The tariffs imposed by US President Donald Trump on imported goods are borne almost entirely by US importers, their domestic customers and ultimately by American consumers. This is according to a study by the Kiel Institute for the World Economy, BTA reported.
“Foreign exporters did not significantly reduce their prices in response to the increase in US tariffs“, the report states. According to the study, the increase in tariff revenues by about $ 200 billion represents an amount “extracted from American businesses and households“.
The analysis shows that only about 4 percent of the tariff burden is borne by foreign companies, while approximately 96 percent is transferred to American companies. They either bear the higher costs or compensate for them by raising final prices. Manufacturers and retailers are then faced with the choice of passing on the costs to consumers or accepting lower profits.
“The tariff does not function as a tax on foreign producers, but as a tax on American consumption,“ say the study's authors, Julian Hintz, Aaron Lohmann, Hendrik Malkow and Anna Forwich.
The study focuses on the impact of U.S. tariffs on exports from Brazil and India, which were hit with high and wide-ranging tariffs last year. After the 50 percent tariff was imposed, Brazilian exporters did not significantly lower their prices in dollar terms. A similar trend was observed in India, which was initially hit with a 25 percent tariff, later increased to 50 percent.
According to the researchers, one reason foreign exporters do not bear a significant part of the costs is that they can redirect their sales to other markets. Analysis of specific “tariff shocks” shows that adjustments are not made through price cuts but through a decline in trade volumes.
“The adjustment is made through a reduction in trade volumes, not through price discounts“, the report notes. “When faced with the choice between maintaining margins on lower sales or reducing margins to maintain volume, most exporters clearly prefer the former“.
The study is based on data on about 25 million trade transactions worth nearly $4 trillion. According to the authors, the results contradict the Trump administration’s argument that U.S. trading partners bear the brunt of tariffs.
“This argument underlies the policy rationale for tariffs – as a tool to extract concessions from trading partners and to generate revenue for the US government at no cost to US households,“ the researchers say. “Our data show the opposite - almost all of the costs are borne by US importers and consumers“.