Americans Pay, Trump Tariffs Stay: New Study Confirms Why Tariffs Are Ridiculous

From tomatoes and furniture to automobiles and movies, the U.S. tariff regime has expanded dramatically under President Trump's second term. Trump has insisted that tariffs would be paid by foreigners. Economists have shown that tariffs are hidden domestic taxes paid by the American people. This should not come as a surprise. As I explained last year, it was the American consumer that almost exclusively paid for the cost of Trump's tariffs in his first term. 

Now we have a study from the Kiel Institute released last week showing that about 96 percent of tariffs in Trump's second term have been paid for by the American people. That translates to Americans paying $267 billion in tariffs last year. This study is significant because it uses recent trade data and millions of imports transactions totaling trillions of dollars in trade. This study acts as hard, empirical evidence for the second-term Trump tariffs that goes beyond theory or anecdote. 

So why do Americans end up paying for Trump's tariffs? Tariffs are taxes on imports. When foreign exporters decide to not reduce their prices enough to absorb them (and let's be real...they rarely do, as we see with this new study), U.S. importers face higher costs. Most firms respond by passing the increase along to consumers, either directly in retail price increases or indirectly through higher costs for goods that rely on imported inputs. In effect, tariffs function as a hidden tax on American households, hitting every buyer in the store, from groceries to electronics. 

Trump's tariff rhetoric rested on more than the claim that foreign exporters would pay for them. Trump also promised that tariffs would protect American industries and workers, and that they would strengthen the United States in trade negotiations. The reality, as the Kiel Institute study makes crystal clear is that 96 percent of the cost of Trump's second-term tariffs have been borne by American consumers and businesses, not foreigners. 

As for protecting domestic producers, this protects a small group of well-connected producers, but causes net unemployment. This outcome played out with Trump's tariffs on steel and aluminum. Those modest gains to the protected industries are infinitesimally small in comparison to the cost to the consumers. In net, the tariffs act as a wealth transfer from the American people to the few producers who are protected as a result of Trump's tariffs. 

Regarding the leverage in international trade, it does not fare much better. Trump's logic was simple: raising the cost of exports for foreign countries exporting to the United States and they will capitulate to Trump's demands. What we see is that it is not foreign countries that pay for this bargaining tool, but it is U.S. consumers that foot the bill for Trump's negotiating strategy. This negotiation advantage is rhetorical in its bluster, but divorced from economic reality. 

Whether it is the idea that foreigners pay tariffs, the U.S. economy fares better, or it provides the United States with better negotiating leverage, we see that Trump's tariffs are myths built on a flimsy house of cards. Trump's tariffs ended up being a wealth transfer from the American people to select, well-connected domestic firms. The Kiel Institute study is not merely an academic exercise. It provides a clear and evidence-based counterargument against the populism that drives Trump's tariff policy. Americans get stuck with the bill, economists are shaking their heads, Trump's tariff promises remain unfulfilled, and yet the tariffs remain. If there were a 21st-century textbook example of trade travesty, these tariffs would be it.