An analysis found that Americans bore more of the expense from the "reciprocal tariff" the Donald Trump administration imposed on trading partners last year than foreign exporters did. It means a significant portion of the administration's tariff revenue ultimately came out of Americans' pockets.
The Kiel Institute for the World Economy (IFW) in Germany said on the 19th (local time) in a report that its analysis of 25 million trade records totaling $4 trillion (about 5,913 trillion won) showed foreign exporters absorbed only 4% of the tariff expense. The remaining 96% was passed on to U.S. importers and consumers.
According to the study, the tariff expense is first levied on U.S. importers and wholesalers, and then the burden moves to manufacturers and retailers. These corporations must choose whether to absorb the tariff burden themselves or pass it on to customers. In the end, U.S. consumers are hit by price increases not only on imports but also on U.S.-made products that use foreign intermediate goods.
One reason foreign exporters bore little of the tariff expense is diversification of sales destinations. Bloomberg said, "There are several reasons exporters do not shoulder a large share of the expense, one of which is the ability to shift sales to other markets." The Wall Street Journal (WSJ) reported, "Exporters may have found buyers in other countries, or they may be keeping prices steady for now on the view that the final tariff level will change."
The institute said, "Overseas exporters did not make price cuts of a meaningful magnitude in response to U.S. tariff hikes," adding, "The increase in U.S. tariff revenue of $200 billion (about 296 trillion won) is no different from collecting the same amount from U.S. corporations and households." Earlier, the U.S. federal government released that tariff revenues surpassed $200 billion late last year.
After the tariff impositions, many countries' trade volumes with the United States fell sharply. In August last year, Indian exporters, who were hit with a high 50% tariff due to trade with Russia, kept their export prices but reduced shipments to the United States by 18%–24% compared with other trading partners such as the European Union (EU), Canada and Australia.
This analysis contradicts President Trump's previous remarks. Since April last year, President Trump has imposed various tariffs on countries around the world while arguing that foreign corporations would absorb the tariff expense and would not trigger price increases in the United States. On that basis, he also demanded interest rate cuts from the Federal Reserve (Fed).
However, the tariffs did not immediately lead to sharp inflation. That is because U.S. importers and retailers initially shouldered the tariff burden. According to research from Harvard Business School, about 20% of the tariffs were actually reflected in consumer prices six months after implementation, and most of the remainder stayed as a burden on U.S. importers and retailers.
The institute noted that tariffs are closer to a "consumption tax" levied on Americans than a tax on foreign producers. Julian Hinz, an economics professor at Bielefeld University in Germany and a co-author of the study, said, "There is no transfer of wealth to the United States by foreigners in the form of tariffs."
The WSJ said the findings "run counter to President Trump's core claims," and "suggests he could be placed at a disadvantage in a rekindled trade war with Europe." President Trump recently said he would impose an additional 10% tariff starting on the 1st of next month on eight European countries that oppose the annexation of Greenland, a Danish territory, and analysts say the results could become a burden for him in future tariff talks with European countries.