The word of the year

Weekly Updates

For economists, the 2025 word of the year was “tariffs”. Trade remains in focus in 2026. The pending US Supreme Court ruling on most 2025 tariffs’ legality might cut some tariffs, but (depending on policymakers’ reactions) might increase others.
Trade is not as economically important as is popularly supposed. The consumer buying something “made in China” assumes China gets most of the price paid at checkout. In fact exporters rarely get more than 40% of a product’s consumer price. Most of the consumer price is paid to domestic workers. The direct impact of tariffs on affordability is less than it appears.
The greater economic impact comes via tariffs’ second round impact. Tariffs are a convenient excuse for price increases, creating a cover story for increasing profits. Even after a 10% tariff, US post-tariff import prices for bananas have fallen since April. Consumer prices have risen over 6.5%. Someone is profiting from consumers accepting the story that prices have to go up.
The effects of tariffs can also live after them. US washing machine tariffs applied in 2018 were eventually repealed. But while most major advanced economies have washing machine prices below the early 2018 level, US prices are 19% higher. 2026 may be a test case for tariff price stickiness.