As the United States approaches 2026, consumers may face significant price increases due to rising tariffs. In 2025, the U.S. government collected an additional $187 billion in tariff revenue compared to 2024, marking a nearly 200% increase. This surge in revenue primarily impacted businesses, which absorbed around 80% of the tariff costs last year. However, experts now warn that these costs are beginning to transfer to consumers, with predictions that businesses may pass on only 20% of the tariff burden to customers by the end of the year.
Kyle Peacock, a principal at Peacock Tariff Consulting, noted that many businesses initially hesitated to raise prices but are now feeling the pressure to do so. Some have already implemented price hikes as the new year begins, while others are contemplating increases in the coming months. Products with low profit margins, such as groceries, are expected to be among the first to see price escalations.
The upcoming midterm elections present a challenging scenario for President Donald Trump. He faces a crucial decision: maintain the current tariff strategy or ease restrictions to alleviate financial pressures on American consumers. The President has a history of shifting his stance on tariffs, earning the nickname “TACO” on Wall Street, which stands for “Trump Always Chickens Out.” Notably, Trump recently delayed significant tariffs on furniture, cabinets, and Italian pasta, a move that suggests a growing concern about the political ramifications of his tariff policies.
Understanding the Potential Impact of Tariffs
Businesses had previously built substantial inventory stockpiles to mitigate the effects of expected tariff increases. This strategy temporarily shielded them from the full impact of tariffs, which at one point reached 145% on certain goods imported from China. As these stockpiles diminish, companies will need to source goods subject to higher tariffs, which they can only absorb for so long.
Rising inflation complicates the situation further. As inflation continues to erode purchasing power, businesses have less flexibility to increase prices significantly. According to economists at Goldman Sachs, tariffs were responsible for a 0.5% increase in inflation in 2025, correlating with Federal Reserve Chair Jerome Powell‘s assertion that tariffs contributed to inflation exceeding the central bank’s 2% target, which ended the year at 2.7%.
The specific impact of tariffs on consumer prices will vary across different categories. Grocery stores, which typically work with slim profit margins, may struggle to absorb the costs associated with tariffs. In late December, Goldman Sachs projected inflation could rise by an additional 0.3% in the first half of 2026 due to tariffs.
Peacock highlighted a large grocery supplier that refrained from price increases in 2025, as it grappled with the complexities of calculating tariffs. The supplier ultimately decided to apply an average tariff rate across its product range, a strategy that reflects the varying tariff rates based on product type and country of origin.
The Uncertain Future of Tariffs
A crucial factor that could influence the trajectory of tariffs is a pending Supreme Court case that may challenge the legality of Trump’s most extensive tariff policies. According to data from US Customs and Border Protection, these tariffs have generated $130 billion in revenue as of December 14. Should the Supreme Court rule against the Trump administration, businesses might receive refunds for previously paid tariffs and face new restrictions on future tariff increases.
Peacock noted that many businesses are closely monitoring the outcome of the Supreme Court’s decision, which is expected in the coming weeks, as it will significantly impact pricing strategies for the year ahead. Meanwhile, as affordability issues dominate public concern and affect Trump’s popularity, the administration has reduced several proposed tariffs on products like produce, furniture, and pasta.
Trump’s history of adjusting tariff policies adds another layer of complexity. He previously announced tariffs on April 2, dubbing it “Liberation Day,” but ultimately did not implement the full scale of those tariffs due to various concerns, including the potential for exacerbating the already high cost of living. The administration’s adjustments, including exemptions for certain products like smartphones and auto parts, demonstrate a balancing act between enforcing tariffs and protecting consumer interests.
As the new year unfolds, both consumers and businesses will remain vigilant regarding potential tariff changes and their implications for the economy. The decisions made in the coming months will shape the financial landscape and affect American households as they navigate the challenges of rising living costs.
