Key Takeaways:
- The US collected $187 billion more in tariff revenue in 2025 than in 2024, with businesses footing roughly 80% of the bill.
- Businesses are starting to pass on these costs to customers, with the 80% expected to shrink to 20% later this year.
- The price increases that arise will likely vary significantly by category and product, with items with low profit margins such as groceries potentially being among the first to rise.
- The Supreme Court’s verdict on a landmark case challenging Trump’s tariffs could have a significant impact on businesses’ pricing decisions and the overall cost of living.
- Trump may look for opportunities to quietly back off other tariffs in 2026 to avoid further alienating voters, but has also foreshadowed the possibility of imposing more tariffs if the Supreme Court rules against him.
Introduction to Tariff Revenue
The state of the US economy has been a concern for many Americans, and the impact of President Donald Trump’s sweeping tariffs has been a significant factor. While the tariffs did not dramatically raise the cost of living in 2025, this 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. This significant increase in tariff revenue has been largely borne by businesses, which footed roughly 80% of the tariff bill last year.
Businesses Passing on Tariff Costs
However, businesses are starting to pass these costs on to customers, and this 80% could shrink to 20% later this year, according to JPMorgan. This shift in cost burden is likely to have a significant impact on the cost of living for Americans. Many businesses have opted to pass on the costs immediately at the start of the new year, while others are planning to wait until later in the first or second quarter. Items with low profit margins, including groceries, may be among the first to rise next year. This is because businesses with low profit margins have less ability to absorb the costs of tariffs, and therefore are more likely to pass them on to consumers.
Impact on Consumers
The 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, and it is possible that he may do so again. The White House has already delayed massive tariffs on furniture, cabinets, and Italian pasta, and may look for opportunities to quietly back off other tariffs in 2026 to avoid further alienating voters. However, Trump has also foreshadowed the possibility of imposing more tariffs if the Supreme Court rules against him in a landmark case challenging his tariffs.
Business Strategies
Businesses have been building up massive inventory stockpiles to get ahead of future tariff increases, which has helped soften the blow from levies. However, as those stockpiles run out, businesses have had to start purchasing goods with the higher tariffs, and they can only eat that cost for so long. To remain competitive, businesses are not going to increase prices by as much as the tariffs they’re paying on imported goods. With inflation taking a bigger bite out of people’s paychecks, businesses have much less leverage to raise prices. This means that the price increases that arise will likely vary significantly by category and product.
Inflation and 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 that Trump’s tariffs were responsible for the entirety of inflation’s rise above the central bank’s 2% annual inflation target. Goldman anticipates inflation will increase by three-tenths of a percentage point in just the first six months of this year. One large grocery supplier has opted to apply the average tariff rate it pays across all products it sells, after holding off on price increases last year due to the complexity of accounting for tariffs.
Supreme Court Case
There is 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. If the Supreme Court sides against the Trump administration, it could result in businesses getting refunds on the tariffs they’ve already paid, and would rein in Trump’s ability to impose higher tariffs without any restrictions. 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.
Conclusion
In conclusion, the impact of Trump’s tariffs on the cost of living in 2026 is likely to be significant, with businesses passing on costs to consumers and price increases varying by category and product. The Supreme Court’s verdict on the landmark case challenging Trump’s tariffs could have a major impact on businesses’ pricing decisions and the overall cost of living. Trump may look for opportunities to quietly back off other tariffs in 2026 to avoid further alienating voters, but has also foreshadowed the possibility of imposing more tariffs if the Supreme Court rules against him. As the situation continues to unfold, it is essential to monitor the developments and their potential impact on the US economy and the cost of living for Americans.