Remember, when Donald Trump first started bringing in tariffs wholesale at the beginning of 2025? It seems like a lifetime ago, I know, but we were all trying to get out heads round why he would want to do that, and how it could possibly work out the way he say it would. In the end, we concluded that it just wouldn't, and that American industries and households would end up bearing the burden of what what were essentially just taxes under another name.
A year later and Trump is still singing the praises of tariffs, although he is now using them more as bully tactics to punish any country that disagreed with him on any issue, not just trade. So, American tariffs are less about the economy and more about, well, Trump, and his political agenda. But clearly they do have an economic impact too, even if it's not the one Trump describes. And who is beating the burden? Yup, American industries and households.
A comprehensive new report by the Federal Reserve Bank of New York concludes that upwards of 90% of the tariffs imposed by Trump on imported goods are borne by American consumers and companies. So, unlike in Trump's version of the world, foreign exporters did not lower their prices at all, resulting in the whole incidence of the tariffs being borne by the USA. In the technical jargon of the report, "there was 100% pass-through from tariffs into import prices".
An estimated 30% of the increases in import prices were absorbed by US businesses though reduced profit margins, but fully 70% were passed on to consumers in increased retail prices. According to Federal Reserve officials, much of the overshoot of the 2% inflation target can be laid directly at the door of Trump's tariff policy.
Surprised? Me neither.
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