as Chief Financial Officer, Andre Schulten explained during the 2025 Deutsche Bank Global Consumer Conference in Paris, this step is designed to weather a longer storm: “This restructuring program is an important step toward ensuring our ability to deliver our long-term algorithm over the coming two to three years. It does not, however, remove the near-term challenges that we currently face.”
The trade war has already carved out a steep bill for the corporate world. According to a Reuters analysis, companies have absorbed at least $34 billion in lost sales and higher operational costs since tariff escalations resumed.
That cost is also affecting U.S. consumer sentiment, which fell slightly in May for the fifth straight month, surprising economists. The preliminary reading of the University of Michigan’s closely watched consumer sentiment index declined 2.7% on a monthly basis to 50.8, the second-lowest level in the nearly 75-year history of the survey. The only lower reading was in June 2022. Since January, sentiment has tumbled nearly 30%.
That erosion in confidence is no small matter for brands like P&G, which depend on routine, low-friction purchases and consumer loyalty. With households increasingly cautious, even modest price hikes risk pushing buyers toward lower-cost alternatives. “Trading down” has returned to the mainstream retail vocabulary.
Fashion forward: Navigating the new normal
Few sectors have felt the turbulence of tariff upheaval more acutely than fashion. With its sprawling global supply chains and dependency on low-margin, high-volume logistics, the industry has found itself particularly exposed. Tariffs have upended traditional sourcing strategies, prompting brands to reroute production through alternative manufacturing hubs like Vietnam, Bangladesh, and increasingly, India.
India, in particular, is emerging as a major player in this new alignment. In a telling move, Chinese fashion giant Shein has partnered with India’s Reliance Retail to expand sales of India-made garments to global markets. The alliance reflects a broader trend: fashion companies are shifting sourcing away from China while restructuring their entire market architecture to stay ahead of the political curve.
While framed as an expansion, the move is largely driven by necessity: as U.S. tariffs and scrutiny mount in Western markets, Shein is repositioning its production footprint to sidestep geopolitical bottlenecks.
According to reports, Reliance, controlled by Asia’s richest man, Mukesh Ambani, has already onboarded 150 garment manufacturers and is in talks with hundreds more. The goal? To have 1,000 Indian factories producing Shein-labeled clothing within the year, which will stock its U.S. and U.K. sites—a move intended to bypass both rising trade barriers and regulatory scrutiny.
Whether that launch happens in six or twelve months will depend on how quickly the manufacturing base can scale. The message, however, is clear: the fashion supply chain is now a game of geopolitical navigation.
The road ahead: Uncertainty and adaptation
As the U.S. and China try to solve their economic tensions and bring an end to the trade war, businesses worldwide must adapt to the shifting trade policies.
In the meantime, consumers may begin to feel the delayed effects of tariffs through gradual price increases and reduced product availability. The resilience of global commerce will depend on the ability of policymakers to find common ground and the agility of businesses to adapt to the new rules of engagement.
The recent trade talks in have led to a tentative framework aimed at easing tensions and implementing the Geneva consensus. This includes reducing tariffs and addressing critical issues like rare earth mineral exports and semiconductor technology restrictions. While this development offers a glimmer of hope, the agreement still awaits formal approval from Presidents Trump and Xi Jinping.
Despite these efforts, challenges persist. A U.S. federal appeals court recently upheld most of the Trump administration’s tariffs, adding legal complexity to an already challenging trade landscape. Moreover, China’s export of rare earth minerals, vital for industries like automotive and defense, remains a contentious issue.
In this backdrop, businesses must remain vigilant and adaptable. While the path forward is fraught with uncertainty, the commitment to dialogue and negotiation between the world’s two largest economies offers a foundation upon which global commerce can strive for stability and, perhaps, even growth.
