How Trump’s Tariffs Are Hitting the U.S. Economy

Early indicators suggest that American companies and consumers are bearing the brunt of the country’s new import tariffs — undermining President Donald Trump’s claims and complicating the Federal Reserve’s fight against inflation.

Trump has long argued that foreign countries would shoulder the cost of his protectionist policies, betting that exporters would absorb the hit to maintain access to the world’s largest consumer market.

But academic research, surveys, and business reports paint a different picture. In the first few months under Trump’s new trade regime, U.S. companies are largely covering the costs and passing part of them on to consumers — with further price increases likely.

“Most of the cost is being borne by American firms,” said Harvard professor Alberto Cavallo in an interview discussing his findings. “We’ve seen a gradual impact on consumer prices, and there’s clearly upward pressure.”

A White House spokesperson acknowledged that “Americans may face a transitional period due to tariffs,” but insisted that the costs would “ultimately be borne by foreign exporters.” The spokesperson added that companies are diversifying supply chains and moving production back to the U.S.

Who’s Paying for the Tariffs?

Cavallo and fellow researchers Paola Lamas and Franco Vasquez have been tracking prices on over 359,000 products — from carpets to coffee — sold by leading U.S. retailers.

They found that since Trump imposed tariffs in early March, imported goods have risen about 4%, while prices for domestically produced items have climbed 2%. The sharpest increases came in categories the U.S. can’t easily produce — like coffee — or in goods from heavily targeted countries such as Turkey.

Although significant, these increases remain well below the official tariff rates — suggesting that sellers are absorbing part of the cost.

Still, import price data excluding tariffs indicate that foreign exporters are raising dollar-denominated prices, passing on some of the impact as their currencies weaken against the dollar.

According to a blog post by researchers at Yale University’s Budget Lab, “Foreign producers appear largely unable to absorb U.S. tariffs — consistent with prior economic evidence.”

Export price indexes show a similar trend: goods from China, Germany, Mexico, Turkey, and India have all become more expensive, with Japan the only notable exception.

The Full Impact Is Yet to Come

Trump’s tariffs — which have pushed average import taxes from roughly 2% to around 17% — are still being phased in. It may take months before exporters, importers, and consumers fully adjust to who pays the estimated $30 billion per month in new duties.

“This won’t be a one-off increase,” Cavallo said. “Companies are still finding ways to absorb the shock, but price rises are likely to continue over time.”

European automakers have so far absorbed much of the cost, but consumer goods companies such as Procter & Gamble (PG.N), EssilorLuxottica (ESLX.PA), and Swatch (UHR.S) have raised prices.

A Reuters tracker shows that about 72% of companies across Europe, the Middle East, and Africa have warned of price hikes since the trade war began, while only 18% cited margin pressures.

Analyses of e-commerce platforms Shein and Amazon also show sharp price increases in Chinese goods — from apparel to electronics — sold in the U.S.

China’s so-called “anti-involution” policy, which encourages producers to scale back capacity in key sectors, may further tighten supply of goods such as solar equipment, amplifying price pressures.

Inflation and the Federal Reserve’s Dilemma

All this has added fuel to U.S. inflation. The Fed cut rates last month amid concerns about a cooling labor market, but policymakers remain divided over whether tariff-driven inflation will fade.

Fed Governor Stephen Miran, currently on leave from the Trump administration, has argued that tariffs are “not inflationary,” dismissing concerns about “relatively small price changes.”

By contrast, economists at the Boston Fed estimate tariffs could raise core inflation by 75 basis points, while Chair Jerome Powell has said tariffs may be contributing 30–40 basis points to the latest 2.9% core inflation rate — though he expects the effect to be “relatively short-lived.”

The Peterson Institute for International Economics projects inflation could run 1 percentage point higher next year than it would without the tariffs, before gradually easing.

The Global Ripple Effect

The rest of the world isn’t celebrating either. As American consumers struggle with higher prices, demand for imports is likely to weaken.

An S&P Global survey of purchasing managers shows new export orders falling sharply since June. EU exports to the U.S. dropped 4.4% year-on-year in July — and Germany’s exports to the U.S. plunged 20.1% in August.

Citing the delayed impact of U.S. tariffs, the World Trade Organization has slashed its forecast for global trade growth next year to just 0.5%. Data tracked by Germany’s Kiel Institute also show a clear decline in U.S. shipment volumes.

Dutch bank ING expects EU exports to the U.S. to shrink 17% over the next two years, trimming the bloc’s GDP growth by 0.3 percentage points.

“The full effects of U.S. tariffs have yet to materialize,” said ING economist Ruben Devitt. “We expect them to become much more visible in the coming months.”