The promise that foreign countries would pay for tariffs turned out to be mostly fiction, according to research released Thursday by the Federal Reserve Bank of New York. Instead, American businesses and consumers ended up writing the check.

Who Really Paid

Here's the uncomfortable reality: U.S. tariff rates climbed from 2.6% to 13% over the course of 2025, and foreign exporters basically shrugged. They didn't slash their prices to stay competitive. They just kept charging what they were charging, which meant American importers had to pay the original cost of goods plus the new tariff on top.

Economists Mary Amiti, Chris Flanagan, Sebastian Heise, and David E. Weinstein crunched the numbers and found that "94 percent of the tariff incidence was borne by the U.S. in the first eight months of 2025." Translation: for every dollar collected in tariff revenue, roughly 90 cents came straight from American pockets. The economic burden never shifted abroad the way tariff supporters had predicted.

The Great Supply Chain Scramble

Facing escalating costs, U.S. companies didn't just sit there and take it. They aggressively restructured their supply chains to dodge the heaviest tariff zones. China became the biggest loser in this reshuffling game.

After duty rates spiked as high as 125 percentage points in early 2025, China's share of U.S. imports crashed below 10%. That's a stunning collapse from its 25% share back in 2017. The winners? Mexico and Vietnam captured significant market share as American importers fled Chinese goods and hunted for alternatives.

Foreign Exporters Stand Their Ground

The study tracked how much foreign suppliers adjusted their prices in response to tariffs, and the answer was: not much. By November, the pass-through rate cooled slightly to 86%, but that still meant U.S. importers were absorbing the vast majority of the hit. A 10% tariff typically produced only a 1.4% drop in foreign export prices by year's end.

The researchers were blunt in their conclusion: "U.S. firms and consumers continue to bear the bulk of the economic burden of the high tariffs imposed in 2025." The promised relief from foreign price cuts simply never materialized in any meaningful way.

Market Performance Diverges

As of Thursday's close, market performance in 2026 showed a notable split. The Dow Jones index climbed 2.21% year-to-date, while the S&P 500 slipped 0.37% lower. The Nasdaq Composite index took a bigger hit, down 2.75% for the year.

U.S. futures traded lower in early Friday action following Thursday's decline. The SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust ETF (QQQ), which track the S&P 500 and Nasdaq 100 indexes respectively, both closed lower on Thursday. SPY fell 1.54% to $681.27, while QQQ declined 2.03% to $600.64.