Skip to content

Analysis – How the United States is eating Trump's tariffs

    By Francesco Canepa and Howard Schneider

    FRANKFURT/WASHINGTON (Reuters) -U.S. businesses and consumers will be hardest hit by the country's new import tariffs, early indications show. These contradict President Donald Trump's claims and complicate the Federal Reserve's fight against inflation.

    Trump famously predicted that foreign countries would pay the price for his protectionist policies, betting that exporters would absorb those costs just to maintain a foothold in the world's largest consumer market.

    But academic studies, surveys and corporate commentary show that for the first months of Trump's new trade regime, it will be US companies that foot the bill and pass some of it on to consumers – with more price increases likely.

    “The majority of the costs appear to be borne by American companies,” Harvard University professor Alberto Cavallo said in an interview to discuss his findings. “We have seen a gradual pass-through to consumer prices and there is clear upward pressure.”

    A White House spokesperson said that “Americans may face a transition period of tariffs,” but that the costs “will ultimately be borne by foreign exporters.” Companies diversified supply chains and moved production to the United States, the spokesperson added.

    WHO EATS THE RATES?

    Cavallo and researchers Paola Llamas and Franco Vasquez tracked the prices of 359,148 goods, from carpets to coffee, at major online and brick-and-mortar retailers in the United States.

    They found that imported goods have become 4% more expensive since Trump began imposing tariffs in early March, while the price of domestic products rose 2%.

    The biggest import increases were seen in goods that the United States cannot produce domestically, such as coffee, or that come from heavily punished countries, such as Turkey.

    While these price increases were substantial, they were generally much smaller than the tariffs for the products in question – implying that sellers were also absorbing some of the costs.

    Still, U.S. import prices, which do not include tariffs, showed that foreign exporters have raised their dollar prices and passed on some of the dollar's depreciation against their currencies to their U.S. buyers.

    “This suggests that foreign producers are not benefiting much, if at all, from U.S. tariffs, consistent with previous economic research,” researchers at Yale University think tank Budget Lab said in a blog post.

    National export price indices paint the same picture. The cost of goods exported by China, Germany, Mexico, Turkey and India have all risen, with Japan the only exception.