President Donald Trump imposed sweeping "reciprocal" tariffs on all of the United States' largest trading partners in early April. A 90-day pause on most of these tariffs followed in mid-April to give the countries time to negotiate individual trade deals. However, Trump still set a base tariff level of 10% for everyone except China. Roughly 75 days into the pause, very few trade deals have actually been signed, and the 10% base tariffs remain (even for countries that signed deals), suggesting that some level of tariffs is here to stay as long as President Trump is in charge.
Many experts argue that tariffs will result in higher levels of inflation. Coincidentally, inflation is used to calculate Social Security's annual cost-of-living-adjustment (COLA). The speculation is that the rise in inflation will result in a larger-than-expected COLA boost in 2026.
Given that tariffs have not been this high for some time (and have never been this high across so many countries), we are in a bit of uncharted territory. There is some dispute over how much impact tariffs will have on inflation, and complications like a slowing economy or recession make coming up with accurate predictions even harder.
Here are some thoughts on how tariffs could lead to higher-than-expected Social Security benefits in 2026 to help you prepare for whatever ends up happening.
Official White House photo of President Donald Trump by Joyce N. Boghosian.
Why tariffs could boost inflation
Since surging to 9.1% at its peak in June 2022, the annualized rate of inflation has fallen significantly, coming in at 2.4% in May, according to the U.S. Bureau of Labor Statistics' Consumer Price Index for All Urban Consumers (CPI-U). That rate isn't far off from the Federal Reserve's mandated goal of maintaining a 2% annualized rate of inflation.
Many experts are concerned that tariffs, which are an excise tax on imports, are likely to initially boost inflation in the first year they are enacted (before potentially settling into a new, higher standard). The simple thesis is that if companies have to pay a tax to sell certain goods brought in from other countries to the U.S., they will pass as much of that cost onto the consumer as they can, leading to higher prices. So far, there has been little effect from these new tariffs on inflation, but that could be deceptive. Economists think the impact of tariffs will eventually be felt by consumers.
"We believe the limited impact from tariffs in May is a reflection of pre-tariff stockpiling, as well as a lagged pass-through of tariffs into import prices," Nomura's senior economist Aichi Amemiya wrote in a recent research note, reported on by CNBC. "We maintain our view that the impact of tariffs will likely materialize in the coming months."
RSM's Chief Economist, Joseph Brusuelas, according to CNBC, offered up his own research note that says he's already seeing evidence of tariffs beginning to hit prices. Recent data shows higher prices for products frequently imported, such as canned fruits and vegetables, coffee, tobacco, durable goods, and some major appliances. The report said the price spikes in appliances mirrored those seen in 2018-2020 when President Trump last levied tariffs during his first administration.
The indications are that tariff rates for certain countries will end up being far higher than expected. For instance, tariffs on Chinese goods are now at 55% following a tentative deal reached between the two countries. That rate includes the 25% tariffs put on China in Trump's first term. Tariffs on Vietnam could land in the 20% to 25% range. These rates are lower than the punitive tariff rates initially imposed on "Liberation Day" but still higher than at any time in modern history.
Why retirees may benefit
A key part of the Social Security program is the annual COLA. The COLA is intended to help benefits keep pace with inflation, although many would argue it has not achieved this goal for some time. Regardless, the COLA typically increases benefits each year unless inflation is zero or prices actually decrease.
Given that the goal of the COLA is to keep pace with inflation, the annual COLA is determined based on inflation data. The Social Security Administration (SSA) uses data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to determine the COLA. The SSA specifically uses the data from the third quarter of the year, which includes the months of July, August, and September. The SSA takes the year-over-year percentage difference of the CPI-W in each of these three months and then averages the three numbers together to arrive at the COLA.
For 2025, the annual COLA was 2.5%. Here are the year-over-year percentage differences in the CPI-W for each month so far in 2025:
January 3%
February 2.7%
March 2.2%
April 2.1%
May 2.2%
As you can see, inflation per the CPI-W has been trending lower. If this trend continues, retirees are looking at a smaller COLA next year than this year. But if inflation reverts higher, the COLA would reverse course, too, which would put more money in the pockets of retirees claiming Social Security. Of course, the COLA can be a bit of a double-edged sword because a higher COLA also likely means a higher cost of living and vice versa.
While many experts are projecting higher inflation from tariffs, there's no guarantee that actually comes to fruition. Remember, inflation data has continued to come in soft and it's possible that higher consumer prices get offset by slower growth. For this reason, retirees should not bank on a higher COLA yet and continue to budget for about a 2% COLA in 2026 based on recent CPI-W data. That way if the COLA does come in better than expected, retirees will have a little surplus for their budgets next year.
