What the data say about prices, exporters, and who bears the cost
KEY FINDINGS
Border payment does not determine who bears the cost. While tariffs are paid by importers at the border, U.S. nonfuel import prices remained largely flat through September 2025. This indicates that higher tariff costs were not automatically passed through to consumers.
Exporters are absorbing pressure through price adjustments. Export-price indices for major U.S. trading partners declined by roughly 3.6% in local-currency terms over the past year, showing that exporters have reduced prices or accepted lower real revenues rather than maintaining margins.
Goods prices are not driving U.S. inflation. Tariff-exposed goods contributed just 0.2 percentage points on average to inflation in 2025. Nearly all inflationary pressure came from housing and services – sectors not subject to tariffs – consistent with limited consumer pass-through.
Few economic policies generate as much conversation as tariffs. Supporters see them as a way to rebuild domestic industry and rebalance supply chains. Critics argue they are little more than a tax on American consumers. For years, economists have tried to settle the question of who actually pays – and they have not all come to the same conclusion.
The latest study to cross our desk comes from the Kiel Institute, a German economic policy think tank, which claims that 96% of U.S. tariff costs are passed through to American importers and consumers. Given the current cost-of-living crisis confronting American consumers, a finding like this is bound to discourage support for tariffs.
But before we all join together with the globalists, it’s worth taking a deeper look at what the study actually says and assess some additional data points.
What the Kiel Study Shows – and What It Assumes
The Kiel Institute study uses detailed shipment-level data to argue that nearly all tariff costs are passed through to U.S. importers. Because foreign exporters generally did not cut their dollar invoice prices after tariffs were imposed, the authors conclude that the full economic burden falls on “Americans.” That inference, however, overlooks evidence that exporters have absorbed pressure through falling local-currency export prices and margin compression rather than through headline dollar price cuts.
The study does a good job showing that the importer of record pays the tariff at the border. In other words, the importer is the one who writes the check to U.S. Customs. But paying the tax is not the same thing as bearing the cost, and the study largely treats those two things as equivalent.
Methodologically, the analysis captures only the first step in the process. It shows what happens at the port of entry, then assumes what happens next. The implicit logic is that if import prices rose, those higher costs must have been passed straight through to consumers. That assumption skips over the middle of the economy – retailers, wholesalers, and manufacturers – where pricing decisions are actually made.
In reality, firms facing higher costs have options. They can raise prices, but they can also accept lower margins, renegotiate supplier contracts, draw down inventories, or absorb losses to protect market share. The Kiel study even acknowledges this choice, but it does not examine which path firms actually take.
By focusing almost entirely on whether exporters cut prices at the port of departure, the analysis misses how companies with significant pricing power, diversified supply chains, or foreign affiliates may choose to absorb tariff costs rather than pass them along to consumers. That omission matters, because it is precisely in those downstream decisions – not at Customs – that the real economic burden is determined.
Exporters Are Adjusting Prices
Despite claims that exporters are holding prices firm, broader data show many are doing the opposite. Export-price indices for major U.S. trading partners – Canada, Germany, Japan, South Korea, and Mexico – fell in local-currency terms over the past year, by roughly 3.6%on average (Figure 1). Notably, these same exporters raised prices aggressively during the inflation surge of 2021–22, indicating that the 2025 price reductions were aimed at preserving market access to the U.S.
FIGURE 1:
Further, because these export-price indices are measured in local currency, the decline cannot be attributed solely to exchange-rate movements and instead reflects actual price reductions by exporters seeking to maintain access to the U.S. market, the world’s largest consumer economy.
China Is Absorbing Costs Under Deflationary Pressure
China offers an even clearer example. Producer prices in China moved back into deflation during 2025, while export prices fell sharply in local-currency terms. By March 2025, export prices were down roughly 7% year-over-year, and producer prices turned negative by mid-year (Figure 2). This pattern is consistent with renewed producer price deflation and mounting pressure on exporters to cut prices in order to preserve market access, including in response to U.S. trade barriers.
FIGURE 2:
Rather than pivoting to consumption to absorb excess production, China continues to pursue industrial expansion even as the country struggles with underutilized capacity, intense price competition, and compressed profit margins. In one example, only three out of China’s 112 electric vehicle manufacturers were profitable as of May 2025.
Border-price data may miss this adjustment, but exporter-side data do not. A firm that lowers prices to offset a tariff is absorbing the cost – even if the invoice still clears Customs at a similar value. With producer and export prices dropping in most months of 2025, the data suggests that Chinese factories are eating the costs to clear their inventory, shielding U.S. consumers from the full inflationary impact.
Retailers as the Shock Absorber
In addition, the assumption that 96% of costs hit the consumer also ignores the “middleman” profit buffer. U.S. retailers (e.g. Walmart, Amazon, Costco, and Home Depot) currently command a larger share of industry profits than ever before – rising from 34% to 38% over the last 15 years. With operating margins for major retailers stabilizing between 4.5% and 5.0%, these firms possess significant capacity to absorb tariff costs rather than risk volume declines by passing them on.
Corporate behavior validates this: major players like Nintendo held U.S. prices steady despite duties during 2025, while suppliers in sectors ranging from Korean beauty products to Chinese industrial goods explicitly communicated intentions to absorb “part” or “most” of the increased tariff costs. This financial cushion allows the supply chain to shield the consumer in a way that static economic models fail to capture.
Inflation Data Don’t Support the “Consumer Pays” Claim
The central implication of the Kiel study is that tariffs are raising the price of goods and driving inflation. Yet, this is not supported by the data.
To start, recall that tariffs apply overwhelmingly to goods versus housing or services. Yet, goods contributed an average of 0.2% to inflation during 2025, while the sectors least exposed to tariffs, such as core services and housing, buoyed inflation (Figure 3). If tariff costs were being passed through to consumers at scale, they would ultimately appear in retail goods prices and overall inflation – neither of which shows a sustained increase in tariff-exposed categories.
FIGURE 3:
To understand why consumer inflation has remained subdued, it helps to look one step upstream. Import prices – particularly for nonfuel goods, which are most exposed to tariffs – are where pass-through to consumers would appear first if it were occurring at scale. Here again, the data suggest the opposite of the Kiel paper’s conclusions. U.S. nonfuel import prices remained largely flat through September 2025, with no sustained upward trend. Moreover, volatility in headline import prices during this period was driven almost entirely by fuel, not by tariff-exposed goods (Figure 4).
FIGURE 4:
Taken together, the inflation composition data and the import price evidence point in the same direction. Whatever the statutory incidence of tariffs at the border, the economic incidence is being diffused across exporters, suppliers, and intermediaries before prices ever reach consumers. The claim that tariffs are showing up as a direct, near-one-for-one tax on American households is not supported by the data.
The Bottom Line
Debate over the economic impact of tariffs often generates more heat than clarity. A major reason is the tendency to move too quickly from narrow findings to sweeping conclusions. The Kiel Institute report is a case in point. While its analysis shows that importers bear the statutory burden of tariffs at the border, it goes further by implying that this burden is fully passed on to American consumers. The evidence does not support that leap.
A broader look at the data points in a different direction. Export-price indices show that key U.S. trading partners have lowered prices at various points over the past year, absorbing pressure in order to preserve access to the world’s largest consumer market. At the same time, import prices for tariff-exposed goods have remained largely flat, and inflation outcomes reveal that price pressures in the U.S. economy have been driven overwhelmingly by housing and services – sectors untouched by tariffs.
None of this suggests that tariffs are costless. It does, however, demonstrate that their economic incidence is far more diffuse and dynamic than static pass-through models assume. Treating tariff payments at the border as synonymous with consumer price increases obscures how exporters, retailers, and supply chains actually adjust. A serious assessment of tariff policy must be grounded in observed market behavior, not in assumptions that the data themselves do not bear out.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
Who is Really Paying for Trump’s Tariffs?
What the data say about prices, exporters, and who bears the cost
KEY FINDINGS
Few economic policies generate as much conversation as tariffs. Supporters see them as a way to rebuild domestic industry and rebalance supply chains. Critics argue they are little more than a tax on American consumers. For years, economists have tried to settle the question of who actually pays – and they have not all come to the same conclusion.
The latest study to cross our desk comes from the Kiel Institute, a German economic policy think tank, which claims that 96% of U.S. tariff costs are passed through to American importers and consumers. Given the current cost-of-living crisis confronting American consumers, a finding like this is bound to discourage support for tariffs.
But before we all join together with the globalists, it’s worth taking a deeper look at what the study actually says and assess some additional data points.
What the Kiel Study Shows – and What It Assumes
The Kiel Institute study uses detailed shipment-level data to argue that nearly all tariff costs are passed through to U.S. importers. Because foreign exporters generally did not cut their dollar invoice prices after tariffs were imposed, the authors conclude that the full economic burden falls on “Americans.” That inference, however, overlooks evidence that exporters have absorbed pressure through falling local-currency export prices and margin compression rather than through headline dollar price cuts.
The study does a good job showing that the importer of record pays the tariff at the border. In other words, the importer is the one who writes the check to U.S. Customs. But paying the tax is not the same thing as bearing the cost, and the study largely treats those two things as equivalent.
Methodologically, the analysis captures only the first step in the process. It shows what happens at the port of entry, then assumes what happens next. The implicit logic is that if import prices rose, those higher costs must have been passed straight through to consumers. That assumption skips over the middle of the economy – retailers, wholesalers, and manufacturers – where pricing decisions are actually made.
In reality, firms facing higher costs have options. They can raise prices, but they can also accept lower margins, renegotiate supplier contracts, draw down inventories, or absorb losses to protect market share. The Kiel study even acknowledges this choice, but it does not examine which path firms actually take.
By focusing almost entirely on whether exporters cut prices at the port of departure, the analysis misses how companies with significant pricing power, diversified supply chains, or foreign affiliates may choose to absorb tariff costs rather than pass them along to consumers. That omission matters, because it is precisely in those downstream decisions – not at Customs – that the real economic burden is determined.
Exporters Are Adjusting Prices
Despite claims that exporters are holding prices firm, broader data show many are doing the opposite. Export-price indices for major U.S. trading partners – Canada, Germany, Japan, South Korea, and Mexico – fell in local-currency terms over the past year, by roughly 3.6% on average (Figure 1). Notably, these same exporters raised prices aggressively during the inflation surge of 2021–22, indicating that the 2025 price reductions were aimed at preserving market access to the U.S.
FIGURE 1:
Further, because these export-price indices are measured in local currency, the decline cannot be attributed solely to exchange-rate movements and instead reflects actual price reductions by exporters seeking to maintain access to the U.S. market, the world’s largest consumer economy.
China Is Absorbing Costs Under Deflationary Pressure
China offers an even clearer example. Producer prices in China moved back into deflation during 2025, while export prices fell sharply in local-currency terms. By March 2025, export prices were down roughly 7% year-over-year, and producer prices turned negative by mid-year (Figure 2). This pattern is consistent with renewed producer price deflation and mounting pressure on exporters to cut prices in order to preserve market access, including in response to U.S. trade barriers.
FIGURE 2:
Rather than pivoting to consumption to absorb excess production, China continues to pursue industrial expansion even as the country struggles with underutilized capacity, intense price competition, and compressed profit margins. In one example, only three out of China’s 112 electric vehicle manufacturers were profitable as of May 2025.
Border-price data may miss this adjustment, but exporter-side data do not. A firm that lowers prices to offset a tariff is absorbing the cost – even if the invoice still clears Customs at a similar value. With producer and export prices dropping in most months of 2025, the data suggests that Chinese factories are eating the costs to clear their inventory, shielding U.S. consumers from the full inflationary impact.
Retailers as the Shock Absorber
In addition, the assumption that 96% of costs hit the consumer also ignores the “middleman” profit buffer. U.S. retailers (e.g. Walmart, Amazon, Costco, and Home Depot) currently command a larger share of industry profits than ever before – rising from 34% to 38% over the last 15 years. With operating margins for major retailers stabilizing between 4.5% and 5.0%, these firms possess significant capacity to absorb tariff costs rather than risk volume declines by passing them on.
Corporate behavior validates this: major players like Nintendo held U.S. prices steady despite duties during 2025, while suppliers in sectors ranging from Korean beauty products to Chinese industrial goods explicitly communicated intentions to absorb “part” or “most” of the increased tariff costs. This financial cushion allows the supply chain to shield the consumer in a way that static economic models fail to capture.
Inflation Data Don’t Support the “Consumer Pays” Claim
The central implication of the Kiel study is that tariffs are raising the price of goods and driving inflation. Yet, this is not supported by the data.
To start, recall that tariffs apply overwhelmingly to goods versus housing or services. Yet, goods contributed an average of 0.2% to inflation during 2025, while the sectors least exposed to tariffs, such as core services and housing, buoyed inflation (Figure 3). If tariff costs were being passed through to consumers at scale, they would ultimately appear in retail goods prices and overall inflation – neither of which shows a sustained increase in tariff-exposed categories.
FIGURE 3:
To understand why consumer inflation has remained subdued, it helps to look one step upstream. Import prices – particularly for nonfuel goods, which are most exposed to tariffs – are where pass-through to consumers would appear first if it were occurring at scale. Here again, the data suggest the opposite of the Kiel paper’s conclusions. U.S. nonfuel import prices remained largely flat through September 2025, with no sustained upward trend. Moreover, volatility in headline import prices during this period was driven almost entirely by fuel, not by tariff-exposed goods (Figure 4).
FIGURE 4:
Taken together, the inflation composition data and the import price evidence point in the same direction. Whatever the statutory incidence of tariffs at the border, the economic incidence is being diffused across exporters, suppliers, and intermediaries before prices ever reach consumers. The claim that tariffs are showing up as a direct, near-one-for-one tax on American households is not supported by the data.
The Bottom Line
Debate over the economic impact of tariffs often generates more heat than clarity. A major reason is the tendency to move too quickly from narrow findings to sweeping conclusions. The Kiel Institute report is a case in point. While its analysis shows that importers bear the statutory burden of tariffs at the border, it goes further by implying that this burden is fully passed on to American consumers. The evidence does not support that leap.
A broader look at the data points in a different direction. Export-price indices show that key U.S. trading partners have lowered prices at various points over the past year, absorbing pressure in order to preserve access to the world’s largest consumer market. At the same time, import prices for tariff-exposed goods have remained largely flat, and inflation outcomes reveal that price pressures in the U.S. economy have been driven overwhelmingly by housing and services – sectors untouched by tariffs.
None of this suggests that tariffs are costless. It does, however, demonstrate that their economic incidence is far more diffuse and dynamic than static pass-through models assume. Treating tariff payments at the border as synonymous with consumer price increases obscures how exporters, retailers, and supply chains actually adjust. A serious assessment of tariff policy must be grounded in observed market behavior, not in assumptions that the data themselves do not bear out.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
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