Analysis: tariffs would largely pass through to consumers, pushing some retail prices up ~20%
- New research from the National Bureau of Economic Research and the Federal Reserve says the 2025 U.S. tariffs were passed through into consumer prices, with retail effects building over months. - An NBER paper estimated 20% retail pass-through and a 0.7 percentage-point lift to the Consumer Price Index by September 2025; a Fed note later found core goods prices up 3.1%. - The newer studies sharpen an older debate: tariffs hit importers first, then shoppers, while trade and output weaken over time. (nber.org)
Tariffs are taxes on imports, and new U.S. research says a meaningful share of those taxes showed up in store prices in 2025. (nber.org) (federalreserve.gov) The clearest new estimate comes from an NBER working paper by Alberto Cavallo, Paola Llamas, and Franco M. Vazquez, released in November 2025. Using daily prices from major U.S. retailers matched to tariff rates and countries of origin, they estimated retail tariff pass-through at 20%. (nber.org) That paper found imported goods rose roughly twice as much as domestic ones after the broader tariff measures announced in early March 2025. It estimated those tariffs added about 0.7 percentage points to the all-items Consumer Price Index by September 2025. (nber.org) A Federal Reserve note published on April 8, 2026 said the price effects kept building after that. The authors estimated tariffs implemented through November 2025 had raised core goods personal consumption expenditures prices by 3.1% through February 2026 and boosted core PCE overall by 0.8%. (federalreserve.gov) The Fed note said the cumulative effects after seven months were consistent with full dollar-for-dollar pass-through in the most exposed categories. It also said those tariff effects explained all of the excess inflation in core goods relative to pre-pandemic inflation rates. (federalreserve.gov) That does not mean every tariff becomes a one-for-one price jump on a store shelf the same day. A 2021 American Economic Review: Insights paper found near-complete pass-through at the border during the 2018-2019 trade war, but a more limited effect in U.S. stores, suggesting retailers absorbed part of the hit through lower margins. (aeaweb.org) The newer 2025 work suggests that store-level pass-through can still become large if tariffs are broad enough and remain in place long enough. An April 2026 NBER paper by Pablo Fajgelbaum and Amit Khandelwal estimated that 90% of the 2025 tariffs were passed through to tariff-inclusive prices paid by U.S. importers. (nber.org) That importer burden matters because retailers and manufacturers then decide how much to absorb, how much to pass along, and whether to switch suppliers. The same NBER paper said the U.S. raised average tariff duties from 2.4% to 9.6% in 2025, the highest protection level in eighty years. (nber.org) The broader macro picture is less favorable than the revenue math alone suggests. An International Monetary Fund working paper in 2024 found tariff shocks depress trade, investment, and output persistently, with effects that outweigh trade-policy uncertainty shocks. (imf.org) So the current evidence points in the same direction across several studies: tariffs do not stay neatly at the port. They move through importers, into margins and supply chains, and, over months, into the prices many households pay. (nber.org) (federalreserve.gov)
