Trump’s tariffs: Ever since Donald Trump returned to the Oval Office, the White House has revived a familiar claim: that steep tariffs will make foreign exporters pay for America’s trade imbalances. Recent evidence suggests the opposite. The economic incidence of protectionism is again falling largely on US firms and consumers.
A new study by the Kiel Institute for the World Economy, examining trade flows between January 2024 and November 2025, finds that exporters to the US absorbed barely 4% of the tariff burden. The rest was paid inside the United States by importers, downstream firms, and households. Despite tariffs of up to 50% on Indian goods, Indian exporters did not respond by cutting prices. Instead, they cut volumes.
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India’s exports to the US fell by 18–24% relative to shipments to other markets. In December, exports declined 1.83% year-on-year to $6.88 billion. The contraction was sharper in stress-prone sectors: gems and jewellery exports dropped by more than 44% during April–December. Prices, however, held firm.
Prices did not adjust, volumes did
If Indian exporters had absorbed the tariff shock, prices of shipments to the US would have fallen relative to exports to Europe, Canada, or Australia, where tariffs were unchanged. That divergence did not occur. The price data confirm that exporters protected margins and accepted lower sales instead.
This outcome undermines the central political logic of tariffs. Trump’s stated aim was to tax foreign producers and rebalance trade through price pressure. The evidence from this episode, as from earlier trade wars, points to a different result: tariffs function primarily as a domestic tax, raising costs without extracting meaningful concessions from exporters.
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Why exporters refused to absorb the shock
The explanation is not ideological. It is arithmetic. A 50% tariff does not require a matching price cut to neutralise its impact, but it does require a reduction of roughly one-third. For most Indian exporters, that would erase margins entirely. Exports to the US would become loss-making. Firms chose to preserve viability by cutting volumes instead.
They could do so because alternatives existed. Indian exporters redirected shipments to markets where tariffs had not been raised. Europe, Canada, and Australia absorbed part of the displaced trade. Access to multiple markets diluted US bargaining power and limited the pressure on exporters to slash prices.
Sticky supply chains and domestic pass-through
Supply chains further constrained adjustment. Many US importers depend on specific suppliers for certification, quality, or scale. Switching vendors is costly and slow. Faced with higher tariffs, these importers absorbed the duty and passed it down the value chain. The burden diffused across firms and consumers inside the US economy.
This is why tariffs resemble consumption taxes in their economic effects. They raise domestic prices and affect the lower-income households disproportionately. Unlike taxes on consumption, they disrupt production networks, cut trade volumes, and invite retaliation. Their economic costs are therefore amplified.
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None of this is new. During the 2018–19 trade war, studies using US customs data found near-complete pass-through of tariffs into domestic prices, especially for intermediate goods. Washing machines, steel-intensive products, and a range of consumer goods became more expensive. Exporters largely protected margins. American firms and households paid more.
The current episode follows the same pattern. Protectionism reshapes who trades, not who pays.
Trumps tariffs, deficits, and industrial politics
What sustains tariffs despite evidence against them is not logic but domestic politics. Tariffs accrue directly to the US Treasury and are easier to defend than tax increases or rising debt-servicing costs.
Tariffs complement subsidy-led industrial policy by raising the price of imported items while domestic producers are supported through subsidies, tax credits and procurement preferences.
Tariffs no longer force exporters to cut prices; they serve as a blunt fiscal and political instrument that signals toughness while shifting costs quietly onto domestic consumers.
India’s costs will surface differently
India will not escape unscathed. Falling export volumes translate into lost sales, underutilised capacity, and pressure on employment in export-oriented sectors. Firms that built business models around the US market will incur adjustment costs even if prices hold. Protectionism rarely produces one-sided losses; it redistributes them across channels.
Policymakers need to scrutinise the political narrative surrounding tariffs. The claim that tariffs transfer wealth from foreigners to Americans is not supported by evidence. Tariff revenues are collected from US residents. Any fiscal gains are offset by higher prices, lower consumption, and production inefficiencies. Retaliation compounds the damage.
Export diversification therefore matters not only for growth but as insurance against policy volatility in large economies. As global trade fragments, understanding who bears the true cost of protectionism becomes central to domestic policy debates.
For the US, the lesson is straightforward. Tariffs serve political symbolism more than economic strategy. That symbolism, however, does not come free. Hard economics rarely align with comforting myths.