Business Case Studies & Business Publications

Tariff Trouble: Navigating a Trade War i...

Saffie, Felipe, Ha...

Case

Tariff Trouble: Navigating a Trade War in the Global Supply Chain

Saffie, Felipe; Harrison, Bryan

GEM-0255 | Published January 30, 2026 | 21 Pages Case

Collection: Darden School of Business

Add To Cart Buy Now

Product Details

On April 2, 2025 (called “Liberation Day” by US President Donald Trump), the United States announced extensive tariffs on its trading partners. This presented the executives at Caterpillar Inc. with some difficult decisions, as their firm operated around the globe and sourced parts from many countries. Company leaders needed to determine the best location for a new plant while they navigated an unfamiliar international trade environment. Through the perspective of both microeconomic and macroeconomic theory, this case provides the context to analyze tariff policy and firm-level outcomes. The case bridges partial equilibrium (micro-level) international trade concepts with general equilibrium (macro-level) logic. In particular, it enables students to understand the impacts of tariffs on individual markets and countries as well as the effects of tariffs on exchange rates, policy uncertainty, and inflation. Ultimately, students will utilize economic theory to evaluate the current international trade atmosphere and its influence on corporate decisions. At the University of Virginia Darden School of Business, this case is the first piece of a two-class series that covers tariffs and the US dollar. For the companion case, see Felipe Saffie and Bryan Harrison, “Dollars, Debt, and Destiny: Marfrig’s Dilemma in a Changing Currency World” (UVA-GEM-0254).

1. Use the small economy partial-equilibrium diagram to show that a tariff reduces imports, raises domestic output in the affected market, and reduces welfare. 2. Trace the pure tariff in the Three Paned Model with floating foreign exchange rates and passive monetary policy: The exchange rate (e) appreciates; net exports (NX) ˜ unchanged; real output (Y) ˜ flat; connect these to NX = Saving (S) - Investment (I). 3. Analyze uncertainty as a macroeconomic shock: Consider how a rise in uncertainty shifts the investment–saving (IS) curve, decreases e (depreciates the dollar), and increases NX without shifting the NX curve; relate this to the observed April episode. 4. Discuss the distinction between price level and inflation from input tariff pass through and consider when a central bank should or should not react.