Tariffs in 2026: Businesses and consumers face the next wave of costs

For nearly a year, U.S. businesses and consumers have been adjusting to changes in tariff policy. 

Tariffs have long been used in trade negotiations, but they now play a larger role in cost structures across multiple industries. To date, many companies have attempted to limit consumer price increases by pre- purchasing inventory, negotiating with suppliers, and absorbing higher costs internally.

Those measures are becoming less effective. Inventory purchased ahead of tariff increases is largely depleted and new shipments reflect higher tariff rates. As a result, the cost of imported goods is rising.

In 2026, the effects of tariffs will be more directly reflected in prices. Companies with limited margins are increasingly passing costs on to consumers, while larger firms have absorbed what they can. These approaches have practical limits.

Uncertainty remains a key factor. Tariff rates have fluctuated repeatedly over the past year, and it remains unclear whether the current rates will remain in place. A pending Supreme Court review could alter existing duties, but companies cannot plan on policy changes occurring in time to affect near-term decisions. As a result, businesses are planning for 2026 under conditions of continued uncertainty, supply chain constraints, and higher input costs.

Supply chains under strain

Volatile trade policy, marked by on-again, off-again tariffs, has whipsawed supply chains and made it challenging for businesses to operate. With tariff swings in the 30-40% range, it can make the difference between a profitable business and one that’s no longer viable.

In July, for example, the U.S. raised tariffs on coffee imports from Brazil from 10% to 50%, which effectively halted imports for almost half a year, until an exemption was introduced in November. In the meantime, Brazilian beans were no longer an option for purchase at my local roaster in Austin because even
coffee lovers wince at paying $45 a pound. Automakers face similar challenges. General Motors and Ford estimate combined tariff-related costs of $6.5 to $7.5 billion in 2025. Absorbing these costs indefinitely is not feasible.

In addition, many manufacturers are subject to multiple overlapping tariffs, including reciprocal tariffs of up to 40%, industry-specific duties of 25% or more, and additional national security tariffs of 25-50% on materials such as steel, aluminum and copper. In some cases, tariffs account for more than half of the product's cost.

Remember that tariffs are taxes paid by American businesses and consumers, creating downward pressure on profitability and affordability. As tariff levels of 20- to 50% on imports make their way through the supply chain, consumers will ultimately face double-digit price increases.

This represents a significant risk to business viability, consumer spending, and the economy at large. For comparison, inflation rates of 3- to 4% are considered elevated by Federal Reserve standards, well above their 2% inflation target.

Who’s Absorbing Costs?

Despite political rhetoric, tariffs are paid by importers, not the exporting nations. This means that American businesses, such as manufacturers, distributors, and retailers, are on the hook for paying duties as goods cross into the country.

In simple financial terms, a 40% tariff on goods means a 40% increase in the cost of goods sold. If companies keep their standard margins, this means a corresponding rise in the price consumers pay for finished goods.

But what happens next, on how these costs are handled, varies. 

Importers have a few options:

1. Pass costs to consumers: Businesses with thin margins, like retailers or manufacturers of high-volume commodities, often have little choice but to increase prices to maintain financial viability.
2. Absorb costs internally: Some manufacturers take a hit to margins and keep prices stable to protect consumer demand, though this reduces profitability and is often a short-term strategy.
3. Negotiate with suppliers: Push costs back on suppliers to share the burden. For many small buyers with limited purchasing power, this proved ineffective. Even large buyers had limited success as global suppliers face their own financial pressures.

In 2025, most companies employed a combination of these approaches, often in conjunction with adjacent strategies to soften the blow to consumers and protect demand. A common approach for industries with non-perishable goods is to pre-position inventory ahead of tariffs to temporarily buffer consumers from price shocks.

Another is shrinkflation, which creates the illusion of price stability by reducing package sizes. Plus, there is the structural latency inherent in today’s complex supply chains. These include multiple parties, each with their own cost-buffering strategies, so it takes time for cost increases to ultimately be passed along to the consumer. Much like a financial version of the famous “bullwhip effect” in supply chain.

But eventually, the pre-tariff stocks run out, customers resist further shrinkflation sleight-of-hand, and tariffs finally work their way through the supply chain. As this happens, more costs will be passed on to consumers or absorbed by businesses, and the full force of the double-digit tariff policy will begin to be felt.

2026 Outlook

In 2026, the effects of tariffs are expected to be more fully reflected in business costs and consumer prices — and it won’t be pretty. Two trade policy wildcards that could alter the course in the new year are affordability and the Supreme Court.

Voter fatigue, driven by high costs and financial hardship linked to tariffs, has put affordability on the map as a political issue heading into the midterm elections. Depending on how this plays out, we may see a shift in attitude towards the widespread use of tariffs as a means of applying political pressure.

Similarly, the Supreme Court’s pending decision could alter the legality of the IEPPA tariffs, including the reciprocal tariffs applied at most of America’s trading partners. A ruling against current IEPPA tariffs could eliminate many duties, but alternative mechanisms remain available to the Administration, meaning relief is neither guaranteed nor immediate.

In a worst-case scenario, companies could be forced to pay retroactive tariffs under new rules while awaiting refunds for previously imposed duties, effectively doubling financial burdens. Such an outcome could accelerate bankruptcies, particularly among businesses already operating on thin margins.

The true story of tariffs in 2026 will be less about policy than about strategy. How companies navigate this volatile environment with on-again, off-again tariffs can make the difference between turning a profit or running a loss. It starts by accessing real-time trade information to make confident decisions, and then connecting this to the planning and execution systems so you can act quickly when an opportunity arises.

Simply put, if your industry relies on imported goods, tariffs are a financial headwind that affects everyone. Those who can act quickly and confidently when opportunities arise will consistently gain a competitive advantage over their peers. In this bumpy environment, CEOs can use every advantage they can get.