Why didn’t Trump’s tariffs have a bigger impact on the US economy?

WASHINGTON — President Donald Trump last year raised the taxes the United States levies on imports to levels not seen in a century.

Product prices have risen as a result, and companies that rely on imported items and inputs have struggled, with some going out of business. Still, the effects were not felt as strongly as some experts predicted in early April, when Trump announced double-digit tariffs on imports from countries around the world.

Also read: China accuses US of affecting supply chain with ‘arbitrary imposition of tariffs’

A new working paper by economists at Harvard University and the University of Chicago helps explain why.

The study shows that the tariff that importers actually paid was significantly lower than the rates announced by Trump.

Reasons include exemptions for certain countries and sectors, reduced tariffs for some products until they arrive in the US, and deliberate non-compliance with the rules by some companies.

When analyzing government revenue from tariffs and the value of imports, economists concluded that the effective US tariff was 14.1% at the end of September.

This number represents about half of the tariff that the government had officially announced. The weighted average U.S. trade tariffs were nominally 27.4% in September, the authors estimated, down from a peak of 32.8% in April.

“The actual tariffs are much lower than announced, and that is one reason why the effects were not as large as feared,” said Gita Gopinath, a Harvard economist and former first deputy managing director of the International Monetary Fund.

One factor was an exemption for products that were already on ships en route to the United States when the tariffs were announced.

Shipping goods by sea to American ports typically takes weeks, meaning tariffs paid by companies have risen more slowly than Trump’s announcement throughout the year suggested.

The product and country exemptions included semiconductors and some items containing them, a move widely seen as a nod to technology executives. Although officials said they would announce more tariffs on chips and electronics, that didn’t happen.

As a result, the companies paid an effective 9% tariff on chips imported into the United States, the authors calculated, far below the level applied to other goods. And exports from places that produce a lot of semiconductors, like Taiwan, faced a much lower effective rate (8%) than the official rate (28%).

Canada and Mexico also received significant exemptions from the nominally high tariffs Trump imposed last year. Many products largely made in North America qualify for zero tariffs under the United States-Mexico-Canada agreement, which Trump signed in his first term.

Because American tariffs were generally low in the past, many companies did not bother to declare that their products were in compliance with the agreement when filling out customs forms.

But in 2025, about 90% of products coming from Canada and Mexico were declared compliant, compared to less than 50% the year before.

Tariff evasion also reduced the effective rate that companies pay. Companies can resort to various strategies — many of them illegal — to change information on customs forms about the content, value or origin of a product and thus pay a lower tariff than they should.

As concerns grow about the cost for businesses and consumers, the Trump administration may offer more waivers and delays on planned tariffs.

On December 31, Trump signed an executive order delaying for a year a scheduled increase in tariffs on bathroom countertops, kitchen cabinets and upholstered furniture.

The Commerce Department also backed away from a preliminary plan to impose tariffs on some Italian pasta imports, saying some manufacturers had responded to U.S. concerns about unfair practices. A final decision is expected in March.

Who pays the fare?

This phenomenon does not mean that tariffs do not weigh on American businesses and consumers. The researchers demonstrated that Americans were bearing the cost of Trump’s tariffs, contrary to what he and his advisers claimed.

When the United States imposes a tariff, it is the official importer — usually an American company — that must pay that amount to the government.

But the question of who actually bears the full cost of the tariff is different. Foreign factories that export products to the United States could absorb the cost if they lowered the prices they charged American buyers to offset the tariff.

This is what the Trump administration argued would happen. But Gopinath and his co-author, Brent Neiman of the University of Chicago, calculated that American importers, not foreign suppliers, were bearing most of the cost.

They estimated that 94% of tariff costs were passed on to US companies in 2025. In 2018-2019, when Trump imposed many tariffs on China, this figure was around 80%

Economists only have a few months of data with tariffs fully in place, so much more will be known over the next year.

But tariffs are already significantly reshaping global trade. For example, China’s share of American imports plummeted to 8% at the end of 2025, from 22% at the end of 2017.

American consumers and manufacturers are also paying higher costs. A paper published in November by economists at Harvard Business School and other institutions found that tariffs raised the price of imported goods by roughly twice the increase seen on domestic goods.

Gopinath and Neiman also tracked the effect of tariffs on American manufacturers, which often rely on foreign parts and metals.

They found that companies making heavy trucks, construction vehicles, cars and auto parts, agricultural equipment and oil and gas machinery were among those most affected by the tariff hike.

“The logic was that if foreign companies wanted to sell to the world’s most powerful consumer market, they would have to pay a price,” Gopinath said. “In reality, it is American companies that have paid this price, not foreign ones.”