The Incidence of Tariffs: Rates and Reality

So far, retaliation has been limited, although US announcements of large, broad tariffs on imports from China were met with comparable Chinese tariffs on imports from the United States. At one point, this back-and-forth led to prohibitive tariff rates exceeding 100 percent, covering almost all trade between the two countries. The United States and China subsequently reduced their bilateral tariffs, yet they remain historically high. While the worst of the storm may have passed, as Dorothy observes in The Wizard of Oz, “We’re not in Kansas anymore.”

What should we expect moving forward? First, US consumers may face higher prices for affected imports. However, these effects will depend not only on the size of the tariffs but also on the degree of pass-through—the extent to which import prices rise with tariffs. Pass-through could be low if foreign producers reduce export prices or high if they keep export prices unchanged. Second, US import spending will shift away from goods with the largest price increases toward alternative suppliers, whether foreign or domestic. Third, most models predict that the recent tariffs should appreciate the US dollar, which would moderate the rise in import prices but impair demand for US exports. Our research examines the effects of US import tariffs enacted in 2018, 2019, and 2025, focusing on these three predictions.

We began by documenting the size of the recent tariffs. As of the end of December 2025, the latest month in our analyses, the average actual tariff rate (12 percent) was less than half the average statutory rate (26 percent). Shipment lags, product- and company-specific exemptions, the US–Mexico–Canada Agreement, evasion, and inconsistent enforcement have all contributed to the large gap between statutory and actual rates. Therefore, enacted policies remain much smaller than announced policies. This is a key reason why the price effects of the tariffs remain below many forecasts made in April 2025.

Next, we studied the economic incidence of the tariffs—the degree to which the tariffs’ costs are borne by US importers or foreign exporters. Legally, US importers must pay tariffs to US Customs and Border Protection, typically within 10 days after the imports arrive in the United States. But as economists have long explained, the economic incidence of a tariff may differ from its legal incidence, depending on the degree to which foreign exporters absorb the tariff rather than passing it through.

Our research finds that pass-through was pervasively high during both the 2018–2019 and 2025 episodes. Specifically, we estimate pass-through rates of 81 percent from 2018 to 2019 and 92 percent during 2025. The higher estimate for 2025 should be viewed with caution, since the data are more limited for this episode; nevertheless, it is consistent with the findings of other researchers. Therefore, most of the incidence of recent US tariff hikes has fallen on US consumers. And given the significance of imported inputs in US manufacturing, domestic producers have also shouldered much of the burden.

These recent tariff episodes have led to striking changes in sourcing patterns. The share of Chinese goods in US imports collapsed from 22 percent at the end of 2017 to about 12 percent at the end of 2024. By December 2025, China’s share was only 7 percent. Countries such as Vietnam gained share in US imports, although it remains unclear whether these gains reflected increased domestic production or the rerouting of Chinese production through these countries.

Finally, we examined changes in the dollar exchange rate following the recent tariff episodes. Economic theory posits that increasing US import tariffs should appreciate the dollar: US consumers will demand fewer imports and thus less foreign currency, causing the dollar’s relative value to rise. Indeed, the dollar appreciated after the 2018–2019 tariffs. However, the dollar depreciated significantly after the 2025 tariffs. We believe that other policies and macroeconomic forces counterbalanced the effects of tariff hikes on the dollar exchange rate. For example, President Trump’s announcement of “Liberation Day” tariffs in April 2025 led to a surge in uncertainty and expectations that the US economy would slow, prompting the Federal Reserve to cut interest rates faster than it might have otherwise, thereby depreciating the dollar. Additionally, reports suggest that foreign investors began hedging their dollar exposure more extensively in 2025 than they had previously.

Note
This research brief is based on Gita Gopinath and Brent Neiman, “The Incidence of Tariffs: Rates and Reality,” unpublished manuscript, May 2026.