Global Economy
US Businesses and Consumers Shoulder 90% of Tariff Costs, NY Fed Research Reveals—Undercutting Trump’s Claims
As prices at the checkout line keep climbing, new Federal Reserve data exposes an uncomfortable economic truth: Americans—not China or Europe—are footing the bill for President Trump’s tariff policies.
When Susan Martinez, a small business owner in suburban New Jersey, noticed her wholesale costs for imported electronics jump by 18% last spring, she faced an impossible choice: absorb the hit to her already-thin profit margins or pass the increase to customers still reeling from years of high inflation. She chose survival—raising prices by 12% and watching foot traffic drop.
Martinez’s predicament isn’t unique. It’s the lived experience of businesses across the New York-Northern New Jersey region that have faced difficult decisions about whether to absorb tariffs through lower profits or raise prices to recover higher costs, according to a groundbreaking May 2025 study from the Federal Reserve Bank of New York. The findings directly contradict the Trump administration’s central claim that foreign nations bear the brunt of import duties.
The Data Doesn’t Lie: Who Really Pays for Tariffs?
The numbers are stark and unequivocal. Roughly three-quarters of manufacturers and service firms passed along at least some of their tariff-induced cost increases to consumers, with nearly a third of manufacturers and almost half of service companies transferring the full cost, the NY Fed’s Regional Business Surveys revealed in June 2025.
But the economic pain doesn’t stop there. More recent analysis from the Kiel Institute for the World Economy, published in January 2026, found that Americans are paying 96% of the cost of tariffs, while foreign exporters are absorbing about 4%—a finding based on analyzing over 25 million shipment records from more than $4 trillion in U.S. imports.
Tariff Burden Distribution: Who Pays What?
| Time Period | US Consumers | US Businesses | Foreign Exporters | Source |
|---|---|---|---|---|
| June 2025 | 22% | 64% | 14% | Council on Foreign Relations |
| August 2025 | 37% | 51% | 9% | Goldman Sachs |
| Mid-2026 (Projected) | 67% | 8% | 25% | Council on Foreign Relations |
| Overall 2025 | ~40% | ~56% | ~4% | Kiel Institute |
The progression tells a troubling story: by the middle of 2026, importers will bear only about 8% of tariff costs, with the consumer share rising to 67% and the exporter burden increasing to about 25%. In the end, U.S. consumers will shoulder roughly two-thirds of Trump’s tariffs—a far cry from the “China pays” narrative promoted during campaign rallies.
The Speed of Economic Pain: How Fast Did Prices Rise?
Perhaps most striking is how rapidly businesses translated tariff costs into higher prices for American households. The NY Fed found that over half of both manufacturers and service firms raised prices within a month of experiencing tariff-related cost increases—many within a day or week.
This swift transmission demolished any hope that businesses might absorb costs long enough for trade negotiations to reduce duties. Instead, companies acted decisively to protect profit margins, knowing customers had few alternatives as tariffs hit entire product categories simultaneously.
The Federal Reserve’s real-time monitoring confirms this pattern. The Fed constructed theoretical predictions of tariff effects based on implemented tariff changes and the prevalence of imports in each category, then tracked whether actual price data matched predictions. The answer was a resounding yes—tariffs showed up quickly in consumer prices, adding approximately 0.4 percentage points to the core Personal Consumption Expenditures price index by late 2025.
The Household Tax Americans Didn’t Vote For
Research from the nonpartisan Tax Foundation quantifies the impact in terms every family can understand: Trump’s tariffs amount to an average tax increase per US household of $1,000 in 2025 and $1,300 in 2026. For context, that’s more than many families saved from recent tax cuts—a point not lost on economists tracking real household incomes.
The Tax Policy Center’s analysis goes further, breaking down impacts by income level. The average federal tax rate will rise by 1.9 percentage points for households in the bottom quintile—compared with a 1.4 percentage point increase for those in the top quintile. In other words, tariffs function as a regressive tax, hitting lower-income Americans disproportionately hard.
Household Impact by Income Level (2026 Estimates)
| Income Quintile | Average Tariff Burden | Effective Tax Rate Increase |
|---|---|---|
| Bottom 20% | $900 | +1.9 percentage points |
| Middle 20% | $1,400 | +1.7 percentage points |
| Top 20% | $3,200 | +1.4 percentage points |
| Top 1% | $8,500 | +1.2 percentage points |
Source: Tax Policy Center, January 2026
While wealthier households pay more in absolute dollars, the burden as a share of income falls heaviest on working- and middle-class families—precisely the demographic Trump promised to protect.
Trump’s Claims vs. Economic Reality
The disconnect between presidential rhetoric and economic evidence has rarely been more pronounced. Throughout 2025 and into 2026, President Trump repeatedly insisted that foreign countries pay U.S. tariffs. “The claim that foreign countries pay these tariffs is a myth,” countered Julian Hinz, research director at the Kiel Institute.
The confusion stems partly from how tariffs technically work. As U.S. Customs and Border Protection bills the U.S. importer directly, it is the importer which pays the tariffs. That importer then faces the same choice Susan Martinez confronted: accept lower profits, negotiate price cuts from foreign suppliers, or raise prices for American consumers.
Economic theory and decades of empirical evidence predict the outcome—and recent data confirms it. A paper by Alberto Cavallo and coauthors, cited by Trump himself to defend his policies, actually undermines his claims. The retail pattern points to higher prices for imported items, with spillovers into domestic prices as well, with the authors emphasizing that retail tariff pass-through is 24 percent, contributing roughly 0.76 percentage points to the all-items Consumer Price Index by October 2025.
The Manufacturing Jobs Mirage
Beyond consumer prices, Trump justified tariffs as essential to reviving American manufacturing and reshoring jobs lost to overseas production. The results? Exactly opposite.
Manufacturing employment has declined by approximately 59,000 jobs since Trump’s April tariff announcement, with durable goods manufacturers—those making cars, appliances, and electronics—bearing the brunt, according to Labor Department figures through late 2025.
The broader employment picture looks similarly grim. U.S. job openings fell to 6.54 million in December, the lowest level in more than five years, while total manufacturing employment has dropped each month since April, according to data compiled by NewsNation from federal sources.
Manufacturing Employment Trends (2025)
| Month | Change from Prior Month | Jobs Lost Since April |
|---|---|---|
| April 2025 | 0 (baseline) | 0 |
| August 2025 | -18,000 | -35,000 |
| December 2025 | -12,000 | -59,000 |
Source: Bureau of Labor Statistics
The irony is palpable: policies designed to protect American workers have instead created exactly the job losses they were meant to prevent. A respondent from the petroleum and coal industry reported: “No major changes at this time, but going into 2026, we expect to see big changes with cash flow and employee head count. The company has sold off a big part of the business that generated free cash while offering voluntary severance packages to anyone”, according to the Institute for Supply Management’s November survey.
Inflation’s Unwelcome Return
Just as the Federal Reserve appeared to be winning its battle against post-pandemic inflation, tariffs threw a wrench into monetary policy. Chair Powell said at a panel that “in effect, we went on hold when we saw the size of the tariffs and essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs”.
The inflationary impact manifests across multiple channels:
Direct Price Increases: The Federal Reserve Bank of St. Louis researchers found that tariffs accounted for 0.5 percentage points of headline inflation and 0.4 percentage points of core inflation between June and August 2025.
Goods Sector Revival: After years of deflationary pressures helping offset sticky services inflation, core goods prices rose by 1.4% year-over-year in late 2025—the highest non-pandemic increase since 2011. Companies exhausting their pre-tariff inventories were forced to pass higher costs directly to consumers.
Broad Category Effects: The Yale Budget Lab estimates that current tariff policies cost each household $1,800 on average in 2025, with apparel prices rising 17% and food prices climbing 2.8% due to tariffs alone.
Looking ahead, PCE inflation is expected to average about 2.6% for 2025, but with businesses passing on more tariff costs to consumers, inflation forecasts show a rise to 2.7% in 2026, according to Morningstar’s analysis.
Sector-by-Sector Breakdown: Where Tariffs Hit Hardest
Not all industries felt tariff impacts equally. The NY Fed’s survey revealed telling patterns:
Automotive Sector: Perhaps hardest hit, with J.P. Morgan estimating car prices would increase by $4,711 with the 25% tariff on imported vehicles. Companies like Stellantis and major European manufacturers faced impossible choices about production location versus market access.
Retail and Consumer Goods: One large retailer’s average costs had increased around 20% year-over-year because of tariffs, and it was trying to determine how it would distribute these increases, according to commentary from the Cleveland Fed.
Technology and Electronics: Supply chain disruptions combined with direct tariff costs to create double-digit cost increases for many tech importers and retailers.
Agriculture and Food: Despite being shielded from some tariff categories, food prices climbed 2.8% due to tariffs alone, as import costs for ingredients and processing equipment rippled through supply chains.
Business Adaptation Strategies: Survival Tactics
Faced with tariff shocks, companies deployed various survival strategies beyond simple price increases:
Supply Chain Reshuffling: A significant share of businesses reported increasing purchases from within the United States and a similar share reported a decline in imported goods, though this proved difficult for products without domestic alternatives.
Inventory Front-Loading: Just under a third of manufacturers and service firms reported increasing their inventory levels, partly to get ahead of rising tariffs and build a buffer against potential supply shortages.
Strategic Pricing: Some businesses raised prices on non-tariffed goods alongside tariffed items, taking advantage of an escalating pricing environment to increase prices more broadly—similar to how firms raised dryer prices when only washers faced tariffs in 2018-19.
Margin Compression: Unable to fully pass through costs, many businesses accepted lower profitability, with Goldman Sachs estimating that companies that use or sell imported goods bear a larger share of tariff costs than the net 22% figure suggests.
The Counterargument: Are There Any Benefits?
Proponents argue tariffs could eventually yield benefits, despite short-term pain:
Domestic Manufacturing Investment: Trump points to announced factory investments and claims of an “American economic miracle” in recent Wall Street Journal commentary, crediting tariffs with creating growth momentum.
National Security: Some industries critical to defense and infrastructure might justify protection from foreign competition, even at economic cost.
Negotiating Leverage: Tariffs as bargaining chips could theoretically yield better trade agreements, though analysts and foreign governments expressed confusion over the administration’s tariff strategies and openness to negotiation.
Trade Deficit Reduction: Import restrictions mechanically reduce trade deficits, though economists debate whether bilateral trade balances matter for overall prosperity.
However, these potential benefits must be weighed against documented costs: manufacturing job losses, higher consumer prices, squeezed business margins, elevated inflation, and strained relationships with trading partners. The evidence through early 2026 suggests costs far outweigh benefits for the American economy.
What This Means for 2026 and Beyond
As the calendar turns to 2026, several economic forces are colliding:
Escalating Consumer Impact: With businesses exhausting pre-tariff inventories, core goods prices rose only about a percentage point cumulatively in 2025, but import prices including tariff-related costs were up nearly 10%, meaning US businesses have been footing almost all the tariff bills—but that pretariff inventory is running out.
Federal Reserve Dilemma: The worsening growth and inflation outcomes leave the Fed with a challenging dilemma—absent labor market deterioration, there is a strong case for rates to be on hold indefinitely, yet the more challenging business environment increases the chances of just such a labor market deterioration.
Legal Uncertainty: The Supreme Court is evaluating the legality of Trump’s use of emergency powers to impose sweeping tariffs, with a decision expected in early 2026 that could reshape or eliminate large portions of the tariff regime.
Election Year Politics: With tariffs emerging as a kitchen-table issue affecting household budgets, the political sustainability of current policies faces growing scrutiny from both voters and some Republican lawmakers who threaten to rebel on Trump tariff votes.
The Bottom Line
The economic evidence is overwhelming and consistent across multiple research institutions: American consumers and businesses are bearing the vast majority of tariff costs—somewhere between 88% and 96%, depending on the study and time period. Foreign exporters are absorbing only a small fraction, contrary to repeated claims from the White House.
For ordinary Americans like Susan Martinez, the data translates into everyday financial stress: higher prices at checkout, reduced purchasing power, and economic uncertainty. For manufacturers, it means job losses rather than the promised renaissance. For the Federal Reserve, it complicates the already-delicate task of managing inflation without triggering recession.
“The claim that foreign countries pay these tariffs is a myth” isn’t just an academic point—it’s the difference between economic policy based on evidence versus wishful thinking. As 2026 unfolds, American households will continue feeling the very real costs of that distinction.