Exporters Bore Higher Share of the 2025 Tariffs than Previously Estimated, New Research Finds

When the US imposes a tariffTariffs are taxes imposed by one country on goods imported from another country. Tariffs are trade barriers that raise prices, reduce available quantities of goods and services for US businesses and consumers, and create an economic burden on foreign exporters., the cost can be shared among people in foreign countries and here at home. A new study by trade economist Caroline Freund on the 2025 tariffs finds foreigners have absorbed 47 percent of the tariff burden while US importers paid 53 percent, a much lower pass-through share than other recent studies, which have found nearly complete pass-through to the importer.

The paper’s unique contribution, weighting by pre-trade war import volumes, is key to its finding of lower pass-through to importers. But the paper does not answer broader questions about whether the United States is better off overall under the new tariff regime.

Tariffs are legally paid by the importer of record, but economically, they can be paid by others. For example, because tariffs raise the cost of imported goods, they reduce demand for those goods. In response to the reduction in demand, foreign sellers may lower their prices to offset some of the tariff burden and maintain their sales—in doing so, they bear part of the cost, or economic burden, of tariffs. To measure whether foreigners absorb some of the tariffs, academic economists estimate “pass-through” rates, or the share of the tariff burden that is borne by importers.

Freund’s new paper examines detailed import data from September 2023 through January 2026 for 50 US trading partners that account for 95 percent of US goods imports from 2024. She measures the 12-month change in prices before and after tariffs and shows that foreigners have borne a larger share of the tariffs than estimated by other studies. The “unit value” (a measure of prices received by exporters constructed by taking customs value divided by quantity) has fallen, while the “landed cost” (the price paid by importers including tariffs) has risen by less than the amount of the tariff. If the tariff had been fully passed onto importers, the unit value would have remained flat, while the price paid by the importer would have risen by exactly the amount of the tariff.

Her unique contribution to the economic literature to date is that she weights the data by actual, pre-trade war trade flows. Weighting avoids counting the pass-through on a category of goods that only accounted for, say, $100 of imports the same as a category that saw $100 billion of imports. After this weighting, she shows that throughout 2025, foreign exports absorbed nearly half of the tariff burden, while US importers paid the other half.

Freund’s research offers some empirical support for a terms-of-trade effect (the ability of a large importer to use its market power to reduce pre-tariff import prices when it imposes a tariff): foreigners shouldered about 47 percent of the new tariff burden, on average.

Another recent study on the 2025 tariffs from Ahn et al. found that decreases in tariff-exclusive import prices were due to importers substituting toward lower-quality and lower-priced products within similar product categories. Rather than representing exporters lowering prices to remain competitive, importers offset the cost of tariffs through purchasing lower-quality varieties—another type of cost imposed by tariffs. After accounting for this channel, the authors found the tariffs raised import prices. Freund incorporates fixed effects to strip out some of these types of adjustments; however, the study does not completely rule out that some of what is counted as price reductions could be substitutions to lower-quality or lower-priced products.

The research does not, however, demonstrate that the 2025 tariffs enhanced welfare or were structured optimally.

Indeed, the paper itself is careful in its framing, noting that “The finding that foreigners absorbed just over half the tariff does not imply the tariffs were successful on welfare grounds.” To answer the welfare question, we would need to measure the losses from distorted trade flows, the trades that ceased to occur, retaliatory measures, the uncertainty, and the lost efficiency. The revenue gains at the expense of foreign exporters would have to outweigh all those efficiency losses (or, deadweight loss) as well as the tariff burden that fell on US importers in order for US welfare to have improved on net.

Complicating matters, much of the revenue from the 2025 tariffs is currently being refunded to US importers after the Supreme Court struck down the tariffs imposed under the International Emergency Economic Powers Act (IEEPA). Given the refunds, this portion of the 2025 tariffs can at least partially be seen as a transfer from foreign exporters (who bore part of the economic burden of tariffs) to US importers (who are receiving refunds for tariff payments). This transfer leaves no revenue gain for the US government from the illegal tariffs (and in some cases, revenue losses due to interest payments on refunds) without undoing the distortions and economic damage.

Freund argues that countries attempting to extract a terms-of-trade gain can create a prisoner’s dilemma, whereby multiple countries may be motivated to extract price concessions through tariffs. Doing so simultaneously would reduce world welfare, Freund notes, “making any weakening of [the rules-based] system more costly than it might otherwise appear. Retaliation by trading partners and the erosion of the rules-based system may prove to be the most important long-run costs of the episode.”

Notably, Freund’s is not the first paper finding that the exporters may be bearing a higher share of the tariffs than previously measured. Looking at President Trump’s tariffs imposed in 2018 and 2019, economists Ganapati and Hottman found that pass-through to importers fell from nearly complete to 60 percent after accounting for reductions in scale economies from exporting firms. To put it simply, when exporters have to ship smaller batches due to reduced demand for their products from tariffs, this raises the per-unit price. Firms responded by cutting their prices to maintain market share. These effects offset each other, causing measured unit values to appear flat, when actually the exporter was absorbing some of the tariff.

Another caveat worth highlighting is that trade data used in most of the studies to date is organized by country, rather than ownership. A large share of US goods trade, however, is intraparty: between a US multinational and its foreign affiliate. A “foreign exporter” may actually be a US company, rather than a foreign-owned one, leaving US firms bearing a higher share of the tariffs than indicated by these studies.

Freund’s study finds that foreign exporters are bearing a larger share of the tariff burden than initial studies, suggesting that the US-imposed tariffs are having widespread harm. While this evidence indicates the US did extract some terms-of-trade gains, it does not speak to whether US welfare was improved by the president’s new tariffs.

Share this article