Tariffs pass through 93% to importers

Tariffs are showing up exactly where economists long said they would — on the bills of U.S. importers first, and then, with a lag, on everyone else. That’s the real meaning of the “93% pass-through” line making the rounds. It does not mean shoppers instantly eat 93% more. It means foreign exporters usually are not cutting their prices enough to offset the duty, so the importer at the border ends up paying almost all of it. ### Where does the 93% number come from? It comes from research on the earlier U.S.-China tariff fight. The result was stark — U.S. importers shouldered 93% of the U.S. tariffs, while Chinese exporters barely lowered their dollar prices. That’s why economists say tariffs are taxes on imports paid by domestic firms at the point of entry, not a bill sent back to the exporting country. (cepr.org) ### Why does that matter now? Because newer 2025 evidence says the same mechanism is still operating. A New York Fed survey fielded May 2 to May 9, 2025 found manufacturers facing an average tariff rate of 35% and service firms 26%, both sharply above six months earlier. Those firms said the cost of tariffed goods had risen about 20% for manufacturers and 15% for service firms. (cepr.org) ### Are businesses eating those costs? Some are, but not for long. In that same New York Fed survey, most firms passed along at least some of the increase, with nearly a third of manufacturers and about 45% of service firms passing through all tariff-induced cost increases. The interesting part is speed — more than a third raised prices within a week of getting hit. (libertystreeteconomics.newyorkfed.org) ### So why didn’t prices jump everywhere at once? Because there are two stages. Border prices move first. Store prices move later. Earlier tariff research found strong pass-through at the border but a more muted effect on shelf prices, which suggests wholesalers and retailers initially absorb part of the shock through thinner margins. Basically, the importer pays now, and the consumer often pays later. ### What does that look like in the real supply chain? (libertystreeteconomics.newyorkfed.org) It looks like warehouses literally changing price tags. By late June 2025, logistics firms said they were re-ticketing millions of units, with price increases running 8% to 15% on some apparel and consumer goods. A footwear industry survey showed 55% of respondents expecting average retail prices to rise 6% to 10% in 2025 because of tariffs. (aeaweb.org) ### What about small businesses? This is where the pain gets less abstract. One recent analysis estimated that small-business importers paid an average of $441,000 in total tariffs over the prior year — roughly $37,000 per month — and about $306,000 more than in the previous 12-month period. You can argue about the politics around that estimate, but the direction is hard to miss: smaller firms have less room to wait out a margin squeeze. (cnbc.com) ### Why could pass-through get worse? Because expectations matter. A Boston Fed paper found small and medium-sized businesses planned to pass through a substantial share of cost increases, and firms that believed tariffs would last a year or longer expected much higher pass-through than firms treating them as temporary. If a tariff looks permanent, businesses stop treating it like a one-off hit and start rewriting price lists. (americanprogress.org) ### Bottom line? The 93% figure is best understood as the border story — who gets hit first. The newer story is that the shock is already leaking deeper into the economy through higher input costs, thinner margins, and fresh price hikes. The catch is timing, not direction. Tariffs start on import paperwork, but they rarely stay there. (bostonfed.org)