Who is paying for Trump's tariffs this year?

Understanding the Impact of Trump's Tariff Policies

President Donald Trump has frequently expressed admiration for the U.S. government’s approach to taxation during the 1800s. During the rollout of his tariff plans on April 2, he referred to the U.S. as having been “a tariff-backed nation” before 1913, when the income tax was introduced. According to Trump, this shift allowed American citizens, rather than foreign countries, to take on the responsibility of funding the government.

However, recent findings from two major financial institutions suggest that the burden of these tariffs has not fallen primarily on foreign countries or consumers. Instead, U.S. companies are largely absorbing the costs.

Consumer Prices and the Limited Pass-Through Effect

Analysts at Citi have observed that the pass-through of tariff costs to consumers has been minimal so far. Their analysis noted that there was essentially no sign of tariff-related inflation in May, with only a few categories—such as home furnishings and toys—showing abnormally large price increases in June. The analysts suggested that companies might be selling out of inventory and delaying price hikes, which could lead to stronger goods inflation in the next three months.

The Citi team also pointed out that there is little evidence of foreign firms absorbing the cost of tariffs. While some sectors like Japanese auto prices and apparel prices experienced fluctuations, these changes were limited. This indicates that U.S. companies are bearing the brunt of the tariffs.

Corporate Earnings and the Burden on Domestic Firms

If consumers and foreign firms are not shouldering the tariff costs, then it is likely that domestic firms are. The Citi analysts emphasized that this trend should eventually be reflected in corporate earnings announcements. They noted that companies may still highlight uncertainty and expect that the distribution of the tariff burden could change in the coming months.

General Motors, for instance, has absorbed $1.1 billion in tariff costs while its profits exceeded estimates. This example illustrates how U.S. companies are managing the financial strain caused by the tariffs.

Deutsche Bank’s Analysis of Tariff Revenue and Import Prices

Deutsche Bank analysts reported that U.S. tariff revenue has surpassed $100 billion this year. They acknowledged that someone must be paying for these tariffs and sought to determine who that is by examining changes in U.S. import prices for manufactured goods in the second quarter.

They expected that if foreign countries were absorbing the costs, there would be a sharp reduction in the price of imported goods. However, they found only mild price reductions, most notably in Canada and to a lesser extent in the U.K. In China, despite an average increase in tariff rates of over 30%, dollar import prices have only decreased by 1%.

The Broader Implications for the Global Economy

According to the Deutsche Bank analysts, the current situation suggests that American importers are absorbing the tariffs into their profit margins. This means that exporters in other parts of the world are not yet feeling significant pain from the tariffs. As a result, these trading partners may hold more bargaining power ahead of Trump’s August 1 deadline for trade deals.

The analysts also noted that there is likely more pressure on U.S. consumer prices in the pipeline. Additionally, they highlighted that the fact that the cost of the tariffs seems to be mainly borne by the United States could negatively impact the dollar.

Future Outlook and Economic Concerns

With the potential for increased consumer price pressures and the ongoing uncertainty surrounding trade policies, the economic landscape remains complex. Analysts are closely monitoring how these factors will influence corporate earnings and broader market trends. As the situation evolves, the implications for both domestic and international markets will continue to unfold.