Tariffs may deliver a painful blow in 2026, especially if Trump chooses not to retreat again.
While it may provide little solace for Americans feeling disheartened by the current state of the U.S. economy, the sweeping tariffs imposed by President Donald Trump did not drastically impact the cost of living in 2025. However, this scenario might take a turn in 2026.
In the previous year, the United States saw an impressive $187 billion increase in tariff revenue compared to 2024, marking an almost 200% surge. But who actually bore the brunt of these tariffs? The majority was shouldered by businesses, which accounted for around 80% of the total tariff expenses last year.
Now, however, many businesses are beginning to transfer these costs to consumers. According to JPMorgan, that initial 80% share paid by companies could shrink down to just 20% later this year.
Kyle Peacock, a principal at Peacock Tariff Consulting, noted, "A significant number of our clients were initially hesitant to pass on these costs, but they are now finding it necessary to do so." He mentioned that some businesses opted to implement price increases right at the start of the new year, while others are contemplating waiting until the first or second quarter to make adjustments.
One area likely to see immediate price hikes is groceries, which typically operate with tight profit margins.
This potential surge in prices presents a complex dilemma for Trump as the midterm elections approach: should he maintain his current tariff strategy or ease restrictions to provide some relief to Americans grappling with rising living costs?
Trump has previously backed down from his tariff threats on numerous occasions, to the point where the acronym TACO, standing for "Trump Always Chickens Out," became a trending topic on Wall Street during the summer months.
As the year began, Trump announced a delay on significant tariffs affecting furniture, cabinets, and Italian pasta. Although the White House provided scant details about this postponement, the timing suggests that the administration has become increasingly aware of the political risks associated with these self-imposed challenges. It is possible that Trump will look for chances to quietly retract additional tariffs in 2026 to avoid further alienating voters.
In the early part of last year, businesses significantly increased their inventory levels to prepare for upcoming tariff hikes. This strategic move helped soften the impact of these levies, which had, at one point, reached as high as 145% for products imported from China. As those stockpiles diminished, companies were compelled to buy goods subject to higher tariffs, a cost they can only absorb for so long.
To remain competitive, businesses, regardless of their size, will not increase prices to the full extent of the tariffs imposed on imported goods, Peacock explained. With inflation increasingly affecting consumer purchasing power—wages are growing at a much slower pace than in previous years—businesses have less flexibility to raise prices.
So what can consumers expect in terms of price increases due to tariffs in 2026? The answer largely hinges on the specific products being purchased. The anticipated price hikes will likely vary significantly across different categories. For instance, grocery stores usually operate on narrow profit margins per product, giving them limited capacity to absorb the impact of tariffs.
Economists from Goldman Sachs estimated that tariffs contributed to a half-percentage-point increase in inflation during 2025, aligning with Federal Reserve Chair Jerome Powell's assertion that Trump's tariffs were responsible for the overall rise in inflation above the central bank's 2% target (the year ended at 2.7%). Goldman anticipates that inflation could rise by three-tenths of a percentage point in just the first half of this year, according to a note released in late December.
One major grocery supplier, who wished to remain anonymous for privacy reasons, primarily avoided raising prices last year because they struggled to find the best way to account for tariffs. The reason for this confusion lies in the varying tariff rates that differ based on product type and country of origin, compounded by frequent changes to those rates. Recently, the supplier decided to apply an average tariff rate across all the products they sell.
However, an unpredictable factor could play a significant role in preventing prices from escalating as high as expected this year: a pivotal Supreme Court case that could potentially overturn Trump's most extensive tariffs. These tariffs have collectively generated $130 billion in revenue as of December 14, according to data from U.S. Customs and Border Protection.
While a favorable outcome is not guaranteed, if the Supreme Court rules against the Trump administration, it could lead to businesses receiving refunds for tariffs they have already paid. At the very least, such a decision would limit Trump's ability to impose higher tariffs without restriction, as he has done throughout his second term.
Peacock indicated that many businesses will base their pricing strategies for the upcoming year largely on the Supreme Court's ruling, which is anticipated in the near future.
Nevertheless, Trump and members of his administration have already hinted at potential next steps if the Supreme Court does not rule in their favor. (Spoiler alert: it involves the implementation of more tariffs.)
On the flip side, with affordability concerns taking center stage and negatively impacting Trump’s popularity, the president has recently scaled back several proposed tariff hikes that were either set to be enacted or had been formally suggested. This includes tariffs on produce, furniture, cabinetry, and pasta.
Trump is no stranger to retracting some of his tariff threats. On April 2, which he labeled "Liberation Day," he proudly showcased historic tariffs on a poster board. However, the administration ultimately refrained from enforcing tariffs at such high levels due to various concerns, including the potential to exacerbate Americans' already elevated cost of living, which was one of the issues he campaigned to address.
Consequently, his administration introduced a range of exemptions and carve-outs for items like smartphones, auto parts, and products compliant with the US-Mexico-Canada Agreement, all of which mitigated the overall impact of the tariffs.
