WASHINGTON — When a government levies a tariff on imported goods, the question of who ultimately foots the bill has long sparked intense debate among economists, policymakers, and business leaders. While legally collected from the domestic importer of record, economic theory suggests that the financial burden can be divided between domestic buyers and foreign exporters.
A groundbreaking new study by trade economist Caroline Freund offers a fresh perspective on the tariffs implemented in 2025. Analyzing a vast dataset of global trade flows, Freund discovers that foreign exporters have absorbed nearly half—specifically 47 percent—of the tariff burden. Meanwhile, U.S. importers paid the remaining 53 percent.
This finding challenges the prevailing narrative established by several recent economic evaluations, which concluded that U.S. importers bore a nearly complete pass-through of the tariff costs. However, experts caution that while foreign suppliers absorbed a significant portion of the expense, these statistics alone do not indicate whether the United States achieved an overall net economic gain.
Main Facts: Understanding Tariff "Pass-Through"
To evaluate the economic impact of tariffs, trade economists rely on the concept of "pass-through rates." When a tariff is imposed, it artificially raises the price of foreign-made goods in the domestic market, dampening consumer and business demand.
To prevent steep declines in sales volume, foreign exporters may choose to lower their pre-tariff prices, effectively absorbing a share of the tax burden to stay competitive. If an exporter keeps its baseline price completely flat and the domestic importer pays the full tariff amount on top of that, economists refer to it as a "complete pass-through."
Freund’s research examines detailed import metrics from September 2023 through January 2026 across 50 key U.S. trading partners—nations that collectively account for roughly 95 percent of all U.S. goods imports from 2024. By meticulously comparing 12-month price shifts before and after the implementation of the duties, Freund noted two distinct trends:
- The "Unit Value" Drop: The price received by foreign exporters (calculated via customs value divided by quantity) declined.
- The "Landed Cost" Rise: The total price paid by domestic importers (including the tariff) increased by an amount less than the total value of the tariff itself.
If the tariffs had been fully passed onto domestic entities, the unit value would have remained steady, and the landed cost would have surged by the exact percentage of the tariff. The fact that this did not happen points directly to foreign absorption.
Chronology of Events: The Evolution of 2025 Tariffs and Legal Battles
The landscape of modern American trade policy has been marked by rapid shifts in executive actions, legislative challenges, and judicial intervention.
- Late 2023 – 2024: U.S. trade policy enters a preparatory phase as datasets are compiled to track shifting global supply chains, impending protectionist measures, and anticipated trade realignments.
- Early 2025: The federal government rolls out a sweeping set of new tariffs targeting a wide array of foreign goods, aiming to protect domestic manufacturing and utilize the market power of the United States.
- Throughout 2025: Economists and international organizations scramble to measure the early market responses. Initial working papers—such as those published by the IMF and various Federal Reserve branches—suggest that U.S. importers are swallowing nearly 100 percent of the new costs.
- Late 2025 / Early 2026: Caroline Freund publishes her comprehensive study. By weighting her analysis using pre-trade war import volumes, she reveals that foreign exporters are actually absorbing roughly 47 percent of the tariff burden.
- Recent Developments (2026): The legal status of the 2025 tariffs faces a seismic shock when the U.S. Supreme Court strikes down duties imposed under the International Emergency Economic Powers Act (IEEPA). As a direct result, the federal government begins refunding billions of dollars in collected duties back to U.S. importers.
Supporting Data and Methodological Nuances
What sets Freund’s paper apart from earlier economic literature is its methodology: weighting the data by actual, pre-trade war import volumes.
In unweighted or simpler analytical models, a minor product category accounting for just $100 in imports is treated with the same analytical weight as a massive industrial sector moving $100 billion in goods. By correcting for this distortion, Freund establishes that foreign exporters bore nearly 47 percent of the economic weight throughout 2025.
This empirical result offers tangible support for the "terms-of-trade effect"—the economic principle that a massive, highly influential importer can leverage its vast market power to force foreign suppliers to lower their pre-tariff export prices.
Alternative Explanations and Critical Caveats
Despite the robustness of Freund’s model, other economists point out potential blind spots:
- Product Substitution: A separate study by Ahn and colleagues analyzing the 2025 tariffs suggested that drops in tariff-exclusive import prices were not necessarily voluntary price cuts by proud exporters. Instead, domestic importers were often simply substituting higher-end foreign goods with lower-quality, cheaper alternatives within the same product categories to offset costs. Freund utilized fixed effects to control for such shifts, but researchers acknowledge that a portion of recorded price drops may still reflect quality degradation rather than exporter concessions.
- The "Intraparty" Trade Reality: Most macro trade data is organized strictly by country of origin rather than corporate ownership. However, a massive share of U.S. goods trade is "intraparty"—meaning it occurs between a U.S. multinational corporation and its own foreign affiliate. If a "foreign exporter" is technically a subsidiary of a U.S. company, the actual financial pain may fall far more heavily on American enterprises than basic trade statistics imply.
- Economies of Scale: Prior research by economists Ganapati and Hottman regarding the 2018–2019 trade actions demonstrated that when tariffs force foreign firms to ship smaller batches due to falling demand, their per-unit production costs rise. To protect their market share, firms adjust prices downward, masking the true distribution of the tariff burden.
Official Responses and Economic Analysis
The release of Freund’s study has triggered widespread discussion among fiscal analysts, academic institutions, and policy centers regarding the net utility of aggressive protectionism.
Tax Foundation economists Erica York and Alex Durante note that while the study confirms a measurable terms-of-trade benefit—with foreign suppliers absorbing nearly half the cost—it falls short of proving that the tariffs successfully improved overall national welfare.
Furthermore, the legal landscape has radically altered the fiscal reality of the 2025 tariffs. Because the Supreme Court invalidated key components of the executive trade actions under IEEPA, much of the revenue collected is currently being refunded to domestic importers.
Consequently, the situation has devolved into a peculiar financial loop: foreign exporters absorbed part of the economic burden, but because those duties are being refunded, the U.S. government retains little to no net revenue gain. Instead, the process created a massive administrative headache, spurred market distortions, and generated interest payments on refunded duties without delivering the promised fiscal windfall to the public treasury.
Implications for Global Trade and Future Policy
As nations increasingly turn to protectionist measures to secure domestic industries, the long-term systemic fallout may outweigh short-term pricing adjustments.
Freund warns that aggressive efforts by major economies to extract terms-of-trade gains can easily trigger a classic prisoner’s dilemma. If multiple global superpowers simultaneously attempt to use tariffs to force price concessions, global trade efficiency plummets, harming world welfare as a whole.
The erosion of the rules-based international trading system, combined with inevitable retaliatory measures from key trading partners, represents the most significant long-term hazard of these policies. Even if foreign suppliers shoulder a substantial portion of the direct tax burden, the collateral damage—including trade diversion, heightened market uncertainty, administrative inefficiencies, and the decay of diplomatic commercial frameworks—remains a steep price to pay.
Ultimately, while new empirical research proves that foreign exporters absorb more of the tariff burden than previously estimated, it also underscores a sobering reality: tariffs are a blunt, highly disruptive instrument whose ultimate economic ledger rarely balances in favor of net growth.
