The Federal Reserve Bank of New York concluded in a report released on Thursday that American households and businesses have taken on almost the entirety of the recent jump in import taxes imposed under President Donald Trump’s trade policy.
The authors estimate that roughly 90% of the tariffs implemented by the administration were ultimately borne by U.S. consumers and firms. That conclusion runs counter to the administration’s frequent contention that other countries or foreign exporters would absorb the levies.
The New York Fed examined tariff movements over the prior year, noting a sharp change in the average level of these levies - from 2.6% to 13% over the period the study covers. The report also highlights the intra-year swing in the average, noting that tariffs reached their highest point in April and May, when the administration temporarily raised levies on Chinese goods to 125% before reducing them to 113%.
Drawing on earlier work from the Fed, the authors described how exporters reacted in the first Trump term when faced with equivalent taxes. In that prior analysis the Fed found that exporters "did not lower their prices at all, so the full incidence of the tariffs was borne by the U.S. That is, there was 100% pass-through from tariffs into import prices." The new paper applies this framework to more recent tariff activity.
Looking at month-to-month incidence last year, the report said Americans absorbed 94% of the tariff increase between January and August. That share eased slightly to 92% in September and October and then to 86% in November.
The New York Fed’s conclusions align with a Congressional Budget Office report released on Wednesday. The CBO noted that "higher tariffs directly increase the cost of imported goods, raising prices for U.S. consumers and businesses." In breaking down who ultimately pays, the CBO estimated foreign exporters would shoulder 5% of the tariff cost. In the near term, the agency said, "U.S. businesses will absorb 30% of the import price increases by reducing their profit margins; the remaining 70% will be passed through to consumers by raising prices."
Policy aims and market effects
The administration has used large tariffs as a core instrument of its economic policy - to raise government revenue, penalize trading partners it views as unfair competitors, and to incentivize reshoring of industry. Those repeated, sometimes sizable tariff increases - followed by subsequent rollbacks or delays - have produced periods of elevated market volatility and contributed to uncertainty in the broader economy.
Federal Reserve officials have cited tariff-related price moves as an important factor in the recent overshoot above their 2% inflation target. That overshoot has complicated the Fed’s path on monetary policy, even after the central bank eased policy last year by 75 basis points largely to support employment.
Officials believe the tariff-driven price effects are likely to diminish over time and represent a one-time upward shift in the overall price level. If tariff impacts do fade, that could create room for further rate cuts. At the same time, the one-time increase in price levels from tariffs means Americans may face a permanently higher cost of living.
Legal and political uncertainty
Not all policymakers agree on the magnitude of the tariff effects. Fed Governor Stephen Miran, who previously served as a top economic advisor to the president, said on Monday that the impact of the tariffs on the economy has been "quite muted" and argued that the data do not support the contention that U.S. businesses are simply passing higher import costs straight through to domestic consumers.
Tariff policy has also encountered political and legal challenges. The House of Representatives voted on Wednesday to end emergency tariffs on Canada. Separately, the Supreme Court is scheduled to rule at an unspecified future date on the legality of many of the administration’s tariffs.
Looking ahead, the government will publish its latest consumer price report on Friday. Economists expect a modest moderation in the year-over-year headline reading for that closely watched gauge, a data point that could inform both markets and policymaking on monetary policy and fiscal responses.
Implications for businesses and consumers
The New York Fed’s analysis and the CBO’s calculations together suggest the near-term distribution of tariff costs: only a small share falls on foreign exporters, a limited portion is absorbed by U.S. companies through reduced margins, and the bulk is transmitted to consumers via higher prices. Sectors most directly affected include import-reliant consumer goods, manufacturers using imported intermediate inputs, and retailers facing squeezed margins and altered pricing strategies. Financial markets have also experienced heightened volatility tied to the erratic imposition and removal of levies.
Because many questions about legal outcomes, political decisions, and future tariff adjustments remain unresolved, businesses and households face continued uncertainty over future price levels and policy direction.