As expected, tariffs are raising consumer prices

A survey shows businesses are not absorbing the full cost of tariffs

By Mark Huffman of ConsumerAffairs

June 5, 2025

• U.S. import tariffs have recently surged to historically high levels, raising input costs for a wide range of businesses.

• Firms are responding with a mix of price increases and cost absorption, depending on competition and market pressures.

• A May 2025 survey in the New YorkNorthern New Jersey region shows most companies passed on at least part of the increased tariff costs to consumers.

As businesses face steep tariffs on imported goods they are raising prices that consumers pay. Thats the conclusion of a survey of firms in the New York New Jersey region by the Federal Reserve Bank of New York. The findings indicate that most firms are passing on at least some of the cost burden to their customers, while others struggle to absorb the hit.

According to the survey, tariffs have risen sharply in the past six months. Manufacturers reported an average tariff rate of 35%, up by 25 percentage points while service firms cited a 26% average rate, reflecting a 17 percentage point jump.

These increases have had a direct impact on the cost of goods businesses import. Manufacturers indicated a 20% rise in the cost of their tariffed inputs, and service firms reported a 15% increase. Although these figures closely match the rise in tariff rates, some firms mitigated the blow by sourcing from alternative suppliers or negotiating lower prices with foreign vendors.

Price hikes across the board

The majority of firms didnt just absorb these cost increases. Instead, about three-quarters raised their prices to some extent. Nearly a third of manufacturers and 45% of service firms fully passed on the increased costs to consumers.

Another 45% of manufacturers and a third of service firms passed on some but not all of the costs. Only about a quarter of businesses chose to absorb the full cost increase without adjusting prices.

Price hikes were often implemented quickly. More than half of the firms that raised prices did so within a month of facing tariff-related cost increases, many within a matter of days. Another quarter of businesses adjusted prices within one to three months, indicating that firms are responding quickly to preserve margins.

Adjusting operations

Beyond pricing, firms are adjusting their operations to cope with the new trade environment. Sourcing strategies have shifted, with many businesses increasing domestic purchases and reducing their reliance on imports.

Roughly one-third of firms also boosted inventory levels to shield against further tariff hikes and potential supply chain disruptions. However, some businesses reduced inventories to meet immediate demand as customers rushed to buy ahead of expected price hikes.

At the same time, businesses arent just raising prices on goods subject to tariffs. Many reported increasing prices across the board, citing rising labor and insurance costs. The broader inflationary environment may also be giving firms cover to push through price hikes more aggressively, a pattern seen during previous tariff waves, such as the 2018-2019 hike on washing machines.

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