Who pays for tariffs? The administration's trade-war defenses have shifted and multiplied, yet one main assertion remains: foreign countries and their exporters, rather than American citizens, absorb the cost. In a blog post published August 3, 2026, Kimberly Clausing and Maurice Obstfeld, both of the Peterson Institute for International Economics (PIIE), review what the evidence says. This entry is the second installment of a two-part series, subtitled "Optimal tariffs" are far from optimal: Part 2.
The authors begin with an important qualification. They note that even when policymakers aim to shift costs onto foreign producers, better tools than tariffs exist for achieving that objective. In addition, the authors argue that relying on "optimal tariffs" to boost national well-being runs into several practical problems. Most importantly, they write, the actual payments have landed mainly on American households and businesses.
The series examines whether the theoretical allure of "optimal tariffs" can survive contact with the real world. The second post concentrates on the empirical record. The economists stress that the case for strategic tariffs is undercut by the observed pass-through of past duties into import prices, and they see the same pattern in the most recent data.
Foreign governments, the authors note, have not been indifferent to U.S. tariff threats. The fact that foreign governments have been so eager to strike deals suggests that they view Trump's tariff threats as a serious worry. Had those exporters been able to sell elsewhere at undiminished prices, their governments could have shrugged off U.S. tariff threats at little cost.
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Evidence from past tariffs points in the same direction. Research on the 2018-19 tariffs repeatedly found that import prices rose by roughly the full amount of the duties, meaning American buyers absorbed almost all of the cost.
Tariff incidence is the central question. If a tariff simply caused foreign sellers to cut their prices, the foreign exporter would bear the tax. But if the price paid by U.S. importers rose by the full tariff amount, the U.S. buyer would bear it.
Tariff incidence is about what happens after a duty is imposed, not about which company files the paperwork. If U.S. importers can raise their prices, the duty is paid by American buyers; if foreign sellers must cut their dollar prices, the duty is paid abroad. The authors' conclusion is that the data consistently point to the first case.
Evidence from earlier tariff episodes and early 2025 assessments both point strongly to the latter outcome. That is why the PIIE authors say the claim that foreigners pay the tariffs is not borne out by experience.
The "Liberation Day" tariffs were imposed sixteen months ago, using emergency powers that the Supreme Court later invalidated. The new analyses released after those duties went into force have given economists a sharper view of the trade and price effects.
Recent research, as summarized by Clausing and Obstfeld, indicates that the answer is American buyers.
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