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A pair of children’s shoes is an odd place to look for the changing dynamics of American power. But stick with me because, after the past year, it is one of the clearest places to see them.
Long before those shoes reach a store shelf, tariffs have raised the cost of materials, components, and importation. Oil touches nearly everything else: synthetic fabrics, foam, adhesives, packaging, and freight. When both shocks arrive together, companies cut margins, cut orders, cheapen materials, delay investment, and eventually pass the pain on to consumers. Now, multiply that across the economy, and you start to see the troubling scope of the strategic problems this is causing.
The Trump administration’s International Emergency Economic Powers Act tariffs and subsequent Section 122 tariffs have degraded the ability and agility of the U.S. economic system to absorb future shocks — critical parts of the systemic bedrock of American economic power.
This is vital to understand because America’s economic power is not being hollowed out exclusively because of the Iran war and decreased energy supplies.
In reality, the oil crisis is being layered on top of America’s new tariff-induced fragility, pushing America into a new economic cycle: one of higher prices and diminished capacity for American businesses to absorb and navigate global shocks to their supply chains. American businesses are already feeling this in real time. The shocks are still moving through the system, and more will follow.
Washington, by and large, has yet to see it. In particular, policymakers ought to grasp this fully — not just the oil crisis but an economic system reset and its impacts on power projection — to better anticipate how it may constrain America’s national security strategies and choices.
Recent economic pain is not due to tariffs as a tool, but their indiscriminate and overly broad application. Tariffs could have been surgical, which was supported by most Americans. A 2024 national survey by the Emerson College Polling Center showed that at the time, 74 percent of Republicans and 53 percent of all Americans supported tariffs on computer chips or products vital to national security. That same survey showed Americans opposed tariffs on basic household items by 54 percent to 27 percent, and only 41 percent of Republicans support raising tariffs on goods they buy at Walmart, Target, or Costco.
Rather than redirecting supply chains away from China, for instance, tariffs applied to nearly every product and country simply became an additional cost layered onto companies — especially with no added policy to provide incentives. That is equally true for domestic manufacturers whose imported inputs and equipment were hit with higher tariffs. According to the National Association of Manufacturers, 56 percent of U.S. goods imports are domestic manufacturing inputs. The vast majority of these were hit with tariffs. For example, John Deere was estimating a $1 billion tariff bill in 2026 to import goods and inputs to produce U.S. farm equipment.
Tariffs apply cost pressure in the middle of the supply chain. This happens across nearly every consumer and industrial goods industry. Factories, suppliers, and brands cannot pass those costs through instantly — doing so would risk losing orders, damaging relationships, or triggering consumer backlash and demand collapse. In the real world, they absorb what they can and pass through to consumers only what they must.
Companies use several tools to absorb tariff costs, including reducing margins, renegotiating costs with suppliers, adjusting product quality by stripping out technology or material innovations, or downsizing product size (“shrinkflation”) — all to delay price increases at the register for as long as possible.
The evidence of this absorption is visible across industries and in the earnings data. A mid-2025 KPMG survey of 300 C-suite executives found that 43 percent of consumer goods executives reported a 1–5 percent decline in gross margins — among the steepest across all sectors surveyed. The reduced quality and shrinkflation effects are self-evident from bags of chips on grocery store shelves to shirts whose materials feel cheaper.
For all this maneuvering, America’s economic system worked because of its built-in agility. Inflation for nearly all consumer goods only increased marginally over the last year. Other industrial items may have seen a higher pass-through than goods in retail stores, but still were not overly burdensome to business purchases. In fact, only now does the market show certain sectors pushing tariff costs along to consumers.
The latest Consumer Price Index report indicated prices had risen 3.8 percent year over year for April 2026. If you isolate tariff-hit industries, you can clearly see higher prices due to the goods on shelves having tariffs added months ago. Footwear prices, for example, rose 4.2 percent in April — the fastest in 43 months — driven by tariff costs. Previously, prices were slowly rising as retailers worked through tranches of inventory at various tariff rates, but now footwear prices are rising faster than overall inflation directly because all shoes at retail have the full weight of tariff costs.
Even the Supreme Court’s decision striking down the International Emergency Economic Powers Act tariffs is unlikely to bring prices down — businesses that spent a year compressing margins and drawing down cash reserves don’t reprice shelves when a legal ruling arrives; they hold that margin to survive whatever comes next. For many, the refunds have not yet arrived. Nor did that ruling end the tariff regime itself; the Trump administration immediately used Section 122 of the Trade Act of 1974 to enact new blanket tariffs of 10 percent. Section 122 is a mere bridge to new, larger tariffs they are currently exploring under Section 301.
In a normal world, the economic system would have time for businesses and consumers to acclimate, even begrudgingly, to shocks. That stress acclimation is nearly impossible now as the oil crisis impacts every American business on top of tariff costs.
Oil moves across all global supply chains with known logistics costs. Unknown is that it is a significant feedstock embedded at the beginning of the supply chain for major industries Americans rely on daily — from synthetic materials and chemicals to fertilizers to packaging. This is where oil reprices the entire goods system because it hits at the start of supply chains, and as products are developed, it keeps flowing towards U.S. companies and consumers at a magnified rate.
When oil prices surge sharply — as they have in the wake of the Iran war that began in February 2026 — an economy that has already absorbed a major structural shock no longer adjusts gradually; the response becomes something far more abrupt.
Energy prices in April accounted for over 40 percent of the total increase in consumer prices, according to the Consumer Price Index. That is not just gas for your car but inputs into everything you use daily, with a larger wave coming in late summer as goods hit U.S. warehouses.
What tariffs did was eliminate the very buffer that would have allowed firms to manage this oil shock more gradually. In its place is a system where cost shocks move quickly and broadly, with less negotiation, less delay, and less capacity to absorb before consumers feel the impact.
Footwear illustrates this system with unusual clarity, because oil is embedded at nearly every step of the production process — in synthetic materials, adhesives, foams, packaging, and freight. A study by the footwear industry’s trade group where I work, the Footwear Distributors and Retailers of America, found roughly 70 percent of a sneaker’s cost has some level of oil price exposure, with oil being a direct 30 percent feedstock to its material makeup.
For footwear, adding 20–30 percent International Emergency Economic Powers Act tariffs on top of traditionally high tariffs meant U.S. companies were paying up to an 87.5 percent rate on many children’s shoes. The impact was reduced orders, workforces, innovation, and product value to get enough cash to pay the tax to release the goods to U.S. warehouses.
American companies had hoped to use tariff refunds to rebuild supply chain agility and better weather oil price shocks, but that capital is increasingly consumed just bracing for what comes next. The Trump administration has opened new Section 301 hearings — a separate legal authority the Supreme Court ruling does not touch — that could layer additional tariffs onto a system already stripped of its cushion. A system cannot rebuild its resilience when each potential recovery window is swallowed by the next hit — and when an oil crisis compounds on top of a fresh tariff salvo, the conditions for business capital planning, innovation, and growth can vanish for years.
Economic strength is not just about size or output. It is about resilience — the ability to absorb shocks without destabilizing the system, without harming innovation. When cost increases move faster than businesses and consumers can adjust, that resilience weakens. The implications are not abstract. Faster cost pass-through means more immediate pressure on households. Reduced margins mean less capacity for businesses to invest, hire, or expand. Supply chains become more brittle and less able to adapt to disruption. Volatility — once dampened by layers of negotiation and absorption — becomes more visible, more disruptive, and more politically potent.
The Iran war has made this strategic dimension concrete. The more precise claim is not simply that economics became the constraint on military action — it is that economic resilience can become a hard ceiling on the United States’ freedom to sustain coercion. When energy shocks, accelerating inflation, and fragile supply chains simultaneously raise the domestic cost of a campaign, strategic options don’t just narrow — they remain narrow far longer than any military planner would want.
An administration facing $4.50-a-gallon gasoline prices, a tariff-driven inflation overhang, and compressed household budgets has less political runway to sustain prolonged military engagement than one with deeper shock-absorbing capacity. That is not merely an economic observation — it is a national security one, and it belongs at the center of how policymakers evaluate the second-order costs of trade policy.
Policymakers should be asking what lessons Beijing is drawing from this dynamic, right or wrong, much like they did after America’s 2008–2009 financial crisis. China has spent years analyzing American vulnerabilities and calibrating its Taiwan coercion strategy accordingly, and the Iran conflict gave it a live case study. When economic pressures even marginally shape the pace and scope of U.S. military action, Beijing likely notes something important: that a financially stressed America is a strategically constrained one. An adversary that can time economic pressure to coincide with U.S. vulnerability doesn’t need to directly match American military power — it simply needs to wait for the buffer to erode.
The key takeaway is straightforward but uncomfortable: tariffs did not just change trade; they changed how America’s entire power system — political, economic, and security — responds to stress. By compressing margins and exhausting the capacity for cost absorption, they made the economy more sensitive to the next shock. Oil has become that shock. And what it is revealing is a system that no longer has the buffer it once did, where costs move faster, adjustments are harder, and the line between economic pressure and strategic risk is becoming increasingly thin.
China has viewed American economic primacy in decline since the 2008–2009 financial crisis. The Trump-General Secretary Xi Jinping summit on May 14–15, 2026 was the moment when — based on America’s diminished economic bandwidth described here — China was willing to say it publicly. China’s leader used his home-court advantage skillfully, leveraging the moment to present China as an equal to America.
Yet, how does China’s economy compare?
China has a massive property crisis, weak consumer demand, and youth unemployment that is so high the government has at times stopped publishing employment data. China’s industrial base has not truly transitioned into high tech with speed, in part due to fear its job market wouldn’t transition with ease, leading to expanded social unrest among all age groups. While China has worked around America’s tariffs, it has done so clumsily — by overproducing goods and dumping them into markets around the world to make up for the loss of American trade — which may invite a reckoning from numerous countries, including from the E.U., in the form of new trade barriers or duties to protect domestic industry.
General Secretary Xi Jinping’s swagger is less a reflection that China is an equal as much as it is a political necessity — a leader who desperately needs to project strength with America to assist with negotiations on trade and tariffs, regain access to Venezuelan and Iranian energy that make up 20 percent of their imports, and ways to skillfully push the narrative that defending Taiwan is too high a cost for America. Likewise, China’s leader used theater to reinforce domestic narratives of China’s resurgent power and reduce social anger over economic ills, as well as to signal to third-party states that the balance of great-power relations has shifted — perceivably strengthening China’s pressure and coercion “diplomacy” campaigns.
Still, America has weakened itself, and China exploited it in front of a global audience who may well believe it.
The current oil shock is extremely important to America’s economic health, but it should not be a primary driver of how we view America’s economic power. The signal is that tariffs and trade policies are upending the global economic order.
Once posited as a tool to strengthen America’s economic power, used too broadly, tariffs quietly reprogram how the global economy, the one America built, handles stress. And in a world of persistent shocks — from energy markets, from geopolitical conflict, from supply chain disruption, from government tariffs — that reprogramming may be the thing that truly constrains America, not just in economic growth, but in national security strategy and choices.
To adjust, policymakers, both economic and security, must stop benchmarking the current global economic order against the pre-tariff. Even a full reversal of American tariffs would not restore the norms, rules, and strong alliance that existed before. In many ways, the rules of physics apply to trade — for every action, there is an equal and opposite reaction. The unpredictability of American economic strategy has already moved countries to structurally rebalance their trade relationships, diversify supply chains, and build new alliances that exclude the United States. The psychology of global trade has shifted from a baseline of open dialogue to a defensive-first posture.
Policymakers must build a new framework for how this fractured order degrades international cooperation and coordination to shocks — accepting that the result will be deeper and longer economic pain and reduced power. The oil shock is a clear preview. Oil supply and price shocks do require a military resolution, but the pain has not produced a meaningful coordinated international economic response. That should alert us to what may come. The next test may well be sovereign debt. Debt levels and the interest required to service them are exploding around the globe. Should it turn into a crisis, American policy should anticipate a fragmented response — not the coordinated one the International Monetary Fund and allied governments were able to mount in the past.
Policymakers must also stop measuring one shock’s impact on economic power but, increasing, how they stack upon each other. Today’s supply chain shocks ripple over weeks, months, and years. Today’s speed, in an increasingly volatile world in which these now occur, means they layer upon each other. There is little time for companies to truly normalize to one shock before another adds on top. New models based on these facts are critical to developing new tools, incentives, and policies to help American companies build new economic resilience, agility, and adaptability in the new epoch of consistent shocks, global trade distrust, barriers, and tariffs.
Andy Polk is vice president at Footwear Distributors and Retailers of America, the footwear industry’s trade association. He previously worked in Congress for nearly a decade on foreign affairs and security issues. Polk received his master’s degree in international relations from the London School of Economics, where he focused on Chinese foreign policy, Middle East politics, and the intersection of the two.
Image: USDAgov via Wikimedia Commons
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