Key Takeaways:

• Tariffs are a tax on imported goods, and companies often pass the added cost along to consumers, resulting in higher price tags on shelves.
• Tariffs have already raised prices by an average of 5%, according to the Harvard Business School Pricing Lab’s analysis of more than 350,000 goods.
• Frequent holiday staples like toys, electronics, and clothing are some of the products most impacted by tariffs, with costs up as much as 35% in some categories.
• As a consumer, you can adjust your shopping strategy by shopping earlier than usual, using price tracking apps, signing up for discount programs, and changing up your shopping plans.

Rising prices have been top of mind for consumers for several years, especially coming off the high inflation after the pandemic. Now, rising global tensions in 2025, including new tariffs, are starting to impact people’s wallets. 

In fact, the Harvard Business School Pricing Lab, which has been tracking the effect of tariffs on more than 350,000 goods, has found prices are around 5% higher as a result of them.

As you’re preparing for your holiday shopping this year, know you may see higher price tags on items from children’s toys to electronics, especially given the portion of products on the store shelves that come from China.

In this article, we’ll break down how tariffs work, what categories of spending will be hit the hardest, and what strategies you can use to make the tariffs hurt your wallet a bit less as you’re doing your holiday shopping.

What Are Tariffs: A Quick Primer

Simply put, a tariff is a tax imposed on important goods and services. Governments use tariffs as a tool in trade policy to encourage domestic manufacturing, generate revenue, and as a foreign policy tool, to name a couple of reasons. 

Tariffs aren’t new – the U.S. government has been using them for hundreds of years. However, they’ve become more central to conversations around the economy because of the number of tariffs the Trump administration has imposed (or threatened to impose).

In fact, according to The Budget Lab at Yale, the current effective tariff rate consumers are facing is the highest it’s been since 1934.

Products across many different categories either have already been or are likely to be affected by tariffs, including many consumer goods that are popular holiday purchases, including electronics, toys, apparel, and home goods. These products are frequently manufactured in China, which makes them more vulnerable to price increases from tariffs.

How Tariffs Add Costs: The Mechanics

Policymakers sometimes sell tariffs as a tax on another country, but that’s not quite how they work. Instead, the person or company that imports an item technically pays the tariff, and they often pass that cost along to the final consumer.

There are a few different ways tariffs add costs to products:

• Raw materials and upstream inputs: First, tariffs apply to raw materials that are imported to manufacture other goods. As the raw materials become more expensive, manufacturers pass those added costs along to the consumer.
• Manufacturing and supply chain friction: Tariffs can create friction in the supply chain and may require manufacturers to change their supply chains to find goods more affordably elsewhere. While they may do this to help avoid tariffs, it also creates delays and increases other costs.
• Shipping, customs, and logistics: Tariffs can slow down the import process. Not only does this mean you’ll wait longer for your goods, but it could also increase costs.
• Margin squeeze and pass-through to consumers: Ultimately, companies pass along their increased costs to consumers. Retailers already add a markup to products, and that markup is likely to be even higher as their costs increase.

Consider an example of a product that costs $100 for the retailer. A standard retail markup is around 50%, meaning you pay $150 for that item at the store. The table below shows what happens if you had a 10% tariff on that product:

What It Means for Holiday Shopping in 2025

Holiday shopping in 2025 will look a bit different for most families. Categories that rely heavily on imported goods, including electronics, apparel, and toys, will probably see large price increases from 2024. For example, according to Yale’s The Budget Lab, apparel is facing a short-term price increase of roughly 34%, which is quite a bit higher than the overall average of all shopping categories.

Besides higher costs, some retailers are facing inventory restraints and supply shortages. According to a recent article by the National Retail Federation, retailers are reporting having to spend their extra budgets on tariffs rather than growing their inventory.

For consumers, it means there may be fewer products available on the shelves, which can throw a wrench in your holiday shopping, especially if you’re typically a last-minute shopper.

These changes will almost certainly have an impact on consumer behavior this fall and winter. Retailers may start stocking the shelves with holiday items earlier, which could lead to people shopping early. 

Another likely trend is consumers trading down, meaning buying smaller items than they otherwise would have, opting for more practical purchases, or looking for more affordable alternatives to avoid the impact of tariffs.

Finally, people will also likely be spending less. A survey by Wunderkind after the July 2025 Prime Day found that 39% of shoppers spend less than they have in previous years. If that data is any indication, it seems that people may spend less on their holiday shopping this year.

Which Gift Categories Are Most Vulnerable

According to the National Retail Federation, tariffs in just six product categories – apparel, toys, furniture, household appliances, footwear, and travel goods – are likely to reduce Americans’ spending power by anywhere from $46 billion to $78 billion per year.

This is particularly noteworthy, as these are categories frequently purchased during the holiday season. While it’s still unclear where all tariff amounts will land, especially those on goods from China, the table below breaks down the possible price increase on these six different product categories, according to a report by Trade Partnership Worldwide for the National Retail Federation:

Practically speaking, this means that:

• An $80 pair of jeans could cost $10-$16 more
• A $50 tricycle could cost $18-$28 more
• A $200 crib could cost $13-$19 more
• A $650 refrigerator could cost $126-$202 more
• $ $90 pair of athletic shoes could cost $16-$26 more
• A $119 handbag could cost $15-$26 more

What Shoppers Can Do to Mitigate Tariff Impact

While tariffs are almost certain to impact your holiday shopping this year, there are some steps you can take to mitigate the impact and make your money go a bit further:

• Start holiday shopping early: Shopping early for holidays can help you catch better deals, get items while they’re still in stock, and even get your items before tariffs might increase again.
• Use price trackers: Online shopping tools like Honey, CamelCamelCamel, and Capital One Shopping can track prices, let you know about price drops, and make sure you’re buying items at the best price.
• Leverage AI to create a gift-buying budget: We recently wrote about using AI to manage your finances, and holiday budget planning is a great use of AI.
• Prioritize U.S.-made products: It’s hard to avoid the impact of tariffs entirely, but you can lower your extra costs by shopping for products made in the United States or from countries with lower tariff rates.
• Focus on fewer but higher-impact gifts: Rather than prioritizing the quantity of gifts, focus on buying fewer high-quality items you know your loved one will appreciate. Ideas include personalized or experience-based gifts they may appreciate more.
• Use alerts, subscription deals, discount stacking: There are plenty of ways to take advantage of deals, including signing up for sale alerts from your favorite retailers, subscribing to loyalty programs and memberships, or stacking discounts to save the most amount of money possible.
• Spread out purchases over months to absorb price shocks: If you historically save your holiday shopping until December, consider starting your shopping earlier this year. You can spread the purchases out over several months, which can help avoid some of the price shock to your budget.

What Retailers and Businesses May Do

In addition to actions consumers can take, retailers are also likely to change up their strategies this year to make sure their shelves are stocked, lower costs for consumers, and maintain their profit margins. Here are a few changes you may see:

• Adjusting sourcing strategies: Some retailers may change up their sourcing to get parts and products from countries with lower tariff rates.
• Inventory hedging: Retailers may order items earlier than they otherwise would, not only to make sure they get them in time, but also to help lock in lower pricing.
• Absorbing vs. passing through costs: While many companies are passing along the cost of tariffs on to consumers, some may absorb the cost themselves, especially on select products.
• Messaging to consumers: Don’t be surprised if you see messaging from brands and retailers letting you know that tariffs are the reason for some of the price increases. Retailers may also start advertising their holiday decorations and purchases earlier.

The Outlook: What to Watch for in Late 2025

It’s difficult to know exactly what’s on the horizon for the rest of 2025 as it relates to tariffs and holiday shopping. There are ongoing trade talks and negotiations between the United States and its trading partners, which means we could see changes to the current tariff policy.

There may also be shipping delays or supply chain disruptions. Don’t be surprised if your packages take longer to ship this year or if store shelves sit empty longer than usual. Unfortunately, these delays may also impact pricing.

We’ll probably see companies and consumers changing up their strategies to adapt to the tariffs. Sellers will probably try to stay flexible and adjust their sourcing, pricing, and other strategies based on rising prices. Meanwhile, with inflation already top of mind for many consumers after the pandemic, morale may be low during the holiday shopping season, and many people may find themselves spending less money.

Frequently Asked Questions (FAQ)

Will tariffs make holiday gifts more expensive?

Yes, tariffs will likely make holiday gifts more expensive, especially those in heavily imported categories like toys, clothing, and electronics.

Which items are safe from tariff risk?

Anything that’s made 100% in the United States is safe from tariffs, but that isn’t many products. Even those final goods that are manufactured in the U.S. may have individual parts that must be imported, meaning they’re still vulnerable to price increases.

Can consumers avoid tariff impact by buying early?

Tariffs are already in effect in the United States, meaning you likely can’t avoid the impact of tariffs altogether. However, by doing your shopping earlier, you can avoid further price hikes, especially if additional tariffs are put in place.

Should I expect less variety of available products?

Yes, some retailers have stated they’ll have less variety of available products this year. With more of their money going toward tariffs, they may have less to invest in new products.

Will there be inventory shortages?

There’s a good chance some retailers will experience inventory shortages, especially for those products that rely heavily on imports. Many retailers may stock up early on products in the hopes of avoiding shortages.

How much extra cost could I see on an average gift?

The added cost of items varies depending on the spending category. Price increases can range from just a few percent for certain items to more than 20% or 30% for others.

How do tariffs interact with inflation?

Tariffs can increase inflation because they make goods more expensive. As of September 2025, the annual inflation rate was 2.9%, which is still considerably lower than it was a few years ago.

The Bottom Line: How Tariffs Fit Into Your Financial Plan

Tariffs have already made for a stressful year for many families, and that will probably be even more amplified as we enter the busiest shopping season of the year. 

There’s no way around it – you’re likely to see higher prices on items this year as a result of tariffs. However, there are steps you can take to mitigate some of the extra cost, including shopping early, using savings apps and tools, and adjusting your shopping strategies.

Remember that, no matter what you see on the news or from other consumers, your primary concern should be your own financial plan. Don’t let headlines lead you into a panic. Instead, focus on your own budget and financial situation to decide on your holiday shopping strategy.

This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor's specific circumstances. Investing involves risk, including possible loss of principal.

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