Debunking the Myth That Americans Are Paying 96% of Tariffs
The pricing study that doesn’t hold water
The biggest question in business economics today is: who pays the rates.
We know that hundreds of billions of dollars in tariffs are being paid. The U.S. government collects customs revenue, which has helped reduce the budget deficit. These customs duties are paid directly by American importers. The question is who ultimately bears the cost. Are these foreign manufacturers, perhaps because they have been forced to lower their prices to maintain their market share? Are it the importers who absorb the import levies? Are costs passed on to consumers in the form of higher retail prices?
A new study from the German Institute in Kiel claims to have settled the tariff debate with “unambiguous evidence” that its authors say demonstrates that American importers and consumers bear 96 percent of the cost of the 2025 tariffs, while fforeign exporters absorb only 4 percent. Prices are “a personal goal,” the authors say.
There’s just one problem: The study doesn’t actually prove what it claims.
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The illusion of precision
The overall figure – 96% pass-through to American buyers – seems authoritative. But it is based on a much less solid statistical basis than the authors suggest.
Their main finding is a coefficient of −0.039, with a standard error of 0.024, significant only at the 10 percent level. For non-statisticians: this means the estimate is quite noisy. With 25.6 million observations in their dataset, achieving marginal statistical significance suggests a huge underlying variation in the data.
True absorption by foreign exporters could likely be between zero and nine percent, based on their own results. Presenting this range as a precise figure of “four percent” requires more confidence than the data suggests. A A significance level of 10% does not justify 96% certainty..
Disappearing budget widgets
The deeper flaw lies in what happens when tariffs reduce imports, which is exactly what the study found happened. The authors report the value and volume of imports fell about 28 to 33 percent. This is where their methodology fails.
Let’s take a simplified example. Before the tariffs, the United States imported gadgets from China at three quality levels: economy gadgets at $10 per kilogram, mid-tier products at $15, and high-end products at $25.
Now impose a 50 percent tariff. Low-budget providers face impossible calculations. Their $10 gadget now costs U.S. buyers $15 after duties, directly competing with higher-quality mid-tier products. Unable to lower prices enough to survive, they leave the market. Mid-tier suppliers have more margin. They could drop their price to $13, but still lose market share. High-end suppliers can afford to reduce their prices by $25 to $22 and maintain sales to less price-sensitive customers.
Once the dust settled, the composition of imports shifted significantly toward high-end products, and the average unit value increased from $15 to $20.
The Kiel authors observe this and conclude: “Prices have increased – clear proof that the tariff has been adopted! »
But that’s not what happened. Real transaction prices could fall across the board while the average risesbecause low-cost suppliers have disappeared from the data. You’re now comparing premium widgets to what was once a mix of budget, mid-tier, and premium widgets. When tariffs eliminate the low-margin segment, the remaining shipments are no longer the same goods of the same quality: they are the survivors.
This huge underlying variation in their statistical results? This is exactly what causes it: different products within categories respond completely differently as low-priced varieties disappear and high-priced varieties persist.
Built-in measurement issues
The study has other problems that compound this central flaw. Tariffs are imposed at very detailed product levels – HS8 or HS10 classifications which distinguish, for example, frozen boneless cuts of beef from frozen bone-in beef. (HS refers to the Harmonized System, the international standard for classifying traded products, where higher numbers mean more detailed categories.) But Kiel’s data only covers HS6, a much broader category that could simply be “frozen beef.” In short, they measure customs duties with a ruler and prices with a yardstick.
This means that when authors assign a price to their data, they use an average for products that are actually subject to very different prices. Some “frozen beef” by-products could face tariffs of 50 percent while others face 10 percent. Mismatch means that their pricing variable is measured with error.
The consequence is predictable: when your key independent variable is noisy, the statistical results are biased and find no effect. And “no effect” of tariffs on unit values is exactly what the authors interpret as a “total pass-on to Americans.” They may have constructed their regression in a way that naturally reduces the very effect they are trying to measure.
Their control group is also contaminated. Customs tariffs cause trade diversion—American importers are abandoning China and turning to Vietnam or Mexico. This surge in demand allows non-tariff exporters to raise prices or shift to higher-margin products. When tariff and non-tariff unit values increase, the difference seems small, not because exporters do not absorb the costs, but because the comparison is distorted.
The leap to consumers
Even accepting their findings on import prices, the authors take a huge step further: They argue that U.S. consumers ultimately bear the burden. But they provide no empirical analysis of retail pricescompany profit margins or pass-through throughout the supply chain.
The impact could flow through to corporate profits, compressed margins for wholesalers and retailers, or be spread across multiple parties. The claim that this is a “consumption tax” is speculation, not proof.
The Effective Baseline That Never Was
Beyond their results on incidence, the authors from Kiel the alleged tariffs create a “dead loss” economic waste due to distorted consumption patterns and disrupted supply chains. They describe these costs as “pure economic waste – costs borne by Americans without any offsetting benefit.” This sounds damning, but it relies entirely on the assumption that the pre-tariff world represented an efficient distribution of production and trade.
This assumption is obviously false. If decades of Chinese industrial subsidies, below-market loans from state banks, forced technology transfers, and market access restrictions had already distorted global production, then tariffs might actually reduce the total distortions rather than create them. Standard welfare economics calls this “second best theory”: When multiple distortions exist, correcting one while ignoring the others can make things worse instead of better. Conversely, adding a tariff to compensate for foreign subsidies could bring the economy closer to efficiency.
The Kiel authors never ask themselves whether their “dead loss” could really be the cost of correcting previous distortions– which would make it an investment in a more efficient future, and not a pure waste.
Stripped of its rhetorical confidence, this study shows something much narrower: In ocean freight shipments, average unit values have not fallen much while trade volumes have collapsed.
This is consistent with exporters maintaining prices. This also corresponds to price drops masked by composition changes. Or a measurement error hiding the true effects. Probably all three.
This does not prove that 96 percent of the costs fall on Americans. This does not prove that consumers are paying higher prices. And this certainly does not prove that the tariffs constitute a “personal objective”.
