Americans are shouldering almost all of President Donald Trump’s import tax surge, a report, from the Federal Reserve Bank of New York said on Thursday.
The bank said 90% of the tariffs imposed by the president on imported goods are borne by American consumers and companies. The report pushes back against the Trump administration’s argument that the levies are paid by foreigners.
The report evaluated how tariffs impacted the economy last year, when the average of the taxes went from 2.6% to 13%. The report noted that the average level shifted over the course of the year and was at its highest in April and May, when Trump pumped up tariffs on Chinese goods to 125% before lowering them back to a still heady 113%.
The authors based their analysis on how tariffs worked in the first Trump term. When faced with these types of taxes, “our past work found that foreign exporters did not lower their prices at all, so the full incidence of the tariffs was borne by the U.S. That is, there was 100% pass-through from tariffs into import prices.”
The paper said that between January and August of last year Americans took 94% of the hit from Trump’s tariffs. During September and October, that ebbed to 92%, settling to 86% in November.
The New York Fed findings jibe with a report, put out by the Congressional Budget Office on Wednesday.
It said “higher tariffs directly increase the cost of imported goods, raising prices for U.S. consumers and businesses.” When it comes to who will pay the tariffs, the CBO said foreign exporters will absorb 5% of the cost, and in the near term, “U.S. businesses will absorb 30% of the import price increases by reducing their profit margins; the remaining 70% will be passed through to consumers by raising prices.”
The imposition of the tariffs has been highly erratic, with the routine imposition of large increases followed by retreats and delays, generating periods of large volatility in financial markets and creating uncertainty in the broader economy.
On Friday, the government will release its latest report on the state of consumer prices in January. Economists expect to see a slight moderation in the year-over-year headline reading for the closely watched gauge.
Fed officials expect tariff impacts to wane as the year moves forward and to likely represent a one-time increase in the price level. That could open the door to more rate cuts, although it also means that the tariffs are likely to lead to an overall increase in the cost of living faced by Americans.
