Paying More and Buying Less: 2025 Tariffs and U.S. Household Spending

Hacıoğlu Hoke, Sinem and Leo Feler

No 21471, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We estimate the effects of the 2025 U.S. tariffs on households using transaction-level data linked to tariff exposure and a tariff sentiment survey. Using the realized tariff rate, we find retail price pass-through of about 0.15, while our benchmark tariff-exposure measure blends the tariff rate with import penetration and yields a larger price coefficient of 0.20. Low-income households bear a disproportionate welfare burden through regressive pass-through. Aggregate spending on affected goods falls about three times as much as prices rise. Quantity declines drive the contraction in spending and are concentrated entirely in non-essential categories, where households have the flexibility to cut back. The real income lost to tariffs explains at most a third of this contraction, leaving the greater part behavioral. We link stated intentions in the survey to households' spending, and identify the mechanism as a precautionary response driven by pessimism about the economic outlook. More pessimistic households reallocate their baskets toward essentials and the cut in non-essential spending behind this shift is concentrated among middle-income households. Within the essential categories they expect tariffs to affect, worried households at every income level trade down to cheaper varieties.

Keywords: Tariffs; Pass through; Prices; Welfare (search for similar items in EconPapers)
JEL-codes: D12 E31 F13 (search for similar items in EconPapers)
Date: 2026-05
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