The Unseen Cost of Tariffs: U.S. Firms and Consumers Bear the Brunt

Contrary to President Donald Trump's predictions, U.S. companies and consumers are shouldering the costs of new tariffs, a reality complicating the Federal Reserve's efforts to combat inflation. Initial findings indicate that while the president anticipated foreign exporters would absorb these expenses, it is largely American firms paying the price and passing some of the costs onto consumers.

Harvard University's Alberto Cavallo, along with researchers Paola Llamas and Franco Vazquez, tracked prices of nearly 360,000 goods, discovering significant price increases in imports, especially in non-domestically produced items and heavily penalized countries like Turkey. While foreign exporters raise prices and adjust to currency fluctuations, this contradicts claims that they bear the tariffs' burden.

With companies stretching price increases over time to mitigate impacts, various businesses, including European carmakers, absorb some costs. Conversely, others are hiking prices. As global trade suffers due to U.S. tariffs, the World Trade Organization downgraded its trade volume growth forecast, indicating a broader economic ripple effect.