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Editor’s Note: This is the first of several stories leading up to the BiGS Debate Nov. 5, which will tackle a vital question: Will higher tariffs create a better future for the United States? The debaters will include Oren Cass, a conservative author, political advisor and commentator; Robert Lawrence, a professor of international trade at the Harvard Kennedy School and former member of the Council of Economic Advisers; Larry Summers, a former U.S. Treasury Secretary and president of Harvard University; and Katherine Tai, a former U.S. Trade Representative and a current fellow at the Kennedy School’s Institute of Politics. Register here to attend.
BOSTON — Tariffs on imported goods were billed as a way to help American businesses, narrow the trade deficit, boost American manufacturing and encourage consumers to buy domestic-made goods.
But American consumers are already paying for some of the tariffs, and not just for products produced abroad, according to research and tracking by Harvard Business School professor Alberto Cavallo. While manufacturers are absorbing some of the tariffs so far, he says costs are already being passed on to consumers — and it could get worse if the trade conflicts escalate.
“The impact on retail prices keeps accumulating, and that's what worries me,” said Cavallo, who has paired his research on the impact of tariffs with a live Tariff Tracker showing the ongoing effect by country and product category.
The increase in prices for the 350,000 goods Cavallo is tracking is about 5% for imported goods since March, and 2.5% for domestic goods, he said. But if the prices are compared to pre-tariff deflationary trends in 2024, the impact is bigger: imported goods are 6.6% more expensive, while domestic goods cost almost 3.8% more, he said.
Overall, Cavallo’s research found that tariffs have increased the Consumer Price Index (CPI) by 0.7% since March, soon after Trump began imposing tariffs.
“The Trump administration has always believed that if they put on the tariffs, foreign exporters will be pressured to lower their prices,” Cavallo said. “But we find that it's mostly U.S. firms and the U.S. consumers who end up paying.”
A consensus on rising prices
Cavallo's research with co-authors Paola Llamas of Northwestern University and Franco Vazquez of the Universidad de San Andrés is backed up by other studies.
A recent analysis by the global investment firm Goldman Sachs found that U.S. consumers will bear the economic brunt of the tariffs, absorbing 55% of tariff costs by the end of this year, with American businesses absorbing 22% of the costs and foreign exporters absorbing 18%. Only about 5% would be evaded. By the end of next year, consumers could be paying 70% of the cost, Goldman Sachs said in a research note to clients.
A report this month by the Federal Reserve Bank of St. Louis found that the tariffs were “already exerting measurable upward pressure on consumer prices,” particularly on durable goods. The Federal Reserve's Beige Book, which summarizes economic outlooks for all 12 Federal Reserve Districts, found similar concerns about inflation in its October report.
The Budget Lab at Yale University and the Peterson Institute for International Economics also found that tariffs are having an inflationary impact, with the Institute adding that if the tariffs remain in place over the coming decade, they would result in “less U.S. economic output, higher U.S. prices, and lower American wages than if they had not been adopted.”
When it comes to China, for example, Peterson research shows that the nation “isn't taking the hit of the tariffs,” said Mary Lovely, a senior fellow at the Peterson Institute. “It was passed onto the American importer [and] passed on directly onto the wholesaler and onto the retail customer.”
Domestic prices get hit, too
It's not just foreign-made goods that are made more expensive by tariffs, Cavallo and his fellow researchers found. Prices increase for domestic items as well.
One reason is fundamental market forces: because domestic goods are in direct competition with imported goods, American producers can increase their prices, Cavallo said.
Lovely said that's typical. In Trump's first term, for example, he imposed heavy tariffs on Korean-made washing machines and the prices for those machines increased. However, domestic producers also raised their prices, as well as prices for dryers — not covered by the tariffs — because the items tend to be sold in tandem.
Small businesses, too, may increase consumer prices because they are paying more for products they must import, and don't have the capacity to absorb extra costs, experts say.
When large retailers raised prices to accommodate tariffs, smaller businesses said, “we're going to try to not raise prices, giving them a competitive edge,” said Kyle Peacock, who advises businesses on how to navigate the tariff environment at the firm he founded, Peacock Tariff Consulting. But, he said, “they can only absorb it for so long.”
“A lot of goods are actually just inputs into things U.S. manufacturers make," said John Ricco, associate director for policy analysis at The Budget Lab. “That's one way [tariffs] can affect domestically-produced prices.”
Small business impact
Not knowing what will happen to the price of imported supply-chain goods is even harder for small businesses, which tend to buy supplies far less frequently than larger retailers, Peacock said. “You maybe only order one to two containers a year, but that's your lifeline,” he said.
The uncertainty of tariffs — some of which have been threatened, then pulled back, then re-threatened or imposed by the president — tends to delay passthrough in the short run. But as firms get clarity about tariff rates and their persistence, Cavallo’s research suggests we may see more price increases at the retail level.
“The biggest word I hear from everybody is uncertainty,” said Paul Magel, president of the business applications and technology outsourcing division at the global IT company Computer Generated Solutions (CGS). “We're one Truth Social away from everything changing. Everybody's always kind of afraid of what's next.”
Unequal impact
Inflation hurts some people more than others — and it can have a ripple effect on other economic indicators, experts say.
While price increases hit everyone who buys something, poorer and middle-class households take a bigger wallop, because they spend more of their income on goods than wealthier households do, said Harvard Business School assistant professor Jaya Wen.
“When the price of products goes up, that tends to increase income inequality in this country, and in a society I think people think is already pretty unequal,” Wen said.
Countries may also respond with retaliatory tariffs, which can increase prices, curtail exports and decrease employment. “Tariffs don't exist in isolation,” Wen said. “If you punch somebody in the schoolyard, you're probably going to get punched back.”
Tariffs on lumber and other building materials threaten to raise home prices by an average of $8,900, according to a UBS report. The National Association of Home Builders, which has opposed tariffs on home building materials, estimates that $14 billion (7%) of home-building goods came from overseas in 2024. Added costs not only make homes more expensive for buyers, but can affect the housing and homebuilding market as a whole.
“Most people lose” when tariffs are imposed, Wen said. “It's a relatively narrow segment of the population that wins. I do think Americans want to see fellow Americans get good jobs” if manufacturing shifts back home, she said. “But it's not clear these tariffs will achieve that goal, or how high a price we'd have to pay.”