The Trump Administration’s Current Tariffs
On April 2, 2025, President Trump stood in the White House Rose Garden and announced what may be the most impactful policy of his second term: A 10% tariff on imports from all nations and “reciprocal” tariffs on roughly 60 countries with significant trade deficits with the U.S. The countries on this list include major U.S. trading partners such as China (facing a total 145% tariff on all goods, as of April 10) and Vietnam (46%). The only countries excepted were Mexico and Canada, which have been engaged in separate tariff disputes with Trump since he took office; some goods under the U.S.-Mexico-Canada Agreement remain duty free. On Wednesday, April 9, the president walked back the reciprocal tariffs, announcing a 90-day pause on implementation, with the exception of China. In response to Trump’s enhanced tariff schedule, on April 4, China announced its own broad retaliatory tariffs on all U.S. imports and increased restrictions on critical minerals, which Trump countered, setting off a tit-for-tat escalation.
How Innovation Leaders Can Adapt to the Tariffs
In our conversations with innovators, they have described a two-fold paralysis: With tariffs dominating headlines, it’s been very difficult to pitch executives on existing innovation priorities, and the immense uncertainty caused by tariffs is making moving forward with any investment very difficult. How to respond to this tariff chaos? Innovation leaders need to prepare for a more permanent split between the U.S. and China by investing in new, early stage technology platforms in as cost-effective a way as possible. The split means that U.S. and Chinese value chains will not only have different needs but may need to be served by entirely different core technologies or businesses (for both technical and political reasons). This reality is already here for semiconductors, where China is already cut off from advanced Western chips, and will expand into sectors like automotive and EV batteries, industrial technologies, biotech, and even materials. This brief highlights the long-term implications of Trump’s policy course (as of mid-April) and near-term winners and losers among early stage technologies.
- U.S.-China decoupling means companies will need more technology platforms, and countries will need new trade relationships: We have a clear example of what decoupling looks like already in semiconductors. When the Biden administration pushed chip controls, Nvidia responded with a range of control-compliant products for China. At the same time, China began investing heavily in its domestic supply chain. By the end of the Biden administration, those loopholes used by Nvidia were closed, and the Chinese chip supply ecosystem was mostly up to speed, though not producing cutting-edge chips as good as Nvidia’s. At the same time, countries like Japan have attempted to walk a narrow path between both countries. This story will play out over the next few years across a wide range of industries: most notably, anything defense related (like critical minerals or biotech) but also areas of emerging industrial interest like electrolyzers. New technology platforms will be needed as countries seek to create parallel supply chains and solve new technology challenges. In many cases, the U.S. will be the one playing catch up with new technology — for example, seeking to mitigate China’s dominance in rare earths with novel electrochemical extraction technology. Parallel economies and supply chains mean more types of technologies will be viable: In a deglobalized world, the “best” technology won’t always dominate. Companies should reprioritize early stage, capital-light innovation activity in new technology platforms to prepare for this long-term split.
- The new friendshoring favors new friends: The tariffs will create a new constellation of “friends” for friendshoring. One likely example is India: Companies like Apple have already begun a supply chain pivot to India as labor costs in China rose. India is one of a handful major economies to take a more conciliatory tack in response to the reciprocal tariffs (at 26%) and began trade negotiations before tariffs were implemented. Companies will likely accelerate their India expansions, especially if a trade deal combines the existing strong talent pool and open business culture. As the more traditional “friendshoring” locations of Canada and Mexico increasingly look elsewhere (with Canada in particular courting the EU), other countries will try to assert themselves as the new friends. Argentina, Brazil, Colombia, Chile, and Peru did not incur new tariffs; perhaps, South America becomes a more appealing destination for low-cost manufacturing. We’ll have a better understanding of these new friends over the next few months.
- Innovation teams need to go regional: As economies diverge, so too will innovation needs. Consider automotive: Chinese OEMs are already years ahead on consumer features in EVs, and their needs for materials, manufacturing equipment, and components will only continue to diverge as the U.S. pulls back incentives for EV adoption. Serving both regions with one innovation team won’t just be harder from a geopolitical perspective, it simply may not be viable from a technical one. Companies will have to develop regional labs, experts, and IP strategies if they want to find growth.
Implications for technologies are also beginning to emerge:
- Capital-intensive technologies will be hard hit by uncertainty: The VIX — an index that seeks to measure economic uncertainty — hit its highest point since the initial COVID shock. This uncertainty, combined with higher (and difficult to predict) prices for basic goods, will make businesses wary of large capital deployments. This dynamic will be most intensely felt in the U.S., but fears of global ripple effects will discourage capital investment everywhere, likely until the next U.S. presidential election. Capital-intensive technologies like AI (and data centers), broad hydrogen deployments, nuclear power, battery gigafactories, and large-scale plastics pyrolysis plants will be hardest hit, while anything smaller like modular chemicals technologies, robotics, smaller-scale and higher-value biotech, and food products will be less impacted. For corporate innovators planning to scale up expensive decarbonization technology, America looks like a problematic location in the near term — disappearing government support, volatile trade policy, a likely return of inflation, and supply chain headaches. Shifting first-of-a-kind projects to Europe would allow important initiatives to maintain momentum in a more favorable policy environment.
- Innovations that build domestic supply chains will be the biggest winners: One of Trump’s main ambitions is to bring production back into the US. These tariffs, for all the uncertainty, do create meaningful incentives for American manufacturers to reshore production. Critical and defense aligned technologies – such as novel approaches to rare earth extraction – will be a good bet, along with technologies to enable food and cosmetics ingredients to reshore production, like synthetic biology. Advanced automation is another winning bet, as each generation of factories increases the capital-to-labor ratio. Circular economy approaches will also benefit by merit of sourcing domestically – plastic recycling will have a stronger business case versus importing virgin plastic.
- Sustainable manufacturing technologies for hard-hit industries will suffer at first but could thrive long term: U.S. industries dependent on international production are facing substantial headwinds and difficult decisions to reshore or not. Apparel and electronics, for example, are hard hit: Nike, Addias, Lululemon, and other apparel retailer stocks plummeted more than 10% on the initial tariff news. These companies will be hesitant to back innovation in the face of potential cost increases and sales declines, harming the outlook for alternative fibers and other early stage approaches. The news isn’t all bad, though: If these companies decide to reshore, it could create an opening for novel approaches (especially new recycling technologies for textiles) as companies invest, but this will be a slow process if it does come to pass.
Lux Take
Despite the pullback, the U.S. tariff rate remains the highest it’s been since the 1930s, pushing the world toward deglobalization and U.S.-China decoupling. Moreover, Trump has only introduced a 90-day pause: More tariff turmoil is likely in the future. In the face of near-term uncertainty, innovation leaders are still responsible for long-term technology success. That means finding more efficient ways to innovate by working with founders to pilot technology at earlier steps and lower cost or getting serious about quantifying ROI at preliminary stages. Simply hoping for a return to business as usual in four years is not enough. Developing early stage technology platforms will be critical: Executives should focus on flexible technologies that can serve multiple markets and begin to work with the C-suite to build a more regionally specific innovation strategy.
