Higher Prices and Fewer Choices: What American Consumers and Small Businesses Think About Tariffs

The American consumer has been given a crash course in global trade over the last three weeks. On February 1, 2025, President Trump’s announcement of a 25% tariff on goods from Mexico and Canada — coupled with an additional 10% tariff on Chinese imports — sent ripples through the economy. The February 11 reinstatement of steel and aluminum tariffs only added to the complexity. And now, with the threats of reciprocal tariffs looming for April 2, 2025, and a possible 25% tax on U.S. autos, chips and pharmaceuticals, both consumers and businesses find themselves in an uncomfortable waiting game.

Consumers have done their homework.

Today, 71% of U.S. consumers and small businesses say they are knowledgeable about these potential import tariffs. Only zillennials and Gen Z aren’t up to speed on the details.

That’s according to a study of 2,291 consumers and 560 SMBs conducted by PYMNTS Intelligence between February 5 and February 12. “Knowledgeable” is defined as a respondent who answered correctly when asked about the countries potentially impacted and percentage of tariffs potentially imposed.

But knowing about something doesn’t necessarily make consumers feel better about it.

More than half of those informed consumers — 57%, to be exact — think these tariffs will hit their wallets hard. They’re not only worried about the big picture economy (though 40% are concerned about that, too). They’re worried about their own bottom line.

That’s because 78% of those consumers anticipate higher prices and 75% expect product shortages. If you’re getting flashbacks to those empty store shelves during COVID, you’re not alone. It’s the same kind of anxiety that consumers now express, just with a different root cause.

What’s surprising is that this not-so-rosy sentiment is consistent across income, financial lifestyle (e.g., paycheck-to-paycheck versus not), and demographic cohorts. Most every consumer views the impact of the proposed tariffs as more negative than positive.

Of course, tariffs are not a new thing. The recent trade war with China saw prices rise on goods imported into the U.S. in 2018-2019. Consumers said thanks but no thanks to electronics and appliances. A paper appearing in the Journal of Economic Perspectives in 2019 estimated that those tariffs reduced U.S. real income by $1.4 billion per month by the end of 2018 because those price increases were completely passed through to consumers.

Tariffs are also not a century-old presidential artifact — although many economists compare the Administration’s sweeping tariff ambitions to those of President William McKinley. For all of you who have not consulted ChatGPT for a quick tariff refresher: As a member of Congress before his presidential inauguration in 1897, McKinley authored the McKinley Tariff Act of 1890, which raised the average tariff to nearly 50%. As president, he raised them even higher.

The idea then was to protect American industry, but it came with a price — literally. Consumers paid more, and international relations got pretty complicated until the early part of the 20th century.

But the world McKinley knew is about as different from our world today as a horse-drawn carriage is from a Tesla. Modern supply chains look more like a giant spider web that spans the globe. Just open your Amazon boxes for evidence. And if, like me, you love to turn fresh tomatoes into tomato sauce in the winter, then thank Mexico. It is the second largest supplier of agricultural products to the U.S., including more than $2 billion worth of tomatoes. There’s a decent chance that the car driving next to you on the highway was made in Mexico, or the parts that went into it came from Mexico or Canada.

These potential U.S. tariffs come at a time when many Americans are already feeling pretty punked out about prices. The U.S. is dealing with above-target inflation, it and has been since March 2021 — that’s nearly four years of watching prices on largely everything behave badly. Sure, the overall inflation rate is now hovering around 3% — but dig into the details and things look a bit messier. Auto insurance? Up 11.8%. Health insurance? Up 4%. And anyone who buys groceries knows food prices have jumped nearly 20% since 2021. There’s just no stimulus money hanging around the hoop to soften the financial blow today.

That means the increase in cost for buying and paying for the essentials — food, insurances, utilities, housing, credit card balances — will dent discretionary spending for all consumers. In fact, nearly seven in ten consumers in the PYMNTS Intelligence study say that tariffs would decrease their purchasing power. For many households, especially those with low to middle incomes, more than 70% of their paycheck already goes to essentials before they even think about any extras.

Today’s consumers are also more leveraged. Revolving debt is at an all-time high, an increase of 4.8% year over year. Many consumers who improved their credit scores during COVID got credit line increases and used them. Now more of those balances are revolving and delinquencies are rising, with 3.6% of outstanding debt in some stage of delinquency, according to the New York Fed. All of that suggests some cracks in what has been a resilient consumer as essential expenses take priority when it comes time for bills to be paid.

Fifty-one (51%) percent of consumers who are unemployed and looking for work cite the possibility of tariffs as negative to their financial standing, which we interpret as meaning their chances of finding employment and paying their bills on time.

Small businesses, however, see a silver lining.

According to the PYMNTS Intelligence study, about half of the small businesses studied view these potential tariffs as an opportunity to boost demand to source and have consumers buy domestically. They’re also quite confident about finding domestic suppliers. They see tariffs as a way to level the playing field with their larger enterprise competitors with more rigid global supply partners.

Small businesses say they’d hold the line on prices, although that sentiment varies by sector. As many small businesses say they will prioritize replacing suppliers with domestic partners as those who say they will raise prices in response to tariffs. More than a quarter (26%) of small businesses say they will raise prices if tariffs are imposed, but only 9% consider that as their first line of defense against tariffs. Nearly four times as many small retailers said they would rather discontinue a product they could not source domestically than raise prices, at least initially. Fifteen percent of small businesses will raise prices but explore value-added services to justify the additional cost to the consumer.

It all sounds good on paper, but modern supply chains are incredibly complex. Even “domestic” products often rely on imported materials or components. There is no guarantee that substitutes will be as good, as cheap or as relevant to consumers as those they buy now.

This is where we see a fascinating disconnect between what consumers plan to do and what small businesses hope will happen. Small businesses might be banking on “buy domestic” sentiment, but whether consumers buy at all depends on how confident they are in their financial wellbeing.

There’s a side to this story that no one has addressed: the uncertainty that consumers and businesses, large and small, now face as the tariff decisions remain in limbo.

As we have seen from the fourteen-month Certainty Project study, fielded by PYMNTS Intelligence and spanning some 700 middle market CFOs and COOs, uncertainty is an invisible tax that affects everyone. The lack of clarity changes how people behave. And uncertainty has a ripple effect.

Businesses report that uncertainty costs them as much as 7% of their revenue, 4% for the average business. Those losses are related to decisions not taken, investments not made, people not hired and products not developed. Each of those no-go decisions or wait-and-see pauses reverberates across the people and businesses on the other side of those actions.

As consumers imagine a world where the proposed tariffs are imposed, they say they’ll switch from spending to saving. Nearly half of consumers (48.6%) in the PYMNTS Intelligence study say that if tariffs are imposed as described they would save more than they would spend.

That may not bode well for the U.S. economy, since 70% of GDP is the result of consumer spending. When consumers feel uncertainty, they get anxious. They tend to close their wallets and wait it out.

For the many small businesses who might be feeling optimistic about domestic sourcing, there is the uncertainty about how those domestic suppliers might set their own prices in response to the tariffs. There is no guarantee that their prices will be competitive (aka cheaper), or their products will match what consumers want to buy.

If local sources are as expensive or the products are not as good, it’s likely that consumers will take their business to the shops that offer the products they want to buy. Small businesses — particularly the two-thirds of micro-and-smaller small businesses that have not even begun to plan for a world where tariffs become de rigueur — may find themselves flat footed, at least for a while, and unable to pivot hard enough and in enough time to adapt successfully.

As always, consumers will decide.

They are much smarter about how they shop, and their smartphones have become their best bargaining tools. According to the 2025 Global Digital Shopping Index (GDSI), 42% and 48% of consumers in the U.S. and globally use their smartphones as shopping assistants; 19% and 24% (U.S. and all countries respectively) do so even as they are standing in the physical store.

We’re already seeing consumers embrace price comparison apps and digital coupons like never before — both are features ranked most highly by consumers in the GDSI when asked about their merchant and store preferences. They’re checking prices while standing in store aisles, hunting for better deals online and using their mobile devices to track price histories and product recommendations.

Retailers of any size who want to keep their customers will need to up their digital game — because when consumers feel the squeeze, they go hunting for deals. They’ve got better hunting tools than ever before and the endless supply of mobile storefronts to shop from.

As we navigate this latest chapter in America’s complex relationship with tariffs, one thing stands out: We’re still in the realm of “what ifs.” Yes, consumers are worried, and small businesses are oddly optimistic — but that’s what happens when nobody really knows what’s coming. When the future is unsettled, the tendency for people and businesses is to hit the pause button on decisions. The waiting game itself becomes an inevitable part of the economic narrative.

We’ve also been here before.

American businesses and consumers have shown remarkable adaptability in the face of economic change. Small businesses might need to dial back some of that optimism about finding everything they need right here at home — after all, global supply chains didn’t pop up overnight. They may be overly optimistic about the potential boost in local sales, but they also recognize the reality of the consumer pocketbook, and the options they may have to shop wherever the prices are the best.

But small businesses are also creative and passionate about their business, and they know how to pivot when they need to. They also have the muscle memory from COVID, and the investments they made to digitize their businesses,  to see them through.

Consumers, even though they are feeling the squeeze from inflation and debt, have also demonstrated their ability to roll with the punches. They might say they’re going to save more (and maybe they will), but history tells us people usually find some middle ground between watching their wallets and living their lives.

In the end, uncertainty becomes an economic force — not necessarily good or bad, but definitely influential. While everyone’s waiting to see how the tariff talks shake out, both businesses and consumers have time to plan their next moves. Whatever ends up happening might look different from what anyone’s expecting — but that’s usually where the most interesting opportunities and innovation happen.

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