Part I: America's Self-Inflicted Economic Wound
When Policies Punish Innovators: A Venture Capitalist's View on the New Tariff Regime
“Shall we play a game?” - WOPR, War Games 1983
In the theater of economic policy, America has once again taken center stage with a performance that would be comical if it weren't so damaging. The Trump administration's recent "Liberation Day" tariffs represent not liberation but imprisonment—a self-constructed economic cell that traps American businesses, entrepreneurs, and consumers inside.
Wall Street delivered its own verdict Thursday: the Dow plummeted 1,590 points, the S&P 500 fell 3.4%, and the Nasdaq cratered 5.8%. This wasn't merely a market hiccup; it was a full-throated scream of economic alarm.
I've spent decades watching companies navigate challenges, but rarely have I seen such an unnecessary, self-inflicted wound. The administration's sweeping tariff package—which slaps a baseline 10% duty on virtually all imports with punitive rates up to 49% on specific countries—hasn't "liberated" American industry. It has handcuffed it.
The Human Cost of Policy Whiplash
Consider what's happening on the ground. Haley Pavone, founder of Pashion Footwear, a promising California footwear startup, had secured a $5 million SBA loan to fuel her company's 85% annual growth. The paperwork was ready. Then, without warning, the SBA changed its rules, demanding that 100% of shareholders be U.S. citizens—not just the major owners as previously required. Pavone's company, with 98.3% American ownership but 1.7% held by foreign investors, saw its financing evaporate overnight. Read her LinkedIn post here.
This is economic nationalism devoid of economic sense.
This occurred precisely as tariffs would increase her product costs significantly. A double blow: higher costs, vanished financing. Yet there's zero bulk footwear manufacturing capacity in America to which she could turn. The policy supposedly designed to protect American business has instead threatened one of our most promising young companies.
Global Supply Chains: American Strength, Not Weakness
What the architects of these policies fail to grasp is that today's global economy isn't a zero-sum game where American "wins" only come from foreign "losses." Our economy has flourished through complex value chains that distribute activities to where they're most efficiently performed, allowing American companies to focus on high-value innovation, design, and marketing.
Look at Nike, whose shares plunged nearly 14% as investors grasped the implications of a 46% tariff on Vietnam, where much of its production capacity lies. Or Apple, down 7.5%, facing both Chinese tariffs of 34% (bringing the total to a staggering 54% when combined with earlier levies) and the futility of its diversification efforts to Vietnam and India—now targeted with 46% and 26% tariffs respectively. These aren't foreign companies being punished; they're American icons whose global supply chains have been carefully optimized over decades.

Across every sector of American business, the tariff pain manifests in a brutal calculus: absorb the higher costs and watch margins evaporate; pass them to consumers and risk losing sales; or cut costs elsewhere through layoffs, reduced innovation, or cheaper materials. This isn't abstract economic theory—it's boardroom triage happening in real-time across America, with consequences that will hit payrolls, pricing strategies, and innovation roadmaps before the next earnings season.
Real Companies, Real Damage
Look at Everlane in apparel, which had carefully diversified from China to Vietnam after earlier trade skirmishes, only to find that escape route now taxed at 46%. There's nowhere to go—the U.S. lacks the manufacturing infrastructure for bulk clothing production.
Or consider Starface in beauty, whose affordable acne patches—psychological lifelines for teenagers—rely on globally sourced materials and packaging now subject to cascading tariffs.
Lucky Energy, a rising challenger in energy drinks, faces higher costs on everything from aluminum cans (hit with a 25% tariff in March) to vitamin ingredients, threatening to stall their momentum just as they're challenging established players.
When Stellantis halts production at factories in Mexico and Canada, those aren't abstract economic theories but real assembly lines going quiet and real workers sent home.
What's most baffling is the lack of strategic thinking. When China was the sole target of tariffs during Trump's first term, businesses predictably shifted production to Vietnam, Indonesia, and other Asian manufacturing hubs. Now those countries face even higher tariffs than China in some cases. The administration has effectively closed off the escape routes that businesses previously used to adapt.
The market's violent reaction—with the dollar sinking to its lowest level of the year and oil prices plummeting over 6%—isn't merely speculation; it's a rational calculation of real economic damage. As David Bahnsen of the Bahnsen Group put it, "For a stock market that was craving certainty, there is now even more ambiguity."
Punishing Innovation
The chaos extends beyond tariffs. The SBA rule change requiring 100% U.S. ownership for loan qualification isn't just shortsighted—it's economically illiterate. Silicon Valley was built on global talent and capital. Some of America's most innovative companies would have been strangled in their infancy under such rules.
Make no mistake: these policies aren't strengthening America's economy; they're damaging our innovation ecosystem. They're taxing American businesses at a moment when many were finally regaining their footing after years of pandemic disruption, supply chain chaos, and inflation. And unlike those external shocks, this one was entirely preventable.
Proponents will argue that short-term pain is necessary for long-term gain—that these measures will eventually bring manufacturing back to American shores. But this ignores economic reality. America doesn't have the manufacturing infrastructure, skilled workforce, or cost structure to simply "reshore" production of everything from shoe soles to aluminum cans overnight. What might take a decade of careful industrial policy and workforce development is instead being attempted through brute force, with predictably disruptive results.
Even where domestic manufacturing exists, automation means that any jobs created will be fewer and different from those lost decades ago. The America of 2025 cannot simply rewind to the industrial landscape of 1985, no matter how appealing that might be politically.
The Consumer Tax Nobody Voted For
There's also the matter of consumer impact. Americans have already weathered years of inflation; now they face artificially higher prices on thousands of everyday items. From cosmetics to kitchen appliances, clothing to children's toys, the administration has effectively imposed a regressive consumption tax that will hit middle-class families hardest.
Even Vice President Vance, when pressed on Fox News Thursday morning about the human cost, conceded he wouldn't "shy away" from the short-term pain Americans will face. Pain acknowledged, but still inflicted. This cavalier admission reveals the administration's willingness to use American consumers and businesses as economic cannon fodder in pursuit of nebulous "better trade deals"—a disturbing calculus where abstract policy goals trump concrete economic welfare.
The administration has effectively imposed a regressive consumption tax that will hit middle-class families hardest.
Yet amidst this policy turbulence, American entrepreneurs remain remarkably resilient. Pavone, despite losing her crucial financing, expressed determination to weather the storm. Williams-Sonoma has proactively diversified its supply chain, seeing opportunity where others see only challenges. These companies exemplify the adaptability and fortitude that have always driven American business success.
But why make their jobs harder? Why force them to divert energy from innovation and growth to navigating arbitrary policy barriers? A government truly committed to American economic strength would focus on enhancing our competitive advantages—our unmatched innovation, our entrepreneurial culture, our skilled workforce—rather than erecting walls that cut us off from global commerce.
The Self-Defeating Nature of Economic Nationalism
The irony is that economic nationalism, as currently practiced, isn't strengthening American industry but undermining it. When tariffs make inputs more expensive, they don't just hurt importers; they cascade through supply chains to damage domestic manufacturers who use those inputs. When financing policies exclude foreign shareholders, they don't just block foreign investment; they strangle homegrown businesses with global connections.
As someone who has backed companies through multiple economic cycles, I've observed that policy clarity—even when the policies themselves are challenging—is far preferable to erratic shifts. Businesses can adapt to almost any environment if given time and predictability. What they cannot easily survive is perpetual uncertainty and overnight rule changes.

The path forward is clear, if politically inconvenient: we need a more nuanced, strategic approach to trade. Targeted measures to address genuine unfair practices? Certainly. But blanket tariffs and abrupt financing restrictions that punish American businesses for their global connections? That's economic self-sabotage.
That means targeted, enforceable trade agreements, a decade-long investment in advanced manufacturing, and a modernized SBA that welcomes global capital while protecting U.S. control. It means strengthening America's competitive advantages rather than trying to resurrect economic structures that no longer exist.
Breaking Points
The reality that markets are now pricing in—with some household names dropping double digits in hours—is that these policies create a dangerous feedback loop. As the U.S. raises tariffs on Japan (24%), the EU (20%), and dozens of other nations, those countries vow retaliation. When retaliation comes, the White House suggests it will respond with more tariffs. Each cycle amplifies economic damage and uncertainty.
True economic patriotism would harness global connections to strengthen American competitiveness, not sever them in the name of an outdated economic vision.
American companies aren't asking for special treatment. They're simply asking for policy coherence and a recognition that in today's interconnected world, economic nationalism shouldn't mean economic isolation.
As Pavone said of her fellow entrepreneurs, "We deserve better than this." Indeed, the American economy deserves better than policies that treat our most innovative companies as collateral damage in a misguided crusade.
The question now is whether policymakers will recognize the damage before it becomes irreversible—whether they'll embrace economic reality rather than economic fantasy. The resilience of American business is impressive, but even the strongest companies have breaking points. Let's hope Washington recognizes this before those breaking points are reached.
Continue reading: Part II: The Real Casualties of America's Tariff War examines who really pays the price when economic nationalism ignores economic reality—from innovative startups to American factories to middle-class families. As a board member at Everlane and investor who has backed companies through multiple economic cycles, I offer a frontline view of the damage being done to American business.
If you valued this analysis, please consider sharing it with others who might benefit from this perspective.
The solution. No tariffs $20k per U.S. worker tax credit
Costs of Unemployed/Underemployed U.S. Citizens
Unemployed U.S. citizens cost the government billions annually. Here’s the breakdown:
Social Security Disability: $150 billion
Medicaid: $871 billion
Food Stamps: $120 billion
Welfare: $1,200 billion
Earned Income Tax Credit: $80 billion
Total Cost: $2.421 trillion
The Simple Math
Value of an Employed U.S. Worker: Approximately $20,000 per employee.
This includes taxes, healthcare, Social Security contributions, etc.
Proposed Policy Changes
Double the U.S. Tax Rate on Corporate Profits: Increase from 25% to 50%.
Tariffs for Compliance Only:
Apply tariffs solely to enforce EPA and OSHA standards (clean environment, safe workers).
Tariffs should match the compliance costs or mirror foreign tariffs.
Economic Impact Summary
Current Rules (Outsourcing Incentive):
Foreign Labor: Net profit = $600,000
U.S. Labor: Net profit = $300,000
Conclusion: Outsourcing is more profitable, encouraging job loss.
Proposed Rules (U.S. Worker Incentive):
Foreign Labor: Net profit = $300,000
U.S. Labor: Net profit = $320,000
Government Tax Revenue: Increases from $300,000 to $560,000
Conclusion: U.S. jobs become more attractive, bringing back employment.
Simplified Math Examples
Using Foreign Labor (Current Rules)
Item Amount
Sales $1,500,000
Labor (25 workers @ $20k) $500,000
SG&A $200,000
Gross Profit $800,000
Tax @ 25% $200,000
Net Profit $600,000
Using U.S. Labor (Current Rules)
Item Amount
Sales $1,500,000
Labor (12 workers @ $75k) $900,000
SG&A $200,000
Gross Profit $400,000
Tax @ 25% $100,000
Net Profit $300,000
Using Foreign Labor (Proposed Rules)
Item Amount
Sales $1,500,000
Labor (25 workers @ $20k) $500,000
SG&A $200,000
Gross Profit $800,000
Tax @ 50% $400,000
Compliance Tariff $100,000
Net Profit $300,000
Using U.S. Labor (Proposed Rules with Tax Credit)
Item Amount
Sales $1,500,000
Labor (12 workers @ $75k) $900,000
SG&A $200,000
Gross Profit $400,000
Tax Credit ($20k/worker) $240,000
Taxable Profit $160,000
Tax @ 50% $80,000
Net Profit $320,000
On Fri, Apr 4, 2025 at 8:19 AM Philip Sugar <philipsugar@gmail.com> wrote:
---------- Forwarded message ---------
From: Philip Sugar <philipsugar@gmail.com>
Date: Thu, Mar 20, 2025 at 5:47 PM
Subject: US Tax Structure
To: Philip Sugar <philipsugar@gmail.com>
I wrote the WSJ and Trump here is the huge cost. We have discussed. Format not great in text. You don’t need tariffs.
If you look unemployed US citizens cost in Billions
$150 Social Security Disability
$871 Medicaid
$120 Food Stamps
$1,200 Welfare
$80 Earned income tax credit
That is $2.421 Trillion for cost of U.S. workers unemployed/underemployed.
The simple math
Summary: Having an employee in the U.S. versus not is worth $20k an employee. They pay tax, healthcare, social security, etc.
Double the U.S. tax rate on corporate profits
Tariffs should only be for compliance. I.e. EPA and OSHA rules. We need a clean environment and safe workers show your costs and we provide a tariff for only those. Or a tariff equal to yours.
Summary:
Under current rules in my example if I use foreign labor I make $600k versus $300k using U.S. workers. It is a no brainer to outsource jobs
Under my rules: I make $300k foreign workers, $320k U.S. workers
That will bring back jobs
AND the U.S. government makes $560k of tax versus $300k of tax
Simplified math:
Using Foreign Labor
Sales: $1,500,000
Labor $500,000
(25 workers at $20k)
SG&A. $200,000
Gross Profit: $800,000
Tax @25%. $200,000
Net Profit: $600,000
Using US Labor
Sales: $1,500,000
Labor $900,000
(12 workers at $75k. More productive)
SG&A. $200,000
Gross Profit: $400,000
Tax @25%. $100,000
Net Profit: $300,000
UNDER US WORKER TAX CREDIT
Using Foreign Labor
Sales: $1,500,000
Labor $500,000
(25 workers at $20k)
SG&A. $200,000
Gross Profit: $800,000
Tax @50%. $400,000
Compliance Tariff: $100.000
Net Profit: $300,000
Using US Labor
Sales: $1,500,000
Labor $900,000
(12 workers at $75k. More productive)
SG&A. $200,000
Gross Profit: $400,000
Tax Credit: $240,000. $20k Per worker
Taxable Profit: $160,000
Tax @50% $80,000
Net Profit: $320,000
Appreciate this perspective, Brian.
At Azabu Foods, our model depends on cross-border collaboration, sourcing high-quality Japanese and producing our flagship product in Japan while building everything else here in the US. Policies like this don’t just disrupt logistics, they undercut the creativity and innovation driving new food brands forward.
All my startup friends in the CPG space importing from Asia, especially Japan, are definitely scrambling even more right now.