It’s cold comfort for Americans gloomy about the state of the US economy, but President Donald Trump’s sweeping tariffs didn’t dramatically raise the cost of living in 2025. That could change in 2026.
The United States collected $187 billion more in tariff revenue in 2025 than it did in 2024, a nearly 200% increase. Who paid all that? Mostly businesses, which footed roughly 80% of the tariff bill last year.
But businesses are starting to pass those costs along to customers, and that 80% could shrink to 20% later this year, according to JPMorgan.
“A lot of our clients really didn’t want to pass the costs on, but now they’re really having to,” said Kyle Peacock, principal at Peacock Tariff Consulting. Many have opted to do so immediately at the start of the new year, while others are planning to wait until later in the first or second quarter, he said.
Items with low profit margins, including groceries, may be among the first to rise next year.
A looming spike in prices sets up a tricky decision for Trump ahead of the midterm elections: stay the course on tariffs or ease up to give some relief to Americans who are struggling with the high cost of living.
Trump has reversed his tariffs threats many times before – so much that the acronym TACO (“Trump Always Chickens Out”) trended on Wall Street for much of the summer.
Trump rang in the new year by delaying massive tariffs on furniture, cabinets and Italian pasta. The White House offered little explanation for the pause, but the last-minute tariff news dump suggests the administration has been rattled by the self-inflicted political vulnerabilities tariffs have wrought. Trump may look for opportunities to quietly back off other tariffs in 2026 to avoid further alienating voters.
Businesses built up massive inventory stockpiles in the early part of last year to get ahead of future tariff increases. That helped soften the blow from levies, which, at one point, started at 145% for goods coming from China. As those stockpiles ran out, businesses had to start purchasing goods with the higher tariffs, and they can eat that cost for only so long.
To remain competitive, businesses – no matter their size – aren’t going to increase prices by as much as the tariffs they’re paying on imported goods, Peacock said. With inflation taking a bigger bite out of people’s paychecks – which are growing much more slowly than they had been in recent years – businesses have much less leverage to raise prices.
So how much more should you prepare to pay in 2026 because of tariffs? That depends on what you’re buying. Ultimately the price increases that arise will likely vary significantly by category and product. For example, grocers typically operate with thin profit margins per product, which gives them less of an ability to absorb tariffs.
Goldman Sachs economists estimated that tariffs caused inflation to increase by half a percentage point in 2025 – roughly in line with Federal Reserve Chair Jerome Powell’s statement last month that Trump’s tariffs were responsible for the entirety of inflation’s rise above the central bank’s 2% annual inflation target (it ended the year at 2.7%). Goldman anticipates inflation will increase by three-tenths of a percentage point in just the first six months of this year, according to a note published in late December.
One large grocery supplier Peacock advises, whom he declined to name for privacy reasons, mostly held off on price increases last year because it couldn’t figure out the best way to account for tariffs. That’s because tariff rates are vastly different depending on the product and its country of origin. And on top of that, those rates frequently change. Recently the supplier landed on applying the average tariff rate it pays across all products it sells.
But there’s one big X factor that could prevent prices from rising as high as they may otherwise this year: the landmark Supreme Court case that could invalidate Trump’s most sweeping tariffs. Collectively, the tariffs being challenged have brought in $130 billion as of December 14, according to US Customs and Border Protection data.
While not guaranteed, if the Supreme Court sides against the Trump administration, it could result in businesses getting refunds on the tariffs they’ve already paid. At a minimum, it would rein in Trump’s ability to impose higher tariffs without any restrictions, as he’s done throughout his second term.
Peacock said many businesses’ decisions on how to price goods in the coming year will largely hinge upon the Supreme Court’s verdict, which is expected to be announced in the coming weeks.
That said Trump and members of his administration have already foreshadowed the path ahead if the Supreme Court rules against them. (Hint: it involves more tariffs.)
On the other hand, with affordability concerns front and center, eroding Trump’s favorability, the president has recently backed off a variety of higher tariffs that were either set to take effect or had been formally proposed. That includes produce, furniture, cabinet and pasta tariffs.
Trump is familiar with backing down from some of his tariff threats. On April 2, which Trump dubbed “Liberation Day,” Trump proudly displayed historic tariffs on a poster board. But the administration didn’t end up enacting levies quite that high because of a multitude of concerns – including the threat of raising Americans’ already high cost of living that he was elected to fix.
As a result, his administration added a number of exemptions and carveouts on smartphones, auto parts and goods that are compliant with the US-Mexico-Canada agreement – all of which limited tariffs’ impact.
