Key takeaways
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- A Kiel Institute study estimates US consumers and importers absorbed ~96% of last year’s tariff burden; foreign exporters absorbed ~4% via lower prices.
- If accurate, tariffs function more like a domestic consumption tax than a transfer from foreign producers—raising longer-run inflation risk.
- The findings challenge a key political narrative and may reduce the credibility of tariff threats as a bargaining tool, including in current Europe-related negotiations.
- Trade volumes are adjusting: exporters may redirect supply or pull back from the US market when tariffs are too punitive to price through.
What Happened?
A new study by the Kiel Institute for the World Economy analyzed roughly $4 trillion in shipments (Jan. 2024–Nov. 2025) and concluded that foreign exporters lowered prices only modestly, absorbing about 4% of US tariff increases, while US importers and consumers absorbed the other 96%. The research aligns with other recent work (including Yale Budget Lab and Harvard-affiliated analysis) suggesting tariffs do not meaningfully “get paid by foreigners” in practice.
Why It Matters?
For markets, the key issue is incidence: if tariffs mostly land on US buyers, they are inflationary over time and can compress margins for importers/retailers until pricing resets. That creates a delayed but important macro risk—tariffs can look painless early (if retailers/importers eat costs or rework supply chains), then show up later through higher shelf prices and weaker real consumption. Strategically, the study also implies tariff threats may have less negotiating power than advertised, because the domestic economic trade-off is larger than the political messaging suggests.
What’s Next?
Watch for evidence of pass-through accelerating—retail pricing, importer margin pressure, and inflation prints that lag tariff announcements. Also watch for substitution effects: if US buyers find alternative suppliers, foreign exporters may absorb more of the burden over time, but that adjustment is slow and sector-specific. Finally, monitor Europe-facing tariff negotiations: if markets conclude the US bears most costs, the perceived “credible threat” of tariffs may diminish, potentially shifting outcomes toward narrower or more symbolic tariff packages rather than sustained escalation.
