US import prices shatter Trump's dream: foreigners aren't paying tariffs

This past Tuesday, Donald Trump reiterated his point to the media: " Tariffs are paid by foreign governments or foreign companies ." That phrase sums up the main argument the magnate has used for decades to justify his "love" for this tax. But the import price data released today once again undermines his argument: not only are foreigners not "eating" the costs of tariffs, but the weak dollar is actually raising the prices Americans pay to import products from abroad. A toxic cocktail that once again increases the risk of rising inflation in the coming months.

Data released today suggests that import costs rose 0.4% in July, more than expected and the largest increase since April 2024. But the problem is that if Trump's theory were true and foreigners were absorbing the cost of the tariffs, they would have had to lower their prices proportionally to the tariffs imposed on their products. In other words, the price of imports from Europe, for example, would have had to drop by about 10% to offset the 10% rate in effect until last week ( when it rose to 15% ).

The reality is that prices not only haven't dropped, but have actually risen , in part due to the fall in the value of the dollar, which makes exports more expensive. For Mike Zaccardi, a finance professor at the University of North Florida, "these numbers don't suggest that exporters are bearing the brunt of the tariffs." The Wall Street Journal itself, the newspaper that urged voters to vote for Trump in the last election, warns today that "we already know who is paying the tariffs. " Its editorial points to "American companies" as the ones bearing the brunt , as revealed by yesterday's wholesale price data , and warns that companies' rising costs will be passed on, sooner or later, to families. "Republicans will make the same mistake as [Joe] Biden if they continue to tell voters that everything is wonderful, but the reality in supermarkets shows them otherwise," the outlet concludes.

Barclays, for its part, points to one of the reasons why the inflationary wave has not been as large as feared: actual tariffs, for the moment, are lower than analysts estimated . The fact that Trump has not yet torn up the free trade agreement with Mexico and Canada, the long list of reductions and exemptions included by the president, and the decision by companies to switch suppliers to avoid China as much as possible, have meant that the actual average tariff paid is much lower than it should be, on paper.

As of July, the bank notes, half of US imports were tariff-free, either because they came from Mexico and Canada or because they were products for which Trump has maintained an exception. Thus, the average rate paid in customs was 9%, compared to the 12% initially estimated based on the country's import consumption last year.

That rate will rise in part with the new round of tariffs that went into effect last week. But the fact that companies are looking for every possible loophole to avoid them is one of the reasons why inflation isn't rising as much as it could.

The other problem for Trump, who yesterday boasted of "finding $30 billion on the tariff shelf," is that he can't raise a lot of taxes and, at the same time, incentivize domestic production : if everything were produced in the US, the revenue from tariffs would be zero.

The fact that companies are avoiding all possible tariffs suggests that inflation won't be as high as initially feared, but that tax revenues won't be as high as the Republicans had budgeted in the tax reform approved last month. And the deficit data released this week , which indicate that the imbalance in the US public finances is growing rapidly and public debt remains high , are another warning sign. The US economy has avoided a crisis in recent years, but the situation is becoming increasingly strained.