Texas Border Business
Despite what you may have heard, tariffs are taxes on imported goods which the domestic importer usually pays at the border or point of entry. It’s no surprise that some of this additional cost is then passed to consumers (a percentage that typically increases over time). When most people think about this process, it is in relation to finished goods. However, tariffs also affect imported inputs used by US manufacturers, reducing their competitiveness and further raising costs.
Consumer electronics, machinery, and industrial equipment manufactured in the US rely heavily on imported components and assembly. The supply chain in the automotive industry is complex and global. Steel, aluminum, lumber, and specialty products are used in construction and home appliances. In other words, even if final assembly is happening domestically, tariffs are affecting prices.
Information regarding import inflation from the Bureau of Labor Statistics (BLS) sheds light on recent patterns in prices of goods from abroad. Import costs advanced 7.1% from June 2025 to June 2026, the highest rate in several years. Import prices from China (one of our largest trading partners) increased 0.9 percent in June alone, the largest monthly advance since January 2008.
The increase in import prices is significant for the economy. While the US is very competitive in producing many types of goods, there are others that we need to purchase from other countries for a variety of reasons. In some cases, such as labor-intensive production, it is far more expensive to manufacture domestically. Raw materials may also be needed from other areas. It has been established for centuries that we all do better when we specialize and trade.
A major reason for higher costs is tariffs. Although they have come down significantly since early 2025, US tariff rates remain much higher than they were previously. Before 2025, the effective tariff rate was about 2.5%, compared to current estimates of 11-12%. Empirical evidence indicates that the vast majority of these cost increases have been borne by importers and, therefore, US firms and consumers. The effects of these increased costs are notable. Real gross domestic product is 0.5-1.5% lower than it would be otherwise, and consumer prices are 1-2% higher. Household budgets are also affected, particularly for certain categories such as appliances, furniture, clothing, home improvement materials, and vehicles. Moreover, it appears that additional tariffs are once again on the horizon.
The US economy is facing challenges on many fronts, including geopolitical uncertainty and conflicts in the Middle East, the aging of a key demographic group which has historically been essential to the workforce, and the adjustment to AI and all that it entails. Adding yet another headwind is an unforced error that is both unfortunate and unnecessary. Stay safe!
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Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com), which has served the needs of more than 3,000 clients over the past four decades.
