Tariffs have been a confusing, on-again, off-again presence throughout 2025, leaving many unsure of what comes next. While the U.S. has long used tariffs, the current administration's approach is broader and more aggressive than what we had come to expect. Consumers are feeling the effects more directly this time, especially with the end of the de minimis rule that had allowed many small imports to avoid extra fees.
What is a tariff?
A tariff is a tax imposed by a government on imported goods to make them more expensive, which discourages locals from buying them and helps protect domestic industries by decreasing some of the competition. They are typically assessed as a percentage of the product’s value.
Tariffs are considered “regressive” because they tend to disproportionately impact lower-income households. Unlike income tax, a progressive tax that varies based on income, tariffs are assessed equally to everyone. However, a $3 increase in the price of a shirt is going to hurt someone more if they make less money.
Who pays the tariff?
Tariffs are paid by the importer. If you buy a dress from a seller in Vietnam for $10 with a 20% tariff, you will receive an invoice from customs for $2 to be paid before the package is released to you. If Ford imports $1,000 steel to build a car, they pay a 50% tariff on that steel. Ford can either choose to eat that $500, or they can incorporate it into the price of the finished product and pass the cost on to the consumer. Simply put, tariffs are paid by either companies or consumers; the foreign country or exporter does not pay the tariff. For this reason, tariffs tend to cause inflation and slow economic growth.
Why would our country impose a tariff?
An exporter’s product is now less attractive to importers due to tariffs, which puts them at a disadvantage against domestic sellers of the same product. In the example above, if Ford was able to buy that same $1000 of steel domestically, they would enjoy savings of $500 because they wouldn’t be on the hook for the tariff. However, in the case of products that aren’t domestically available, like chocolate or coffee, it simply leads to higher prices.
What is the De Minimus Exception and what happened to it?
Until recently, US consumers enjoyed the “de minimus” exception which meant that shipments worth less than $800 were allowed to enter the country duty- and tax-free. This meant that many individuals haven’t been personally, specifically affected by the 2025 tariffs, even on products that might have otherwise qualified.
However, the current administration has moved to suspend this exception – in May, this exception was removed for items from China and Hong Kong. As of August 29th, 2025, the exception will be suspended entirely. This means that all packages, regardless of value, will be subject to customs duties and taxes.
How much money has been brought in by these increased tariffs?
As of August 22, Americans have paid nearly $156 billion in customs duties and taxes including a monthly record of $29 billion in July.
What happens to the money from tariffs?
The money from tariffs goes into the U.S. Treasury, the same as our income taxes. Treasury spending is set by congress; if congress does not set a specific purpose for these funds, they will go into the pool that pays for existing programs and help to pay down the US debt. The US debt is about $37.2 trillion dollars, so the impact of these tariffs on debt reduction is negligible.
What can you do to cope with these higher costs?
It’s difficult to react to these tariffs because their permanence and amounts are unpredictable. Trump has shown us that amounts are changeable, as evidenced by the wild rollercoaster ride with China that saw a high of 145%. There are also legal challenges to these tariffs; the constitutional power to set tariffs rests exclusively with Congress, but a president may be allowed to set tariffs in certain emergency situations. The courts will decide is this is truly an emergency.
So what can we do as individuals?
- Shop smarter: Use price comparison tools online to find cheaper alternatives and substitutions and time your big purchases. If tariffs are raising costs on electronics, vehicles, or home improvements, consider waiting for sales or exploring used or refurbished options. If you can wait, you may also want to put off a big purchase to see if the courts nix the tariffs.
- Keep a budget: Track your spending and note how inflation, scarcity, or price increases affect your spending. Prioritize essentials and potentially cut spending on discretionary goods that have been hit by tariffs.
- Be aware of your liquidity: Make sure that you have funds available to cover elevated expenses. If you are retired, this is especially important!
- Stay informed: Follow trade policy developments and news from reliable sources that are as apolitical as possible (no easy task).
Above all, it’s important to focus on thoughtful, strategic spending—something many of us haven’t needed to do in a while. While tariffs can create short-term challenges like higher prices and supply disruptions, they also offer a chance to rethink, adapt, and prioritize. This is a test of our resilience, but like past challenges over the last fifty years, we will get through it. If you’re unsure how tariffs might affect your budget or financial goals, we’re here to help you make smart, informed decisions and stay on track.