Unveiling the Truth: Who Really Pays for Trump's Trade Wars?
In a surprising turn of events, the Trump administration is considering a move that could drastically alter the landscape of global trade. But here's the catch: it's not as straightforward as it seems.
February 16, 2026, marked a pivotal moment when reports emerged suggesting a potential reduction in tariffs on US steel and aluminum imports. The question arises: why tinker with these tariffs if they were supposedly being paid by exporting countries?
Let's rewind to last year when Donald Trump, moments after reclaiming office, announced these tariffs, initially set at 25% but swiftly raised to a staggering 50%. These tariffs weren't limited to raw materials; they extended to a wide array of consumer goods, from washing machines to food cans, impacting the prices of everyday items.
Importers have voiced their concerns over the complexity of these calculations, and as the midterm elections approach, the administration seems increasingly aware of the tariffs' impact on consumer prices.
US Treasury Secretary Scott Bessent confirmed last Friday that the administration was contemplating a "clarification" of these tariffs, leaving many wondering about the true nature of this move.
And this is where it gets controversial: the steel and aluminum tariffs were imposed under a different legislative authority, suggesting that any reduction might indicate growing concerns about affordability. These tariffs have insidious effects, creeping into the prices of numerous imported goods.
While the inclusion of metals in downstream usage adds complexity, it's worth noting that if exporters were truly bearing the brunt of these costs, as Trump and Bessent claim, the situation would be less pressing.
But here's the twist: a series of studies, including one from Germany's Kiel Institute, have contradicted this stance. The Kiel Institute's analysis of over $US4 trillion in imports concluded that foreign exporters absorbed a mere 4% of the tariffs' costs. Prices remained unchanged as exporters redirected their sales, suggesting a different story.
Last week, New York Fed economists added fuel to the fire with their analysis, revealing that the average US tariff rate had skyrocketed to 13% by the end of last year. Their conclusion? US companies and consumers continue to bear the bulk of these costs.
For the first eight months, US importers incurred 94% of the tariffs' costs, dropping to 86% in the final months. This might indicate price negotiations or supply chain adjustments.
Exports from China to the US have plummeted, while those from Mexico and Vietnam, with lower tariffs, have surged. Could this be a sign of transshipment, with Chinese products being rerouted through other jurisdictions?
The Fed's analysis suggests that import prices for tariff-covered goods increased by 11% more than those not subject to tariffs. The Congressional Budget Office (CBO) also weighed in, stating that these "higher and frequently changing" tariffs would temporarily impact US inflation, investment, GDP, and employment.
The CBO's assessment is that US businesses would absorb 30% of import price increases, with the remaining 70% passed on to consumers. This would result in a net effect of raising US consumer prices by 100% of the domestically borne tariff costs, estimated to be 95% of the total cost.
Three authoritative sources, three similar conclusions - yet the debate rages on. But these analyses fail to explain why US inflation rates haven't shown a more significant impact, given that US consumers bear almost all the cost.
Last week's CPI data was surprisingly tame, with the headline number coming in at 2.4%, below expectations. While core inflation remains at 3%, the official rate seems to be subsiding.
Could it be that the impact of these tariffs on inflation has been overstated? Most economists believe the effect would be close to a percentage point, and there may be other factors at play, such as missing data due to the US government shutdown and the calculation of health insurance costs, which are surging at an alarming rate.
The conventional wisdom suggests that countries raising tariffs should see an appreciation in their currency, thus offsetting the impact on domestic prices. However, the US dollar has fallen 11.4% against its major trading partners' currencies since Trump's inauguration, so the full effect should be evident in the inflation data.
While goods and food inflation rates are higher, the relatively low exposure of the US to imports and Trump's frequent tariff walk-backs might explain why these impacts haven't been more visible in the CPI data.
So, who really pays for these tariffs? The debate continues, and we invite you to share your thoughts and opinions in the comments below. Are these tariffs a necessary evil, or is there a better way to navigate global trade? Let's discuss!
