In recent times, the word ‘tariff’ has jumped from the back pages of economic textbooks to front-page headlines. Once the domain of trade negotiators and industry insiders, tariffs have become part of a broader political conversation, influencing everything from stock markets 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 is a tax on imported goods from other countries. It raises the cost of those goods, often making them less attractive to buy and giving domestic producers a competitive edge.
In practice, the cost is frequently passed on to consumers who feel the impact of higher prices. The result: reduced purchasing power.
In today’s interconnected world, even a modest tariff can ripple through supply chains, influencing consumer choices and reshaping market dynamics in sectors as diverse as electronics, food and tourism
But tariffs do more than just shift prices, they also send important signals. Tariffs have been used throughout history (from the 1930s U.S. Tariff Act to recent trade tensions between the U.S. and China) as tools of economic strategy and political leverage.
Strategic Use of Trade Tools: The Game Theory View
Tariffs are often wielded strategically, not just as economic tools but as negotiation tactics.
Instead of promoting industrial policies to support the development of domestic industries through subsidies (a healthier approach, as economists like Paul Krugman argue), some countries use tariffs to pressure foreign producers into lowering prices or making concessions.
This strategy fits neatly into the logic of ‘game theory’. Imagine a game of Chicken: two players speed toward each other and whoever swerves first loses, but if neither swerves, both crash.
In the world of trade, each country threatens tariffs hoping the other blinks first. Credibility and signaling tough messages become everything. But miscalculations can lead to mutual economic damage.
Tariffs, Markets and the Cost of Uncertainty
Financial markets thrive on expectations and, subsequently, unravel in their absence. The tariff announcements by the Trump administration in early 2025, particularly the sweeping 10% baseline duty and targeted surcharges on strategic imports, sent markets into turmoil not simply because of the policies themselves, but because of the unpredictability surrounding them.
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).
Currency markets followed suit. The U.S. dollar, typically a safe haven, weakened. On paper, tariffs should support the dollar via inflation. But in practice, the Federal Reserve's reluctance to hike rates, combined with shaken global confidence, eroded support for the dollar.
Research from the Yale Budget Lab notes the contradiction between inflationary pressures and dovish monetary policy. Similarly, Stanford GSB analysts warned that tariffs and unpredictability could threaten the dollar’s long-term reserve status.
This has real consequences. A weaker dollar reduces Americans' ability to travel abroad, while foreign tourists, especially from Europe, remain hesitant to visit the U.S. despite favorable exchange rates.
As Richard Branson, founder of Virgin, was recently quoted in the Financial Times, "Tourism is a business of welcome.” Tariffs may not directly target people, but the negative atmosphere they create can be just as powerful a deterrent.
Strain on Travel and Hospitality
The impact of tariffs on the hospitality and travel sectors is no longer theoretical; it is material, visible on balance sheets and booking trends alike. Tariffs raise the cost of imported goods and materials, directly affecting industries that rely heavily on international supply chains.
Airlines face higher expenses due to increased prices for aircraft components and maintenance equipment. As a result, major carriers are already revising their expectations.
For instance, American Airlines withdrew its 2025 profit forecast, citing uncertainty in consumer behavior and increased costs driven by tariffs on manufacturing inputs. Delta Air Lines followed suit, also pointing to declining demand and broader macroeconomic instability.
Hotels are no less exposed. Mid- and high-tier hotel chains have reported delayed renovations due to the rising costs of imported construction materials, electronics, furnishings, etc.
A recent article in Skift notes that tariffs have disrupted planned investments across the sector, creating a cascade of service limitations and maintenance issues.
Operating costs are rising, but demand is softening, especially among price-sensitive customers. This dynamic squeezes margins and limits flexibility.
Trade Tensions and Consumer Confidence
More damaging than tariffs themselves, however, is the uncertainty they generate. Industries like travel and hospitality are inherently confidence-driven. People travel for leisure and business only when they feel secure about the future. Tariff battles, especially when introduced unpredictably or accompanied by threats of escalation, undermine that confidence.
This edginess is starkly reflected in international travel patterns. Visits to the U.S. dropped by 11.6% in March 2025 compared to the same month in 2024, due to both the unwelcoming political climate and growing trade tensions (The Guardian, April 26, 2025).
Canada, traditionally the largest source of international tourists to the U.S., is expected to reduce outbound travel by over 20%, potentially wiping out $9 billion in U.S. tourism revenue (Politico, May 5, 2025).
The consequence of this psychological climate extends beyond tourism. Airlines are cutting back routes and delaying aircraft orders. Delta and American Airlines aren’t alone—multiple firms have issued warnings or revised earnings guidance due to “macroeconomic volatility” and “geopolitical risks,” euphemisms that often trace back to trade frictions (Business Insider, April 2025).
Hotels are not immune to these macroeconomic pressures either. Across multiple regions, recent data confirms a downturn in international travel and hotel performance. According to STR, U.S. hotel occupancy fell by 2.3 percentage points in March 2025 compared to the previous year, while revenue per available room (RevPAR) dropped by over 4%. Hotels near the U.S.-Canada and U.S.-Mexico borders saw sharper declines, indicating reduced cross-border tourism.
In urban hubs like Washington, D.C., city tourism boards are bracing for a 6.5% drop in international visitors in 2025, according to Axios.
Officials link this to both economic barriers and political sentiment. “There’s a sense that it’s just not as easy or welcoming to visit the U.S. right now,” noted one tourism analyst.
Even where the exchange rate favors European travelers, broader deterrents are outweighing financial incentives.
Meanwhile, Marriott International lowered its 2025 revenue forecast in April, citing “softening global demand.” Other major hotel brands, such as Hilton and Hyatt, have flagged similar caution in recent investor calls.
Hilton, too, in a recent move, cut its RevPAR expectations for 2025, citing that travelers are in a “wait-and-see” mode as Trump’s tariff policies unfold.
Similarly, Airbnb warned of disappointing second-quarter revenues, indicating that guests are waiting longer to book, a sign that caution about spending is growing (The Times, May 2025).
The Federal Reserve has publicly linked trade policy uncertainty with reduced capital investment and weaker consumer confidence, reinforcing the narrative that tariffs have far-reaching ripple effects across the service economy.
The Tariff Challenge
While tariffs aim to protect domestic interests, they often end up undermining confidence and inflating costs. The signals they send are unfriendly and are particularly felt by industries like travel and hospitality, which rely on openness.
When tariffs are used unpredictably or punitively, they produce a climate that feels closed, regardless of whether borders are technically open.
As Richard Branson put it, the message matters as much as the policy. Tariffs may target goods, but their ripple effects touch people, perception and place. In the ‘business of welcome’, that cost can be immeasurable.
The challenge for hospitality and travel-related industries is to find alternative pathways that reassure global stakeholders and keep the spirit of openness alive, even in protectionist times.
