While these overall retail price effects are not small, they are more modest compared to the overall tariff rate increases we have seen. There are a few reasons why this is the case. One is the general uncertainty regarding the overall tariff regime. With President Trump frequently changing tariff rates in both directions over the course of 2025, along with the possibility that the Supreme Court would strike down the IEEPA tariffs, many firms adopted a “wait-and-see” approach before making changes in their overall pricing strategy. This is consistent with the
survey evidence from last year, which generally found that US businesses in the short run were more likely to absorb some of the tariffs.
Another reason for only small price increases over this period is that some firms operate on a contract basis and had
already locked in their prices for the year. For example, farm equipment is typically leased on a yearly basis so that these suppliers can smooth out their demand around crop cycles or insulate themselves from bad weather events. Finally, some firms have preexisting inventory from which they were drawing down, as imports were heavily front-loaded early in 2025 prior to the tariffs being imposed.
With the Supreme Court striking down the IEEPA tariffs, we should expect some savings to eventually flow back to consumers over time. A
new paper from the same authors shows that when
Canada withdrew its retaliatory tariffs on the US last year, their retail prices of affected products fell rapidly in response. However, the effect depends on whether retailers expect future tariffs to be imposed. Given that Trump has indicated he intends to impose new tariffs to replace IEEPA, firms will probably yet again adopt a wait-and-see approach before passing any savings to consumers.