Higher tariffs on imported goods are often presented as a way to pressure foreign exporters, but a recent study suggests that the real financial burden lands almost entirely inside the U.S. rather than abroad. The Kiel Institute for the World Economy, a German research center, argues that the duties tied to President Trump’s trade policy are being paid by American importers, their customers and ultimately U.S. consumers.
The report looks at how foreign suppliers responded to the tariff increases and finds that they did not meaningfully cut their prices to keep U.S. buyers whole. In other words, exporters largely kept charging what they were charging before, which means the higher tariff amount simply got added on top of the existing price rather than being offset by discounts from overseas firms.
That pricing behavior is important because it determines who really pays the tariff. If foreign companies had sharply lowered their prices, they would be bearing more of the cost by accepting lower profit margins. Instead, the Kiel Institute study concludes that only about 4% of the overall tariff burden is being absorbed by foreign firms, while about 96% is passed through to buyers in the U.S. market. This near complete pass through turns a trade policy aimed at foreign producers into something that behaves much more like a domestic tax on imports.
The study also highlights the scale of the money involved. It points to a $200 billion surge in customs revenue and describes this rise not as free money for the government but as $200 billion taken from American businesses and households. That language matters, because customs revenue can sound like a windfall until you remember it comes from someone on the paying side of the transaction, usually companies that bring goods into the country and the consumers who buy those products.
Once the tariffs are in place and paid at the border, the cost does not stay there. Importers must decide whether to absorb the higher bill or pass it on. The Kiel Institute report notes that U.S. manufacturers and retailers are essentially next in line after the importer in this chain of decisions. If they choose to absorb the tariff, their profit margins shrink. If they raise prices to protect margins, the extra cost moves one step closer to the consumer.
For a typical business, that decision is not purely theoretical. A manufacturer that relies on imported parts faces a higher input cost as soon as the tariff is charged, which affects pricing, investment choices and in some cases hiring plans. A retailer that depends on imported finished goods confronts the same trade off, either accept lower margins for a while or tag higher prices on the shelves. Over time, the report suggests that much of this extra cost makes its way into the final price that households pay.
This pass through process helps explain why tariffs can feel like a tax on domestic activity, even though they are legally charged on cross border flows. The intended political message may be about getting tough with foreign competitors, however the economic mechanics described by the Kiel Institute show that the cash outlay is concentrated on the U.S. side of the border. When foreign exporters do not drop their prices, the adjustment has to occur inside the importing country, through company earnings, consumer prices or both.
The study is a reminder that trade policy cannot be evaluated only by looking at headline tariff rates or total customs revenue. Those numbers need to be traced back to who actually writes the checks and who ultimately absorbs the cost. The Kiel Institute’s findings make the case that under the current tariff structure, that party is overwhelmingly American, whether in the form of importers, manufacturers, retailers or families buying everyday goods.
