Hiltzik: Trump’s tax on American consumers

Tuesday morning, all eyes on Wall Street seemed glued to the nearest screens, waiting for the Supreme Court to finally deliver its opinion on the legality of President Trump’s tariffs.

It’s been a long wait: The Court heard oral arguments on the issue on Nov. 5, when questions from the justices suggested a majority was willing to strike down the tariffs.

But the wait is not over. No pricing decision was made Tuesday. With the Court set to begin a four-week recess, that means a decision on the tariffs won’t be issued until late February, leaving Trump’s most impactful economic policy in limbo for at least another month.

But the verdicts on tariffs are pouring in from elsewhere and, from the point of view of American consumers, they are extremely ugly.

One finding comes from the Kiel Institute for the World Economy, a respected German economic think tank. Contrary to Trump’s insistence that tariffs are paid by foreign countries — specifically, their exporters — the Kiel study finds that tariffs are paid almost entirely by U.S. importers and their domestic customers.

By 2025, Kiel writes, the $200 billion the U.S. Treasury collected from Trump’s tariffs would amount to a $200 billion consumption tax on Americans.

“Tariffs are, in the most literal sense, a personal goal,” write the Kiel researchers. “The Americans foot the bill.”

A second opinion can be even scarier. That’s because inflation is likely to take off in 2026, driven by tariffs and other reckless economic policies emanating from the Trump White House. This is the opinion of economists Peter Orzsag, managing director of the investment company Lazard; and Adam Posen, president of the Peterson Institute for International Economics.

“Inflation exceeding 4% by the end of 2026 is not only plausible,” they write, “but arguably the most likely scenario.” This would represent a considerable jump from the government’s last estimate of an annual rate of 2.7% in December.

The gist of Orszag and Posen’s prediction is that Americans were living in a dream world throughout 2025, when an uptick in inflation led even many experts to conclude that the Federal Reserve had “largely won its battle against inflation,” despite higher tariffs.

U.S. importers absorbed most of the cost of the tariffs through 2025, Orszag and Posen concluded. “This will change in the first half of 2026,” they write. “Historical data shows that tariff pass-through tends to be gradual, with consumer prices only increasing as companies revise their prices with a lag. »

U.S. importers were able to absorb tariff costs in part because they had stockpiled in anticipation of increased tariffs. Wary of imposing one-off price increases, companies have chosen to raise prices in small steps and over a longer period, Orszag and Posen observe. But that aid will likely run out by the middle of this year.

None of these findings had any effect on the White House’s position on tariffs.

“America’s average tariffs have increased almost tenfold under President Trump, and inflation has continued to decline from Biden-era highs,” White House spokesman Kush Desai told me via email. “The administration has consistently maintained that foreign exporters who depend on access to the U.S. economy, the world’s largest and best consumer market, will ultimately pay the cost of tariffs, and that is exactly what is happening.”

Yet the red lights are flashing as Trump escalates his use of tariffs as an instrument of personal foreign policy, almost entirely divorced from their traditional economic role in trade relations.

Over the past week, Trump has threatened European countries with higher tariffs because of their efforts to thwart his determination to seize Greenland. On Monday, he threatened to impose 200% tariffs on French wines because French President Emmanuel Macron was reluctant to join Trump’s “Peace Council,” a body he is proposing to resolve global conflicts.

Let’s take a closer look at the latest pricing analyses.

Kiel’s study draws on shipping records covering more than 25 million transactions valued at nearly $4 trillion, as well as case studies of how Indian and Brazilian exporters responded to the steep tariff increases imposed by Trump on those countries last year.

The broader statistics, Kiel reported, indicated that 96 percent of all tariffs were passed on to Americans. As Kiel observed, by asserting that foreign countries pay tariffs, Trump was able to present them as “a tool to extract concessions from trading partners while generating revenue for the U.S. government – ​​at no cost to American households.”

The truth is that U.S. consumers and importers bear 96 percent of all costs, Kiel calculated. This is not a new phenomenon. As the Kiel study noted, during the 2018-2019 U.S.-China trade war — also sparked by Trump — “prices of U.S. imports rose nearly one-to-one with tariffs, while prices of Chinese exports remained largely unchanged.”

With the latest round of tariff increases, Kiel found, exporters have not reduced their prices to maintain sales,” which would mean paying the costs of the tariffs. Instead, foreign exporters are “accepting reduced market share in the United States while maintaining their profit margins.”

This was notably the case for India, where the value and quantity of exports to the United States fell as much as 24% compared to other export destinations after Trump imposed a 25% tariff on India on August 7 and increased it to 50% later that month. “Indian exporters responded to U.S. tariffs by shipping less, not by lowering prices. »

The Kiel researchers hypothesized that exporters did not absorb tariff costs for three main reasons. First, they resorted to alternative markets like Europe and Asia: “The United States is a big market, but it’s not the only one. »

Second, tariffs were so high that reducing prices to absorb them would make many exports unprofitable. “Given the choice between maintaining margins on reduced sales or reducing margins to maintain volume,” the Kiel researchers wrote, “most exporters apparently prefer the former.”

Finally, many U.S. importers had no choice in sourcing goods. This gave existing exporters the advantage: Exporters know that U.S. importers can’t easily find other suppliers, “so they face less competitive pressure to lower prices.”

Tariff costs are passed on to U.S. consumers in many ways: through higher prices on imported products, higher prices on domestic products produced with imported parts, and a reduced variety of products on shelves. Meanwhile, importers must bear the cost of adjusting to tariffs by seeking non-tariffed suppliers.

“These deadweight losses are pure economic waste,” the Kiel researchers concluded: “costs borne by Americans without any offsetting benefit.”

In summary, “tariffs do not transfer wealth from foreigners to Americans. They are transferring wealth from American consumers to the US Treasury.” Think about it when Trump or Cabinet members such as Commerce Secretary Howard Lutnick or Treasury Secretary Scott Bessent brag about how much money is flowing into the Treasury because of rising tariffs.

Tariffs will not be the only driver of inflation this year, Orszag and Posen acknowledge. But the other drivers are also Trump’s policies.

These include mass expulsions of foreign-born workers. “When the effects of deportation fully materialize,” they write, “labor shortages in migrant-dependent sectors will intensify, forcing wage increases that will fuel service inflation – home health care costs are already rising at an annual rate of 10 percent, near decade highs.” »

Orszag and Posen also warn that price shocks experienced by U.S. consumers through 2025 and this year could have lasting effects on consumer behavior, and thus the economy as a whole, even if statistics show inflation falling.

“Inflation experience has lasting effects on expectations,” they observe. “Households remember significant price increases – eggs, meat, childcare, home repairs – much more clearly than aggregate statistics. These memory effects persist for years, even generations.”

As Trump marks the first anniversary of his second term, the US economy is showing signs of strain. As long as the tariffs remain in Supreme Court limbo, there is no sign that the situation will improve.