A Kiel Institute for the World Economy study found that American importers and consumers bear nearly all (96%) of the costs from recent U.S. tariffs, contradicting claims that foreign producers pay, with foreign firms absorbing only about 4% through price cuts. Analyzing $4 trillion in trade, the research showed these tariffs act as a consumption tax on Americans, boosting U.S. revenue but increasing domestic prices and reducing trade volumes rather than forcing foreign price concessions. The study highlights that while generating revenue, tariffs primarily shift costs to U.S. businesses and households, hurting the U.S. economy most.
Key Findings from the Kiel Institute Study
Cost Burden: U.S. importers and consumers pay 96% of the tariff cost, while foreign exporters absorb only 4%
Mechanism: Tariffs function as a domestic consumption tax, with higher prices passed on to American buyers
Trade Impact: Instead of price cuts, targeted foreign exporters reduced trade volumes, choosing to maintain margins on fewer sales
Counter to Policy Claims: The findings challenge the narrative that tariffs are a cost borne by trading partners, demonstrating they extract revenue from the U.S. economy.
Broader Economic Effects
U.S. Economy Harmed: The Kiel Institute's KITE model projects significant harm to the U.S., with potential drops in output, higher consumer prices, and reduced exports
Global Impact: Tariffs affect all countries, though to varying degrees, with the EU also experiencing negative impacts
In essence, the Kiel Institute study concludes that US tariffs largely function as a tax on Americans, increasing costs for consumers and businesses rather than extracting concessions from foreign entities.
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