New Research Challenges Popular Narrative on Tariffs
A recent study from the Kiel Institute for the World Economy delivers a sobering conclusion about US trade policy: the vast majority of American tariffs are not paid by foreign exporters, but by Americans themselves.
According to the research, around 96 percent of the financial burden created by US import duties falls directly on US companies and consumers. Foreign suppliers absorb only about 4 percent of the cost.
This finding contradicts the common political narrative that tariffs primarily punish other countries.
Tariffs Act as a Hidden Domestic Tax
The study highlights a simple but often misunderstood reality. Tariffs are collected at US borders and paid by American importers. Those importers then pass the additional costs through the economic chain.
In practice, this means:
higher retail prices,
more expensive raw materials,
increased production costs,
and reduced purchasing power for households.
Instead of functioning as external pressure on foreign competitors, tariffs behave more like an internal tax within the United States economy.
Why Exporters Rarely Lower Prices
One of the key observations of the Kiel Institute research is that foreign companies almost never respond to US tariffs by cutting their prices.
Rather than accepting lower margins, exporters typically choose one of three options:
maintain prices and let US buyers pay more,
reduce shipments to the US market,
or redirect goods to other countries.
As a result, American businesses and consumers end up covering nearly the entire cost of protectionist measures.
Inflationary Impact on the US Economy
These dynamics help explain why tariffs frequently lead to higher inflation rather than stronger domestic industries.
When imported goods become more expensive, companies have to raise prices or accept lower profits. In most cases, they choose to pass the costs to consumers.
This creates a chain reaction:
import tariffs increase,
business expenses rise,
retail prices go up,
overall inflationary pressure grows.
The intended goal of protecting domestic production often turns into higher living costs for ordinary Americans.
Budget Revenue Comes From Americans
Another important takeaway from the study is where tariff revenue actually comes from.
While tariffs do generate billions of dollars for the US budget, that money is not paid by China, Europe, or Mexico. It is paid by US importers, businesses, and ultimately by American households.
In other words, the government collects more money — but primarily from its own citizens.
What This Means for Markets
From a macroeconomic perspective, these findings are significant.
If tariffs continue to push up domestic prices, they can:
keep inflation elevated,
limit the Federal Reserve’s ability to cut interest rates,
increase pressure on businesses,
and weigh on consumer spending.
All of this can indirectly affect risk assets, including equities and cryptocurrencies, by creating a more restrictive financial environment.
The Reality Behind the Rhetoric
Tariffs are often promoted as a powerful tool to force other countries to change their behavior. The data suggests a different reality.
Instead of shifting costs abroad, protectionist measures mainly redistribute money within the United States — from consumers to the federal budget.
This does not mean tariffs never serve a strategic purpose. But economically, their primary effect is internal rather than external.
BTCUSA Comment
The Kiel Institute study confirms what basic economics has long suggested: tariffs are far closer to a domestic tax than to an effective weapon against foreign exporters. While the political messaging may focus on protecting American interests, the financial burden overwhelmingly lands on American wallets. For markets, this matters because higher tariffs often translate into higher inflation and tighter macro conditions — factors that ultimately influence investor sentiment across all asset classes, including crypto.
