Foreign producers are not absorbing the rise in tariffs

Import prices are continuing to rise despite the rise in tariff rates. This means that foreign producers are not lowering prices and absorbing higher duties (the import price index does not include tariff costs). Trump has touted that foreign firms will foot that bill for tariffs but the data suggests that the burden is falling on U.S. firms and consumers.

It remains to be seen how U.S. firms will adjust their prices. As I discussed last week, prices of tariff-sensitive goods are already rising but overall consumer prices have remained steady. Firms are likely hesitant to raise prices given how stretched the consumer already is but as the tariff picture solidifies, companies will have no choice but to pass-through at least some of the tariffs onto consumers.