Over the course of 2025, since Donald Trump returned for a second term as US President, the average tariff rate on the US’s imports went up from 2.6 per cent to 13 per cent.

But in light of Friday’s ruling by the US Supreme Court, it bears asking: who paid for these tariffs? Was it US-based importers or foreign exporters?

The Trump administration has repeatedly claimed that tariffs are paid by foreign companies, while most mainstream economists argue that the tariff burden falls on domestic (in this case, American) consumers.

How can this question be settled?

Suppose a foreign (say, Indian) exporter charges $100 for a good (say, a chair), and the importing country (the US) decides to levy a 25 per cent tariff on it. If the Indian exporter does not change their price, the additional tariff of $25 gets added, increasing the overall import price to $125 for US consumers.

In this case, the “tariff incidence” (economic burden) falls entirely on the US importer. In other words, there is a 100% pass-through from tariffs to import prices, and therefore on US consumers and firms.

But a full pass-through is just one possibility. For instance, the exact opposite scenario would be if the Indian exporter decided to absorb the whole economic burden: by lowering the price in order to avoid losing market share to, say, a rival exporter in Taiwan.

To do this, the Indian exporter could respond by cutting the price of their chair to $80. At this price point, a 25 per cent tariff will raise the new price to $100, which is the same as it was before the tariff was imposed. This will ensure that the price paid by US importers (consumers) will remain $100 (with $20 in duties paid to the US government).

In this case, 100% of the “tariff incidence” falls on the foreign exporter, who now receives $20 less for the same chair. In summary, there is zero pass-through from the tariff since the import price is unchanged.

In reality, the situation often falls somewhere in between these two extreme outcomes.

A new study by four researchers at the Federal Reserve Bank of New York (published on February 12) found that “nearly 90 percent of the tariffs’ economic burden fell on U.S. firms and consumers”. The table shows how the “tariff incidence” has been shared over the full year (2025) between US importers and foreign exporters. 

The researchers highlight two main takeaways:

1. “First, 94 percent of the tariff incidence was borne by the U.S. in the first eight months of 2025.” This means that a 10 per cent tariff was largely passed through in the price to domestic US consumers — that is, domestic prices went up by 9.4 percent while foreign exporters reduced the price of their goods by just 0.6 percentage points.

2. “Second, the tariff pass-through into import prices has declined in the latter part of the year. That is, a larger share of the tariff incidence was borne by foreign exporters by the end of the year.” In November, they found that a 10 percent tariff was associated with a 1.4 percent decline in foreign export prices, suggesting an 86 percent pass-through to US import prices.

The Trump administration’s response was severe. Kevin Hassett, director of the National Economic Council (which advises the US President), called the paper “an embarrassment” and the “worst paper in the history of the Federal Reserve system”, and asked the four researchers to be “disciplined”.

However, the results, based on a peer-reviewed methodology, are in line with what several other studies have found: that the economic burden of Trump’s tariffs have largely been passed through to the US consumers.