Foreign Exporters Bear More of the 2025 Tariff Burden Than Initially Estimated

Understanding the Burden of 2025 Tariffs

Tariffs, which are taxes levied on imported goods, fundamentally alter economic dynamics between countries. A recent analysis led by trade economist Caroline Freund provides new insights into the distribution of the burden caused by the 2025 tariffs, showing that foreign exporters have absorbed 47% of these costs, leaving U.S. importers with only 53%. This finding significantly diverges from earlier studies suggesting a nearly complete pass-through of tariffs to importers.

Key Findings from Freund's Analysis

Freund's study utilizes import data from 50 of the U.S.'s major trading partners, which collectively accounted for 95% of U.S. goods imports in 2024. By analyzing detailed pricing changes from September 2023 to January 2026, she finds a noteworthy decrease in the unit value received by exporters, suggesting that foreign sellers adjusted their pricing strategies downward to mitigate the impact of tariffs. Meanwhile, the landed cost for U.S. importers increased by less than the tariff amount—indicating that the tariffs' costs were spread across the involved parties.

This research marks an important contribution by employing a methodology that weights data by pre-trade war import volumes. This approach ensures that more substantial categories of goods, which had significant trade volumes, are not improperly equated with smaller categories of imports in assessing pass-through effects.

Implications for Importers and Exporters

Increased prices due to tariffs generally lead to lowered demand for imported goods. As foreign exporters strive to maintain market share, evidence suggests they might reduce prices instead of passing on the full tariff burden to U.S. importers. Economists refer to this scenario as the "pass-through" effect, assessing how much of the tariffs’ costs are ultimately shouldered by importers versus exporters.

Freund’s findings bolster the understanding of a terms-of-trade effect—a situation where a significant importer can leverage market power to drive down pre-tariff prices by imposing tariffs. Her research confirms that roughly 47% of the new tariff burden was absorbed by foreign exporters on average within the analyzed period.

Challenging Previous Research Perspectives

Other studies, such as one by Ahn et al., point towards importers offsetting tariff costs by choosing lower-quality goods rather than through a direct price reduction from exporters. Freund’s analysis does consider these adjustments but largely omits them from her calculations. This indicates that while there is price pressure felt by exporters, not all observed price reductions can be solely attributed to their pricing responses.

While Freund’s study presents a nuanced view of the tariffs’ impacts, it stops short of evaluating whether the tariffs have ultimately enhanced U.S. welfare. The complex interplay of trade distortions, retaliation from global partners, and economic inefficiencies needs to be elucidated to understand the totality of the tariffs’ economic implications.

Compounding Factors and the Economic Landscape

The recent rulings regarding the tariffs under the International Emergency Economic Powers Act exacerbate the complexities surrounding federal revenue generation from these tariffs. With a significant amount of revenue being refunded to U.S. importers, much of the economic burden transfer is obscured. This means any perceived gain for the U.S. government in tariff revenue could effectively turn into a loss, particularly with associated interest payments on refunds.

Freund argues that these tariffs can incite a prisoner’s dilemma among nations, where countries engage in concurrent tariff imposition, ultimately lowering global welfare. The possibility of retaliatory measures paints a stark picture of the long-term consequences of such trade policies.

Historical Context and Future Considerations

This trend of exporters absorbing a larger share of tariff burdens isn't entirely new. Research from earlier tariffs implemented under President Trump revealed a similar situation, where pass-through rates dropped significantly when examining the interaction between demand adjustments and exporter pricing strategies. Smaller batch sizes due to tariff-induced demand reductions can inflate per-unit costs, further complicating straightforward economic assessments.

Additionally, most trade data relies on country-based aggregation rather than ownership structures. This can lead to misinterpretations surrounding who ultimately shoulders the tariff burden, particularly when a significant portion of U.S. trade involves transactions between multinationals and their subsidiaries abroad.

Conclusion: A Call for Further Analysis

Freund's study underscores a critical reassessment of the burden distribution regarding the 2025 tariffs. Although it indicates a substantial cost bore by foreign exporters, it does not definitively establish whether these tariffs have improved welfare for U.S. stakeholders. The nuanced economic reality suggests that further investigation into the broader impacts of such tariffs is essential for informed policymaking in global trade.