Hiltzik: Trump’s tax on American consumers

All eyes on Wall Street Tuesday morning seemed glued to the nearest screens in anticipation that the Supreme Court would finally strike down President Trump’s view on the legality of his tariffs.

It had been a long wait: The court heard oral arguments on the issue on November 5, when questions from the justices suggested the majority was ready to cut the tariffs.

But the wait is not over. There was no tariff decision on Tuesday. The court is about to begin a four-week recess, meaning a decision on tariffs won’t come before the end of February and Trump’s most effective economic policy will remain in limbo for at least another month.

But decisions about tariffs come from elsewhere, and from the perspective of American consumers, they are outrageous.

A finding is coming Kiel Institute for World EconomyA respected German economic think tank. Contrary to Trump’s insistence that the tariffs are paid by foreign countries, or rather their exporters, Kiel’s research finds that the tariffs are paid almost entirely by American importers and their domestic customers.

Kiel wrote that the $200 billion the U.S. treasury collected from Trump’s tariffs in 2025 is equivalent to $200 billion in consumption taxes imposed on Americans.

“Tariffs are, literally, our own goal,” Kiel researchers wrote. “Americans are paying the bill”

A second opinion can be even scarier. Inflation is likely to rise in 2026 due to tariffs and other ill-conceived economic policies from the Trump White House. This is his opinion economist Peter Orzsag, managing director of investment company Lazard; and Adam Posen, President of the Peterson Institute for International Economics.

“It is not only plausible but also arguably the most likely scenario for inflation to rise above 4 percent by the end of 2026,” they write. This would be a big jump from the government’s last forecast of a 2.7% annual rate in December.

The gist of Orszag and Posen’s predictions was that Americans were living in a dream world through 2025, during which a quiet increase in inflation led even many experts to conclude that despite high tariffs, the Federal Reserve Board was “largely winning the inflation war.”

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

American importers were able to partially absorb the tariffs because they stockpiled inventory in anticipation of higher tariffs. Orszag and Posen observe that businesses that are wary of implementing one-time price increases prefer to increase prices in smaller steps and over a longer period of time. However, this relief is likely to run out by the middle of this year.

None of these findings had any impact on the White House’s stance on tariffs.

“The average tariff imposed by America has increased nearly tenfold under President Trump, and inflation has continued to decline from the Biden-era highs,” White House spokesman Kush Desai told me in an email. “The administration has consistently argued that foreign exporters who depend on access to the American economy, the world’s biggest and best consumer market, will eventually pay the cost of the tariffs, and that’s exactly what’s happening.”

But red lights are flashing as Trump intensifies tariffs as a personal foreign policy tool almost completely divorced from their traditional economic role in trade relations.

Last week, Trump threatened European countries with higher tariffs over their efforts to thwart his ambition to seize Greenland. He threatened to impose sanctions on Monday 200% tariff on French wines because French President Emmanuel Macron resisted joining the “Peace Board”, which Trump proposed to address global conflicts.

Let’s take a closer look at the latest tariff analysis.

The Kiel study was based on shipping records covering more than 25 million transactions valued at nearly $4 trillion, as well as case studies showing how Indian and Brazilian exporters responded to sharp tariff increases Trump imposed on those countries last year.

Broader statistics showed that 96% of all tariffs were passed on to Americans, Kiel reported. As Kiel observes, by claiming that foreign countries were paying tariffs, Trump was able to frame them as “a means to extract concessions from trading partners while generating revenue for the U.S. government at no cost to American households.”

The reality is that American consumers and importers bear 96% of all costs, Kiel calculated. This is not a new phenomenon. As the Kiel study notes, during the 2018-19 US-China trade war, also instigated by Trump, “US import prices increased almost one-for-one with tariffs, while Chinese export prices remained largely unchanged.”

Kiel found that with the recent tariff increases, exporters did not lower prices to maintain sales, which was equivalent to paying tariff costs, but instead foreign exporters “accepted a reduction in market share in the U.S. while maintaining their profit margins.”

This was especially true in India; After Trump imposed a 25% customs duty on India on August 7 and increased this rate to 50% by the end of the month, the value and amount of exports to the USA dropped by 24% compared to other export destinations. “Indian exporters responded to US tariffs not by lowering prices, but by shipping less.”

Kiel researchers estimate that exporters are unable to cover tariff costs for three main reasons. First of all, they turned to alternative markets such as Europe and Asia: “The USA is a big market, but it is not the only market.”

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

Finally, many US importers had no option to source goods. This has given existing exporters an edge: Exporters know that U.S. importers can’t easily find alternative suppliers, “so they face less competitive pressure to lower prices.”

Tariff costs are passed on to American consumers in a variety of ways, including higher prices on imported goods, higher prices on domestic goods manufactured with imported parts, and reduced product variety on shelves. Meanwhile, importers must bear the cost of complying with tariffs by seeking tariff-free suppliers.

“These ‘dead weight’ losses are pure economic waste,” the Kiel researchers concluded; “costs borne by Americans with no compensating benefits.”

In summary, “tariffs do not transfer wealth from foreigners to Americans. They transfer wealth from American consumers to the U.S. Treasury.” Imagine Trump or Cabinet members like Commerce Secretary Howard Lutnick or Treasury Secretary Scott Bessent yelling about how much money is flowing into the Treasury due to high tariffs.

Orszag and Posen agree that tariffs will not be the sole driver of inflation this year. But other factors are Trump policies.

These include mass deportations of foreign workers. “Once the effects of deportation fully emerge, labor shortages in immigrant-dependent sectors will intensify, causing wage increases that feed services inflation; home health care costs are already rising at an annual rate of 10 percent, near the highest level in nearly a decade.”

Orszag and Posen also warn that price shocks to American consumers from 2025 into this year could have lasting effects on consumer behavior and thus the broader economy, even if statistics show that inflation is falling.

“Experience with inflation has lasting effects on expectations,” they observe. “Households remember noticeable price increases for eggs, meat, child care, home repairs much more vividly than aggregate statistics do. These memory effects persist for years, even generations.”

It shows the pressure on the US economy as Trump celebrates the one-year anniversary of his second term. As long as tariffs remain in Supreme Court limbo, there is no sign that things will get better.