In recent times, the word ‘tariff’ has jumped from the back pages of economic textbooks to front-page headlines. Tariffs were once the exclusive domain of industry insiders and trade negotiators, but now they are part of a wider political conversation that influences everything from stock exchanges to airfares.
In this article, we look at how tariffs, especially when used in unpredictable and strategic ways, are affecting global perceptions and putting pressure on hospitality-related industries that depend on openness and a friendly ‘welcome’.
What is a Tariff?
A tariff It is a tax imposed on goods imported from another country. This tax increases the price of these goods, making them less appealing to purchase and giving local producers an edge in competition.
In practice, consumers are often the ones who pay the price. Reduced purchasing power is the result.
Even a small tariff in today’s connected world can have a profound impact on consumer choice and market dynamics across sectors such as electronics, tourism, and food.
Tariffs send more than price signals, they also send important messages. Tariffs were used all through history (from 1930s U.S. Tariff Act and recent trade tensions with China, the U.S.
Game Theory View on Strategic Use of Trade Tools
Tariffs can be used strategically as a tool for negotiation, as well as an economic tool.
In order to promote industrial policies, it is better to provide subsidies for the development of domestic industry (a more healthy approach as economists believe). Paul Krugman argueTariffs are used by some countries to pressurize foreign producers into making concessions or lowering their prices.
This strategy is a perfect fit for the logic of ‘game theory’. Imagine two people playing the game Chicken. The first player to swerve will lose, but both players crash if they don’t.
Tariffs are a common tactic in international trade. Countries threaten each other, hoping to see the other country blink first. Credibility and sending a strong message are key. But miscalculations could lead to mutual economic harm.
Tariffs Markets and Uncertainty Cost
Expectations are the lifeblood of financial markets, which collapse in their absence. Trump’s tariff announcements in early 2025, especially the 10% baseline duty on strategic imports and the targeted surcharges, caused markets to be in turmoil, not just because of their policies, but also because they were unpredictable.
The S&P 500 fell nearly 19% from its February 2025 highs. A brief 90-day suspension triggered a rebound—the S&P up 9.5%, the Nasdaq soaring over 12%—but exclusion of China and further escalations reignited volatility (Reuters, April 2025).
The currency markets followed suit. The U.S. Dollar, which is usually a safe-haven currency, has weakened. Tariffs, on paper, should boost the dollar by inducing inflation. In practice, however, the Federal Reserve’s unwillingness to raise rates combined with a weakened global economy eroded the support for the US dollar.
Research from the Yale Budget Lab Notes the contradiction between inflationary forces and dovish policy. Similarly, Stanford GSB Analysts warned that unpredictability and tariffs could threaten the long-term status of the dollar as a reserve currency.
It has real implications. A weaker dollar limits Americans’ ability travel abroad. Foreign tourists, in particular from Europe, still hesitate to visit the U.S. even though exchange rates are favorable.
Richard Branson, the founder of Virgin, has been quoted recently in The Financial Times. “Tourism – a business that welcomes people.” Tariffs don’t directly target people but the negative environment they create is just as effective.
Strain on Travel and Hospitality
Tariffs are no longer a theoretical issue. They have an actual impact, which is evident in both balance sheets and booking patterns. Tariffs increase the price of imported materials and goods, which directly affects industries that heavily rely on international supply chains.
Airlines are facing higher costs due to rising prices of aircraft parts and maintenance equipment. As a consequence, major carriers have already re-evaluated their expectations.
You can, for example, American Airlines Withdrawing its 2025 profit projection, the company cited uncertainty in consumer behaviour and higher costs caused by tariffs for manufacturing inputs. Delta Air Lines Following suit, they also pointed out a decline in demand and wider macroeconomic instability.
The same is true for hotels. Hotel chains of all levels have reported delays in renovations because of the increasing costs for imported materials, electronics and furnishings.
The latest article on the topic Skift Notes that tariffs disrupted planned investment across the sector. This has created a cascade service limitations and maintenance problems.
The cost of operating is increasing, but the demand for goods and services is decreasing, particularly among customers who are price sensitive. This dynamic limits flexibility and squeezes margins.
Trade tensions and consumer confidence
The uncertainty that they create is more damaging than the tariffs themselves. Confidence is a fundamental element of industries such as travel and hospitality. Travel for pleasure and business is only possible when people feel confident about the future. Tariff wars, particularly when they are introduced in an unpredictable manner or come with threats of escalation undermine confidence.
This edginess shows up in travel patterns around the world. Due to the unwelcoming political environment and increasing trade tensions, visits to the U.S. fell by 11.6% from March 2024 to March 2025.The Guardian, April 26, 2025).
Canada, historically the U.S.’s biggest source of tourists, will reduce its outbound tourism by over 20%. This may result in a loss of $9 billion dollars to U.S. tourism revenue.Politico, May 5, 2025).
The impact of this mental climate goes beyond tourism. Airlines are reducing routes and delaying new aircraft orders. Delta You can also find out more about the following: American Airlines aren’t alone—multiple firms have issued warnings or revised earnings guidance due to “macroeconomic volatility” and “geopolitical risks,” The origins of many euphemisms are often rooted in trade frictions.Business Insider, April 2025).
The hotels are also not immune from these macroeconomic forces. Recent data from multiple regions confirms that international travel is down and so are hotel performances. According to STRIn March 2025, U.S. hotels’ occupancy dropped by 2.3 percent points compared to last year. Revenue per available room (RevPAR), however, fell by over 4%. Hotels located near the U.S. Canada and U.S. Mexico borders experienced sharper declines. This indicates reduced cross-border travel.
Tourism boards in major cities like Washington, D.C., are preparing themselves for a drop of 6.5% in international tourists in 2025, reports Axios.
The official explanation is that both economic barriers as well as political sentiment are to blame. It’s not easy to visit the U.S. at this time.
Tourism analyst, according to one.
Even in cases where the currency rate favors European travellers, deterrents that go beyond financial incentives are more effective.
Meanwhile, Marriott International The company’s revenue forecast for the year 2025 was lowered in April. softening global demand.
Recent investor calls by other major hotel chains, including Hilton and Hyatt, raised similar concerns.
Hilton also, recently, reduced its RevPAR for 2025. The company cited that travelers were in a “wait-and-see” As Trump’s tariff policy unfolds, you can follow the action.
Airbnb has also reported disappointing second-quarter revenue, an indication that guests have been waiting longer to make a booking, and that they are becoming more cautious about their spending.The Times, May 2025).
It is important to note that the word “you” means “you”. Federal Reserve The government has linked the uncertainty of trade policy to reduced consumer confidence and lower capital investments, thereby reinforcing that tariffs can have a wide-ranging impact on the service sector.
Tariff Challenge
Tariffs are meant to protect national interests but they can often undermine confidence and increase costs. These tariffs send out unfriendly signals that are felt in industries such as hospitality and travel, which depend on openness.
Tariffs that are applied in an unpredictable or punitive manner create a feeling of closedness, even if the borders are technically opened.
Richard Branson stated that the message is as important as policy. Tariffs target goods but they have ripple effects on people, place and perception. In the ‘business of welcome’, that cost can be immeasurable.
Even in times of protectionist policies, the challenge for travel and hospitality-related industries is finding alternative paths that will reassure global stakeholders while maintaining an open spirit.
EHL Hospitality Business School
Communications Department
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EHL
