Who Pays for Tariffs?

Start Here: Follow the Check

A hardware chain in Rock Hill orders $10,000 worth of tools from a factory in Vietnam. Follow the money:

What a Tariff Is

A tariff is a tax on imports. As economists at the St. Louis Fed put it, “This tax increases the price of the imported good and can give the competing domestic good a relative price advantage.” It is collected at the border from the U.S. business bringing the goods in, not from the foreign country that made them.

U.S. tariffs rose sharply in 2025. One common measure is the effective tariff rate: total tariffs collected as a share of the value of imports. It was 2.3 percent in January 2025. After a Supreme Court ruling in February 2026 struck down many of the 2025 tariffs, the rate fell, but in August 2026 it was still 7.1 percent, about three times where it started. Rates vary widely. Imports from China faced an effective rate of 24.3 percent, and steel and aluminum products faced 39.8 percent.

Tariffs also raise money. In the 2026 fiscal year, which ended in September, the federal government collected $317.8 billion in customs duties. After it paid back $144.6 billion in refunds of tariffs the Court had struck down, it kept $173.2 billion, a little over 3 percent of all federal revenue.

Who Really Pays?

1 Tax incidence

Economists call the question of who bears a tax its incidence. The Supply and Demand reading showed that prices depend on how buyers and sellers respond. The same logic decides who bears a tax. In the words of an introductory textbook, “If demand is more inelastic than supply, consumers bear most of the tax burden, and if supply is more inelastic than demand, sellers bear most of the tax burden.” If a foreign maker has few other places to sell, it may cut its price to keep U.S. customers. If U.S. buyers can easily switch, the foreign seller has to absorb more of the tariff.

So which is it in practice? For the 2018–19 tariffs, the U.S. International Trade Commission found that “U.S. importers bore nearly the full cost of these tariffs because import prices increased at the same rate as the tariffs.” For the 2025 tariffs, economists at the New York Fed found that “nearly 90 percent of the tariffs’ economic burden fell on U.S. firms and consumers.” The foreign share grew a little over the year, from 6 percent in the first eight months to 14 percent in November. Back in Rock Hill, that means most of the $2,000 stays in the United States, split among the store, its customers, and the businesses that buy its tools.

2 Which Americans pay

Much of the cost is hidden. Census Bureau researchers estimate that about 60 percent of a typical manufacturer’s imports are inputs used in its own production, so a tariff on parts and materials shows up later in the price of American-made goods. Federal Reserve economists studying household spending in 2025 found that “low-income households bear losses of 0.72 percent of income against 0.07 percent for high-income households.” Lower-income families spend more of their income on goods, so a tax on goods takes a bigger share of what they have.

The Seen and the Unseen

The French economist Frédéric Bastiat urged people to look past a policy’s visible effects to the hidden ones. In 1845 he wrote a mock petition from French candlemakers asking for protection from “the ruinous competition of a foreign rival” that was “flooding the domestic market” with light “at an incredibly low price.” The rival was the sun. The candlemakers asked for “a law requiring the closing of all windows.” The joke makes a serious point: protection always has a visible winner, but the people who pay are harder to see.

READ THE ORIGINAL A Petition (Frédéric Bastiat, Economic Sophisms, 1845)

The evidence from past tariffs shows both sides:

On Smoot-Hawley, the State Department’s historians note that scholars still disagree about how much protection it gave and whether it made the Great Depression worse. What is certain, they write, is that it “did nothing to foster cooperation among nations.”

The Who Should Decide? reading explained why policies with hidden costs can still be popular. A tariff’s benefits are concentrated on a few producers and their workers, who have every reason to lobby for it. Its costs are spread across millions of buyers, who may pay a few dollars more on each purchase without ever knowing why.

WATCH The Political Economy of Tariffs (Marginal Revolution University)

The Case for Tariffs

Tariffs have serious defenders, and some of the strongest arguments come from economists and statesmen of the past.

3 Alexander Hamilton: Young industries need time

In his 1791 Report on Manufactures, written as the first U.S. Treasury Secretary, Hamilton argued that a new nation’s factories could not compete right away with countries that had a long head start. “To maintain between the recent establishments of one country and the long matured establishments of another country, a competition upon equal terms, both as to quality and price, is in most cases impracticable.” Today this is called the infant-industry argument. Hamilton also weighed the costs. He thought direct payments to producers, which he called bounties, were “in some views, the best” way to help, partly because they avoid raising the prices that buyers pay, as a tariff does.

4 Friedrich List: Catching up first

The German economist Friedrich List made a similar case in 1841. Free competition between nations, he wrote, is mutually beneficial only when they are “in a nearly equal position of industrial development.” A nation that is behind “must first of all strengthen her own individual powers.” List favored “an effective but not excessive protection” of manufacturing, combined with free imports of farm products and raw materials.

5 Adam Smith: Two exceptions

Even Adam Smith, the great critic of trade barriers, allowed exceptions. On defense, he wrote that “defence, however, is of much more importance than opulence.” On bargaining, he said tariffs aimed at another country’s barriers can make sense “when there is a probability that they will procure the repeal of the high duties or prohibitions complained of.” But he warned that judging when this will work belongs to “that insidious and crafty animal, vulgarly called a statesman or politician.” And when protection has already built up an industry with many workers, “humanity may in this case require that the freedom of trade should be restored only by slow gradations.”

Who Gets to Set Tariffs?

The Constitution gives Congress the power to “lay and collect Taxes, Duties, Imposts and Excises” and to “regulate Commerce with foreign Nations.” Over the twentieth century, Congress passed laws letting the President set some tariffs in specific situations:

On February 20, 2026, the Supreme Court ruled 6 to 3 that the International Emergency Economic Powers Act (IEEPA) “does not authorize the President to impose tariffs.” About $166 billion had been collected under that law, all of it subject to refund. By early October 2026, the government had certified about $126 billion in refunds.

What Economics Adds

LISTEN The Economics of Tariffs and Trade (with Doug Irwin) on EconTalk, hosted by Russ Roberts; and Why Haven’t Tariffs Significantly Damaged the Economy? on the Brookings Podcast on Economic Activity, both with transcripts

Key Terms in Plain Words

Tariff

A tax on imported goods, paid by the importer at the border.

Effective tariff rate

Total tariffs collected as a share of the value of imports.

Tax incidence

Who actually bears the cost of a tax, whoever writes the check.

Pass-through

How much of a tariff shows up in the prices buyers pay.

Deadweight loss

Value lost when a tax stops trades that would have helped both sides.

Protectionism

Policies that shield domestic producers from foreign competition.

Retaliation

Tariffs other countries impose in response, often on U.S. exports.

Infant industry

A young industry that some argue needs protection until it can compete.

Bounty

Hamilton’s term for a direct payment to producers, a kind of subsidy.

Seen and unseen

Bastiat’s idea: look past a policy’s visible effects to its hidden ones.

Concentrated benefits

Gains that go to a small group with strong reasons to lobby.

Delegation

When Congress hands part of its power to the President by law, within limits.