Tariffs could really sting in 2026. Unless Trump chickens out again. It's a tricky situation for Americans, as the US economy faces a potential surge in living costs due to President Donald Trump's tariffs. While these tariffs didn't significantly impact the cost of living in 2025, they could be a game-changer in the upcoming year.
The United States saw a massive 200% increase in tariff revenue in 2025 compared to the previous year, with businesses shouldering the majority of the burden. However, a shift is occurring as businesses start to pass these costs onto consumers. According to JPMorgan, the proportion of businesses absorbing the tariffs could drop from 80% to 20% later this year.
Kyle Peacock, a principal at Peacock Tariff Consulting, notes that businesses are now feeling the pressure to pass on these costs. Many are choosing to do so immediately, while others plan to wait until the first or second quarter of the year. Items with low profit margins, such as groceries, may be among the first to see price increases.
This situation sets up a challenging decision for Trump ahead of the midterm elections. He must decide whether to maintain his tariff stance or ease up to provide some relief to Americans struggling with rising living costs. Trump has a history of backing down from his tariff threats, with the acronym TACO (Trump Always Chickens Out) trending on Wall Street during the summer.
In the new year, Trump delayed massive tariffs on furniture, cabinets, and Italian pasta, offering little explanation. This move suggests that the administration is aware of the political vulnerabilities created by the tariffs. Trump may seek 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 prepare for future tariff increases. While this helped soften the initial impact, as stockpiles ran out, businesses had to start purchasing goods with the higher tariffs. They can only absorb these costs for so long.
To remain competitive, businesses of all sizes are unlikely to increase prices by the full amount of the tariffs they're paying on imported goods. With inflation already taking a toll on people's paychecks, businesses have limited leverage to raise prices further. This means that the impact of tariffs on consumers' wallets will vary significantly by category and product.
Goldman Sachs economists estimate that tariffs contributed to a half-percentage-point increase in inflation in 2025, aligning with Federal Reserve Chair Jerome Powell's statement that Trump's tariffs were responsible for the entirety of inflation's rise above the central bank's target. Goldman predicts that inflation will increase by three-tenths of a percentage point in the first six months of this year.
One large grocery supplier Peacock advises, who wishes to remain anonymous, mostly held off on price increases last year due to uncertainty about how to account for tariffs. Tariff rates vary widely depending on the product and its country of origin, and they frequently change. The supplier decided to apply the average tariff rate across all products it sells.
However, a significant X factor could prevent prices from rising as high as they might otherwise: a landmark Supreme Court case that could invalidate Trump's most sweeping tariffs. If the Supreme Court sides against the Trump administration, it could result in businesses receiving refunds on the tariffs they've already paid. This would limit Trump's ability to impose higher tariffs without restrictions.
Peacock suggests that many businesses' pricing decisions for the coming year will depend on the Supreme Court's verdict, which is expected in the coming weeks. If the verdict goes against Trump, it could lead to more tariffs, but with affordability concerns at the forefront, Trump may back off some higher tariffs that were set to take effect.
In conclusion, the impact of tariffs on consumers' wallets in 2026 will depend on various factors, including the Supreme Court's decision and Trump's actions. As businesses navigate these challenges, the coming year promises to be a crucial one for the US economy and its consumers.
