A new analysis from the Federal Reserve Bank of New York offers a stark reminder of who is actually footing the bill for Trump's trade tariffs: the United States itself. Despite the political rhetoric suggesting that foreign exporters bear the brunt of these levies, the data tells a very different story.

The Numbers Don't Lie

The NY Fed report finds that U.S. households absorbed nearly 90% of all 2025 tariff costs, as average import duties surged from 2.6% in 2024 to 13.0% last year. This dramatic increase represents the highest tariff rates since 1946, fundamentally transforming these trade measures from penalties aimed abroad into what effectively functions as a domestic tax.

The findings align with two recent studies—one from the National Bureau of Economic Research (NBER) and another from Germany's Kiel Institute—both of which likewise report a high pass-through of tariffs to U.S. import prices.

Why Foreign Exporters Aren't Paying

Because foreign exporters largely held their prices steady, producing pass-through rates to U.S. prices as high as 94% during most of 2025, the burden ultimately fell squarely on U.S. households and firms. In economic terms, when exporters don't lower their prices to absorb the tariff, the full cost gets passed along to American importers—and eventually to consumers.

This dynamic is crucial to understanding the real impact of protectionist trade policy. The tariff acts as a tax at the border, but since foreign suppliers aren't cutting their prices to compensate, American businesses and families end up paying the difference.

A $200 Billion Domestic Tax

With tariff rates at their highest level since 1946, they now function less as a penalty aimed abroad and more as a tax effectively levied on the domestic economy. Indeed, U.S. customs revenue surged by roughly $200 billion in 2025—a tax borne almost entirely by U.S. firms and consumers.

This revenue windfall for the federal government comes directly from the pockets of American households and businesses, not from foreign governments or exporters as the political narrative often suggests.

The Bottom Line

While the rhetoric insists that other countries pay, the math is unambiguous: protectionism may sound outward-facing, but its financial sting is undeniably domestic. Trump's tariffs turned out to be less about making foreign exporters pay and more about the U.S. quietly taxing itself under a different name.

For investors and businesses, this reality has significant implications:

  • Consumer Impact: Higher import costs translate to higher prices for goods, squeezing household budgets and potentially dampening consumer spending.
  • Business Margins: Companies reliant on imported inputs face compressed margins unless they can pass costs to customers.
  • Inflation Pressures: The tariff-driven price increases add to broader inflationary pressures in the economy.
  • Policy Outlook: Understanding who truly bears the cost is essential for evaluating the sustainability and political viability of current trade policy.

The Federal Reserve's analysis provides a clear-eyed assessment of trade policy's real-world effects—a reminder that in economics, the stated intent of a policy often diverges significantly from its actual impact.