So, you’re standing in the aisle of a big-box store, looking at a toaster that cost $25 last year but now sports a $32 sticker. You might blame inflation or just general "greedflation," but there’s a quieter force often driving that jump: trade policy. Specifically, tariffs.
People talk about tariffs like they’re these abstract tools used by politicians to "get even" with other countries. In reality, they are taxes. Period. But they aren't taxes paid by the country sending the goods; they’re paid by the American companies bringing them in.
If you've been wondering what will tariffs do to the economy as we head deeper into 2026, the answer isn't just one thing. It's a messy, complicated ripple effect that touches everything from your grocery bill to the stability of your local manufacturing plant. Honestly, the "America First" vs. "Free Trade" debate usually ignores the granular reality of how a 10% or 25% tax on a semiconductor actually changes a business owner's Tuesday morning.
The Inflation Ghost: Why Your Wallet Feels Lighter
Let’s get the big one out of the way. Gary Clyde Hufbauer, a researcher at the Peterson Institute for International Economics (PIIE), recently noted that he’s expecting a jump in the Consumer Price Index (CPI) toward 3.5% or more in the first half of 2026. Why? Because tariffs are finally "working their way" into the prices we see at the register.
It’s not an overnight thing.
Companies often have "pre-tariff" inventory—stuff they bought before the new taxes kicked in. They sell that at the old price. But once those warehouses empty out, they have to buy new stock at the higher, tariffed rate. Morningstar recently pointed out that while core goods prices only rose a tiny bit in 2025, import prices were up nearly 10%. That gap is closing now. Businesses can only eat the cost for so long before they pass the bill to you.
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The Tax Foundation estimates that the average U.S. household could see a tax increase—via higher prices—of about $1,500 in 2026. That’s not a small number for a family trying to keep up with rent.
The Corporate Tug-of-War
Take a look at the auto industry. Ford reported roughly $700 million in tariff costs in a single quarter last year. They’re projecting a billion-dollar hit for 2026. For a company that made about $5.9 billion in net income in 2024, a billion-dollar tax bill is a massive dent.
What does a company do when they lose a billion dollars to taxes?
- They raise car prices.
- They delay that new electric vehicle line.
- They rethink hiring.
It’s a domino effect. Stellantis—the giant behind Jeep and Ram—actually revised their projected tariff costs down from 1.5 billion euros to 1 billion euros recently, but they're still "managing this new variable." It’s basically a polite way of saying they’re scrambling to stay profitable.
What Will Tariffs Do to the Economy and Your Job?
There is a huge misconception that tariffs automatically bring back jobs. It sounds good in a stump speech. "We tax the foreign goods, so people buy American, and then American factories hire more people."
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Sometimes, that happens. Some firms have boosted investment in U.S. production to avoid the tariffs. But it’s rarely a one-for-one trade.
The Harvard Kennedy School has a pretty sobering "explainer" on this. They point out that while you might save a few jobs in the steel industry by protecting it with tariffs, you raise the costs for every other business that uses steel. Think about construction, car manufacturing, and even canned soup. For every one job saved in steel, you might lose or fail to create 60 to 80 jobs in the industries that rely on that steel.
The Federal Reserve’s "Beige Book"—basically a diary of how businesses are doing across the country—has already started reporting labor market impacts. In some regions, manufacturers are laying off workers specifically to offset these new costs.
The "Loophole" Reality
The economy isn't a closed loop. It's a leaky bucket.
Right now, nearly 46% of U.S. imports are actually exempt from the current round of tariffs. The government realizes that if they tax everything, the economy might actually stall out. So, they exempt things like bananas, coffee, and certain medicines. This creates a "loophole-ridden" environment where big companies with high-powered lobbyists get exemptions, while the small business owner—the 97% of U.S. importers—gets stuck with the bill.
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The Global Power Play and the Strong Dollar
When we talk about what will tariffs do to the economy, we can't ignore the rest of the world. They don't just sit there and take it. They retaliate.
Canada, Mexico, and the EU have all fired back with their own taxes on American goods. This makes it harder for U.S. farmers to sell soybeans or for U.S. tech firms to sell software abroad.
Then there’s the "Strong Dollar" problem. Tariffs often make the U.S. dollar stronger because we’re importing less, which means we need less foreign currency. Sounds good, right? Not if you're an exporter. A strong dollar makes American-made products more expensive for people in other countries to buy.
Actionable Steps for Navigating a Tariff-Heavy Economy
We aren't just bystanders here. If you're running a business or just trying to manage your own budget, you need a plan for 2026.
- Front-load your big purchases. If you know you need machinery, electronics, or even a new car, do it sooner rather than later. Inventory from 2025 is drying up, and the "real" tariff prices are hitting the shelves now.
- Audit your supply chain. If you’re a business owner, you’ve got to know where every nut and bolt comes from. Can you find a domestic supplier? Or a supplier in a country that has a specific trade exemption (like some under the USMCA)?
- Watch the Supreme Court. There is a massive case right now regarding whether the President can use "emergency powers" (under the IEEPA) to bypass Congress and set tariffs. If the court rules against the administration, we could see a sudden, sharp drop in certain prices.
- Diversify your investments. Trade wars cause volatility. Sectors like retail and tech-hardware are more exposed to tariff risks, while service-based industries (which don't rely on physical imports) tend to be more resilient.
The bottom line is that tariffs are a trade-off. They might help specific "national security" sectors like semiconductors, but they act as a broad tax on everyone else. Understanding that balance is the only way to keep your head above water as the 2026 economic landscape continues to shift.