Daniel Bunn President and CEO at Tax Foundation | Twitter Website
President Trump has announced a new round of tariffs targeting imports from Canada, Mexico, China, and other countries. This move follows his previous tariff impositions in 2018, which aimed to bolster U.S. industries and penalize foreign exporters. However, evidence suggests that American firms and consumers were the most affected by these tariffs.
Economists Pablo Fajgelbaum, Pinelopi Goldberg, Patrick Kennedy, and Amit Khandelwal studied the effects of tariffs on products such as washing machines and solar panels. They found that U.S. firms and consumers bore the entire burden of these tariffs, resulting in an estimated $16 billion annual net loss to the U.S. economy.
Similarly, economists Mary Amiti, Stephen J. Redding, and David E. Weinstein reported nearly complete pass-through of tariffs to U.S. firms and consumers. For example, steel prices initially saw a 100 percent pass-through which later reduced to 50 percent as foreign exporters adjusted their prices.
A report by the United States International Trade Commission (USITC) confirmed significant price increases for imported steel and aluminum following tariff imposition—22 percent for steel and 8 percent for aluminum.
Research by Aaron Flaaen, Ali Hortaçsu, and Felix Tintelnot highlighted increased prices for washing machines and dryers post-tariff implementation. Sebastien Houde and Wenjun Wang found similar results with solar panels where tariffs led to a disproportionate increase in final consumer prices.
While retail prices for some goods like handbags rose following tariff increases from 10 percent to 25 percent over time, other goods such as refrigerators did not see immediate price changes according to research by Alberto Cavallo et al.
The new tariffs are expected to impact broader categories of goods than before. Companies may have limited capacity to absorb these costs without passing them onto consumers.
Ultimately, while more tariffs might elevate import prices, their effect on overall inflation will depend on the Federal Reserve's response. The concern is that increased unemployment due to reduced economic activity could lead the Fed to adjust monetary policy accordingly.
In conclusion, despite President Trump's intentions with these trade policies, it appears Americans will bear much of the cost through higher import prices leading to lower incomes.
