When President Donald Trump unveiled his administration's sweeping “Liberation Day” tariffs last April, pundits on both sides of the aisle responded by describing the likely effects in superlatives.
Trump declared the duties would boost domestic production, create jobs and generate “trillions and trillions of dollars to reduce our taxes and pay down our national debt.” Critics warned of elevated prices and inflation, with some even forecasting product shortages, for residents in the United States.
The more extreme predictions on both sides appear to have been off the mark.
Research by Harvard University’s Gita Gopinath and University of Chicago Booth School of Business Prof. Brent Neiman offers an early empirical view on what tariffs are actually doing to the U.S. economy. They found that implemented rates have been lower than the announcements have suggested, but also that U.S. buyers—not foreign governments or offshore suppliers—are picking up nearly all the cost.
“In terms of who’s paying for more of it, it’s disproportionately, almost entirely so far, on the U.S. side,” Neiman said.
From targeted duties to sweeping tariffs
Trump has been advocating higher tariffs for decades. In 2018 and 2019, during his first term, his administration roughly doubled the trade-weighted average statutory tariff rate from 2% to 4%, the highest level since the North American Free Trade Agreement (NAFTA) went into force in 1994.
Those duties were focused on a few industries and China. Ultimately, 80% of those tariffs were passed through to U.S. importers, the recent study demonstrates.
The tariff regime the president unveiled last spring was far larger in size and scope. It increased statutory rates by 10 percentage points or more on imports from 88 countries and on 77 products.
At the end of September, the administration’s average statutory tariff stood at 27%, the highest level for the U.S. in over a century. However, the researchers find that the Treasury has collected import duties at only about half that rate due to enforcement gaps, exemptions on everything from semiconductors to pharmaceuticals, and a free pass for goods already in transit. That may help explain why until now the tariffs have not proven as inflationary as some had warned.
Who’s footing the bill for tariff costs
But contrary to the president’s assurances, foreigners are not bearing the cost. The researchers studied trade data from the U.S. census and find, instead, that 94% of the tariffs were passed along to U.S. buyers in 2025.
“So far, exporters appear to have reduced prices by about 6% of the size of the tariff,” Neiman explained. “So if a 10% tariff is imposed on a good, a US importer will pay 9.4% more for it, inclusive of the tariff.”
In a separate exercise, the researchers used import price data from the U.S. Bureau of Labor Statistics to calculate pass-through rates for seven exporters or exporter groups and 44 sectors. The exercise indicated once again that tariffs were passed through to import prices at high rates. The 10 sectors facing the largest tariff increases saw pass-through rates of 90 to 114%, the study indicates.
Gopinath and Neiman acknowledge that a 12-month study of pooled goods and countries with varying tariff rates—required to work with the BLS data—provides only a crude pass-through measure. The analysis of census data is their preferred methodology. However, they say that both analyses strongly suggest pass-through rates are not low.
Foreign exporters did not cut prices to meaningfully offset the tariffs in 2018-19 or in 2025.
“The general point seems to be that in both episodes, pass-through to U.S. import prices is pretty darn high,” said Neiman.
Shifting trade patterns
Naturally, U.S. importers sought to shift their spending away from goods with the highest tariffs. This trend was most notable with China. Its exporters faced the highest U.S. tariffs and saw the largest drop in import market share among big American trading partners. China’s share of U.S. imports plunged from 12.5% at the end of 2024 to 7 to 10% in recent months.
The effects go beyond retail. Most U.S. imports are intermediate inputs and capital goods that domestic companies use to produce finished products. Tariff-induced price increases on those inputs have implications for U.S. competitiveness—and may suggest that domestic producer price inflation, which was 3% higher this past November than it had been one year earlier, could remain elevated.
Whether that pressure eases will depend in part on how the tariff regime evolves and whether foreign exporters eventually absorb more of the cost. So far, the data suggests they haven't budged.
—Adapted from an article originally published by the Chicago Booth Review.
