What we know about who pays for tariffs

Axios

09-04-2025

When President Trump imposed tariffs on China during his first term, U.S. importers paid the price, that we know (now). Exactly how those costs were passed on to U.S. consumers, though, is surprisingly less clear.
Why it matters: The key question for anyone in the U.S. who buys stuff — i.e., all of us — is who pays for Trump's latest tariff increases.
The answer is probably everyone. "U.S. consumers will likely bear the brunt of higher tariffs," writes Michael Arone, an investment strategist at State Street, in a note Tuesday.
Exactly how that works? TBD.
The big picture: Americans and the entire global economy will effectively be living through a real-time economics experiment, because the sheer size and scale of the tariffs going into effect Wednesday has never been seen before.
It's possible that some products simply won't be available at all — in the U.S. we can't pre-order the new Nintendo Switch, for example. Some automakers are pausing exports.
Catch up fast: During Trump 1.0., when tariffs on China were put in place, economists had a natural experiment in pricing to chew on.
There had been theories that perhaps exporters would lower prices on goods going to the U.S. to accommodate the increases.
That didn't happen, according to the research done at the time, says Chad Bown, a senior fellow at the Peterson Institute who specializes in trade.
Basically everyone studying this found that the importer pays, he says.
Where it stands: Probably the best of that work was from a paper by researchers at Harvard, University of Chicago, the Federal Reserve Bank of Boston and the IMF, he says.
They looked at government data on import prices, and found that importers paid nearly 95% of the tariff cost, and exporters paid the rest.
U.S. exporters also ponied up. They wound up cutting prices on goods hit by retaliatory tariffs — mainly commodity agricultural products — purchased by China.
That's hardly the end-game, though. The harder part of the question: "How much can importers then pass along to their different points in the supply chain?" says Bown.
Someone who imports widgets for car parts might raise prices levied on the parts manufacturer, who might raise prices levied on the auto assembly company, which would pass that along to dealers, who would jack up up sticker prices.
Along the way, some of these companies could shrink margins and absorb some costs, while others might exert pressure to keep prices down.
Between the lines: During Trump 1.0, companies scrambled to figure out workarounds, like importing from different countries or front-loading inventory, in the hopes things were temporary. They also were able to lobby for exemptions.
Trump's tariffs this time are different, as Axios' Neil Irwin explained. They're on everything, everywhere, all at once.
The other side: The paper Bown points to looked at prices at two big-box retailers and found that they didn't raise prices very much after tariffs were imposed during the first Trump administration .
Retailers were able to source from different countries and stockpile inventory. It's possible they even ate some costs.
The White House cited that paper when unveiling tariffs last week.
Yes, but: One of its co-authors wrote this week that the administration "got it wrong."
Their research also stops early in 2020. At the time, the authors wrote that they expected eventually retailers would be pressured to raise prices.
But they never got a chance to look into it.
The pandemic happened; inflation ended up skyrocketing in the U.S., and there hasn't been much research to unpack whether tariffs played a role.
The bottom line: "This is my challenge to all the economists out there who stopped writing about this, could you rerun your model please?" Bown says.
For the record: "The flood of foreign countries reaching out to the White House with concessions demonstrates the unique leverage that the United States, the world's largest and best economy, has in trade negotiations," Kush Desai, a White House spokesman said in an email.