U.S. citizens bear the burden of Trump's tariffs, contrary to foreign businesses
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The ongoing trade war and tariffs implemented by the Trump administration have had a significant impact on the economy, with many foreign companies adjusting their invoice prices to compensate for the increased costs. One such company, Nike Inc., is planning "surgical" price hikes to help soften the blow, as the company expects the tariffs to increase costs by about $1 billion.
According to economic analysis, the ultimate cost of these tariffs is largely borne by U.S. consumers and businesses, rather than foreign exporters. Studies and reports show that while tariffs increase federal revenue, much of the tariff incidence—meaning who actually pays—is shifted to domestic parties through higher prices and increased costs, rather than being fully absorbed by foreign exporters.
The tariffs contribute to higher prices on imported goods and inputs, which increases production costs for U.S. businesses and raises prices for consumers, effectively acting as a regressive tax. Economic research and Goldman Sachs estimates suggest about 49% of the tariff burden falls on U.S. consumers, 39% on U.S. businesses, and only approximately 12% on foreign exporters.
American businesses and consumers are paying for these tariffs, as evident in the consumer price index and the producer price index. The rate of increase in a measure of margins for wholesalers and retailers has slowed sharply in recent months due to tariffs. Moreover, 3M Co. raised its earnings outlook last week as shifting production and pricing changes will help mitigate the impact of tariffs.
Forecasters doubt U.S. corporations will sacrifice profits for much longer. Domestic firms are starting to pass on the cost of higher tariffs to consumers. The recent rise in import prices suggests foreign suppliers are resisting price cuts, and import prices excluding fuel were up notably in June, suggesting foreign companies are not shouldering the tariff burden.
Notably, Japan's carmakers cut prices to the U.S. in June by a record in data going back to 2016, but car prices did not increase in the latest inflation data, despite tariffs, as tariff expenses are being passed on to consumers. General Motors Co. has reported a $1 billion loss due to tariffs, choosing to absorb the cost.
The burden of tariffs is expected to be reflected in corporate earnings announcements this quarter, according to Citigroup Inc. Chief U.S. Economist Andrew Hollenhorst. Trump reiterated that other countries will pay a 19% tariff, but it is unclear if this is accurate based on the data presented. George Saravelos, global head of FX research at Deutsche Bank AG, stated that Americans are mostly paying for the tariffs.
In summary, economic analyses indicate that the costs of Trump’s tariffs fall predominantly on American consumers and businesses through higher prices and disrupted supply chains, while satisfying some government revenue goals but imposing broader economic drawbacks.
- The increased costs due to tariffs imposed by the Trump administration are primarily being passed on to American businesses and consumers, as evidenced by the rate of increase in production costs and the slowing of margins for wholesalers and retailers.
- Despite foreign companies adjusting invoice prices, economic research and Goldman Sachs estimates suggest that Americans are shouldering about 88% of the tariff burden, with only approximately 12% falling on foreign exporters, with the cost often being passed on to consumers.
