Who pays the tariffs?

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Who Bears the Cost of Tariffs?

Tariff incidence is the technical term for how the costs of a tariff are split between foreign exporters and domestic importers. While importers pay the duty, the “economic burden” of the tariff can be shifted onto exporters if they lower their export prices. We illustrate this effect through a simple example: Suppose foreign exporters charge $100 for a good, and the importing country decides to levy a 25 percent tariff on it. If the foreign price remains unchanged at $100, the duty paid is $25, increasing the import price to $125. In this case, the tariff incidence falls entirely on the importer; in other words, there is 100 percent pass-through from tariffs to import prices, and therefore on U.S. consumers and firms.

In contrast, the exporter might lower its price in order to avoid losing market share. If foreign exporters respond to the tariff by lowering their price to $80 (i.e., $100 divided by 1.25), the price paid by importers will remain $100 (with $20 in duties paid to the government). In this case, 100 percent of the tariff incidence falls on foreign exporters, who now receive $20 less for the same good; in other words, there is zero pass-through from the tariff since the import price is unchanged.

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We highlight two main results. First, 94 percent of the tariff incidence was borne by the U.S. in the first eight months of 2025. This result means that a 10 percent tariff caused only a 0.6 percentage point decline in foreign export prices.

Second, the tariff pass-through into import prices has declined in the latter part of the year. That is, a larger share of the tariff incidence was borne by foreign exporters by the end of the year. In November, a 10 percent tariff was associated with a 1.4 percent decline in foreign export prices, suggesting an 86 percent pass-through to U.S. import prices. Given that the average tariff in December was 13 percent (see the first chart), our results imply that U.S. import prices for goods subject to the average tariff increased by 11 percent (13 times 0.86) more than those for goods not subject to tariffs. These higher import prices caused firms to reorganize supply chains, as suggested by the findings presented in the two charts above.

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Table 1 reports our baseline estimates across all trading partners. The coefficient on log tariffs in the unit value regression (column 3) is -0.039, statistically significant at the 10% level. This implies that foreign exporters absorb less than 4% of the tariff burden; the remaining 96% passes through to US importers.

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• The 2025 US tariffs are an own goal: American importers and consumers bear nearly the entire cost. Foreign exporters absorb only about 4% of the tariff burden—the remaining 96% is passed through to US buyers.

• Using shipment-level data covering over 25 million transactions valued at nearly $4 trillion, we find near-complete pass-through of tariffs to US import prices.

• US customs revenue surged by approximately $200 billion in 2025—a tax paid almost entirely by Americans.

• Event studies around discrete tariff shocks on Brazil (50%) and India (25–50%) confirm: export prices did not decline. Trade volumes collapsed instead.

• Indian export customs data validates our findings: when facing US tariffs, Indian exporters maintained their prices and reduced shipments. They did not “eat” the tariff.

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