The Trump administration's tariffs on steel and aluminum, imposed last year, have sparked a debate about who ultimately bears the financial burden. Despite claims that exporting countries are paying, studies reveal a different story. Germany's Kiel Institute analyzed over 25 million shipment records, finding that foreign exporters absorbed only 4% of the tariffs' costs. This led to a collapse in trade volumes, but exporter prices remained unchanged. New York Fed economists further analyzed the tariffs' impact, concluding that US companies and consumers still bear the majority of the costs. The Congressional Budget Office (CBO) supported this, stating that US businesses absorb 30% of the import price increases, with consumers facing the remaining 70%. However, the question remains: why hasn't the US inflation rate been significantly affected? The CPI data from last week showed a surprisingly low inflation rate of 2.4%, below expectations. While core inflation remains at 3%, the overall inflation rate appears to be subsiding. The absence of a currency appreciation in the US dollar, despite the tariffs, might explain the lack of a more pronounced impact on inflation. The relatively low exposure to imports and Trump's frequent tariff reversals could have contributed to the initial price impacts being absorbed by US companies' inventories and a lower pre-tariff inflation rate.
