Who Is Paying the Trump Tariffs?

WARNING: TODAY’S POST WILL BE EVEN WONKIER THAN USUAL

Until recently the question of who pays tariffs wasn’t controversial among economists. The overwhelming consensus was that under normal circumstances tariffs — taxes on imported goods — are passed on to consumers in the form of higher prices. There are caveats and exceptions to this consensus, but these caveats are well understood and for the most part don’t apply to the tariffs imposed by the Trump 47 administration.

Once tariffs became a centerpiece of Trump’s economic policy, however, views about their impact became politicized, and Trump supporters were obliged to echo his claim that foreigners, not U.S. consumers, bear the tariff burden. There was a slightly comical demonstration of this politicization during a recent House Financial Services Committee hearing, when Scott Bessent was asked whether, before joining the Trump administration, he had sent a letter to hedge fund investors declaring that “tariffs are inflationary.” At first, Bessent denied having written that. Confronted with proof that he had, he declared that he had been mistaken.

But who is, in fact, paying the Trump tariffs? Two reports released last week — the Congressional Budget Office’s latest report on the budget and economic outlook, and a study released by the Federal Reserve Bank of New York — both concluded that the tariffs are overwhelmingly being borne by U.S. households and firms. But Friday’s report on consumer prices showed fairly low inflation, rather than a big price spike from tariffs.

So are Trump officials right? Are studies concluding that Americans, not foreigners, are paying the tariffs wrong?

No and no. The evidence that foreigners aren’t paying the tariffs, which means that Americans are, is rock-solid. And the seemingly mild impact on measured inflation (the qualifier “measured” is important) isn’t a mystery once you do the math. Conventional economic analysis says that the tariffs should have pushed consumer prices around 1 percent higher than they would otherwise have been. Parsing the data to isolate the tariffs’ effect suggests that they have in fact raised prices by something close to that amount.

But I understand why the seeming contradictions between economic reports are confusing. So I thought I would postpone my next primer on the Federal Reserve and write today about who is paying the Trump tariffs.

Beyond the paywall, I’ll address the following:

1. What economic theory says about tariffs and prices

2. The evidence that foreigners aren’t paying the Trump tariffs

3. Why we shouldn’t have expected consumer prices to soar

4. Estimating the effect of tariffs on consumer prices

5. Are there still big price hikes ahead?