Americans Are the Ones Paying for Tariffs, Study Finds

Research contradicts President Trump’s claim that foreigners are footing the bill, and could weaken his hand in the dispute over Greenland

By Tom Fairless of The WSJ. Excerpts:

"Americans, not foreigners, are bearing almost the entire cost of U.S. tariffs, according to new research [published  by the Kiel Institute for the World Economy]"

"suggests that the impact of tariffs is likely to show up over time in the form of higher U.S. consumer prices."

[other research] "by the Budget Lab at Yale and economists at Harvard Business School, finding that only a small fraction of the tariff costs were being borne by foreign producers."

"foreign exporters absorbed only about 4% of the burden of last year’s U.S. tariff increases by lowering their prices, while American consumers and importers absorbed 96%."

"Indian exporters maintained their prices but reduced the volume of shipments to the U.S. by 18%-24% relative to the European Union, Canada and Australia"

"The $200 billion in additional U.S. tariff revenue last year “was paid almost exclusively by Americans”" 

"only around 20% of the tariffs had fed into higher consumer prices six months after their introduction, with the bulk eaten by U.S. importers and retailers."

A tariff is like an excise tax. Below is something that I did in class that explains why price does not rise as much as the tax (or rise as much as an increase in production or wholesale costs). So there is some sharing of the cost of the tariff among buyers and sellers.

Here we will look at an excise tax or a per unit tax. Every time a unit of a good is sold, the seller must give the government a flat amount, like $1 (not a percentage). If the government enacts an excise tax, the supply curve must shift up by the amount of the tax.

 

 

In the graph below, suppose that an excise tax of $1 is enacted. There is a new supply curve. Every point on the new supply line is exactly $1 above the old supply line.

Notice that every point on S₂ is exactly $1 above S₁. This because the firms in this market now need $1 more dollar for each quantity supplied. Before the tax was enacted, the market needed $1 to supply 1 unit. But now, because of the tax, they need an extra dollar or $2 to supply 1 unit.

The price has gone from $5.50 to $6.00. This means that buyers must pay 50 cents more (or $.50 more). So they are paying $.50 of the $1.00 excise tax. That means that the seller also pays $.50 of the $1.00 excise tax.

When you buy the product, you give the seller $6.00. But they must give $1.00 to the government. Before the tax, you gave the seller $5.50. So now they get $.50 less.

In this case, buyers and sellers evenly split the cost of the tax. But if the slopes of the supply and demand curves were different, the buyers or sellers could pay more than half the tax.

 

Related posts:

Tracking the Short-Run Price Impact of U.S. Tariffs (2025) 

Why Haven’t Tariffs Boosted Inflation? This Theory Is Gaining Traction: New research suggests the actual tariff rates are well below what economists have suspected (2025) 

Trump’s Tariffs Are Being Picked Up by Corporate America: Neither consumers nor foreign countries are assuming much of the tariff burden. At least not yet. (2025) 

Are Businesses Absorbing the Tariffs or Passing Them On to Their Customers? (2025) (This one has supply and demand curves that show that businesses usually can't pass all of a tax like tariffs on to the buyers and that how much gets passed along depends on the price elasticity of demand for the different products) 

Trump’s Tariffs Are Unique in History: U.S. trade policy went through three eras, focused on ‘revenue, restriction and reciprocity,’ economist Douglas Irwin says. The 47th president likes all three Rs, and a fourth, ‘retribution.’ (2025) 

Can Trump’s Tariff Offensive Deliver New American Jobs? (2025)

Americans Are Stockpiling Ahead of Trump’s Tariffs (2025)

Powell Warns of ‘Challenging Scenario’ for Fed as Trade War Rages (2025) 

How Much Do Tariffs Raise Prices? (2025)

Politicians talk about creating manufacturing jobs but do people really want them? (2025)

How some of Trump's policies might affect the economy (2024)

Tariffs are regressive: they fall more heavily on lower-income families who tend to spend more of their income on cheap imported goods (2024)

Americans Are Stockpiling to Get Ahead of Tariffs: Some consumers are snapping up computer parts, vacuum cleaners, coffee and olive oil before levies take effect (2024)

Life is full of tradeoffs: If we support American workers with trade restrictions it might mean more inflation (2023)