The 2025 U.S. tariffs imposed under the International Emergency Economic Powers Act (IEEPA) have placed a larger share of the economic burden on foreign exporters than earlier estimates suggested.
Caroline Freund’s recent paper, using detailed import data from September 2023 through January 2026 for 50 U.S. trading partners that account for 95 % of U.S. imports in 2024, finds that foreign exporters absorbed 47 % of the tariff cost while U.S. importers paid 53 %. This pass‑through rate is substantially lower than the near‑complete pass‑through reported in several recent studies.
Key findings
- Weighting by pre‑war trade volumes – Freund weights price changes by the actual import values before the tariff escalation, preventing a small‑volume product from influencing the aggregate result as much as a high‑volume product.
- Unit‑value vs. landed‑cost – The “unit value” (exporter‑received price) fell, whereas the “landed cost” (importer‑paid price including the tariff) rose by less than the tariff amount, indicating that exporters lowered prices to offset part of the duty.
- Terms‑of‑trade effect – The 47 % foreign share suggests the United States leveraged its market size to push down pre‑tariff export prices, extracting a modest terms‑of‑trade gain.
- Alternative channel – Ahn et al. (2026) argue that part of the observed price decline reflects importers substituting toward lower‑quality or lower‑priced varieties rather than exporters’ price cuts. Freund’s fixed‑effects model attempts to control for this, but the possibility remains.
Welfare implications
- The study does not claim that the tariffs improved overall U.S. welfare. To assess net welfare, one would need to account for:
- Dead‑weight losses from distorted trade flows,
- Lost transactions and market exit,
- Retaliatory measures and heightened trade uncertainty,
- Administrative and interest costs associated with recent Supreme Court‑mandated refunds.
- Following the Supreme Court’s decision to strike down the IEEPA tariffs, a substantial portion of the collected revenue is being refunded to U.S. importers. This creates a transfer from foreign exporters (who bore part of the economic burden) to U.S. importers, without generating net fiscal revenue for the government.
Broader context
- Earlier work on the 2018‑2019 Trump tariffs (Ganapati & Hottman, NBER) also found reduced pass‑through to importers—down to about 60 %—once scale‑economy effects were considered.
- Trade data are typically organized by country rather than by firm ownership. A significant share of U.S. trade is intra‑company (U.S. multinationals with foreign affiliates). Consequently, some “foreign exporters” may actually be U.S.‑owned entities, meaning U.S. firms could be bearing a larger share of the tariff burden than the study’s headline figures suggest.
Policy considerations
- While the tariffs generated a modest terms‑of‑trade gain for the United States, the potential long‑run costs—including retaliation, erosion of the rules‑based trading system, and overall welfare losses—may outweigh any short‑term benefits.
- The ongoing refunds and legal challenges highlight the fiscal and legal risks of imposing tariffs under emergency powers without clear statutory authority.
Source article: taxfoundation.org
