Who pays Trump’s tariffs?
From
one perspective, that is a simple question. Despite the president’s
routine claims that foreigners pay them, U.S. Customs and Border
Protection bills the U.S. importer directly. So it is the importer which
pays the tariffs. The importer, however, can always try to get the
foreign exporter to bear part of the cost, implicitly, by lowering its
prices. The cost can also be passed on to U.S. consumers, like you and
me, in the form of higher prices.
So the more logical question to
ask is what portion of the importer’s tariff costs are ultimately borne
by it, through lower profit margins; borne by the foreign exporter,
through lower prices; and borne by U.S. consumers, through higher
prices.
A range of studies have attempted to estimate the
proportion of tariff costs borne by each of these three groups. I take
estimates from multiple Goldman Sachs reports, corroborated against
others produced by Yale Budget Lab’s State of U.S. Tariffs (July 14, 2025) and Allianz Trade’s U.S. Business Barometer (May 2025), and amalgamate them in the graphic above—which shows how these proportions change through time.
Going
back to June, three months after Trump’s April 2 “Liberation Day”
tariff bombshell, most of the tariff cost, 64%, was being borne by U.S.
importers. Only 14% of the cost was being eaten by foreign exporters in
the form of lower prices, and 22% was being passed on to U.S. consumers
in the form of higher prices.
The logic behind these numbers is
clear enough. In the few initial months following “Liberation Day,” U.S.
importers were unable to shift to lower-cost suppliers. So they had
very little leverage to compel their existing foreign suppliers to lower
prices. And following Trump’s April 10 90-day pause on most
“reciprocal” tariffs above the 10% baseline level, importers and
retailers believed—or hoped—that the tariffs were merely a negotiating
tool, and so, having built up inventory prior to “Liberation Day,” they
largely forbore from passing the cost on to consumers.
By the time we get to October, though, the picture had changed considerably. Importers now bore only 27%[1]
of the tariff cost—less than half the estimate for June. A slightly
higher 18% was now borne by exporters, and a much higher 55% was being
passed on to consumers. This is consistent with the slowly rising
inflation data.
Again, the logic behind these numbers seems
clear. By October, importers had had some time to seek out alternative
suppliers, giving them a bit more negotiating leverage with existing
ones. Also by October, the administration had announced quite a few
bilateral trade deals, or “framework” deals, and progress on others,
which made clear that substantial tariffs were here to stay—that is,
they were not going to be bargained down to zero, or single-digit
levels. This gave importers and retailers good reason to pass on more of
the tariff costs to consumers.
Projecting forward to the middle
of 2026, we can now expect importers to bear only about 8% of the
tariff costs. By this time, they will have had far greater opportunity
to seek out lower-cost suppliers, giving them more negotiating leverage.
We can therefore expect the exporter burden to rise to about 25% and
the consumer share to 67%.
In the end, then, U.S. consumers will
bear the greatest part—roughly 2/3—of Trump’s tariffs. The inflation
contribution of tariffs should therefore continue to rise heading into
next year. Provided that inflation expectations do not become
unanchored, inflation should then moderate by mid-year, with the price
level 1-1.5 percentage points higher than it would have been without
Trump’s tariffs.
[1]
Goldman Sachs’ number was actually 22%, but they allocated 5% to tariff
“evasion.” I am assuming that tariffs “evaded” would, had they not been
evaded, not have been covered by supplier price reductions or
pass-through to consumers, although the actual allocations could have
been slightly different.