New report finds that domestic businesses and individuals have taken the largest hit from tariffs.
The costs of the 2025 tariff wave landed overwhelmingly on American businesses and households, not on foreign exporters, according to a new report.
Using detailed customs data through November 2025, New York Fed economists found that nearly 90% of the economic burden from last year’s higher import taxes was borne domestically, with only a small share absorbed by overseas suppliers through lower prices.
Tariffs that were marketed as a way to force trade partners to pay are instead operating as a tax on US corporate margins and consumer purchasing power, complicating Federal Reserve policy, pressuring certain equity sectors, and subtly reshaping portfolio risk across asset classes.
Over the course of 2025, the average tariff rate on US imports rose from 2.6% to 13%, according to the New York Fed’s Liberty Street Economics blog. The increases were particularly abrupt in the spring, when duties on a wide range of Chinese goods were hiked by 125 percentage points before being rolled back by 115 percentage points in mid‑May.
The statutory rates, however, tell only part of the story. Economists distinguish between those headline rates and the “duty rate” actually paid, which is total tariff revenue divided by import values. Because many shipments qualify for exemptions and firms alter sourcing to avoid the steepest duties, the average duty rate runs below the statutory rate. Even so, the New York Fed finds that the effective cost of tariffs ballooned as the year progressed.
For market participants, that distinction matters less than the bottom line: the overwhelming majority of these higher costs showed up in import prices, not in discounts offered by foreign producers.
Tariff “incidence” — who actually pays — depends on whether exporters cut prices when tariffs rise. In earlier research on the 2018–2019 trade conflicts, New York Fed economists concluded that foreign firms did not materially lower their prices, leaving U.S. buyers to shoulder virtually the full impact in the form of higher landed costs.
The new study extends that framework to the 2025 episode. The authors estimate how changes in tariff rates affected foreign export prices and then infer how much of the tax was passed through into prices paid by American importers. Their results show that US firms and consumers remained the primary shock absorbers.
Sectors facing less foreign competition because of import taxes may see firmer pricing power in the short run, though at the risk of complacency and higher input costs over time. Export‑oriented manufacturers that depend on imported components, by contrast, confront margin pressure from both sides: higher costs at home and potentially retaliatory tariffs abroad.
Federal Reserve officials have repeatedly noted that trade tariffs are contributing to the overshoot of the central bank’s 2% inflation target, limiting how far and how fast they can cut interest rates after a total of 75 basis points of easing last year.
Because tariffs raise the prices of imported goods directly, they behave like a terms‑of‑trade shock. That complicates monetary policy: cutting rates aggressively in the face of tariff‑driven inflation risks entrenching higher price expectations but leaving policy tight for too long could undercut growth once the one‑time price level effect has passed.
The Congressional Budget Office, in a recent assessment, underscores that “higher tariffs directly increase the cost of imported goods, raising prices for US consumers and businesses,” estimating that only around 5% of the costs are absorbed by foreign exporters, with the remainder split between US firms’ margins and consumer prices.
For allocators, that reinforces the message: tariffs behave like a domestic tax rather than a foreign levy.
