The Wall Street Journal reports on a new study from the Kiel Institute for the World Economy with a groundbreaking conclusion:
Americans, not foreigners, are bearing almost the entire cost of U.S. tariffs, according to new research that contradicts a key claim by President Trump and suggests he might have a weaker hand in a reemerging trade war with Europe.
Hold on a minute. President Trump has repeatedly claimed that tariffs — or taxes on imports that federal law requires importers to pay — are actually paid by foreign countries. Exporters are supposed to reduce their prices to maintain market share, so Americans essentially get free cash out of the deal, no?
Apparently not:
The German research echoes recent reports by the Budget Lab at Yale and economists at Harvard Business School, finding that only a small fraction of the tariff costs were being borne by foreign producers.
By analyzing $4 trillion of shipments between January 2024 and November 2025, the Kiel Institute researchers found that foreign exporters absorbed only about 4% of the burden of last year’s U.S. tariff increases by lowering their prices, while American consumers and importers absorbed 96%.
This burden on Americans materializes in one of two ways. First, through increased prices for consumers, which the Kiel Institute expects to show up over time as companies’ inventories run lower. That option coercively redirects money to the government that households would much rather spend or save for other purposes.
The alternative, which may be even worse, is that Americans never get to purchase the imported products they want in the first place because tariffs make the cost of the transaction prohibitive. Again from the WSJ:
The tariffs had a significant effect on trade volumes: Facing higher U.S. tariffs, Indian exporters maintained their prices but reduced the volume of shipments to the U.S. by 18%-24% relative to the European Union, Canada and Australia, the report found.
Rather than acting as a tax on foreign producers, the tariffs functioned as a consumption tax on Americans, the report said.
Either way, the purported free lunch of Trump’s tariffs is a farce. Of the nearly $200 billion in federal revenue they raked in last year, almost all was paid by U.S. businesses and consumers.
The president has completely ignored this data, of course, and is now threatening to punish Americans further by raising taxes on European imports until Denmark agrees to hand over Greenland. Can you identify the logical reasoning there?
The fact that Europe is upset about Trump’s threatened tariffs does not change who pays them. Both buyers and sellers benefit from voluntary economic transactions, so blocking them with tariffs hurts both parties. But while European firms lose revenue from exports, Americans lose both the money they already earned and their choices in how to spend it.
Turns out, that Adam Smith fellow knew something about economics when he wrote that famous book, The Wealth of Nations, 250 years ago: The burden of trade barriers is paid, overwhelmingly, by the country that imposes them.