Maybe you’ve heard: Tariffs are here.
Last weekend, the Trump administration said it was imposing import tariffs of 25% on goods from Canada and Mexico. China, the main character in Trump’s first term trade war, was slapped with an extra 10% import tariff. The predictable followed: All tariffed countries retaliated to some degree, with Canada and Mexico agreeing to negotiations that will delay their tariffs.
With that flurry of activity, we entered a new, likely tumultuous era of the global economy. CFOs, buckle up. And keep reading.
Who pays? You think you know about tariffs. But let’s clear up some common misconceptions first. The big one? Who actually foots the bill.
“With any type of tax or government policy in general, you can see a difference between the person who is legally affected by it and then the person who is economically affected by it,” Erica York, VP of federal tax policy with the Tax Foundation, where she leads tariff and corporate tax policy research, told CFO Brew.
Think of the impact of tariffs like your kindergartner’s homework. (Weird analogy, but stay with us.)
“The legal burden of that homework, so to speak, is on the kid, but then when the kid goes home, the real economic burden of that falls on the parent to make sure the kid gets the work done, gets it sent back to school,” she explained. “The same thing can happen with taxes like tariffs; the person who writes the check…may not be the person who ultimately bears the economic burden.”
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“One easy way to see this is if a tariff gets added to the price of a good, it may be the importer who initially pays the tax to the government, but if they pass that on in the form of higher prices, then it’s the final consumer who ultimately pays,” she added.
Jake Colvin, president of the National Foreign Trade Council, a business association that promotes the interests of US companies globally, similarly stresses recognizing the domestic cost of tariffs.
“It’s an American entity that is ultimately responsible for paying the tariffs,” he told CFO Brew. “Now, whether that, if it’s a business, whether that business passes the cost along to the consumer is a question. But there’s a cost that Americans pay for tariffs.”
A number of economic studies concerning Trump’s first term tariffs on China found the majority of the cost burden ultimately fell on American consumers.
“Nothing comes without a trade-off,” York noted, adding that tariffs are often inaccurately construed as “this magical tool that’s going to solve every policy problem you can think of, with no downsides. And just like anything, there’s a downside, and there’s a particularly steep downside with tariffs.”
Trump’s proposed tariffs “would shrink economic output by 0.4% and increase taxes by $1.1 trillion between 2025 and 2034 on a conventional basis, amounting to an average tax increase of more than $800 per US household in 2025,” according to an analysis York wrote for the Tax Foundation.