Who bears the cost of Trump’s tariffs? The answer to that is changing, albeit slowly

Over the course of 2025, since Donald Trump returned for a second term as US President, the average tariff rate on the US’s imports went up from 2.6 per cent to 13 per cent. But in light of Friday’s ruling by the US Supreme Court, it bears asking: who paid for these tariffs? Was it US-based importers or foreign exporters? The Trump administration has repeatedly claimed that tariffs are paid by foreign companies, while most mainstream economists argue that the tariff burden falls on domestic (in this case, American) consumers. How can this question be settled? Suppose a foreign (say, Indian) exporter charges $100 for a good (say, a chair), and the importing country (the US) decides to levy a 25 per cent tariff on it. If the Indian exporter does not change their price, the additional tariff of $25 gets added, increasing the overall import price to $125 for US consumers. In this case, the “tariff incidence” (economic burden) falls entirely on the US importer. In other words, there is a 100% pass-through from tariffs to import prices, and therefore on US consumers and firms. But a full pass-through is just one possibility. For instance, the exact opposite scenario would be if the Indian exporter decided to absorb the whole economic burden: by lowering the price in order to avoid losing market share to, say, a rival exporter in Taiwan. To do this, the Indian exporter could respond by cutting the price of their chair to $80. At this price point, a 25 per cent tariff will raise the new price to $100, which is the same as it was before the tariff was imposed. This will ensure that the price paid by US importers (consumers) will remain $100 (with $20 in duties paid to the US government). In this case, 100% of the “tariff incidence” falls on the foreign exporter, who now receives $20 less for the same chair. In summary, there is zero pass-through from the tariff since the import price is unchanged. ## So, who pays for these tariffs? In reality, the situation often falls somewhere in between these two extreme outcomes. A new study by four researchers at the Federal Reserve Bank of New York (published on February 12) found that “nearly 90 percent of the tariffs’ economic burden fell on U.S. firms and consumers”. The table shows how the “tariff incidence” has been shared over the full year (2025) between US importers and foreign exporters. The researchers highlight two main takeaways: 1. “First, 94 percent of the tariff incidence was borne by the U.S. in the first eight months of 2025.” This means that a 10 per cent tariff was largely passed through in the price to domestic US consumers — that is, domestic prices went up by 9.4 percent while foreign exporters reduced the price of their goods by just 0.6 percentage points. 2. “Second, the tariff pass-through into import prices has declined in the latter part of the year. That is, a larger share of the tariff incidence was borne by foreign exporters by the end of the year.” In November, they found that a 10 percent tariff was associated with a 1.4 percent decline in foreign export prices, suggesting an 86 percent pass-through to US import prices. The Trump administration’s response was severe. Kevin Hassett, director of the National Economic Council (which advises the US President), called the paper “an embarrassment” and the “worst paper in the history of the Federal Reserve system”, and asked the four researchers to be “disciplined”. However, the results, based on a peer-reviewed methodology, are in line with what several other studies have found: that the economic burden of Trump’s tariffs have largely been passed through to the US consumers. Udit Misra is Senior Associate Editor at The Indian Express. Misra has reported on the Indian economy and policy landscape for the past two decades. He holds a Master’s degree in Economics from the Delhi School of Economics and is a Chevening South Asia Journalism Fellow from the University of Westminster. Misra is known for explanatory journalism and is a trusted voice among readers not just for simplifying complex economic concepts but also making sense of economic news both in India and abroad. Professional Focus He writes three regular columns for the publication. ExplainSpeaking: A weekly explanatory column that answers the most important questions surrounding the economic and policy developments. GDP (Graphs, Data, Perspectives): Another weekly column that uses interesting charts and data to provide perspective on an issue dominating the news during the week. Book, Line & Thinker: A fortnightly column that for reviewing books, both new and old. Recent Notable Articles (Late 2025) His recent work focuses heavily on the weakening Indian Rupee, the global impact of U.S. economic policy under Donald Trump, and long-term domestic growth projections: Currency and Macroeconomics: "GDP: Anatomy of rupee weakness against the dollar" (Dec 19, 2025) — Investigating why the Rupee remains weak despite India's status as a fast-growing economy. "GDP: Amid the rupee's fall, how investors are shunning the Indian economy" (Dec 5, 2025). "Nobel Prize in Economic Sciences 2025: How the winners explained economic growth" (Oct 13, 2025). Global Geopolitics and Trade: "Has the US already lost to China? Trump's policies and the shifting global order" (Dec 8, 2025). "The Great Sanctions Hack: Why economic sanctions don't work the way we expect" (Nov 23, 2025) — Based on former RBI Governor Urjit Patel's new book. "ExplainSpeaking: How Trump's tariffs have run into an affordability crisis" (Nov 20, 2025). Domestic Policy and Data: "GDP: New labour codes and opportunity for India's weakest states" (Nov 28, 2025). "ExplainSpeaking | Piyush Goyal says India will be a $30 trillion economy in 25 years: Decoding the projections" (Oct 30, 2025) — A critical look at the feasibility of high-growth targets. "GDP: Examining latest GST collections, and where different states stand" (Nov 7, 2025). International Economic Comparisons: "GDP: What ails Germany, world's third-largest economy, and how it could grow" (Nov 14, 2025). "On the loss of Europe's competitive edge" (Oct 17, 2025). Signature Style Udit Misra is known his calm, data-driven, explanation-first economics journalism. He avoids ideological posturing, and writes with the aim of raising the standard of public discourse by providing readers with clarity and understanding of the ground realities. You can follow him on X (formerly Twitter) at @ieuditmisra ... Read More