What Are Tariffs? 6 Facts You Need to Know in 2025

If you’ve read the news lately, chances are you’ve seen plenty of stories about tariffs. Tariffs are taxes on imported goods. Countries tack on this extra fee for several reasons, including to improve domestic businesses and industries and increase government income. Countries also use tariffs to negotiate trade agreements with other countries.

Not all economists agree that tariffs will be beneficial; they have far-reaching effects on citizens and the economy. Below, we’ll share six facts you need to know about tariffs, including some historical background and the impact on domestic consumer prices and small businesses. We’ll also share what you can do to mitigate the effect tariffs can have on your finances.

Table of Contents

1. 1. Tariffs are taxes on imports that raise consumer prices
2. 2. The 2025 tariff surge mirrors historical trade conflicts
3. 3. Tariffs disrupt supply chains and increase business costs
4. 4. Consumers are adjusting spending habits amid rising prices
5. 5. Tariffs can lead to retaliation and global trade instability
6. 6. Practical financial strategies can mitigate tariff impacts

1. Tariffs are taxes on imports that raise consumer prices

Countries have a few reasons for implementing tariffs. These include encouraging consumers to shop for goods made domestically and to raise government revenue. Tariffs are also a trade bargaining tool. Countries can negotiate tariffs to encourage trade between nations or to make it more difficult. 

A drawback of increasing tariffs is that it often means increased consumer prices.

How much will prices rise because of tariffs? 

The Federal Reserve Bank of Boston conducted an in-depth analysis and prediction of recent proposed U.S. tariffs. The data specifically looked at Americans’ projected Personal Consumption Expenditures (PCE), which is a measure of how much Americans spend. The Federal Reserve Bank estimated that new tariffs could increase PCE by a minimum of 0.5%. 

However, if some of the tariffs the U.S. government initially proposed came to fruition, they could increase PCE—how much Americans spend—up to 2.2%. The Budget Lab by Yale University estimated a slightly higher 3% increase in prices, which equates to a $4,900 per year loss for American consumers. 

According to the Federal Reserve Bank of Boston, businesses and retailers will ultimately determine the financial impact on consumers. Businesses must decide how much of the price increases to absorb and how much to pass on to consumers. Therefore, it’s not possible at this time to determine exactly how much costs will change.

2. The 2025 tariff surge mirrors historical trade conflicts

Several economists and members of Congress have compared the 2025 tariffs with the Smoot-Hawley Act of 1930. The Smoot-Hawley Act in 1930 implemented a series of foreign tariffs that created retaliation tariffs, not unlike the trade war today. According to AP News, this led to a significant economic crisis.

Recently, ranking member Edward J. Markey of the U.S. Senate Committee on Small Business and Entrepreneurship referenced the Smoot-Hawley Act and called the tariffs a “small business crisis.” The committee drew comparisons to the historic trade conflict and warned that tariffs would increase both consumer and business uncertainty.

3. Tariffs disrupt supply chains and increase business costs

Increased tariffs inevitably lead to increased costs for businesses that rely on international trade to operate effectively. The Federal Reserve Bank of Richmond published its April 2025 brief, which mentions the economic impact of tariffs. It includes data from its First Quarter 2025 CFO survey, which showed 30% of firms say trade and tariff policies are their biggest concerns.

The report also shared several industries that would be affected, including aluminum and steel, auto tariffs, electrical equipment, apparel, and furniture. In essence, tariffs will affect most key industries, from manufacturing to agriculture to mining. Tariffs can also cause global supply chain disruptions, and some areas of the country will be hit harder.

For example, the Fed says high auto tariffs will hurt certain regions with automotive manufacturers, like the Midwest. Similarly, tariffs on electronics and automotive imports will harm Southern California and the Bay Area, which are large tech hubs. These increased business costs could be passed on to consumers.

4. Consumers are adjusting spending habits amid rising prices

A joint survey by the Chicago Booth School of Business, the University of Texas, and the University of California at Berkeley showed that Americans have been preparing for increased prices amid news of increasing tariffs. The survey showed 43% of Americans planned to purchase and stockpile goods.

The survey also showed that Americans are increasing their cash savings (34%) and setting aside more money because they feel uncertain about future prices (36%). Plus, more consumers plan to shop secondhand. The U.S. dollar’s value is down over 9% since January, according to the University of Virginia’s Darden School of Business.

ThredUp, one of the largest resale companies online, reported in its 13th Resale Report that 59% of consumers said they’ll seek more affordable clothing options if tariffs increase apparel prices. Consumers have already demonstrated an increased interest in shopping secondhand over the past few years, but the market is expected to explode to $74 billion by 2029.

5. Tariffs can lead to retaliation and global trade instability

The World Trade Organization’s Chief Economist, Ralph Ossa, explained that recent tariff policies have brought significant uncertainty across the globe. The WTO predicts trade volume to drop 0.2% in 2025, rather than the predicted nearly 3% rise that was expected.

Much of the uncertainty stems from the power struggle between the U.S. and China. An article from Columbia Business School reports that the tariff war between the U.S. and China is responsible for current market volatility.

As of late April 2025, these trade negotiations are changing in real time. The Peterson Institute for International Economics publishes an updated guide on the tariff impact on several sectors, such as seafood, shipbuilding, and semiconductors. The guide also highlights when a tariff creates trade deficits and other countries retaliate.

6. Practical financial strategies can mitigate tariff impacts

According to a recent CNBC survey, 66% of Americans say tariffs are one of their top financial stressors, along with inflation and high interest rates. If you are among the many Americans worried about personal finances during this period of uncertainty, here are strategies you can implement to mitigate tariff impacts on your finances:

Use budgeting tools

If you’ve never used a budget, it can be a great tool to monitor spending. Think of a budget more like permission to spend, rather than something restrictive. Sometimes, being more aware of spending patterns can show you simple ways to improve your money habits. Numerous budgeting apps can make the process easier.

Avoid high-interest debt

During economic uncertainty, it can be easy to turn to high-interest debt, like credit cards, to pay for everyday expenses. Avoiding recurring high-interest payments is essential to prevent your debt from compounding. Apps like EarnIn enable you to borrow a small amount (often a couple of hundred dollars) by paying a small transaction fee instead of accruing interest.

Shop locally

Tariffs are complicated because even many American-made products contain foreign parts, according to NPR. However, shopping for the best deals, going to farmers’ markets to buy local produce, and being mindful of the tariffs’ impact on large purchases, like vehicles, can help you save money.

Build an emergency fund

The New York Federal Reserve’s 2025 Survey of Consumer Expectations showed that 30% of households expect to be in a worse financial position this time next year. Building an emergency fund can help make you feel more secure. Having a financial cushion, even $500 to $1,000, makes unexpected house or car repairs feel manageable amid rising prices.

Cook at home

The Bureau of Labor Statistics’ most recent Consumer Price Index Summary showed that prices of food purchased away from home increased 3.8% over the past year, whereas the prices for food at home rose 2.4%. (Yes, that includes what is now considered a luxury: eggs.) Egg prices rose 60.4% in 12 months.

Still, prepping food at home, shopping for shelf-stable foods during sales and stockpiling them, and being mindful of food consumption and waste are more affordable than eating out, even at a fast-food restaurant.

Purchase secondhand

Shopping secondhand is another great way to purchase needed items, such as clothing, furniture, and even kids’ sports equipment, at a discount. You can also join local Buy Nothing groups, where neighbors give and receive items free of cost. 

Before purchasing something new, you can also ask a friend or family member to borrow something, like the tools you need for a project. Ultimately, thinking twice before buying new and asking yourself whether you already have what you need on hand is another great way to be more mindful about your spending.

Some of my clients are not currently concerned about the impact of tariffs and, as a result, haven’t made any significant changes to their spending habits. Others, however, are taking proactive steps to reduce expenses by handling tasks and maintenance themselves, when within their capabilities, instead of outsourcing. 

Many of my clients have strong cash reserves or well-funded emergency savings they can draw from if needed. The majority are age 50 and older, and I’ve noticed a growing interest among them in budgeting app recommendations as they look to better manage their finances.