Tariffs Unleashed

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The headlines are loud, the capital is tight, and the conditions on the ground can feel discouraging, especially if you’re building something outside the AI mainstream.

Venture funding for non-AI companies has slowed, and consumer demand is soft. With the return of sweeping tariffs and a rising cost structure across the economy, many founders & LPs feel like they’re walking through hell holding a can of gasoline.

It’s a difficult moment. But it’s not a hopeless one.

On “Liberation Day,” President Trump imposed one of the most aggressive tariff regimes in modern U.S. history, raising average tariffs from 2.3% to nearly 30%. That puts us back at levels not seen since the late 1800s—an era of steamships and gold standards, not cloud computing and globalized supply chains.

This is not a symbolic shift. It directly impacts:

• Import-heavy industries, particularly consumer goods, electronics, and manufacturing

• Longstanding U.S. trade partners, such as South Korea (26%), Israel (17%), and Australia (10%)

• Any startup dependent on foreign hardware, materials, or even customers

Free trade agreements are effectively being bypassed. Even USMCA—the updated NAFTA deal—could be at risk, given that Canada and Mexico are only temporarily spared and remain under threat of 25% duties.

This isn’t just policy volatility. It’s a systemic shock to how many founders have built their supply chains, priced their products, and forecasted margins.

While the executive branch has significant authority to act on trade through delegated powers, the current wave of sweeping tariffs is unlikely to endure without meaningful resistance from both Congress and the courts.

Constitutionally, Congress has the power to regulate foreign commerce and impose tariffs. The President, while empowered to negotiate trade deals and manage foreign policy, typically needs congressional approval—either before or after the fact—to enact binding trade policy. Yet in recent years, both the Trump and Biden administrations have leaned heavily on a growing toolkit of “hybrid” trade agreements and executive actions that sidestep full congressional approval.

Some of these moves rest on delegated authority, while others stretch the bounds of executive discretion. However, this shift from congressional-executive agreements toward loosely justified “mini-deals” or tariff proclamations raises real constitutional questions. Legal challenges are expected.

Historically, trade decisions of this magnitude—especially those that unravel long-standing agreements—have required consensus across both branches. That’s absent now. Congressional support for broad-based tariffs is weak and fragmented. Even Republicans who generally align with Trump on other policies are voicing concern about the economic damage and diplomatic fallout.

Expect this issue to become a political wedge. Lawmakers facing re-election in swing districts with significant manufacturing, agricultural, or logistics sectors—many of which rely on global trade—will feel pressure to oppose the tariffs. That pressure will only grow if prices spike and consumer confidence declines heading into the 2026 midterms.

There’s already discussion of Congress moving to reassert its authority through:

• New trade oversight bills, including those redefining what counts as a “free trade agreement”

• Congressional Review Act resolutions to overturn tariff-related rulemaking

• Refusals to appropriate enforcement funds for specific executive-led trade actions

This won’t be a clean or fast fight, but it has significant momentum.

Contrary to the rhetoric, there is no national groundswell demanding protectionist tariffs. Public sentiment on trade is historically positive. A recent Gallup poll found that 81% of Americans view trade as an opportunity, not a threat—the highest level since polling began in 1992. The perceived problems in the economy are inflation, healthcare costs, and housing, not global trade imbalances.

That matters. The absence of popular support for tariffs limits the administration’s ability to hold the line politically if economic conditions deteriorate.

In short, while the President may have acted swiftly and aggressively, the backlash will build. If economic pain sets in and midterm polling tightens, expect breakaway Republicans, swing-district Democrats, and institutionalists on both sides to start clawing back trade authority. Whether through legislation, litigation, or appropriations, Congress has levers—and it’s more likely to start pulling them as political consequences become visible.

The administration has cycled through a buffet of justifications for this sweeping tariff regime: reshoring jobs, raising revenue, ensuring reciprocity, and correcting trade imbalances. But there’s a more profound, more structural pressure point driving the urgency: debt.

The U.S. Treasury must roll over nearly $7 trillion in maturing debt—a monumental task in any fiscal environment, but incredibly daunting when interest rates hover around multi-decade highs. Every additional percentage point on refinancing costs adds tens of billions to the annual deficit. In that context, slowing the economy just enough to curb demand and inflation could be seen as a strategic play to keep borrowing costs from spiraling.

Enter tariffs. By taxing imports, the government raises some short-term revenue and suppresses consumption, particularly of foreign goods. This may help cool headline inflation and give the Fed more room to pause or pivot on rates, creating a more favorable environment for debt issuance.

But this is where the rest of the story starts to unravel.

The administration’s goal of reshoring U.S. manufacturing sits awkwardly alongside the drive to increase tariff revenue. These two aims are fundamentally at odds:

• If reshoring succeeds, imports decrease, and so does tariff revenue. You can’t tax goods that aren’t coming in. The better your policy performs on the reshoring front, the less money you generate through tariffs.

• If revenue generation is the real priority, then you’re implicitly rooting for sustained or growing imports. That’s the only way to keep the cash flowing via tariff collections.

This contradiction exposes a broader incoherence in the policy framework. Are tariffs meant to punish foreign competitors and reduce dependency, or do they intend to extract ongoing revenue from unchanged trade flows? You can’t do both well at the same time.

Moreover, tariffs raise input costs for domestic manufacturers, especially in sectors like automotive, energy, and electronics, undermining the reshoring efforts they’re supposed to promote. That’s not strategic industrial policy; that’s shooting your supply chain in the foot.

Framed this way, the tariffs look less like a targeted industrial strategy and more like a blunt macroeconomic tool—designed not to grow U.S. capacity, but to manage a debt cycle under pressure. It’s a gamble: trade suppression as a stealth form of monetary easing.

But it’s risky. The short-term pain—higher consumer prices, disrupted supply chains, diplomatic blowback—arrives immediately. The long-term payoff? A maybe.

And with midterms looming and inflation fatigue still fresh, it’s unclear how much economic discomfort voters (or swing-district members of Congress) will tolerate before they start to push back.

Amid this uncertainty, founders can still find footing by focusing on what’s within their control.

Revisit your supply chain assumptions if your company relies on imported goods, outsourced manufacturing, or global logistics. Even if tariffs don’t touch you directly today, they may indirectly affect your customers or unit economics.

Now is not the time for growth-at-all-costs. Whether you’re building AI-native tools or more traditional software, the value story has to be efficiency, productivity, or resilience. Founders with a tangible impact on customer cost savings or output will have an edge.

Consumer product companies will likely be the most brutal hit in the short term. If you’re in this category, explore options for domestic sourcing, direct-to-consumer models, or premium positioning that can absorb cost volatility.

If you’re allocating into venture, now is the time to sharpen your filter, not close the door. The macro backdrop may be noisy, but smart LPs know turbulence doesn’t uniformly destroy returns. It reshuffles them.

Here’s how to play it:

AI is the darling of the moment, but many portfolios are overexposed to generic plays with little edge. Look for funds hunting off-cycle, backing painkiller businesses, and practicing actual portfolio construction—not chasing narratives.

LPs should seek exposure to startups with strong unit economics and a credible claim to shaping the next technological wave. This isn’t about moonshot R&D or vague “platform potential”—it’s about commercially viable frontier tech.

Whether it’s AI infrastructure, climate automation, or industrial software, the winners will be those that pair deep tech with tangible near-term value. Look for founders who can monetize innovation without losing fiscal discipline—a rare but powerful combo in a capital-tight environment.

The new tariff regime throws a wrench into global supply chains—and venture isn’t immune. Ask your managers how their portfolio companies are de-risking dependencies on imported hardware, international manufacturing, or cross-border data flows.

When capital dries up, alpha concentrates. The top decile of emerging managers, especially those actively hunting new winners in overlooked markets, become disproportionately valuable. The question isn’t “how much should I invest in venture”—it’s “how do I get into the right rooms?”

While these shifts present serious headwinds, there are real reasons for optimism:

• AI continues to drive the next wave of infrastructure. Even in a pullback, AI-native products and operational tooling are in demand, particularly those that help companies save time or reduce headcount.

• Scarcity sharpens focus. In a more constrained market, founders and teams often become more disciplined. Talent concentrates. Fewer distractions lead to better execution.

• Ventures will look relatively attractive if public markets remain volatile. With fewer IPOs and risk-adjusted returns under pressure, LPs may look more favorably on venture, especially funds with proven discipline.

• The best companies are born in downturns. Constraints lead to creativity. Some of the most durable businesses in the last two decades were launched or scaled during turbulent markets.

The more significant concern is not just economic—it’s institutional. A single president upending the entire trade architecture without broad consensus reveals deep structural fragility. Trust from allies is eroding. Supply chain decisions are being reconsidered. Long-term cooperation on climate, security, and innovation is now more complex.

In this environment, resilience and adaptability become core competencies—not just for nations but also for startups.

So, while the headlines are jarring, and the next few quarters may remain rocky, the signal is this: we are in a structural transition, not an economic collapse. The founders who internalize that and adjust accordingly will be best positioned for what comes next.

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