The Trump administration's tariffs on steel and aluminum, imposed under a different legislative authority, have sparked debates about who ultimately bears the financial burden. Despite claims that exporters pay the tariffs, studies reveal a different story. Germany's Kiel Institute analyzed over 25 million shipment records, concluding that foreign exporters absorbed only about 4% of the tariffs' costs. This led to a collapse in trade volumes, but exporter prices remained unchanged. New York Fed economists further analyzed the tariffs' impact, finding that the average US rate increased from 2.6% to 13% after Trump's tariff changes. Their study concluded that the majority of the tariff incidence still falls on US companies and consumers, with about 94% of the cost incurred by US importers in the first eight months of the year. This suggests that US importers have renegotiated prices with suppliers and reorganized supply chains. The Congressional Budget Office (CBO) also weighed in, stating that higher tariffs would temporarily raise the US inflation rate, reduce real investment, lower real GDP, and decrease employment. The CBO's assessment indicates that US businesses would absorb 30% of the import price increases by reducing profit margins, with the remaining 70% passed on to consumers. However, the CPI data from the Bureau of Labor Statistics shows surprisingly benign inflation rates, with the headline number below expectations at 2.4%. This discrepancy raises questions about the true impact of the tariffs on US inflation, suggesting that the full effect may not yet be visible within the CPI data.
