Research finds tariffs usually raise prices for Americans

In short: When the US and other countries restrict trade, research shows Americans usually pay most of the cost through higher prices and weaker export sales.

What's going on

The phrase “When other countries cut ties, Americans pay” sums up a pattern economists often point to. When the US adds tariffs, or other countries respond with their own tariffs, the bill usually lands at home.

A tariff is a tax on imported goods (like an extra fee at the border). Studies say that tax is paid by US importers, not by foreign countries. Importers often pass most of the added cost along, so American shoppers and US companies that use imported parts end up paying more.

One major study from the Kiel Institute looked at recent US tariffs and estimated that US importers and consumers covered about 96% of the cost. Foreign exporters covered about 4%. Economists at Harvard and the Council on Foreign Relations make a similar point, higher costs tend to show up in prices Americans pay.

These higher prices can hit lower-income households harder. The reason is simple, they spend more of their income on physical goods, and tariffs mainly raise the price of goods, not services.

Businesses can also get squeezed. If a US factory needs imported components, tariffs raise its costs, which can make its products pricier and less competitive. Retaliation can also hurt US exporters when other countries tax US products or services.

What to watch

If trade rules keep changing, companies may delay big decisions, like building factories or switching suppliers, because the rules might change again. A more severe breakdown in trade ties could mean shortages and much higher prices for some everyday items, similar to how a store with fewer suppliers has fewer choices and higher price tags.

Source: NYTimes