US tariffs primarily burden domestic firms and consumers
A recent European Central Bank analysis indicates that the costs of higher US tariffs are predominantly borne by US firms and consumers. Only 5 percent of these costs are absorbed by foreign exporters, according to the study.
Costs fall on domestic wallets
The analysis shows that the costs associated with recently imposed US tariffs are largely falling on US firms and consumers.
Foreign exporters are absorbing only a small fraction, approximately 5 percent, of these increased costs.
This is evidenced by an aggregate pass-through coefficient of 0.95, meaning a 10 percent increase in tariffs results in a 9.5 percent increase in prices for imported goods, net of tariffs.
Since April, the annual change in these net prices has been slightly negative, while volumes of imported goods have declined sharply.
This indicates that the burden of tariffs is predominantly transferred down the pricing chain to domestic importers and ultimately consumers, rather than being absorbed by foreign suppliers.
Trade structures reshaped by tariffs
The statutory effective tariff rate in the United States increased significantly from 3 percent to over 18 percent between January and November 2025.
This surge in tariffs has triggered substantial adjustments in trade structures and volumes.
The estimated aggregate elasticity of imports stands at -3.7, implying a 37 percent decline in import volumes for every 10 percent increase in tariffs.
Much of this decline is attributed to products no longer being traded, indicating an adjustment through the extensive margin.
The automotive sector provides a clear example, showing a decoupling of US trade from China and the EU in favor of Canada and Mexico, reflecting a strengthening of regional supply chains and trade diversion.
A self-inflicted economic burden
This study provides compelling evidence that tariffs often act as a domestic tax, primarily harming the imposing country's own consumers and businesses.
The limited absorption of costs by foreign exporters challenges the effectiveness of protectionist measures in shifting economic burdens abroad.
Policymakers should carefully consider these findings, as sustained tariffs risk long-term economic inefficiencies and higher domestic prices without achieving desired trade rebalancing.
Source: Where do the costs of higher US tariffs fall?
IN: