2025 U.S. Tariffs: Assessing Corporate Exposure to Reputational Risk Arising from Cost Pass-Through

U.S. consumers see 2025 tariffs causing higher inflation compared with 2018 tariffs

U.S. consumers think tariff proposals advanced by the Trump administration will be more inflationary than those it pursued in 2018. A plurality of U.S. consumers (39%) and Republicans (32%) — rising to a majority of Democrats (52%) — thought the earlier wave of tariffs was inflationary (first chart below). Yet larger shares of U.S. consumers overall think the new tariffs envisioned by the incoming administration for 2025 and beyond will ultimately have a bigger impact on prices (second chart below).

Consumers anticipate and hold negative views of tariff-related price transmission

Consumers’ views on this front are in line with their expectations that U.S. corporates are likely to pass on the resulting costs, in turn buoying corporate profits and harming consumers’ finances. A plurality of U.S. adults (regardless of their party affiliation) think it is “very likely” that companies will pass on the cost of the tariffs, rising to a majority when the share who think companies are at least “somewhat likely” to do so is priced in.

Consumers are also bearish on the extent to which companies will ultimately pass on a relatively large share of those costs. 65% of U.S. adults expect companies to pass more than 25% of the tariff-related costs they incur onto consumers, with somewhat larger shares of Democrats in agreement than Republicans (71% and 58%, respectively). Consumers’ expectations on this front are largely aligned with market realities: Mentions of tariffs have increased markedly on S&P 500 earnings calls in recent months, and corporate executives have been forthright about the necessity of passing tariff-related costs onto consumers.

Consumers themselves are clear-eyed about where they think this all leads: More U.S. adults than not think tariffs on imported goods bolster the profits of U.S. firms and harm consumers’ finances.

Price transmission and misaligned consumer expectations about household expenses will expose corporates to heightened reputational risk

Yet even as consumers are clear-eyed about pocketbook risks arising from tariff-related price transmission, they consistently underestimate the proposed tariffs’ anticipated impact on their household expenses relative to prevailing external estimates.

To establish this, we first asked survey respondents how much each of the main tariff proposals floated by the Trump administration would increase their monthly household expenses in fixed increments, corresponding to $0, $1-50, $51-$100, $101-$150, $151-$200, and more than $200. We then converted population- and demographic-level responses into an annual estimate for each group by taking the midpoint of each increment (using $0 and $200 for their respective increments), computing a weighted monthly average across the resulting values using the share of respondents selecting each increment as the corresponding weights, and multiplying the resulting weighted monthly average by twelve, yielding an annual estimate. The chart below visualizes these estimates among U.S. consumers overall, as well as by party affiliation and political ideology.

We then compare these estimates to reputable external assessments of key Trump administration tariff proposals’ anticipated impact on U.S. household expenses, covering the proposed 10% and 20% universal tariffs, and the proposed 60% tariff on imports from China (estimates come from The Tax Foundation and the American Action Forum, respectively). The difference between the two sets of values (labeled as “gap relative to external estimates” in the two charts below) provides an indication of how much different groups of consumers are underestimating the likely impact on their household in practice. The two charts below visualize these differences among U.S. consumers overall, and again by party affiliation and political ideology.

Doing so yields several key findings that companies and brands planning for the tariffs come 2025 should note.

First, consumers tend to associate higher tariff rates with greater household expenses, although this may not be the case in practice as a function of the share of inbound trade subject to the tariffs. For example, some have estimated that a 10% universal tariff could cost the average U.S. household more than a 60% tariff targeting China alone. Should either of the two universal tariff scenarios materialize, consumers’ bias on this front (i.e. higher tariff rates applied to a single country connote higher household expenses compared with a lower-rate universal tariff) means companies could be even more prone to saddling consumers with outsized sticker shock relative to their expectations, forcing companies into a game of price transmission roulette.

Second, across all tariff scenarios we examine for which external estimates are available, U.S. consumers consistently underestimate the additional household expenses that are likely to arise from the proposed tariff packages on the order of $600-$1,300 per year. Should both universal and China-specific tariffs move forward simultaneously, their expectations will likely be even further from the mark. And our own forecast that the tariffs will be sticky will compound the misalignment: Assuming new universal and/or China-specific tariffs enter into force in 2025 and remain in force for Trump’s entire term, consumers will have incurred cumulative added expenses of $2,400-$5,200, which makes for a non-trivial sum.

Third and finally, when broken out by party affiliation and political ideology, Democrats and liberals consistently estimate they would incur higher annual household expenses arising from the tariffs compared with Republicans and conservatives, respectively. (Moderates meanwhile yield estimates in between liberals and conservatives.) It follows that Republicans and conservatives will be relatively more exposed to sticker shock arising from pass-through costs, should companies ultimately decide to offset their own tariff-related expenses by passing them on to consumers, as visualized in the rightmost heatmaps in the above two charts.

Brands serving Republican and right-leaning consumers will be relatively more exposed

These dynamics present complex reputational risks for U.S. brands. Specifically, we expect companies that pass on large shares of the tariffs’ costs will be more exposed to consumer allegations of price gouging and corporate greed arising from the gap between households’ actual and expected outlays. Among the major tariff packages floated by the Trump administration to date, the gap is largest for the 60% China tariffs, but remains non-trivial for the other options we examine.

We expect companies serving Republican and right-leaning consumers will be relatively more exposed to such risks owing to their consistent and more pronounced underestimation of the tariffs’ household impact. All the more so given our own research finding that the incoming GOP administration's honeymoon period is already shaping up to be more durable than last time around, raising a potentially acute risk that consumers hold companies responsible for tariff-related fallout more than the new administration, assuming the tariffs move forward relatively early in 2025.

We expect companies and brands serving Democratic and left-leaning consumers to face fewer risks on the front, but the question is largely one of degree: These groups of consumers are more clear-eyed about the tariffs’ household costs, but they continue to underestimate them by a fair margin nonetheless.

Safeguarding corporate reputation will require alternative plans and complex tradeoffs involving tax policy and immigration reform

Given the above dynamics, we advise U.S. firms seeking to limit their exposure to tariff-related reputational risk to carefully consider the feasibility of offsetting the tariffs’ costs through other channels, whether through direct absorption, renegotiating contracts with suppliers and labor, seeking exemptions, or pursuing other cost-saving mechanisms.

Decision-makers should also consider changes in the broader tax policy environment as a potential tool in their toolkit to avoid alienating consumers. At their core, tariffs are taxes, and the interplay of expected tariff-related costs and potential offsets for both U.S. firms and consumers — specifically through reduced corporate tax rates the Trump administration is expected to pursue, and through potential reductions in individual income tax rates made possible by increased federal tariff revenue — can cut in a variety of ways. 

In our view, companies that ultimately benefit from reduced corporate tax rates and simultaneously pass the cost of the tariffs onto U.S. consumers place themselves in the highest-risk, highest-reward scenario: Allegations of corporate greed will reign supreme among consumers who recognize that companies are benefiting from a reduced corporate tax burden while still choosing to offload tariff-related expenses on top of corporate tax savings, even if this means double juicing revenue. Companies that instead leverage a reduction in the corporate tax rate to cover tariff-related costs instead of passing them onto consumers may find themselves on safer ground when it comes to reputational risks, assuming relatively elastic demand that might otherwise see consumers head elsewhere. 

Potential reductions in income tax rates made possible by new tariffs further complicate the assessment: Assuming companies pass on tariff-related costs to consumers in such a scenario, offsetting federal income tax reductions may ultimately leave consumers whole, but rising prices may still yield bad consumer optics. 

Finally, the risk of renewed inflation linked to an anticipated crackdown on foreign labor in the United States may pose additional reputational challenges: If consumers are unable to disentangle whether prices are rising due to the impact of immigration policy reforms on labor market dynamics or tariff-related price transmission, companies risk being blamed for price gouging arising from factors beyond their control (namely, a diminished labor pool).

For companies that can afford to do so, our view is that limiting price transmission is ultimately the safest option from a reputational angle. For companies that cannot afford to do so or otherwise choose to gamble, we advise careful and continuous monitoring of core consumers’ expectations to identify early signposts of reputational risks and recalibrate as necessary.