Tariffs and Price Increases Will Drive 1,700 dollars in Costs to the Average Household
Although at surface level, tariffs look like an economic policy tool that starts at foreign importers and ends with manufacturers, in practice, tariffs almost always drive increased costs for consumers. When import duties obstruct the profitability of foreign suppliers, duty costs are passed through to importers, and frequently passed down to consumers–primarily by manufacturers raising costs of goods. This year’s tariff policies have already driven increased prices across almost every industry, with models estimating that tariffs will drive a price increase of 1.3% across consumed goods. Such higher costs of goods, when compared to consumption data, show that tariffs will result in 1,700 dollars in costs to American consumers.
The increased prices of goods driven by tariffs will also significantly raise household federal tax burden: with median household income staying relatively flat throughout the last three years, increased costs of essential goods such as food, clothing, and appliances with imported parts driven by manufacturers passing through duty costs mean that average American households, particularly among the middle and lower class will face reduced spending power. At the same time, federal tax obligations–measured in proportion to income–will remain the same, meaning that Americans have less free money within a tariffed year while being required to pay the same federal tax as a non-tariffed year. Research shows that tariffs will raise the average household’s federal tax burden by $2,100, another dimension that tariffs cost US households.
To make matters worse, the fundamental structure of tariffs disproportionately harm lower-income households. In relation to upper-middle and the top quartile of earners in the US, middle-class and lower-income Americans spend a larger proportion of their income on goods rather than services. This can be attributed to higher income households having more free income and the ceiling cost for total amount of goods necessary for an individual. Resultantly, tariff effects on prices have significantly more financial impact on lower-income households than higher-income groups, as costs of services remain relatively less correlated to trade policy. The regressive nature of tariffs means that the actual consequences and financial costs of tariffs will not be equal across Americans–lower income Americans are at significantly more risk of financial burden from tariffs and are more vulnerable to facing financial tradeoffs between essential goods and services as a result.
Tariffs Are Already Being Passed Through to Consumers
Since the administration first announced plans to use tariff policy, it repeatedly emphasized that tariff duty costs will be be paid by suppliers and external manufacturers. Yet, research has found that during the first-term trade war, all costs of tariffs were passed through to American consumers. Ongoing studies continue to analyze the economic impact of tariffs, and research has already identified a current retail tariff passthrough of 20% from 2025 tariffs. The high passthrough rate throughout a short period disproves arguments that tariff policies will only generate revenue from suppliers and the administration’s claim that American consumers do not pay the price for tariffs.
Additionally, survey responses from manufacturing firms show that “almost a third of manufacturers and about 45 percent of service firms reported fully passing along all tariff-related cost increases.” Such evidence, encompassing both both peer-reviewed research of the first-term trade war and real data highlighting current tariff passthrough, show that suppliers will pass costs down to consumers, and American taxpayers will increasingly bear the burden of sponsoring tariff revenue.
Tariff Dividends Will Cost the Government More Money Than Raised by Tariff Revenue
To some extent, the Administration has recognized tariff impacts on American consumers and industry. The 13 billion dollar farmer’s aid bailout proposed in November highlights a direct recognition of the reality of tariffs’ financial impact on the US economy. More recently, the president proposed a $2,000 one-time tariff dividend to be sent out in 2026.
However there are significant economic flaws in the dividend–modeling the costs of a $2,000 tariff dividend to income-qualifying Americans shows that the cost of the proposed dividends to households with annual income under 100,000 would total out to $300 billion dollars. At the same time, the administration’s tariffs are projected to raise approximately $240 billion dollars next year, meaning it is unlikely that the dividends could be paid exclusively with tariff revenue. Additionally, using tariff revenue to pay the dividend contradicts the administration’s proposals that tariff revenue could be used to significantly reduce the federal deficit, sponsor the proposed “Big Beautiful Bill”, cover the 13 billion dollar farmer’s aid package, or eliminate income tax.
Another key issue with the tariff dividends is that the checks exclusively cover financial costs incurred, while evidence shows that tariffs this year have driven pernicious secondary effects including layoffs, the loss of multibillion dollar trade relationships with china, unprofitability within agriculture industry, and overall increased costs of goods, none of which will be meaningfully impacted by a one time dividend. A blunt tariff dividend functionally makes no long term impact for Americans while eliminating all the utility of tariff revenue. Ultimately, the proposed tariff dividend is fiscally irresponsible and has little to no utility for reducing the important long-term consequences of tariffs.
The Bottom Line and Better Policy:
Current tariffs will drive 1,700 dollars in costs to American families while increasing tax burdens, which will be especially damaging to low-income households. While the administration has claimed that tariff revenue will come from suppliers, historical evidence and current research already show that American consumers are paying the price for tariffs. The administration’s proposed tariff dividends are a blunt instrument that will cost more than 2 years of tariff revenue and completely eliminate deficit or bailout uses for tariff revenue, while solving none of the long-term consequences to American consumers that tariff policy will cause.
The majority of economic research finds that tariff dividends, and tariffs as a whole are inefficient policy tools that fail to improve American economic performance and consumer welfare. Rather than policy that increases costs of goods, layoffs, housing prices, and has already negatively impacted vital American industries, international trade agreements and policy that lowers barriers foster better win-win trade solutions globally while also still giving room for independent industrial growth in America. International collaboration and trade agreements are more optimal policy tools that prioritize the welfare and livelihood American people, geopolitical relations, and stability for American industry.
If you’re interested in learning more about how tariffs have affected consumer conditions, listen to our podcast with a leading economist about how tariffs are destroying American farmers here