When the United States imposed the 2025 tariffs, foreign exporters absorbed almost half of the economic burden. A new study by trade economist Caroline Freund shows that exporters shouldered 47 % of the tariff cost while U.S. importers paid 53 %, a markedly lower importer‑pass‑through share than earlier research that reported near‑complete pass‑through.
Methodology and data
- Scope: Imports from September 2023 through January 2026 for 50 U.S. trading partners, covering roughly 95 % of U.S. goods imports in 2024.
- Weighting: Prices are weighted by pre‑trade‑war import volumes, preventing tiny‑volume categories from distorting the overall pass‑through estimate.
- Metrics:
- Unit value – customs value divided by quantity (price received by exporters).
- Landed cost – price paid by importers, including the tariff.
- Findings: Unit values fell after the tariffs, while landed costs rose by less than the tariff amount, indicating that exporters reduced their prices to offset part of the duty.
Comparison with other research
- Prior studies (e.g., Harvard, NBER, IMF) found nearly complete pass‑through to importers.
- Ahn et al. (IMF) attribute part of the price decline to importers substituting toward lower‑quality, lower‑priced products within the same category, rather than exporters’ price cuts. Freund’s fixed‑effects approach attempts to isolate genuine exporter price adjustments, though some substitution effects may remain.
- Earlier work on the 2018‑19 Trump tariffs (Ganapati & Hottman, NBER) reported a drop in importer pass‑through to ≈60 % after accounting for reduced scale economies for exporters.
Welfare and fiscal implications
- The study does not assess whether the tariffs improved overall U.S. welfare. A full welfare analysis would need to consider:
- Deadweight losses from distorted trade flows,
- Lost transactions,
- Retaliatory measures,
- Uncertainty and efficiency losses.
- Much of the tariff revenue is being refunded to U.S. importers after the Supreme Court struck down the tariffs under the International Emergency Economic Powers Act (IEEPA). Consequently, the net fiscal gain for the U.S. government is minimal, and refunds may even generate interest‑payment losses.
Strategic considerations
- Freund warns that if multiple countries pursue similar terms‑of‑trade gains through tariffs, a prisoner’s dilemma could emerge, prompting retaliatory measures and eroding the rules‑based trading system, which would reduce global welfare.
- Trade data used in most studies are organized by country rather than by firm ownership. A substantial share of U.S. trade is intraparty (U.S. multinationals and foreign affiliates). Consequently, some “foreign exporters” may actually be U.S.‑owned firms, meaning U.S. companies could be bearing a larger share of the tariff burden than the studies suggest.
Takeaways
- Exporters absorbed a larger share of the 2025 tariff burden than previously estimated, indicating that the tariffs imposed a significant cost on foreign producers.
- The evidence of a modest terms‑of‑trade gain for the United States does not imply that the tariffs were welfare‑enhancing.
- Policy makers must weigh the limited fiscal benefits against the broader economic distortions, potential retaliation, and the risk of undermining the international trading system.
Source article: taxfoundation.org
