Dean, Jacobson Financial Services, LLC

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Tariffs: How Businesses & Consumers Are Affected

When people speak of The Fed, it’s often like we are discussing Big Foot or the Loche Ness Monster. Actually, there are 12 Federal Reserve Banks across the United States that comprise the Federal Reserve System. Let’s take a closer look at the Federal Reserve Bank of San Francisco’s (FRBSF) take on tariffs and the burden they may pass on to both businesses and consumers.

The FRBSF’s research analyzes the effect of tariffs on Personal Consumer Expenditures (PCE) as well as for Private Investment in Equipment (PEQ).

For example, with a 25% tariff on imported goods from China for the consumer market, we can expect PCE prices to grow about 0.3%. This estimate reflects the impact of a 25% tariff on China’s total PCE import share. If Mexico’s imports also experience a 25% tariff, PCE prices will likely experience an additional 0.3% uptick. If the same 25% tariff is applied to all imported goods from every U.S. trade partner, consumer prices may rise 2.2% in the near-term.¹

Similarly, if the 25% tariff is extended to all China’s imported goods, we potentially will experience a 1.6% increase in PEQ prices. If 25% tariffs are completely passed through to all finished goods from all countries, estimates change to PEQ prices growing by 9.6%.¹

Implications for these estimates range widely. The key takeaways:

1. Not all products are made in other countries, but most products import at least some of the raw materials they need for a finished product from other countries.
2. The potential effects are going to be larger for investment prices (PEQ) compared to consumer prices (PCE). The sheer volume of imported goods for the PEQ market is the main factor that will ultimately drive excessive price increases for businesses.
3. Businesses may choose to absorb some of the extra tariff costs, but the consequence will be a diminished bottom line, less employment opportunities, and reduced funds for investing in equipment needed to grow the business.

The bottom line: Every business owner is in business to make a profit on purpose. Businesses may or may not choose to absorb some of the extra costs from tariffs. If they do, they probably can’t do it for a long time. And while prices won’t go up as much temporarily (a benefit to the consumer), if companies downsize their staff or discontinue hiring new people as a result, then the pill might be worse than the disease. The consumer loses either way.

Lastly, these assessments were based on one-time tariffs. It’s common for consumption and investment goods to be reexported and/or reimported more than once. Due to goods being subject to tariffs every time they cross the U.S. border there will be a compound effect that was not factored into the numbers presented by The Budget Lab or the Federal Reserve Bank of San Francisco.

Is Inflation Really Tied to Tariffs?

Our great grandparents, grandparents, and parents may not have felt the effect of inflation to the degree we do today since prices generally grew slowly over time for those generations. Tariffs may partially be responsible for inflation in 2025 and going forward, but it doesn’t explain the rising costs Americans have seen over the last decade. Whether you look at the price of peanut butter, a pair of sneakers, a car, or a new home, there is no denying prices have skyrocketed.

The average price of a home in 1950 was just $7,354³. The average household income was around $3300³, which made home ownership very affordable. That’s an income to home price ratio of 1:2.23.³

Today, with the average home price at $552,600³ and the median household income in 2023 recorded at $80,600³, you can see how much more difficult it has become to afford the American Dream. That’s an income to home price ratio of 1:6.86.³

How Tariffs Impact Consumers

According to research performed by The Budget Lab at Yale University, “The 2025 tariffs disproportionately affect clothing and textiles, with consumers facing 87% higher shoe prices and 65% higher apparel prices in the short run. Shoes and apparel prices stay 29% and 25% higher in the long run respectively.”⁴

They also report, “The 2025 tariffs imply an increase in consumer prices of 3.0% in the short run, assuming no policy reaction from the Federal Reserve. This is a pre-substitution number that captures consumer welfare effects. It is the equivalent of a loss of purchasing power of $4,900 per household on average in 2024 dollars.”⁴

No one wants to be out $5k per year. That being said, we can all probably tighten our proverbial belts and make do with a smaller wardrobe.

Fiscal Impact & Regressive Nature of Tariffs

The Budget Lab (TBL) also predicts if tariffs remain in place, versus expiring in 90 days, the projected income the U.S. would raise is $2.4 trillion from 2026-2035. On the downside, tariffs would cause reductions in tax revenue to the tune of -$631 billion over the decade.⁴

Tariffs are also considered a regressive tax that place more of a burden on lower-income households.

Long-Term Battle Plans

If you have been considering upgrading some equipment for your business, remodeling your kitchen, or simply investing in a few pairs of running shoes, now might be the time to take the plunge.

Prices may continue to rise. These projections are based on 25% tariffs. Recently, Trump announced he will impose a 50% tariff on copper imports. According to Reuters, “He blamed the decline of the U.S. copper industry on past administrations, saying copper was needed for semiconductors, aircraft, electric vehicle batteries and military hardware.”²

Copper has many applications. Trump was just scratching the surface. In fact, imposing higher tariffs on copper may be just the beginning of more tariff wars.

Upcycling Ideas for the Win/Win

It turns out you don’t need to pay oodles of money to entertain your kids with escape rooms, ski trips, visits to Disneyland, paintball, and whatnot. Upcycling is for the entire family! Better still, there are no tariffs involved when you upcycle.

Here are some great ideas to entertain your family on a dime:

• Make a cork board from wine corks
• Have any old jeans? Turns out there are thousands of videos on YouTube showing you how to transform old jeans into simply fabulous new items.
• Make a planter out of old mattress springs, an old dresser, or a pallet.
• Teach your kids to grow their own fruits and veggies. Nothing tastes better than eating food you have grown yourself. You can upcycle cinder blocks to create raised beds.
• Transform outdated items into fresh, fun, and stylish items. Old spoons become cute wall hooks. An old bookcase can be updated with paint, wallpaper, and an imagination.

There are also events you can take your kids to for reduced prices or free of charge. Check out your local library. It’s probably one of the most underutilized resources in your community. Most libraries organize special live events with science centers, zoos, magic houses, etc. as well as virtual events to discuss astronomy, art, chair yoga, how to use an iPad, and more.

Libraries also have a host of helpful items you can borrow including: telescopes, power washers, carpet cleaners, food dehydrator, tools, sewing machines, musical instruments, a metal detector, etc. All you have to do is search for “Library of Things” for a complete online listing on your local, public library’s website.

Best regards,

DEAN, JACOBSON FINANCIAL SERVICES

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Securities and Retirement Plan Consulting Program advisory services offered through LPL Financial, a Registered Investment Advisor, member FINRA/SIPC. Other advisory services and investment advice offered through Dean, Jacobson Financial Services, LLC, a Registered Investment Advisor, and separate entity from LPL Financial.

*The views expressed are offered through Dean, Jacobson Financial Services, and do not necessarily represent the opinions of the firm or its advisors, nor those of LPL Financial. These views should not be construed as investment advice. Please contact advisors at Dean, Jacobson Financial Services for specific questions or explanations on interpreting this information for your personal circumstances. Sources: 1. https://www.frbsf.org/research-and-insights/publications/economic-letter/2025/05/effects-of-tariffs-on-inflation-and-production-costs/ 2. https://www.reuters.com/world/asia-pacific/eu-seeks-trade-deal-with-trump-this-month-new-tariff-notices-due-2025-07-09/ 3. https://www.noradarealestate.com/blog/average-house-price-in-1950/#:~:text=In%201950%2C%20the%20average%20house,That's%20a%20significant%20jump 4. https://budgetlab.yale.edu/research/state-us-tariffs-april-15-2025