US economy outlook: Trump's tariffs spared Americans in 2025 — but how will 2026 feel?

U.S. tariffs under the Trump administration materially increased costs last year—tariff revenue rose by roughly $187 billion year-over-year (nearly a 200% jump), with the broadest tariffs having raised about $130 billion by Dec. 14—and businesses initially absorbed roughly 80% of the burden. Goldman Sachs estimates tariffs added ~0.5 percentage point to 2025 inflation and could add another ~0.3ppt in H1 2026 as inventory buffers run out and firms begin passing higher levies to consumers, likely hitting low‑margin items such as groceries; political and legal developments (presidential rollbacks/delays and an imminent Supreme Court ruling) will determine the pace and distributional impact.

Analysis

Market structure: Tariff pass‑through shifts profits from importers to consumers over H1 2026 — Goldman’s +0.3pp inflation forecast and 0.5pp contribution in 2025 imply consumer staples with low margins (grocers, basic food processors) are most exposed while branded-packaged food (PEP, KO) and commodity producers (materials, energy) can gain pricing power. Inventory destocking means near-term demand for imports falls but reinventorying at higher tariff rates will raise input costs and compress margins across retail and electronics supply chains. Cross‑asset: higher goods inflation tends to lift nominal yields and USD (expect upward pressure on 2s/10s and higher break‑evens), support commodities and gold, and increase realized equity volatility especially in consumer names.

Risk assessment: Tail outcomes include a Supreme Court decision overturning major tariffs (sharp disinflation shock, equities rally) or tariff escalation/global retaliation (stagflation, higher commodity prices, earnings shocks). Immediate windows: court ruling and tariff exemptions in the next 2–8 weeks; short term (Q1–H1 2026) sees margin squeezes and price pass‑through; long term (post‑H2 2026) risk of structural reshoring and permanently higher consumer prices. Hidden dependencies: firm-level inventory cycles, FX pass‑through, wage stickiness and Fed policy; key catalysts are CPI prints (monthly >0.3% goods component), court ruling, and administration exemptions.

Trade implications: Favor protection via inflation hedges (short‑duration bonds, TIPS, commodities) and relative long exposure to firms with clear pricing power (PEP, KO) and banks/asset managers (GS) that benefit from higher yields. Short/hedge consumer staples/grocers with thin margins (KR, TGT) and select retailers; use options to limit downside around timing uncertainty (buy puts ahead of earnings or court ruling). Rotate into materials/energy (XLB/XLE) and financials (XLF) if 10y Treasury rises >25bp from current levels or CPI goods component prints >+0.3% M/M twice.

Contrarian angles: The market may underprice the probability of a court rollback — if tariffs are struck down, expect a swift disinflationary repricing that benefits cyclical retailers and hurts commodity/inflation hedges; conversely, the consensus that all tariffs will be reversed (TACO meme) risks underestimating political tail risk of selective, durable levies on strategic goods. Historical parallel to 2018–19 US‑China tariffs shows partial pass‑through and muted long‑run consumer inflation, so size positions conservatively and focus on event contingent entries (court ruling, CPI prints).

Key Decisions for Investors

• Establish a 2–3% portfolio position long in TIPS (TIP ETF) within 2–4 weeks as an inflation hedge; scale to 4% if the goods component of CPI prints >+0.3% M/M in two consecutive months or Goldman’s forecast of +0.3pp manifests.
• Initiate a pair trade: long PepsiCo (PEP) 2% weight and short Kroger (KR) 2% weight (equal notional) to capture pricing power vs margin squeeze into Q2 2026; set a relative stop of 6% and target 6–12% outperformance within 6–12 months.
• Buy a protective put spread on Target (TGT) — for example buy May 2026 1–2% OTM put / sell deeper OTM put to limit cost — sized to 1–2% of portfolio as downside hedge against tariff‑driven margin shocks into Q2 earnings.
• Overweight financials (XLF) and GS exposure by 2–3% if 10‑year Treasury yield rises >25bp from current levels or CPI headline rises by >0.3% M/M; consider short duration bond exposure (BIL) to replace long nominal duration.
• Act within event windows: reduce inflation‑sensitive long commodity/inflation trades by 30% if the Supreme Court rules to strike down broad tariffs (expected in weeks), or add 50% to commodity/TIPS positions if the court upholds tariffs or President re‑imposes broad levies.