(Not So) Fun Fact: Since the conflict with Iran began, U.S. consumers and businesses have paid an additional $129 billion due to higher gas and diesel prices; this amounts to more than $980 per household.

A Story of Tariffs, Inflation, and Consumers

What’s Happening: Poll after poll continues to show that Americans are concerned about the cost of living, inflation, and the economy as a whole. This concern is showing up as dissatisfaction with the Trump Administration due to its tariff policies which raise consumer prices and the conflict in the Middle East which has significantly raised energy costs. Both of these issues negatively impact “affordability” – more accurately the cost of living – which is a top issue for most Americans. This week, the Federal Reserve Bank of New York published new research discussing the impact tariffs have on consumer goods prices. It finds that a 1 percentage point increase in average tariffs raised U.S. consumer goods prices by roughly 0.25 percentage points after a year. The wave of tariffs in 2025 is estimated to have contributed 2.9 percentage points to goods price inflation by February 2026, meaning consumer prices would likely have fallen without President Trump’s tariff policies. Numerous studies have shown that tariffs raise prices and media outlets (and yours truly) have consistently reported on the tariffs’ negative economic impacts. In short, the American public has become well aware of the connection between higher tariffs and higher prices – which has understandably resulted in roughly 6 in 10 Americans disapproving of U.S. tariff policy. At the same time, U.S. gas prices are up roughly 40 percent from a year ago and diesel is up over 70 percent. These higher energy prices are due primarily to the U.S. conflict with Iran which has constrained the global supply of energy for months. While there has been a relatively recent recovery in the flow of oil out of the Strait of Hormuz, the cost of gas continues to compound consumer concerns over inflation already elevated by historically high tariffs.

Why It Matters: The Federal Reserve Bank of New York study provides some useful reminders about the state of tariffs and consumer inflation. The first reminder is that tariffs directly raise costs because businesses that import products pay the tariff to the U.S. government; a tariff is an import tax. As other analyses have concluded, importers pick up about 90 percent of the cost of tariffs – at least initially – with the remainder absorbed by exchange-rate fluctuations or by exporters who want to remain competitive. The second is that tariffs indirectly raise prices because U.S. producers pay more for inputs such as steel, tools, or other parts. Domestic producers also raise their prices due to less pressure from foreign competitors. (This is the central goal of tariff policies: to reduce the competitive pressure on less-efficient domestic producers.) The third reminder is that these higher tariff costs are eventually passed down to the retail level where U.S. consumers “eat” those tariff costs. The recent research suggests the pass-through of higher producer/import prices to retail prices is close to 60 percent, meaning a 10-percent rise in producer prices due to tariffs results in a 5.6-percent increase in consumer prices.

These reminders shed light on why approval polls continue to show that the Trump Administration is under water in multiple economic categories. For instance, roughly 8 in 10 Americans disapprove of the president’s handling of inflation, nearly 6 in 10 disapprove of broad tariffs, and about 6 in 10 disapprove of where the economy sits as a whole. These polls are partly explained by the fact people connect current trade policies to the cost of everyday goods, slower job growth, and a countermeasure to many pro-growth trends such as artificial intelligence investment and de-regulatory measures. Nevertheless, the administration continues to tout its tariff policies as a success and cornerstone of its economic agenda. Additionally, rather than reversing course after the Supreme Court struck down “Liberation Day” tariffs, President Trump doubled down on protectionist policies. The administration quickly replaced its “Liberation Day” wave of tariffs with legally dubious Section 122 tariffs, laid the groundwork for the current Section 301 tariff regime, introduced multiple Section 232 national security tariffs, and initiated a trade war with Canada using an unprecedented tariff authority known as Section 338. The widely publicized deluge of tariffs and refusal to turn away from a protectionist trade agenda make it clear to the general public who and what is responsible for higher tariffs and by extension higher consumer prices.

Looking Ahead: According to a Cato Institute/Morning Consult survey, 75 percent of Americans say tariffs will be important to how they vote in the midterm elections this November. The same survey suggests that 74 percent of respondents believe that prices have increased due to tariff policy, with Republicans far more likely to believe tariffs are worth the cost than Democrats. The moral of the story is that trade policy will likely play one of the largest roles it has in decades during the upcoming elections. The results will likely have substantial ramifications for the future trajectory of tariffs, particularly the role the executive branch plays in setting tariff rates and what authorities the president continues to have to impose them. At the same time, it is worth remembering that neither party has been consistent in support of free trade. When Joe Biden was elected president in 2020 it was partly due to dissatisfaction with President Trump’s first-term trade agenda. Nevertheless, he maintained many of the tariffs and other trade barriers imposed by President Trump in his first term.

In Other News

Europe Takes a Page from the U.S. Tariff Playbook: The European Union (EU) appears to be taking some inspiration from U.S. tariff policies. According to The Wall Street Journal, Germany and France want to introduce a new tariff tool to “fight back against a flood of cheap Chinese imports.” This proposed tariff tool is said to be modeled after the U.S. Section 301 authority, which allows the imposition of tariffs to counteract unfair trade practices that discriminate against U.S. goods. Officials stated that this instrument would allow swift responses to hostile trade actions such as sudden tariffs or export bans. It would not be designed to target any specific country, but rather is intended to be used as a deterrent. The move toward such a tool is a direct response to the increasing weaponization of trade on the world stage as well as a reaction to increasing concerns of diminishing industrial production in Europe. This potential new EU version of Section 301 would complement or replace the current anti-coercion instrument which allows for protectionist measures in response to economic coercion from foreign governments. The goal would be to make this tool easier to trigger than the existing anti-coercion mechanism, which requires more than half of the EU’s member states comprising 65 percent of the bloc’s population to vote in favor. Furthermore, German and French officials are recommending the introduction of a new trade diversification instrument to “derisk” the EU’s import reliance on a single country.

Update on Tariff Refunds: Customs and Border Protection posted a new court filing on October 6, outlining the progress of the International Emergency Economic Powers Act (IEEPA) refunds. The refund process goes through the Consolidated Administration and Processing of Entries (CAPE) portal (read more here). As of October 2, importers have submitted 297,887 separate CAPE declarations (refund requests), each of which can cover up to 9,999 import entries. Of the 297,887 CAPE declarations, 209,262 have passed the initial declaration-level validation process. The validated declarations include 27.4 million import entries, of which 21.19 million have entered the refund process. This means that $136.6 billion in potential and certified refunds (including interest) have been accepted for processing of which $126 billion has been sent out for disbursement to importers who paid the illegal IEEPA tariffs. Additionally, Phase 3 of the CAPE refund process has launched, covering import entries that had already been officially settled/paid for but have been reopened by the court order for reliquidation. So far, 477 CAPE declarations have been accepted in Phase 3 covering over 425,000 individual import entries.

Figure 1: Status of the IEEPA Tariff Refund Process in Phase 1 and 2 (As of October 2, 2026)

Source: United States Court of International Trade Court Filings